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Exhibit 4.01
FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
(as Lender)
Media Arts Group, Inc.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Stores, Inc.
And
California Coast Galleries, Inc.
(as Borrowers)
Dated: February 21, 1997
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TABLE OF CONTENTS
Page
SECTION 1. Definitions 3
SECTION 2. Conditions Precedent 14
SECTION 3. Revolving Loans 19
SECTION 4. Intentionally Omitted 24
SECTION 5. Letters of Credit 24
SECTION 6. Collateral 27
SECTION 7. Representations, Warranties and Covenants 30
SECTION 8. Interest, Fees and Expenses 39
SECTION 9. Powers 41
SECTION 10. Events of Default and Remedies 42
SECTION 11. Termination 46
SECTION 12. Miscellaneous 46
SIGNATURE PAGE -S1-
EXHIBITS AND SCHEDULES
Exhibit A - Form of Promissory Note (Revolving Loan)
Schedule 1 - List of Inventory Locations and Chief Executive Office
Schedule 2 - Trade Names
Schedule 3 - Patents, Trademarks and Copyrights
Schedule 4 - Permitted Encumbrances
Schedule 5 - Leased Locations and Monthly Rent
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The CIT Group/Business Credit, Inc., a New York corporation,
(hereinafter sometimes referred to as "CITBC") with offices located at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (CITBC may be sometimes referred to
herein as the "Lender"), is pleased to confirm the terms and conditions under
which CITBC shall make revolving loans, advances and other financial
accommodations to Media Arts Group, Inc. (herein "MAGI"), a Delaware
corporation with a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇, California Coast Galleries, Inc. (herein "CCG"), a California
corporation with a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Stores, Inc. (herein "TKS"), a California
corporation with a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇ (herein individually a "Company" and collectively the "Companies").
SECTION 1. Definitions
Accounts shall mean all of each of the Companies' now existing and future:
(a) accounts as defined in the UCC and any and all other receivables (whether
or not specifically listed on schedules furnished to CITBC), including, without
limitation, all accounts created by or arising from all of the Companies' sales
of goods or rendition of services to their customers (including without
limitation from the lease or rental of goods), all accounts arising from sales
or rendition of services made under any of the Companies' respective trade
names or styles, or through any of the Companies' divisions; (b) any and all
instruments, documents, contract rights and chattel paper, all as defined in
the UCC; (c) unpaid seller's or lessor's rights (including rescission,
replevin, reclamation and stoppage in transit) relating to the foregoing or
arising therefrom; (d) rights to any goods represented by any of the foregoing,
including rights to returned or repossessed goods; (e) reserves and credit
balances arising hereunder; (f) guarantees or collateral for any of the
foregoing; (g) insurance policies or rights relating to any of the foregoing;
(h) general intangibles pertaining to any and all of the foregoing; (i)
proceeds or royalties from any licensing or similar agreements, including
without limitation from "▇▇▇▇▇▇ Kinkade" trademarks and products; and (j) cash
and non-cash proceeds of any and all the foregoing.
Anniversary Date shall mean the date occurring two (2) years from the date
hereof and the same date in every year thereafter.
Availability shall mean at any time the positive difference between: (a) the
Borrowing Base less (b) the sum of, without duplication, (i) the outstanding
aggregate amount of all Obligations (other than the Letters of Credit ) of the
Companies, (ii) the Availability Reserve, and (iii) at CITBC's reasonable
election, all payments of any of the Companies to CITBC coming due within sixty
(60) days from the date of computation.
Availability Reserve shall mean (a) three (3) month reserve for unpaid rental
or similar charges for any facility for which any of the Companies fail to
obtain a landlord's waiver,
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warehouseman's, processors or mortgagee's waiver, as applicable in form and
substance satisfactory to CITBC (described in Section 2(r)), and (b) any
reserve which CITBC may reasonably require from time to time pursuant to the
explicit terms of this Financing Agreement, including without limitation for
Letters of Credit issued pursuant to paragraph 5.1 of Section 5 hereof.
Borrowing Base shall have the meaning and shall be calculated in accordance
with paragraph 3.1 of Section 3 of this Financing Agreement.
