EXHIBIT 10.8
COMMERCIAL LOAN AND SECURITY AGREEMENT
THIS IS A COMMERCIAL LOAN AND SECURITY AGREEMENT made this _day of
November, 2000, by and among:
NATIONAL RECOVERY LIMITED PARTNERSHIP, a limited partnership having its
place of business at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(hereinafter referred to as the "Lender"), TANGIBLE COLLECTIBLES, INC., a
Delaware corporation with a place of business at ▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as the "Borrower") and TANGIBLE ASSET
GALLERIES, INC. a Nevada corporation with a place of business at ▇▇▇▇ ▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as the "Corporate
Guarantor"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ AND ▇▇▇ ▇▇▇▇▇▇▇▇, whose address is ▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (herein after referred to as "Individual
Guarantors") (hereinafter sometimes referred to collectively as the
"Guarantors").
The liability of the Borrower and of each of the Guarantors hereunder
shall be joint and several.
THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS (reference being hereby
made to SECTION 10 below for the definition of certain capitalized terms used
herein):
SECTION 1. THE LOAN, ADVANCES, INTEREST, GUARANTIES, SECURITY INTEREST,
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FINANCING STATEMENTS, COLLATERAL, SUBORDINATIONS, LIFE INSURANCE.
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1.1 LOAN AUTHORIZATION
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Subject to all the terms and conditions of this Agreement, including
the preconditions to loan advances as herein provided and so long as there
exists no Event of Default nor any event which with the passage of time, the
giving of notice or both would constitute an Event of Default, Lender will make
available to the Borrower:
(a) DEMAND NOTE. A Commercial Demand Loan in the principal amount of
ONE MILLION AND 00\100 DOLLARS ($1,000,000.00) (referred to herein as
the "Demand Loan") which shall be made available to Borrower which may
only be utilized for the purposes of purchasing inventory consisting of
collectible coins and artwork. Said renewal of said loan shall only be
valid if in writing and executed by Lender. The Demand Loan shall be
evidenced by a Commercial Demand Note in the form of Schedule "A"
attached hereto and made a part hereof (referred to herein as the
"Demand Note"). Any continuance, extension, and/or issuance of the
aforesaid Demand Note and advances thereunder shall be subject to the
provisions of this paragraph and this Agreement. Notwithstanding the
above provisions, the security interest granted to Lender in the
Collateral as herein defined shall not in any way be limited to such
amount or be dependent upon the use to which such funds are put but
shall at all times fully secure the Obligations (as hereinafter
defined).
1.2 OBLIGATIONS
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It is specifically agreed by Borrower, Lender and the Guarantors that
in the event that further financial accommodations of any type, including, but
not limited to, letters of credit, term Loan, coverage of overdrafts, time Loan,
demand Loan and the like are now or hereafter extended by Lender to Borrower or
Guarantors that the parties intend that this Instrument shall govern any and all
such financial accommodations. An extension of the foregoing, all advances now
or hereafter made by Lender to Borrower pursuant to this Agreement and/or any of
the Documents or any renewal or extensions thereof or otherwise, whether or not
evidenced by notes, and all liability whether now existing or hereafter arising,
absolute or contingent, direct or indirect with respect to or under letters of
credit, banker's acceptances or guarantees now or hereafter established by
Lender pursuant to this Agreement, together with all other obligations and
indebtedness of every kind and nature, whether now existing or hereafter
arising, absolute or contingent, direct or indirect, under or pursuant to this
Agreement or any of the Documents or otherwise, of Borrower and/or the
Guarantors to Lender, to the extent the same are outstanding from time to time,
are sometimes collectively referred to herein as the "Obligations".
1.3 INTEREST
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(a) DEMAND NOTE All amounts outstanding from time to time under the
Demand Note shall bear interest at a per annum rate equal to thirteen and
one-half (13.50%) percent per annum. Upon the occurrence of an Event of Default,
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interest shall accrue for the period of time for which any payment was due,
during any applicable grace or cure period, and at all times while such default
shall continue at a rate three (3%) percent per annum greater than the rate then
in effect. In the event that the total amount of any payment required under any
of the Notes is not received by Lender within five (5) days after its due date,
Borrower shall pay to Lender a late charge equal to five (5%) percent of any
such late payment. Upon closing of the Loan the Borrower shall pay the Lender a
fee of one and one half (1.5%) percent of the Loan Amount. Borrower shall also
pay to Lender an interest reserve equal to one (1) months interest on the Loan.
1.4 REPAYMENT
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(a) DEMAND NOTE
-----------
The Demand Note shall provide for the payment of interest only for the
actual number of days elapsed in each payment period on the daily
outstanding principal balance shall be due and payable in monthly
payments in arrears on the 1st day of each month commencing December 1,
2000 and continuing on the first (1st) day of each month thereafter
until the entire outstanding principal balance and accrued interest has
been paid in full. The entire outstanding principal balance and accrued
and unpaid interest thereon shall be due and payable on the earlier of
demand by the Lender or March 31,2001 unless said maturity date shall
be extended in writing by Lender in accordance with this Agreement.
Payment of principal or interest shall be deemed received by Lender
only upon receipt of good funds as determined by Lender's depository
financial institution. Borrower shall pay to Lender an interest reserve
equal to one month's interest on the outstanding principal balance.
1.5 GUARANTEES
----------
The Guarantors are simultaneously herewith executing and delivering to
Lender their joint and several Guaranty Agreement (the "Guaranty")
unconditionally guarantying to Lender the payment of all indebtedness and
obligations now or hereafter owing by the Borrower to Lender for all amounts due
and payable pursuant to the Loan. The Guaranty Agreement shall be in form and
content as set forth in Schedule "C" attached hereto.
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1.6 LIMITATION ON ADVANCES (Intentionally Omitted)
----------------------
1.7 SECURITY
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(a) UCC SECURITY INTEREST. As security for the performance of
Borrower's Obligations and the Guaranty pursuant to this Agreement, and the
other Documents, Borrower and Guarantors hereby mortgages, pledges and assigns
to Lender, and gives and grants to Lender a security interest in all of its
right, title and interest in and to the items and types of property described or
referred to below, whether now owned or hereafter acquired, and the proceeds and
products thereof (all of which property is herein collectively called the
"Collateral"), which security interest has and shall remain first and prior to
all other security interests therein and which Collateral shall remain free and
clear of all mortgages, pledges, security interests, liens and other
encumbrances and restrictions on the transfer thereof, except as specifically
set forth in Schedule "D" attached hereto:
(i) INVENTORY
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All inventories of every kind, presently existing or hereafter
acquired, wherever located, including all goods intended for sale or
lease or to be furnished under contracts of service, all raw materials,
work in process and finished goods, any and all rejected and/or
returned goods and all supplies, materials and products of every nature
and description used or usable in connection with the manufacture,
packing, shipping, advertising, selling, leasing or furnishing of such
goods, and all contract rights with respect to any of the same and all
documents representing any of the same, all whether now owned or
hereafter acquired by Borrower or in which Borrower may now have or may
hereafter acquire any interest, all whether now existing or hereafter
arising (the "Inventory"). The security interest in the Inventory shall
continue in all Collateral described in this paragraph (except goods
sold as provided in Section 9-307(1) of the Uniform Commercial Code),
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notwithstanding the sale, exchange or other disposition hereof by
Borrower (sale, exchange or other disposition of any of said Collateral
is not authorized by Lender, other than sale in the ordinary course of
business).
(ii) Documents
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All documents and instruments relating to any and all
inventory, including, but not limited to artwork and collectible coins
of every nature, whether presently existing or hereafter acquired by
Borrower in which Borrower may now have or may hereafter acquire any
interest, all whether now existing or hereafter arising.
(iii) RECORDS
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All books, records and other documents of every nature
relating to the above described types of property, including, without
limitation, all tapes, cards, discs, cassettes, papers, documents and
computer software in the possession or control of Borrower, any
Affiliate of them, all whether now owned or hereafter acquired by
Borrower or in which Borrower now has or may hereafter acquire any
interest, all whether now existing or hereafter arising.
(iv) INSURANCE POLICIES
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All rights in, to and under policies of insurance on said
Inventory, including claims or rights to payment and proceeds
heretofore or hereafter arising therefrom, with respect to the herein
described types of property, all whether now owned or hereafter
acquired by Borrower or in which Borrower may now have or may hereafter
acquire any interest, all whether now existing or hereafter arising.
(v) All collectible coins and art work of Borrower and Individual
Guarantors.
(vi) Borrower shall also grant a perfected first security interest in
certain assets as further described in a UCC-1 Financing Statement of
even date herewith.
(vii) PROCEEDS AND PRODUCTS
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All proceeds and all products of all Collateral described
above.
1.8 FINANCING STATEMENTS
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Borrower is concurrently herewith executing and delivering to Lender
financing statements pursuant to the provisions of the Uniform Commercial Code
with respect to the collateral in which Lender has been granted a security
interest by Borrower pursuant to the provisions of this Agreement and the other
Documents. Borrower hereby agrees to execute any and all further documents
deemed necessary by Lender, in its sole discretion, to perfect its security
interest in the Collateral.
1.9 SUBORDINATIONS.
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A. Each of the Guarantors shall execute and deliver to Lender at
Lender's request a Subordination Agreement (the "Subordination") of the
Guarantors' subordinating to the Loan, and the right of the Lender to receive
payments under the Loan, any and all of each Guarantors' indebtedness owed by
the Borrower to each of the Guarantors.
B. Said Subordination Agreement may provide that so long as there shall
be no Event of Default, Borrower shall be authorized to pay the regular
installment of interest and principal payable on such subordinated debt in the
ordinary course of business.
1.10 INSURANCE ON THE COLLATERAL
---------------------------
Borrower and each Guarantor are contemporaneously with the execution
hereof delivering to Lender a Certificate or Certificates of Insurance (and
shall deliver the originals of the policies referred to herein upon request of
Lender), respecting hazard (including, but not limited to, fire and extended
coverage including "all risk"), liability, loss of rental and flood (if any of
the Borrower's tangible assets are located on premises in a special flood hazard
area), with coverage for the fair market value at the time of a loss of the
Collateral and in an amount of at least Two Million ($2,000,000.00) Dollars with
no co-insurance. Borrower shall further be required to provide evidence to
Lender of adequate property insurance for all Collateral, which shall list the
Lender as loss payee.
1.11 INSURANCE ON THE LIVES OF THE GUARANTORS
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(Intentionally Omitted)
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SECTION 2. REPRESENTATIONS AND WARRANTIES
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Borrower and where applicable each of the Guarantors hereby represents and
warrants to Lender that:
2.1 INCORPORATION AND QUALIFICATION
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Borrower and Corporate Guarantor are corporations duly organized and
validly existing and in good standing under the laws of the state of their
incorporation, have the corporate power to own their assets and conduct their
business as they are now being conducted and are qualified to do business in
each jurisdiction wherein the nature of the business conducted by them or the
property owned or held under lease by them make such qualification necessary.
2.2 CAPITALIZATION, BUSINESS AND SUBSIDIARIES
-----------------------------------------
Except as disclosed on Schedule "F" attached hereto and made a part
hereof, Borrower does not own stock of any other corporation, active or
inactive. The information set forth on Schedule "G" attached hereto with respect
to Borrower and as to Borrower's authorized, issued and outstanding capital
stock, all of which stock has been duly authorized and validly issued and is
fully paid and non-assessable, the holders of such stock, the officers, the
directors, the principal and other places of business, the place where its
Inventory, Equipment and Records of its Accounts are kept, and Borrower's,
present business activities and status, is complete and accurate. Borrower
neither has a place of business nor maintains or stores any of the Collateral at
any location other than those set forth in Schedule "G" attached hereto.
2.3 CORPORATE AUTHORIZATION
-----------------------
Borrower and Corporate Guarantor have the corporate power to execute,
deliver, and carry out the terms and provisions of this Agreement and the other
Documents to which it is a party and has taken all necessary corporate and legal
action with respect thereto (including, without limitation, obtaining any
consent of stockholders required by law or its Articles of Incorporation or
By-Laws), and this Agreement and such other Documents to which it is a party
have been duly authorized, executed and delivered by it and constitute its
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valid, legal and binding agreement and obligation in accordance with the terms
thereof and Lender is entitled to the benefits thereof in accordance with such
terms.
2.4 FINANCIAL STATEMENTS
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There have been furnished to Lender financial statements of Borrower
and Corporate Guarantor described or referred to in Schedule "H" attached hereto
and made a part hereof. Each such financial statement, including the comments
and notes contained therein, fairly presents the financial position of the
entity or business to which such statement applies at the date thereof and the
results of its operations for the period purported to be covered thereby. Each
such financial statement has been prepared in conformity with Generally Accepted
Accounting Principles applied on a consistent basis throughout all periods
involved, subject, in the case of unaudited statements, to normal year-end audit
adjustments.
2.5 INDEBTEDNESS
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Neither the Borrower nor the Corporate Guarantor has any material
outstanding indebtedness except for liabilities reflected in said financial
statements and liabilities incurred since the date thereof to trade creditors in
the ordinary course of business and/or except as described or set forth in
Schedule "I" attached and made a part hereof and has performed and complied with
all of the terms of such Indebtedness and all instruments and agreements
relating thereto and no default exists as of the date hereof nor does there
exist any state of facts which would after notice or lapse of time, or both,
constitute a default under or with respect to any such Indebtedness, instruments
or agreements.
2.6 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.
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Borrower and Corporate Guarantor have good and marketable title to
their properties and assets, including, but not limited to the Collateral, free
and clear of any mortgage, pledge, lien, lease, encumbrance or charge other than
those set forth on Schedule "J" attached hereto and made a part hereof, with
respect to assets (if any) other than the Collateral. No financing statement
under the Uniform Commercial Code which names Borrower as debtor has been filed
in any state or other jurisdiction which covers the Collateral and has not been
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terminated. Borrower has not signed any such financing statement or any security
agreement authorizing any mortgagee or secured party thereunder to file any such
financing statement on the Collateral or its assets except in connection
herewith or as set forth on Schedule "J" attached hereto with respect to assets
other than the Collateral. Borrower is not a party to any consignment agreement
or lease agreement, except as described in Schedule "J" attached hereto.
2.7 PATENTS, TRADEMARKS, ETC.
-------------------------
Borrower and Corporate Guarantor own or hold licenses for the use of or
have the right to use all patents, trademarks, service marks, trade names,
copyrights and rights necessary for the conduct of its business as now conducted
and as contemplated, including those identified in Schedule "K" attached hereto
and made a part hereof.
2.8 LITIGATION, ETC.
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Except as set forth in Schedule "L" attached hereto and made a part
hereof, there are no actions, proceedings or investigations pending or to the
knowledge of Borrower and any Guarantors threatened (or any basis therefor known
to it) which, either in any case or in the aggregate, might result in any
material adverse change in Borrower' or any Guarantors' business, prospects,
profits, properties, liabilities, operations, or conditions (financial or
otherwise), or which might affect its ability to perform this Agreement or any
other Documents executed by it, him or her.
2.9 CHANGES IN CONDITION
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Since the date of the financial statements referred to in Schedule "H"
there has been no material adverse change, by reason of any matter or cause
whatsoever, in Borrower's or the Corporate Guarantor's business, prospects,
profits, properties, liabilities, operations or condition (financial or
otherwise).
2.10 TAX RETURNS AND PAYMENTS
------------------------
All tax returns and reports required by law to be filed by Borrower and
any Guarantor have been duly filed or the time for filing has been extended and
all taxes, assessments, fees and other governmental charges (U.S., foreign,
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state or local or other) upon Borrower or any Guarantors or upon any of its or
their properties, assets, income or franchises, which are due and payable have
been paid. To the best of Borrower' and Guarantors' knowledge the provisions on
Borrower' and each Guarantor's books respectively, regarding income taxes for
all fiscal periods to date are adequate according to Generally Accepted
Accounting Principles.
2.11 COMPLIANCE WITH INSTRUMENTS, CHARTER AND LAW
--------------------------------------------
Borrower and Corporate Guarantor, as is applicable, is in full
compliance with and is not in violation or default of any term or provision of
(a) its charter, Certificate of Incorporation or by-laws, if a corporation, (b)
any loan agreement, debt instrument, mortgage or indenture, (c) any other
material contract, agreement or instrument, (d) any judgment, decree or order,
nor has it, he or she been notified of any violation of any statute, rule or
regulation including but not limited to the Occupational Safety and Health Act
and the Employee Retirement Income Security Act ("ERISA"), and the regulations
issued by the Department of Environmental protection and (e) any licensing or
governmental requirement. The execution, delivery, performance of, and
compliance with this Agreement or any of the other Documents will not result in
any such violation or default or be in conflict with any such term or provision
or result in the creation of any mortgage, lien, encumbrance or charge upon any
of Borrower's properties or assets except in favor of Lender and there is no
such term or provision which materially adversely affects or in the future may
materially adversely affect its business, prospects, profits, properties,
liabilities, operations or condition (financial or otherwise) or its ability to
perform this Agreement or any of the other Documents executed by Borrower. All
material contracts, agreements, mortgages, indentures, instruments, judgments,
decrees and orders to which Borrower is a party or which are effective against
it are listed in Schedule "M" attached except entered into in the normal course
of business.