Business Day shall mean a day on which CITBC is open for business in New York,
New York, and which is not a Saturday, Sunday or other day on which commercial
banks or lending institutions in New York, New York are authorized or required
by law to close.
Capital Expenditures for any period shall mean the aggregate of all
expenditures of the Companies during such period, that in conformity with GAAP,
are required to be included in or reflected by the property, plant or equipment
or similar fixed asset account reflected in the consolidated balance sheet of
the Companies.
Capital Lease shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease or a
Capital Expenditure on the consolidated balance sheet of the Companies.
Chase Bank Rate shall mean the rate of interest per annum announced by The
Chase Manhattan Bank, N.A. (or any successor thereof) from time to time as its
prime rate in effect at its principal office in the City of New York. (The
prime rate is not intended to be the lowest rate of interest charged by Chase
Manhattan Bank to its borrowers).
Chase Rate Loans shall mean loans made pursuant to this Financing Agreement at
such time as they are made and/or being maintained at a rate of interest based
upon the Chase Bank Rate.
Closing Date shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to CITBC.
Collateral shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, the pledged stock of TKS, CCG, MAGIEP
and MAGIS, and Other Collateral of the Companies and the proceeds of any and
all of the foregoing.
Collateral Management Fee shall mean the sum of $20,000.00 which shall be paid
to CITBC in accordance with paragraph 8.8 of Section 8 hereof to offset the
expenses and costs of CITBC in connection with record keeping, periodic
examinations, analyzing and evaluating the Collateral.
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Consolidated Balance Sheet shall mean a consolidated balance sheet for the
Companies and the consolidated subsidiaries of each, eliminating all
inter-company transactions and prepared in accordance with GAAP.
Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for MAGI, the Companies, and the subsidiaries of
each, showing all eliminations of inter-company transactions and prepared in
accordance with GAAP and including a balance sheet for each of the Companies
exclusively.
Contract Rate shall mean the rates of interest computed as applicable and as
set forth in paragraphs 8.1 and 8.3 of Section 8 of this Financing Agreement.
Customarily Permitted Liens shall mean:
(a) liens of local or state authorities for franchise or other like
taxes provided the aggregate amounts of such liens shall not exceed $100,000.00
in the aggregate for the Companies at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases,
indemnity bonds, surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids contracts (other than
for the repayment or guarantee of borrowed money or purchase money
obligations), statutory obligations and other similar obligations arising as a
result of progress payments under government contracts; and
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, minor defects or
irregularities in title, variation and other restrictions, charges or
encumbrances (whether or not recorded) affecting Real Estate.
Default shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
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Default Rate of Interest shall mean a rate of interest per annum equal to the
lesser of a) the Maximum Legal Rate (as defined in Paragraph 12.3 of Section 12
hereof) and b) the sum of: I)three percent (3%) and ii) the Chase Bank Rate.
Depository Account shall have the meaning specified in Section 3, Paragraph 3.4
hereof.
Documentation Fee shall mean i) the sum of $15,000.00 intended to compensate
CITBC for the use of CITBC's in-house Legal Department and facilities in
documenting, in whole or in part, the initial transaction solely on behalf of
CITBC, exclusive of Out-of-Pocket Expenses, and the whole of which amount shall
be included in the Loan Facility Fee, and ii) subsequent to the Closing Date,
CITBC's standard fees relating to any and all modifications, waivers, releases,
amendments or additional collateral with respect to this Financing Agreement,
the Collateral and/or the Obligations.
Documents of Title shall mean all present and future documents as defined in
the UCC and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.
Early Termination Date shall mean the date on which the Companies terminate
this Financing Agreement or the Line of Credit which date is prior to an
Anniversary Date.
Early Termination Fee shall: a) mean the fee CITBC is entitled to charge the
Companies in the event any of the Companies terminates the Line of Credit or
this Financing Agreement on a date prior to an Anniversary Date; and b) be
determined by calculating the average daily loan balance under the Revolving
Loan plus the average daily balance of Letters of Credit outstanding for the
period from the date of this Financing Agreement to the Early Termination Date
and multiplying that number by one percent (1%) per annum for the number of
days from the Early Termination Date to the next succeeding Anniversary Date,
provided that the Early Termination Fee shall not be due and payable if an
Event of Default occurs, CITBC accelerates in writing the Obligations and the
Companies repay all of the outstanding Obligations and this Financing Agreement
is terminated.