2.12 GOVERNMENTAL CONSENTS, ETC.
---------------------------
No consent, approval or authorization of or designation, declaration or
filing with any governmental authority, federal, foreign or other is required in
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connection with the execution and delivery of this Agreement or the Documents or
the consummation of any transaction contemplated hereby or thereby by Borrower
or Corporate Guarantor.
2.13 SOLVENCY
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Borrower and each of the Guarantors are solvent, having assets of a
value which exceeds the amount of its and his liabilities and is able to and
will be able to meet its and his debts as they mature and has adequate capital
to conduct the business in which it and he is engaged and is about to engage.
2.14 CHANGE OF NAME, ETC.
--------------------
Except as set forth on Schedule "N" attached hereto and made a part
hereof, neither Borrower nor any Corporate Guarantor has within five (5) years
changed its name, been a party to any consolidation or merger, acquired all or a
substantial portion of the assets of any Person or purchased any of its or his
assets included in the Collateral from a Person not in the business of selling
such assets.
2.15 MANAGEMENT AGREEMENTS (Intentionally Omitted)
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2.16 FULL DISCLOSURE
---------------
The financial statements referred to in Section 2.4 hereof do not, nor
does this Agreement or any Schedule hereto or any other Document, certificate or
statement furnished to Lender by Borrower and each of the Guarantors (or on its
or his behalf) in connection with this Agreement, contain any untrue statement
of a material fact or omit to state a fact necessary in order to make the
statements contained therein and herein not misleading. Neither Borrower nor any
Guarantors are aware of any fact which materially adversely affects or in the
future may materially and adversely affect its or his business, prospects,
profits, properties, liabilities, operations or condition (financial or
otherwise), or its or his ability to perform this Agreement or any other
Document executed by it, him or her, which has not been set forth or referred to
herein or in a certificate or statement furnished to Lender by it, him or her.
2.17 NO EVENT OF DEFAULT
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No Event of Default or event or condition that with the passage of time
or giving of notice or both might become an Event of Default has occurred or
exists.
SECTION 3. AFFIRMATIVE COVENANTS
---------------------
Except with the prior written consent of Lender, Borrower and the
Corporate Guarantor covenants and agrees that so long as there is outstanding
any portion of the Loan, or any agreement of Lender to make advances to
Borrower, it, he and she will comply or cause compliance with the following
provisions:
3.1 PUNCTUAL PAYMENT
----------------
Borrower will duly and punctually pay all principal, interest, charges
and other items included in the Loan which is owing by it in accordance with the
provisions hereof and of the other Documents.
3.2 PROMPT PAYMENT OF TAXES, MORTGAGES, LEASES AND INDEBTEDNESS
-----------------------------------------------------------
Borrower and the Corporate Guarantor will promptly pay and discharge,
or cause to be paid and discharged, on the date due so as to prevent the
accruing of interest thereon, all lawful taxes, assessments, and governmental
charges or levies imposed upon items of the Collateral owned by it, him or her
or in which he, she or it has an interest or upon the income, profits, property
or business of himself, herself or itself or any of its Subsidiaries. Borrower
and the Corporate Guarantor will promptly pay or cause to be paid when due (or
in conformity with customary trade terms) all other Indebtedness of himself,
herself or itself incident to his, her or its operations and will promptly pay
and perform all obligations under leases of real and personal property and under
material contracts and will promptly notify Lender of any default or notice of
alleged default received with respect to any such Indebtedness, lease or
contract.
3.3 CONDUCT OF BUSINESS
-------------------
Borrower and the Corporate Guarantor will do all things necessary to
preserve, renew and keep in full force and effect and in good standing, their
respective current corporate existence, qualification and any franchises,
licenses, patents, trademarks and items necessary to continue its business. They
will maintain its properties and assets in good order and repair, all in
compliance with applicable federal, state, and local judgments, decrees, orders,
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statutes, rules and regulations, including but not limited to state and federal
environmental regulations and those of the Occupational Safety and Health
Administration.
3.4 INSURANCE
---------
Borrower and Corporate Guarantor will maintain insurance in amounts,
coverage and with insurers satisfactory to Lender with respect to the Collateral
owned by them, or in which they have an interest and their other properties and
business against loss or damage to the extent that property of similar character
is usually so insured by other companies engaged in a similar business. Without
limiting the foregoing, such insurance shall include (a) liability insurance in
such amounts and covering such risks as Lender may reasonably require, (b) all
worker's compensation and other employees' liability insurance as may be
required by law, and (c) property insurance with respect to the items of the
Collateral constituting tangible personal property and fixtures, and with
respect to the other properties both real and personal, including, if necessary,
flood insurance, to the full extent of the insurable value thereof, and covering
such risks as Lender may reasonably require. All of Borrower's and Corporate
Guarantor's property insurance policies, with respect to the Collateral shall
contain loss payable and/or mortgagee clauses in form and substance reasonably
satisfactory to Lender, naming Lender as loss payee as appropriate and providing
(i) that all proceeds thereunder shall be payable to Lender as its interests may
appear, and (ii) that such insurance shall not be affected by any act or neglect
of the insured or owner of the property described in said policy, and (iii) that
such policy and loss payable clause may not be canceled, amended or terminated
unless Lender has received written notice thereof at least thirty (30) days'
prior to the effective date of such cancellation, amendment or termination
provided said thirty (30) day notice is reasonably obtainable from the
respective insurer otherwise said prior notice to Lender shall be at least ten
(10) days. Borrower and Corporate Guarantor will furnish a certificate with
respect to the insurance at the time which is in force pursuant to this Section
3.4, specifying the amount and character of coverage, identifying the insurers
and certifying as to no default in the payment of current premiums thereon and
will furnish Lender with original or duplicate original copies of all policies.
All insurance proceeds for any occurrence or any series of related occurrences
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which exceed $10,000.00 and which are subject to a security interest under this
Agreement may, upon Lender's request, in Lender's sole and absolute discretion,
be paid to Lender and shall be applied by Lender to the payment of any of the
principal, whether or not due, or interest or such other obligation or
Indebtedness which constitutes a part of the Loan as Lender may determine in its
sole discretion. Proceeds of $10,000.00 or less shall be payable to Borrower for
general corporate purposes. Borrower and the Corporate Guarantor does hereby
grant Lender an Irrevocable Power of Attorney and appoint Lender as its
attorney-in-fact (said power of Attorney being coupled with an interest) for the
sole purpose of executing, negotiating and signing any drafts, checks,
instruments or documents to carry out the terms hereof.
3.5 ACCOUNTING FINANCIAL STATEMENTS AND OTHER INFORMATION
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Borrower and Guarantors will maintain a system of accounts established
and administered in accordance with Generally Accepted Accounting Principles
consistently applied. Borrower and each Guarantor will deliver or cause to be
delivered to Lender:
FINANCIAL REPORTS
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(i) as soon as available and in any event within forty-five (45) days
after the end of each of the first three (3) fiscal quarters of each
fiscal year financial statements of Borrower including a balance sheet
as of the end of period, and statements of income for the period(s)
that have been included as part of the consolidated financial statement
disclosure of the SEC Form 10-Q filing of Borrower's parent TAG which
has been reviewed by Borrower's appointed independent accounting firm,
along with statements of cash flows for that period. In connection with
the financial statements presented by the Borrower, an officer, on
behalf of the Borrower, will provide written representation that there
is no knowledge of an Event of Default or an event that with notice or
lapse of time or both could constitute and Even of Default, has
occurred and is continuing or if in the opinion of said individual an
Event of Default or such an event has occurred and is continuing a
statement as to the nature thereof and the action which the Borrower
propose to take with respect thereto (the provision for such a
statement herein shall in no way be construed as a consent to the
existence of such an Event of Default and of the granting of time to
cure);
(ii) as soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year, financial statements of
Borrower including a balance sheet as of the end of the fiscal year,
and statements of income for the year(s) that have been included as
part of the consolidated financial statement disclosure of the SEC Form
10-K filing for Borrower's parent TAG and which has been audited by
Borrower's appointed independent accounting firm, and statements of
cash flow for that period. In connection with the financial statements
presented by the Borrower, an officer, on behalf of Borrower, will
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provide written representation that there is no knowledge of an Event
of Default or an event that with notice or lapse of time or both could
constitute an Event of Default, has occurred and is continuing or if in
the opinion of such accounting firm such an Event of Default has
occurred and is continuing, a statement as to the nature thereof (the
provisions for such a statement herein shall in no way be construed as
a consent to the existence of such an Event of Default or the granting
of time to cure).
(iii) at least annually, and more frequently if Lender reasonably
requests, a financial statement of each Individual Guarantor together
with such verifications of the entries therein as Lender shall require,
in such form and containing such other information respecting each of
the Individual Guarantor's financial status as Lender shall reasonably
require.
(iv) within ten (10) days of filing thereof copies of all federal and
state income tax returns for Borrower and each of the Guarantors.
(v) such financial information from Borrower and Guarantors as shall
reasonably be requested by Lender.
(vi) as soon as reasonably practicable, upon reasonable request of
Lender such other data and information (financial and otherwise)
bearing upon or related to Borrower or any Guarantors' financial
condition, (including personal financial statements of each Guarantor)
results of operations, assets and/or Borrower's projections of cash
flow and profit and loss, all as Lender from time to time, may
reasonably request.
(vii) within fifteen (15) days after the end of each calendar month, a
list of (a) the Borrower's aged accounts receivable and a complete list
of its inventory duly certified by the chief financial officer of
Borrower and such other information relating to Accounts as Lender
shall request at such times as Lender shall request upon such forms and
using such procedures as Lender shall reasonably require.
3.6 INSPECTION.
-----------
Borrower and the Corporate Guarantor will at Borrower's or such
Guarantor's expense permit Lender and any authorized representatives of Lender,
the reasonable cost of which shall be reimbursed by Borrower to Lender, to visit
and inspect any of its offices or any of its or his Affiliates, including all
items of Collateral and its and their books and records, including books and
records relating to Accounts (and to make extracts therefrom), and to discuss
its and their affairs, finances and accounts, with its and their employees with
Borrower's or such Guarantor's consent, all at such times during normal business
hours and as often and continuously as may be reasonably requested by Lender.
3.7 NOTICE OF CERTAIN EVENTS AND CHANGES
------------------------------------
-15-
As soon as reasonably practicable after becoming aware of any
condition, event or state of facts which constitutes a default of this Agreement
or which, after notice or lapse of time, or both, would constitute such a
default, Borrower or the Corporate Guarantor will give written notice to Lender
specifying the nature and period of existence thereof. Borrower and each
Guarantor will promptly give Lender written notice of any condition, event or
state of facts which causes or may cause material loss or depreciation in the
value of the Collateral and of the commencement or threat of any action,
proceeding or investigation, or the occurrence or existence of any other event,
matter or cause whatsoever, which either in any case or in the aggregate results
or might result in any material adverse change in its business, prospects,
profits, properties, operations or condition (financial or otherwise). Borrower
and each of the Guarantors will give Lender written notice of any change in its
or his place or places of business, any change of location of any item of the
Collateral having a book value in excess of $10,000.00, except as items of
Collateral may be moved in the ordinary course of business.
3.8 APPLICATION OF PROCEEDS
-----------------------
Borrower agrees that it will apply the proceeds of the Demand Note made
to it pursuant to this Agreement will be utilized to acquire inventory
consisting of artwork and collectible coins and working capital. Borrower agrees
that it will not, directly or indirectly, apply any part of such proceeds to the
purchasing or carrying of any "margin stock" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, or for any use which
will cause a violation of any other regulation of the Board of Governors of the
Federal Reserve System or of any regulations, interpretations or rulings
thereunder.
3.9 GOVERNMENTAL NOTICES
--------------------
As soon as reasonably practicable upon the issuance thereof, Borrower
and each of the Guarantors will send to Lender a copy of all orders issued by
any federal, state or municipal regulatory authority under any laws or
regulations adopted thereby, which, if enforced, would have a material adverse
effect upon its or his condition whether financial, operating, or otherwise, and
further, Borrower and each of the Guarantors will as soon as reasonably
-16-
practicable send to Lender copies of all reports or other materials filed by it
or him with or issued to it or him by the U.S. Securities and Exchange
Commission, and all reports, notices or statements sent by Borrower or Corporate
Guarantor to its stockholders.
3.10 FINANCIAL COVENANTS (Intentionally Omitted)
-------------------
3.11 PENSION PLANS (Intentionally Omitted)
-------------
3.12 MANAGEMENT
----------
It is specifically acknowledged by the Borrower and Corporate Guarantor
that Lender would not have entered into this Agreement unless the Individual
Guarantors remain stockholders, officers and directors of the Borrower and the
Borrower agrees that the Individual Guarantors shall remain in such capacities,
and shall retain their present offices and directorships. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
shall also remain as the President of Borrower.
3.13 MAINTENANCE OF PROPERTY AND COLLATERAL
--------------------------------------
Borrower and the Corporate Guarantor shall maintain its properties and
the Collateral in good repair, working order and condition and make all needed
and proper repairs, renewals, replacements, additions or improvements thereto
and immediately notify Lender of any event causing loss or depreciation in the
value of the Collateral and the amount of such loss or depreciation. Borrower
shall defend the Collateral against all claims and demands of all persons at any
time claiming the same or any interest therein, and in the event Lender's
Security Interest in the Collateral or a part thereof would be impaired by an
adverse decision, allow Lender to contest or defend any such claim or demand in
Borrower's name, at Borrower's reasonable cost, charge and expenses, and pay to
Lender upon demand all costs and expenses, including without limitation,
attorney's fees incurred by Lender in connection therewith.
3.14 PAYMENT OF EXPENSES
-------------------
Borrower and/or Guarantors shall pay to Lender on demand any and all
reasonable expenses including attorney's fees incurred or expended by Lender in
preparation of this Agreement and all related agreements, instruments and
-17-
documents in making or processing the Loan in the collection or attempted
collection of the Obligations, and in protecting and/or enforcing the rights of
Lender against Borrower and/or Guarantors, in sustaining and/or enforcing the
Security Interest and other liens, if any, granted to Lender hereunder and under
all related agreements, instruments and documents.
SECTION 4. NEGATIVE COVENANTS
------------------
Except with the prior express written consent of Lender, Borrower
covenants and agrees that so long as there is outstanding any portion of the
Loan, or so long as this Agreement has not been terminated if there is no amount
outstanding under the Loan, it will not:
4.1 LIENS
-----
Directly or indirectly, create, incur, assume or permit to exist any
mortgage, lien, charge or encumbrance on or pledge or deposit of or conditional
sale, lease or other title retention agreement with respect to any Collateral,
whether now owned or hereafter acquired, or be bound by or subject to any
agreement or option to do so, provided that the foregoing restrictions shall not
apply to:
(a) liens for taxes, assessments or governmental charges or levies the
payment of which is not at the time required by Section 3.2;
(b) liens incurred or deposits made in the ordinary course of business
in connection with worker's compensation or unemployment insurance or
to secure the performance of tenders, statutory obligations, surety and
appeal bonds, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);
(c) liens, charges and encumbrances related to the conduct of its
business or the ownership of its or his properties or assets which are
not incurred in connection with the borrowing of money and which in the
aggregate are not material;
(d) statutory or common law possessory liens for charges incurred in
the ordinary course of business the payment of which is not yet due;
(e) the mortgages, liens and encumbrances referred to or described in
Schedules "D" and "J" attached hereto;
(f) liens created hereunder;
4.2 RESTRICTIONS ON INDEBTEDNESS
----------------------------
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Directly or indirectly, create, incur, assume, guarantee, agree to
purchase or repurchase, pay or provide funds in respect of, or otherwise become
or be or remain liable, contingently, directly or indirectly, with respect to
any Indebtedness other than:
(a) Indebtedness hereunder;
(b) Current liabilities for trade and other obligations incurred in the
ordinary course of its business not as a result of borrowing;
(c) presently existing indebtedness specifically described in Schedule
"I" attached hereto, none of which shall be prepaid without Lender's
prior written consent.
(d) Indebtedness in respect of endorsements made in connection with the
deposit of items for credit or collection in the normal and ordinary
course of business.
4.3 RESTRICTIONS ON INVESTMENTS, LOAN, ETC.
---------------------------------------
Purchase or otherwise acquire or own any stock or other securities or
Indebtedness of any other Person, or make or permit to be outstanding any loan
or advance or capital contribution to any other Person, other than:
(a) presently outstanding Loan, advances and investments described in
Schedules "H" and "I" attached hereto;
(b) Indebtedness of customers for merchandise sold or services rendered
in the ordinary course of business; and
(c) investments in bills or bonds issued by the government of the
United States of America and/or Certificates of Deposit issued by a
bank having a net worth of at least $50,000,000.00 and/or securities
issued by and purchased from Lender.
4.4 STOCK ISSUANCE, DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND
---------------------------------------------------------
DIRECTORS' FEES
---------------
Issue any additional shares of stock, directly or indirectly, declare,
order, pay, make or set apart any sum or property for the redemption,
retirement, purchase or other acquisition, direct or indirect, of any shares of
its stock of any class now or hereafter outstanding or for the payment of any
dividends on any of such stock, except for quarterly dividends payable
concurrently with payments to Lender under Section 9 hereof, or pay any
directors' fees.