EBITDA shall mean, with respect to any period of the Companies and their
consolidated subsidiaries for which such calculation is required, the sum of
(i) Consolidated Net Income (as defined in accordance with GAAP, before all
extraordinary items and non-recurring items, in accordance with GAAP); (ii)
Interest Expense; (iii) provision for taxes; (iv) charges for depreciation; and
(v) charges for amortization of intangible assets, all as determined in
accordance with GAAP consistently applied. For purposes hereof, "intangible
assets" shall include, but shall not be limited to organization costs,
securities issuance costs, unamortized debt discount and expense, goodwill,
covenants not to compete, patents, trademarks, franchises and capitalized
research and development expense.
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Eligible Accounts Receivable shall mean the gross amount of each of the
Company's Accounts that are subject to a valid, exclusive, first priority and
fully perfected security interest in favor of CITBC and which conform to the
warranties contained herein and at all times continue to be acceptable to CITBC
in the exercise of its reasonable business judgment, less, without duplication,
the sum of a) any returns, discounts, claims, credits, rebills and allowances
of any nature (whether issued, owing, granted or outstanding) and b) reserves
for, without duplication: i) sales, services or leases to the United States of
America or to any agency, department or division; ii) foreign sales, services
or leases, other than sales, services or leases x) secured by stand-by letters
of credit (in form and substance satisfactory to CITBC) issued or confirmed
by, and payable at, banks having a place of business in the United States of
America and payable in United States currency, or y) to customers residing in
Canada provided such sales or transactions otherwise comply with all of the
other criteria for eligibility hereunder, are payable in United States currency
and such Eligible Accounts do not exceed $250,000 in the aggregate at any one
time; iii) accounts that remain unpaid more than ninety (90) days from invoice
date, provided that CITBC may in its reasonable discretion deem Accounts
eligible which are payable on extended terms of up to 120 days, in an amount
not to exceed $500,000 (of such Eligible Accounts) in the aggregate at any one
time outstanding; iv) contras; v) sales, services or leases to any of the
Companies, or any of their subsidiaries or affiliates; vi) ▇▇▇▇ and hold
(deferred shipment) or consignment sales; vii) sales, services or leases to any
customer which is A) insolvent, B) the debtor in any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law, C) negotiating, or has called a meeting of its creditors
for purposes of negotiating, a compromise of its debts or D) financially
unacceptable to CITBC or has a credit rating unacceptable to CITBC in any such
case, in its reasonable business judgment; viii) all sales, services or leases
to any customer if fifty percent (50%) or more of the aggregate dollar amount
of all outstanding invoices, are unpaid more than ninety (90) days from invoice
date; ix) any other reasons deemed necessary by CITBC in its reasonable
business judgment and which are customary either in the commercial finance
industry or in the lending practices of CITBC; x) any Accounts arising from
the sale, lease or rental of goods for which a customer shall have objected to
the quality or quantity of goods or services of the Companies, or where such
customer shall have rejected, returned or refused to accept such goods or
services; xi) pre-billed receivables and receivables arising from progress
billing; xii) sales to or through the QVC cable television shopping network or
similar channels or pursuant to direct marketing, until such time as the
distributed product is resold by QVC or such other channel to its customers
(provided that no reserves shall be taken with respect to products sold to QVC
or such other distributor for which it has no right of return); xiii) sales
by JHL or by any of the Companies or their affiliates of JHL Inventory or ▇▇▇▇
▇▇▇▇ Studios' Inventory; and xiv) an amount representing, historically,
returns, discounts, claims, credits and allowances (including without
limitation the historic dilution reserve for claims or returns by QVC's
customers).