4.5 SALE OF ASSETS AND COLLATERAL, CONSOLIDATION, MERGER,
-----------------------------------------------------
ACQUISITION OF ASSETS
---------------------
-19-
Directly or indirectly, sell, abandon or otherwise dispose of the
Collateral or any part thereof, except for sales of Inventory in the ordinary
course of Borrower' business, or replacement with Collateral of like value and
quality, or indirectly or indirectly sell, abandon or otherwise dispose of all
or any portion of its properties or assets or consolidate with or merge into any
other corporation, or permit any other corporation to consolidate with or merge
into it or acquire all or a substantial portion of the assets of another Person
or form or acquire any Subsidiary.
4.6 TRANSACTIONS WITH AFFILIATES
----------------------------
Enter into any transaction with any Affiliate other than in the
ordinary course of business and on terms not less favorable to it than are at
the time available to it from any Non-Affiliate, except as otherwise authorized
by this Agreement.
4.7 MANAGEMENT/OWNERSHIP
--------------------
Borrower shall not suffer a change in the ownership of any shares in
Borrower' capital stock, as shown on Schedule "P" attached hereto, and Borrower
shall execute any document to effectuate said restriction on transferability as
Lender's counsel deems reasonably necessary. ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall be the
President of the Borrower at all times that the Loan is outstanding.
4.8 PARTNERSHIPS, JOINT VENTURES, OTHER BUSINESSES
----------------------------------------------
Create or participate in the creation of any partnership, joint
venture, corporation, or other entity (including but not limited to any
subsidiaries) or engage in any business other than the business presently
conducted by it, except in the ordinary course of business.
4.9 SUBORDINATE DEBT PAYMENTS
-------------------------
Pay principal or interest on Subordinate Debt (present or future)
except as authorized in this Agreement.
4.10 EXPENDITURES FOR CAPITAL ASSETS
-------------------------------
-20-
Make any expenditure for capital assets (other than for routine repairs
and maintenance which are not required to be capitalized as hereinafter set
forth) unless, immediately after giving effect thereto the aggregate amount
expended or to be expended on account of all such expenditures by the Borrower
in any fiscal year commencing with the current fiscal year of Borrower would not
exceed the amount of $100,000.00. The following shall be deemed to be
expenditures for capital assets as subject to the limitations of this Section
4.10:
a. Expenditures for acquisition, major repairs and maintenance which,
in accordance with generally accepted accounting principles, are or should be
capitalized; and
b. All lease rentals and other amounts payable under leases entered
into after the date hereof whether "true leases" or finance leases other than
renewals and extensions of leasing existing on the date hereof and all amounts
payable under contracts or arrangements for the purchase of property for payment
of the purchase price for such property as deferred in whole or in part.
SECTION 5. EVENTS OF DEFAULT
-----------------
If any one or more of the following events ("Events of Default") shall
occur:
(a) If Borrower shall fail to make payment of any part or installment
of principal or interest of the Loan or Obligations when any such
payment shall be due and payable, whether at any stated maturity or by
demand, acceleration or otherwise; or
(b) If Borrower or any of the Guarantors shall be in default in the
performance of or compliance with any other term, covenant or condition
applicable to it contained in this Agreement or contained in any other
Documents, and shall have failed to cure such default for ten (10) days
after receipt of written notice from the Lender.
(c) If any representation or warranty made by or on behalf of Borrower
or any of the Guarantors in this Agreement or in the Schedules hereto,
or in any of the other Documents, or in connection with the
transactions contemplated hereby and thereby shall be false or
incorrect in any material respect; or
(d) If at any time the respective ownership of Borrower shall change
from that set forth on Schedule "P" attached hereto except as permitted
in Section 4.7; or
(e) If Borrower or any of the Guarantors shall default in the payment
of any Indebtedness for borrowed money, including, but not limited to,
the indebtedness which is referred to in Schedule "I" attached hereto
or shall default with respect to any of the terms of any evidence of
such Indebtedness or of any indenture or other agreement relating
thereto, or if Borrower or any of the Guarantors shall commit any
-21-
material breach or be in default under any contract set forth in
Schedule "M" attached hereto; or
(f) If Borrower or any of the Guarantors shall make an assignment for
the benefit of creditors, or shall admit in writing an inability to pay
debts as they become due, or shall file a voluntary petition in
bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any present or future statute, law or regulation,
or shall file any answer admitting or shall fail to deny the material
allegations of a petition filed against it for any such relief, or
shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of itself or of all or any substantial
part of its properties, or its directors or majority stockholders shall
take any action looking to its dissolution or liquidation, or it shall
cease doing business as a going concern; or
(g) If, within ninety (90) days after the commencement of any
proceeding against Borrower or any of the Guarantors seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, such proceeding shall not have been dismissed, or if,
within ninety (90) days after the appointment, without its consent or
acquiescence of any trustee, receiver or liquidator of itself or
himself or of all or any substantial part of its properties, such
appointment shall not have been vacated;
(h) If any Individual Guarantor shall die or become permanently
disabled;
then, and in any such event, in addition to its rights and remedies
under this Agreement, the other Documents and any other instruments,
Lender may at its option declare the Note and Obligations or any
portion thereof to be immediately due and payable, whereupon the same
shall forthwith mature together with interest accrued thereon and
together with any and all costs of collection, including, but not
limited to, reasonable attorney's fees without notice and without
presentment, demand or protest, all of which are hereby waived.
SECTION 6. PAYMENT TERMS. Payment of all sums due hereunder shall, unless sooner
converted into Conversion Shares pursuant to the Note or prepaid pursuant to the
Note thereof, shall become due and shall be payable on demand, but if no demand
be made, on or before March 31, 2001. Interest payments hall be due and payable
in arrears on or before the first (1st) day of the month for the preceding
month, and a late fee of five (5%) percent of the payment due shall be imposed
if interest is not timely paid in accordance herewith. Borrower shall make each
payment of principal of, and interest on, the Loan and of fees and all other
amounts payable by Borrower under this Agreement, in good funds no later than
5:00 p.m. (Pacific time) on the date when due and payable, without condition or
deduction for any counterclaim, defense, recoupment or setoff, in Federal or
other funds immediately available to Lender at its address referred to herein
and in the Note. All payments received by Lender after 5:00 p.m. (Pacific time)
shall be deemed to have been received by Lender by Lender on the next succeeding
Business
-22-
Day. If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon at the then applicable rate, shall be payable for
such extended time. Notwithstanding the foregoing, upon the occurrence and
continuance of an Event of Default, all sums due hereunder shall, at the option
of the Lender, become immediately due and payable upon written notice to
Borrower.
SECTION 7. CONVERTIBILITY. At any time prior to Borrower's payment in full of
all principal and interest due hereunder, the Lender shall have the option of
converting (a) Five Hundred Thousand ($500,000.00) Dollars, and no lesser amount
of the outstanding balance to the acquisition of 666,666 valid, non-assessable
shares of Tangible Asset Galleries, Inc. (hereinafter referred to as "TAG")
common stock, which maybe issued pursuant to SEC Rule 144 ("Conversion Shares");
and (b) an additional Five Hundred Thousand ($500,000.00) Dollars, and no lesser
amount of the outstanding balance to the acquisition of an additional 500,000
Conversion Shares, in accordance with the terms and conditions contained herein.
7.1 LENDER'S EXERCISE OF CONVERSION RIGHTS. Lender shall exercise its
rights hereunder upon delivery of the following to TAG at its principal
executive offices; (i) a written notice of exercise which identifies this
Agreement and states whether exercise is under subsection (a) hereof, (b)
hereof, or both subsections (a) and (b) hereof; (ii) a letter, if requested by
TAG, in such form and substance as TAG may reasonably require, setting forth the
investment intent of Lender and/or any other documents TAG may reasonably
require to evidence this transaction. Upon TAG's receipt of the necessary
documents, TAG shall arrange for the prompt issuance of Conversion Shares to
Lender, and interest shall no longer be due thereafter from Borrower to Lender
with respect to the principal amount being converted hereunder.
7.2 REGISTRATION AND "PIGGYBACK" RIGHTS. Lender acknowledges that TAG
may issue Conversion Shares without registering such Shares under the Securities
Act of 1933, as amended (the "Securities Act"), on the basis of certain
exemptions from such registration requirement. Accordingly, Lender agrees that
issuance of Conversion Shares may be expressly conditioned upon his delivery to
TAG of an investment certificate including such representations and undertakings
-23-
as TAG may reasonably require in order to assure the availability of such
exemptions, including a representation that Lender is acquiring the Conversion
Shares for investment and not with a present intention of selling or otherwise
disposing thereof and an agreement by Lender that the certificates evidencing
the Conversion Shares may bear a legend indicating such non-registration under
the Securities Act and the resulting restrictions on transfer. Lender
acknowledges that, because Conversion Shares may be unregistered, Lender may be
required to hold the Conversion Shares indefinitely unless they are subsequently
registered for resale under the Securities Act or an exemption from such
registration is available. If, however, TAG intends to file a registration
statement with respect to any offering of TAG' stock, TAG shall give Lender
thirty (30) days notice of that intention and Lender shall have the right to
register any Conversion Shares as part of that offering, as well as to join in
the offering itself on a pro rate basis.
SECTION 8 WARRANTS. Upon execution hereof, TAG hereby grants to Lender
non-forfeitable warrants (the "Warrants") which shall entitle Lender to purchase
all or any portion of a total of Two Hundred Fifty Thousand (250,000.00) shares
of TAG's Common Stock, par value $.001 per share exercisable within three (3)
years from the date hereof, at a purchase price calculated by taking the average
of the actually traded closing price of TAG's stock on the NASDAQ exchange for
the three (3) trading days preceding the date of exercise (the "Exercise Price")
and on the terms and subject to the conditions that are set forth in this
Agreement.
8.1 LENDER'S EXERCISE OF WARRANTS, Lender shall exercise its rights
hereunder upon delivery of the following to TAG at its principal executive
offices; (i) a written notice of exercise which identifies this Agreement and
states the desire to exercise all of the warrants, and no lesser amount; (ii) a
check or cash in the amount of the Exercise Price; (ii) a letter, if requested
by TAG, in such form and substance as TAG may require, setting forth the
investment intent of Lender. Upon TAG' receipt of the necessary documents, TAG
shall arrange for the prompt issuance of the Shares to Lender.
-24-
8.2 REGISTRATION AND "PIGGYBACK" RIGHTS. Lender acknowledges that TAG
may issue warrants without registering the Shares issuable thereunder under the
Securities Act of 1933, as amended (the "Securities Act"), on the basis of
certain exemptions from such registration requirement. Accordingly, Lender
agrees that issuance of Shares pursuant to Lender's warrants may be expressly
conditioned upon his delivery to TAG of an investment certificate including such
representations and undertakings as TAG may reasonably require in order to
assure the availability of such exemptions, including a representation that
Lender is acquiring the Shares for investment and not with a present intention
of selling or otherwise disposing thereof and an agreement by Lender that the
certificates evidencing the Shares may bear a legend indicating such
non-registration under the Securities Act and the resulting restrictions on
transfer. Lender acknowledges that, because Shares may be unregistered, Lender
may be required to hold the Shares indefinitely, unless they are subsequently
registered for resale under the Securities Act or any exemption from such
registration is available. If, however, TAG intends to file a registration
statement with respect to any offering of TAG's stock, TAG shall give Lender
thirty (30) days notice of that intention and Lender shall have the right to
register any Shares acquired hereunder as part of that offering, as well as to
join in the offering itself on a pro rate basis.
SECTION 9 ADDITIONAL COMPENSATION TO LENDER. As additional consideration for
Lender's making the Loan described herein, and for so long as the Indebtedness
remains outstanding between Borrower and Lender Borrower shall pay Lender
twenty-five (25%) of it's annual net pre-tax income (as determined by its Chief
Financial Officer utilizing the formula set forth in "Schedule Q" attached
hereto and made a part hereof in accordance with GAAP), subject to adjustment
after review by Borrower's independent public accountant, said payment(s) to be
made quarterly within fifteen (15) days following the end of the respective
fiscal quarter. For purposes of this subparagraph, the parties agree that the
first fiscal year shall commence on January 1, 2000 but that the first year
shall be a short period commencing with the actual date Borrower commenced
operations. The parties agree that $200,000.00 on an annual basis shall be paid
in twelve (12) equal monthly installments by Borrower to Tangible Asset
-25-
Galleries, Inc. as reimbursement for legal, accounting, management, rent and
other intercompany expenses under this Section 9. The parties further agree that
said sum shall increase by five (5%) percent per year, and be adjusted, by such
amount as may be mutually agreed by Lender and Borrower, in the event that
Borrower undergoes a material change in operations. For purpose of calculating
net pre-tax income under this Section 9, no losses sustained by Borrower in any
quarter shall be carried forward to subsequent quarters.
SECTION 10. REMEDIES, PROVISIONS RE: COLLATERAL, ETC.
----------------------------------------
In the event of an occurrence of an Event of Default, Lender:
(a) may proceed to protect and enforce its rights if Lender deems
necessary to do so by suit in equity, action at law or other appropriate
proceedings, whether for the specific performance of any agreement contained
herein or in any other Document, or for an injunction against a violation of any
of the terms hereof or thereof, or in aid of the exercise of any right, power or
remedy granted thereby or by law, equity or otherwise.
(b) without limitation of any rights and remedies of Lender as a
secured party under the Uniform Commercial Code and any rights or remedies set
forth in any of the Documents, Lender shall have all of the following rights and
remedies with respect to the Collateral or any portion thereof:
(i) Lender may, at any time and from time to time, with or
without judicial process and the aid or assistance of others,
reasonably enter upon any premises in which any of the Collateral may
be located and, without resistance or interference by Borrower or any
of the Guarantors, take possession of the Collateral and/or dispose of
any part or all of the Collateral on any such premises; and/or require
Borrower or any of the Guarantors to assemble and make available to
Lender at the expense of Borrower or such Guarantors any part or all of
the Collateral at any place or time designated by Lender which is
reasonably convenient to Borrower or such Guarantors and Lender; and/or
remove any part or all of the Collateral from any premises on which any
part may be located for the purpose of effecting sale or other
-26-
disposition thereof; and/or sell, resell, lease, assign and deliver,
grant options for or otherwise dispose of any or all of the Collateral
in its then condition or following any commercially reasonable
preparation or processing, at public or private sale or proceedings, by
one or more contracts, in one or more parcels, at the same or different
times, with or without having the Collateral at the place of sale or
other disposition, for cash and/or credit and upon any reasonable and
customary terms, at such place(s) and time(s) and to such Persons as
Lender shall deem best, all without demand for performance or any
notice or advertisement whatsoever, except that the owner of the items
to be sold shall be given fifteen (15) business days' written notice of
the place and time of any public sale or of the time after which any
private sale or other intended disposition is to be made, which notice
Borrower and each of the Guarantors hereby agree shall be reasonable
notice thereof. If any of the Collateral is sold by Lender upon credit
or for future delivery, Lender shall not be liable for the failure of
the purchaser to pay for same and in such event Lender may resell such
Collateral. Lender may buy any part or all of the Collateral at any
public sale and if any part or all of the Collateral is of a type
customarily sold in a recognized market or is of the type which is the
subject of widely distributed in standard price quotations Lender may
buy at private sale and may make payment therefor by application of all
or a part of the Loan.
(ii) Lender shall apply the cash proceeds from any sale or
other disposition of the Collateral FIRST, to the reasonable expenses
of retaking, holding, preparing for sale, selling, leasing and
otherwise disposing of such Collateral, to reasonable attorneys' fees
and all legal expenses, travel and other expenses which are to be paid
or reimbursed to Lender pursuant hereto or pursuant to the other
Documents, SECOND, to all accrued interest, fees and charges
outstanding with respect to the Loan, THIRD, to all other outstanding
portions of the Loan, FOURTH, if there is any surplus to any other
secured parties having an interest in the Collateral known to Lender in
accordance with their interests, and FIFTH, if there is any surplus to
-27-
the Borrower and/or such Guarantors; provided, however, that Borrower
and each of the Guarantors shall remain liable with respect to unpaid
portions of the Loan.
(iii) Any of the proceeds of the Collateral received by
Borrower or any of the Guarantors after demand by Lender for repayment
of all or any part of the Loan, shall not be commingled with any other
of its property but shall be segregated, held by it or him in trust as
the exclusive property of Lender, and it will immediately deliver to
Lender the identical checks, monies, or other proceeds of Collateral.
(iv) At its option, Lender may pay for insurance on the
Collateral and taxes, assessments or other charges which Borrower fails
to pay in accordance with the provisions hereof or of any related
agreement, instrument or document and may discharge any security
interest or lien upon the Collateral. No such payment or discharge of
any such security interest or lien shall be deemed to constitute a
waiver by Lender of the violation of any covenant by Borrower as a
result of the Borrower's failure to make any such payment or Borrower's
suffering of any such security interest or lien. Any payment made or
expense incurred by Lender pursuant to this or any other provisions of
this Agreement shall be added and become a part of the Obligations of
Borrower to Lender, shall bear interest at a rate per annum as provided
for in the Note, and shall be payable on demand.