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Eligible Inventory shall mean, without duplication, the gross amount of each of
the Companies' Inventory that is subject to a valid, exclusive, first priority
and fully perfected security interest in favor of CITBC and which conforms to
the warranties contained herein and which at all times continue to be
acceptable to CITBC in the exercise of its reasonable business judgment, less
any (a) work-in-process, (b) supplies (other than raw materials), (c) goods not
present in the United States of America, (d) goods returned or rejected by the
Companies' customers other than goods that are undamaged and resalable in the
normal course of business, (e) goods to be returned to the Companies'
suppliers, (f) goods in transit to third parties (other than goods in transit
to the Companies' agents or warehouses, provided that with respect to any such
goods, the Companies have title to such Inventory and possession of all
delivery and warehouse receipts, and all insurance, shipping and documentation
relating thereto is reasonably satisfactory to CITBC); (g) "▇▇▇▇ ▇▇▇▇ Studios"
Inventory (whether held by any of the Companies or their affiliates)
including miniature figurines, cottages and houses; and (h) reserves required
by CITBC in its reasonable discretion, including for Slow Moving Inventory (for
purposes hereof, "Slow Moving Inventory" shall be deemed to be any Inventory
held by the Companies for twelve or more months or such lesser period as the
Companies may apply from time to time), special order goods, market value
declines and ▇▇▇▇ and hold (deferred shipment) or consignment sales, Inventory
sold pursuant to a licensing agreement or otherwise bearing trademarks or
subject to copyrights of a third party licensor (for which CITBC has not
received a [right of sale] licensing agreement in form and substance
satisfactory to CITBC, provided that for purposes hereof, the Kinkade/CITBC
Licensing Agreement is deemed satisfactory), amounts due and owing by any of
the Companies to freight forwarders, for any applicable customs, duties and
taxes, and any royalty payments pursuant to any applicable licensing
agreements. For purposes hereof, as of the Closing Date: (i) Eligible Inventory
consisting of raw materials shall include, without limitation, signed and
unsigned paper lithographs not otherwise included as eligible finished goods
Inventory (in marketable form in the ordinary course of business of the
Companies),and, to the extent not otherwise held for retail sales in the
ordinary course of business of the Companies, (blank) stretched canvas, mat
boards and glass, and (ii) finished goods Eligible Inventory shall include,
without limitation, up to 60% of the aggregate signed and unsigned paper
lithographs (in marketable form in the ordinary course of business of the
Companies), all of which otherwise comply with the terms hereof, provided that
the foregoing advances against lithographs may be increased or decreased from
time to time in CITBC's reasonable discretion (taking into account the
Companies' actual experience).
Equipment shall mean all of the Companies' present and hereafter acquired
equipment as defined in the UCC and any and all machinery, motor vehicles,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all proceeds
of whatever sort.
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ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder
from time to time.
Event(s) of Default shall have the meaning provided for in Section 10 of this
Financing Agreement.
Executive Officers shall mean the Chairman, President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Executive Vice President(s),
Senior Vice President(s), Treasurer, Controller and Secretary of any of the
Companies.
Financial Covenants shall mean those covenants set forth in paragraphs 7.9,
7.11 and 7.12 of Section 7 hereof.
Fixed Charge Coverage Ratio shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (i) cash Interest Expense, (ii)
Capital Expenditures made and paid for in cash, (iii) the amount of principal
repaid on: (a) the Subordinated Debt, (b) Indebtedness secured by Purchase
Money Liens, and (c) the ▇▇▇▇ ▇▇▇▇ Debt, and (iv) all cash Federal, state and
local income tax expenses due and payable.
GAAP shall mean generally accepted accounting principles in the United States
of America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided further that in the event the
Companies modify their accounting principles as applied as of the Closing Date,
the Companies shall provide such statements of reconciliation as shall be in
form and substance acceptable to CITBC.
General Intangibles shall have the meaning set forth in the UCC and shall
include, without limitation, all of the Companies' present and future right,
title and interest in and to all tradenames, trademarks (together with the
goodwill associated therewith), copyrights, patents, licenses, customer lists,
distribution agreements, supply agreements and tax refunds (provided that
CITBC's lien on the Federal Tax Refund for the fiscal year ending March 31,
1997 shall be subject to LLCP's first lien thereon, in accordance with the
terms of the Subordination Agreement among CITBC, LLCP and the Companies),
together with all monies and claims for monies now or hereafter due and payable
in connection with any of the foregoing or otherwise, and all cash and non-cash
proceeds thereof, including without limitation the proceeds of any licensing
agreements between the Companies and any licensee of any of the Companies'
General Intangibles or rights thereunder.