SECTION 11. CUMULATIVE REMEDIES; NO WAIVERS, ETC.
------------------------------------
No right, power or remedy granted to Lender in this Agreement or in the
other Documents is intended to be exclusive, but each shall be cumulative and in
addition to any other rights, powers or remedies referred to in this Agreement,
in the other Documents or otherwise available to Lender at law or in equity; and
the exercise or beginning of exercise by Lender of any one or more of such
rights, powers or remedies, shall not preclude the simultaneous or later
exercise by Lender of any or all of such other rights, powers or remedies. No
waiver by, nor any failure or delay on the part of Lender in any one or more
instances to insist upon strict performance or observance of one or more
covenants or conditions hereof, or of the other Documents shall in any way be,
-28-
or be construed to be, a waiver thereof or to prevent Lender's rights to later
require the strict performance or observance of such covenants or conditions, or
otherwise prejudice Lender's rights, powers or remedies.
SECTION 12. PARTIAL INVALIDITY; WAIVERS
---------------------------
(a) If any term or provision of this Agreement or any of the other
Documents or the application thereof to any Person or circumstance shall, to any
extent, be invalid or unenforceable by reason of any applicable law, the
remainder of this Agreement and the other Documents, or application of such term
or provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement and the other Documents shall be valid and be
enforced to the fullest extent permitted by law. To the full extent, however,
that the provisions of any such applicable law may be waived, they are hereby
waived by Borrower and each Guarantor to the end that this Agreement and the
other Documents shall be deemed to be valid and binding obligations enforceable
in accordance with their terms.
(b) To the extent permitted by applicable law, Borrower and each of the
Guarantors hereby waive presentment, demand, protest, notice of protest, notice
of default or dishonor, notice of payments and non-payments, or of any default.
(c) BORROWER AND EACH OF THE GUARANTORS ACKNOWLEDGES THAT EACH HAS THE
RIGHT UNDER CHAPTER 903a, AS FROM TIME TO TIME AMENDED, OF THE CONNECTICUT
GENERAL STATUTES, SUBJECT TO CERTAIN LIMITATIONS, TO NOTICE OF AND HEARING ON
THE RIGHT OF THE LENDER TO OBTAIN A PREJUDGMENT REMEDY, SUCH AS ATTACHMENT,
GARNISHMENT AND/OR REPLEVIN, UPON COMMENCING ANY LITIGATION AGAINST BORROWER OR
EACH OF THE GUARANTORS. NOTWITHSTANDING, BORROWER AND EACH OF THE GUARANTORS
HEREBY WAIVE ALL RIGHTS TO NOTICE, JUDICIAL HEARING OR PRIOR COURT ORDER TO
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WHICH EACH MIGHT OTHERWISE HAVE THE RIGHT UNDER SAID CHAPTER 903a, AS FROM TIME
TO TIME AMENDED, OR UNDER ANY OTHER STATE OR FEDERAL STATUTE OR CONSTITUTION IN
CONNECTION WITH THE OBTAINING BY THE LENDER OF ANY PREJUDGMENT REMEDY BY REASON
OF THIS LOAN AND SECURITY AGREEMENT, OR BY REASON OF BORROWER AND EACH
GUARANTOR'S OBLIGATIONS OR ANY RENEWALS OR EXTENSIONS OF THE SAME. BORROWER AND
EACH OF THE GUARANTORS ALSO WAIVE ANY AND ALL OBJECTION WHICH EACH MIGHT
OTHERWISE ASSERT, NOW OR IN THE FUTURE, TO THE EXERCISE OR USE BY LENDER OF ANY
RIGHT OF SET-OFF, REPOSSESSION OR SELF HELP AS MAY PRESENTLY EXIST UNDER STATUTE
OR COMMON LAW.
SECTION 13. DEFINITIONS
-----------
As used herein, the following terms have the following meanings:
AFFILIATE: with reference to any Person, any director, officer or
employee of such Person, any corporation, association, firm or other entity in
which such Person has a direct or indirect substantial interest or by which such
Person is directly or indirectly controlled or is under direct or indirect
substantial common control with such Person. For purposes of this Agreement,
Borrower and all Guarantors are Affiliates of one another.
COLLATERAL: the meaning specified in Section 1.7.
DOCUMENTS: this Agreement, the Demand Note, the Guaranty, UCC-1
Financing Statements, the Subordinations, and all other instruments and
documents heretofore, now or hereafter executed and delivered pursuant to this
Agreement or pursuant to any of the aforesaid documents.
FINANCIAL STATEMENTS: the reports, statements and other information to
be delivered to Lender pursuant to Section 3.5.
FISCAL YEAR: a twelve (12) month year ending with December 31st..
GUARANTORS: the meaning specified on page 1.
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GUARANTY: the Guaranty executed and delivered to Lender by each
Guarantor contemporaneously herewith or any of the same hereafter executed by
such Guarantor.
INDEBTEDNESS: as applied to a Person, (a) all items, except items of
capital stock or of surplus or of unappropriated retained earnings or of amounts
accrued for deferred income taxes if in compliance with Section 3.2, which in
accordance with
Generally Accepted Accounting Principles would be included in determining total
liabilities as shown on the liability side of a balance sheet of such person as
at the date of which Indebtedness is to be determined, (b) all indebtedness
secured by any mortgage, pledge, lease, lien or conditional sale or other title
retention agreement existing on any property or asset owned or held by such
person subject thereto, whether or not such indebtedness shall have been
assumed, and (c) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed, discounted or agreed contingently or otherwise
to purchase or repurchase or otherwise acquire, or in respect of which such
Person has agreed to supply or advance funds (whether by way of loan, stock
purchase, capital contribution or otherwise) or otherwise to become liable
directly or indirectly with respect thereto.
LENDER: the meaning specified on page 1.
LOAN: the meaning specified in Section 1.1.
OBLIGATIONS: the meaning specified in Section 1.2.
PERSON: a corporation, an association, a partnership, an organization,
a business, an individual or a government or political subdivision thereof or
any governmental agency.
SUBORDINATION AGREEMENT: the meaning specified in Section 4.9.
SUBSIDIARY: with reference to any Person, is a corporation, or similar
association or entity of which not less than a majority of the outstanding
shares of the class or classes of stock, have by the terms thereof ordinary
voting power to elect a majority of the directors, managers or trustees of such
corporation, association or entity, of which are at the time owned or
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controlled, directly or indirectly, by such Person or by a Subsidiary of such
Person.
SECTION 14. EXPENSES
--------
Borrower and each of the Guarantors agree to indemnify and save Lender
harmless from, and to pay or reimburse Lender for, all reasonable charges,
costs, damages, liabilities and expenses, including, without limitation,
reasonable attorneys' fees, if any, incurred by Lender in defending or
protecting the security interests and liens granted pursuant to this Agreement
or the other Documents, or the priority of any thereof, or in the performance of
any obligation of Borrower or any of the Guarantors in connection with the
Collateral or in the attempted enforcement or enforcement of this Agreement or
the other Documents, or in the collection or attempted collection of any of the
obligations owing under any thereof, or in the realization or attempted
realization upon the Collateral or in the prosecution or defense of any action
or proceeding concerning any matter growing out of or connected or any Guarantor
with this Agreement, the other Documents or the Collateral.
SECTION 15. FURTHER ASSURANCES; POSSESSION OF COLLATERAL; CUSTODIANS
--------------------------------------------------------
Borrower will deliver to Lender such financing statements and other
instruments constituting or evidencing items of the Collateral as may be
reasonably requested by Lender to better assure it with respect to the security
interests granted to it pursuant to this Agreement and the other Documents. To
the extent permitted by applicable law, Borrower hereby authorizes Lender to
execute and file, in the name of Borrower, financing statements which Lender in
its sole discretion deems necessary to further perfect the security interests
granted under this Agreement and the other Documents.
SECTION 16. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES, ETC.
------------------------------------------------------------
All agreements, representations and warranties contained herein or made
in writing by or on behalf of Borrower and each Guarantor, in connection with
the transactions contemplated hereby shall survive the execution and delivery of
this Agreement and the other Documents shall survive any investigation at any
time made by Lender and any disposition of the Loan by Lender and, to the extent
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applicable, shall be deemed to be made a new by each of them each time an
advance is made pursuant hereto or pursuant to the other Documents. All
statements contained in any certificate or other instrument delivered by or on
behalf of Borrower or any of the Guarantors pursuant hereto or in connection
with the transactions contemplated hereby shall be deemed representations and
warranties made hereunder.
SECTION 17. FAILURE TO PERFORM
------------------
If Borrower or any of the Guarantors shall fail to observe or perform
any of the covenants hereof, Lender may pay such reasonable amount or incur
reasonable liabilities to remedy or attempt to remedy any such failure, and all
such payments made and liabilities incurred shall be for the account of Borrower
and shall be in Lender's sole discretion or shall be withdrawn from Borrower or
any Guarantor's accounts maintained with Lender.
SECTION 18. NOTICES, ETC.
-------------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to be duly delivered upon actual receipt
if by facsimile or over night courier, and five (5) days after mailing if by
first class registered mail, return receipt requested:
(a) if to Lender:
Lender: National Recovery Limited Partnership
▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or at such other address as may have been furnished in writing by
Lender to Borrower; or
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(b) if to Borrower:
Borrower: Tangible Collectibles, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a courtesy copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------
(c) if to Guarantors:
Guarantors: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tangible Asset Galleries, Inc.
3444 Via Lido
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or at such other address as may have been furnished in writing by
Borrower or such Guarantors to Lender.
Notwithstanding the foregoing agreement to provide courtesy copies,
such copy shall be a courtesy copy only, and failure to provide such copy shall
have absolutely no effect or entitle Borrower or Guarantor to any remedy.
SECTION 19. AMENDMENTS AND WAIVERS
----------------------
Neither this Agreement nor any other Document nor any term hereof or
thereof may be changed, waived, discharged or terminated except by a writing
signed by the party to be charged.
SECTION 20. TERM
----
The term of this Agreement and the other Documents shall be from the
date hereof and continue until all amounts due hereunder are paid in full. Any
expiration or termination of this Agreement shall not affect any rights of
Lender under this Agreement or under the other Documents and upon any such
expiration or termination Borrower shall be obligated to forthwith pay all of
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the Loan and Borrower and each Guarantor shall continue to be bound by all of
the provisions of this Agreement until all of the Loan shall have been paid in
full.
SECTION 21. CONDITIONS PRECEDENT
--------------------
21.1 The obligation of the Lender to make the Loan and advances to be
made by it hereunder is subject to the following conditions precedent;
(a) APPROVAL OF LENDER COUNSEL
--------------------------
All legal matters incident to the transactions hereby contemplated
shall be satisfactory to counsel for the Lender.
(b) PROOF OF CORPORATE ACTION
-------------------------
The Lender shall have received certified copies of all corporate action
taken by the Borrower to authorize the execution and delivery of this Agreement
and the notes and borrowing hereunder, and such other papers as the Lender or
its counsel shall reasonably request.
(c) CORPORATE DOCUMENTS AND OPINIONS
--------------------------------
Borrower and Guarantors are furnishing to Lender a certificates of good
standing of the state of its incorporation, resolutions, incumbency
certificates, and other documents which it acknowledges are being relied upon by
Lender, and such other documents are to be in the form and of the content as may
be satisfactory to Lender and its counsel.
(d) LOAN DOCUMENTS
--------------
Receipt by Lender of the Demand Note fully executed by Borrower, the
Guaranty fully executed by the Guarantors, the fully executed Subordinations,
fully executed UCC-l Financing Statements and other material documents required
by Lender.
(e) INSURANCE
---------
Receipt by Lender of the policies of insurance in compliance with
Section 1.10.
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(f) UCC-11'S
--------
Receipt by Lender of UCC-ll's demonstrating no liens or encumbrances
against the Collateral.
(g) OPINION OF COUNSEL
------------------
The Lender shall have received from Counsel for the Borrower and each
of the Guarantors a written opinion, satisfactory to the Lender and its counsel
with reference to the matters stated in Section 2.1 through 2.17 hereof and
further to the effect that (i) the making and performance by the Borrower and
each of the Guarantors of this Agreement and the other Documents have been duly
authorized by all necessary corporate action and this Agreement and the other
Documents upon execution and delivery will constitute legal, valid and binding
obligations of the Borrower, each of the Guarantors, and each other party
thereto enforceable according to their terms; (ii) that the Note and Other
Documents have been duly authorized and when executed will constitute a legal,
valid and binding obligations of the Borrower enforceable in accordance with
their terms; (iii) that the Guaranty has been duly authorized and when executed
will constitute a legal, valid and binding obligation of the Guarantors and
shall be enforceable in accordance with its terms; and (iv) that except as
otherwise may be set forth in said opinion letter, to the best of said counsel's
knowledge upon inquiry of Borrower and Guarantors, and upon examination of its
office files, the execution and delivery of each of the afore stated Agreements
and other Documents will not constitute a default under any bank loan or credit
agreement or other agreement or instrument to which the Borrower or any of the
Guarantors are a party.
(h) REPRESENTATIONS AND WARRANTIES
------------------------------
The Representations and Warranties contained in Section 2 herein shall
be true on and as of the date of closing.
(i) COLLATERAL
----------
Receipt by Lender of any of the Collateral where possession by Lender
is necessary to perfect its security interest therein.
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21.2 The obligation of the Lender to make each subsequent advance to be
made by it hereunder is subject to the conditions precedent that:
(a) NO EVENT OF DEFAULT
-------------------
No Event of Default specified in Section 5 hereof, and no event which
pursuant to the provisions of Section 5 with the lapse of time and/or notice
specified therein would become such an Event of Default, has occurred and is
continuing; and
(b) NO MATERIAL ADVERSE CHANGE
--------------------------
There has been no material adverse change in the consolidated financial
condition of the Borrower or any of the Guarantors and its or his consolidated
subsidiaries; and
(c) REPRESENTATIONS AND WARRANTIES
------------------------------
The Representations and Warranties contained in Section 2 are true and
correct; and that the Borrower, by its president, and each of the Guarantors
shall have so certified to the Lender.
21.3 By delivering the Note and each other Document to the Lender and
receiving the Loan and advances, the Borrower and each of the Guarantors
represent that no Event of Default specified in Section 5 hereof exists or is
continuing and no material change has taken place with regard to their financial
condition as represented to the Lender.
SECTION 22. SETOFF.
------
Borrower and each Guarantor hereby gives Lender a security interest in,
and a right of set-off for the Loan upon or against, all the deposits, credits,
Collateral, and property of Borrower and each Guarantor, now or hereafter in the
possession or control of Lender or in transit to it. Lender may at any time
apply or set-off the same, or any part thereof, to any Loan even though
unmatured.
SECTION 23. MISCELLANEOUS
-------------
(a) This Agreement and each other document granting Lender a security
interest in the Collateral is a security agreement within the meaning of the
Uniform Commercial Code. Where any provision in this Agreement refers to action
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to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person. This Agreement and the other Documents shall be
construed in accordance with the laws of the State of Connecticut.
Notwithstanding the foregoing, Borrower and each of the Guarantors expressly
consent to the IN PERSONAM jurisdiction over such Person of the courts of the
State of Connecticut. To the extent there is any inconsistency between the terms
of this Agreement and any of the other Documents, this Agreement shall control.
All of the terms of this Agreement and the other Documents shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, successors and assigns of the parties hereto, whether
so expressed or not, and by any other holder or holders at the time of the Loan
or any part thereof. The headings in this Agreement are for the purposes of
reference only and shall not limit or otherwise affect any of the terms hereof.
This Agreement may be executed in two (2) or more counterparts, each of which
shall be deemed an original, and by the several parties hereto in separate
counterparts, but all of which together shall constitute one and the same
instrument.
(b) This Agreement is among the Lender, the Borrower and each of the
Guarantors only and shall not be relied upon by any third party. Without
limiting the foregoing, Lender shall have no liability to any third party
whatever (including without limitation Borrower, any of the Guarantors or anyone
conducting business with any of the foregoing) in the event Lender for any
reason and at any time determines not to advance sums under the Revolving Note
and/or for any reason or otherwise exercises its rights under this Agreement
and/or the other Documents.
(c) The security interests granted hereby extends to the Collateral,
whether acquired before or after the commencement of a case under the Bankruptcy
Reform Act of 1978.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on
the day first above mentioned.
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF:
BORROWER:
TANGIBLE COLLECTIBLES, INC.
/S/ BY: /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------- ----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its Chairman, Duly Authorized
/S/
--------------------------
/S/ BY: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------- ----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its President, Duly Authorized
/S/
--------------------------
GUARANTORS:
TANGIBLE ASSET GALLERIES, INC.
/S/ BY: /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------- ----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its Chairman, Duly Authorized
/S/
--------------------------
/S/ BY: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------- ----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its President, Duly Authorized
/S/
--------------------------
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/S/ BY: /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------- ----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Individually
/S/
--------------------------
/S/ BY: /S/ ▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------- ----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇
Individually
/S/
--------------------------
LENDER
NATIONAL RECOVERY LIMITED PARTNERSHIP
BY
-------------------------- -----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
Its: General Partner
--------------------------
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