Guarantors shall mean MAGIEP and MAGIS.
Indebtedness shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of money
(borrowed or otherwise due or owing to third parties) or for the deferred
purchase price of property, services or assets, other than
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Inventory, or (b) lease obligations which, in accordance with GAAP, have been
or should be capitalized.
Interest Expense shall mean total interest obligations (paid or accrued) of the
Companies, determined in accordance with GAAP on a basis consistent with the
latest audited statements of the Companies.
Inventory shall mean all of the Companies' present and hereafter acquired
inventory as defined in the UCC, and any and all merchandise and goods,
including without limitation paintings, lithographs, canvas, mat boards,
frames, glass, books, videos, figurines, miniature cottages, ornaments and home
decor, and all additions, substitutions and replacements thereof, wherever
located, together with all goods wherever located, and materials used or usable
in manufacturing, processing, packaging or shipping same; in all stages of
production - from raw materials through work-in-process to finished goods - and
all proceeds thereof of whatever sort.
Issuing Bank shall mean the bank issuing Letters of Credit for the Companies.
JHL shall mean ▇▇▇▇ ▇▇▇▇ Ltd., a United Kingdom company.
▇▇▇▇ ▇▇▇▇ Debt shall mean the obligation of MAGI to ▇▇▇▇ ▇▇▇▇, an individual,
in the principal amount as of the Closing Date of approximately L.970,756,
(together with all accrued interest thereon as of any time of determination)
arising from the acquisition of JHL from ▇▇▇▇ ▇▇▇▇.
Letter of Credit Guaranty shall mean the guaranty delivered by CITBC to the
Issuing Bank of the respective Companies' reimbursement obligation under the
Issuing Bank's reimbursement agreement, application for Letter of Credit or
other like document.
Letter of Credit Guaranty Fee shall mean the fee CITBC may charge the Companies
under paragraph 8.3 of Section 8 of this Financing Agreement for: i) issuing
the Letter of Credit Guaranty and/or ii) otherwise incurring reimbursement
obligations on behalf of the Companies in obtaining Letters of Credit pursuant
to Section 5 hereof.
Letters of Credit shall mean all Letters of Credit issued by the Issuing Bank
for or on behalf of any of the Companies with either a CITBC Letter of Credit
Guaranty or for which CITBC otherwise incurs reimbursement obligations on
behalf of the Companies.
Line of Credit shall mean the aggregate commitment of CITBC to make loans and
advances to the Companies and issue Letter of Credit Guaranties for the benefit
of the Companies pursuant to Sections 3 and 5 of this Financing Agreement in
the aggregate amount of $10,000,000.00.
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Line of Credit Fee shall mean the fee due CITBC at the end of each month for
the Line of Credit and shall be calculated by: multiplying (a) the difference
between (I) the Revolving Line of Credit and (ii) the sum of (A) the average
daily Revolving Loans of the Companies for said month plus (B) the average
daily balance of outstanding Letters of Credit of the Companies for said
month; by (b) one-half of one percent ( 1/2 of 1%) per annum for the number of
days in said month based on a 360 day year.
LLCP shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Capital Partners, L.P., a California limited
partnership.
Loan Documents shall mean this Financing Agreement, the Promissory Notes, the
mortgages and/or deeds of trust, any other documents and the ancillary loan and
security agreements executed from time to time in connection with this
Financing Agreement, as the same may be renewed, amended, extended, increased
or supplemented from time to time.
Loan Facility Fee shall mean the fee payable to CITBC in accordance with, and
pursuant to, the provisions of paragraph 8.7 of Section 8 of this Financing
Agreement.
MAGIEP shall mean MAGI Entertainment Products, Inc., a California corporation.
MAGIS shall mean MAGI Sales, Inc., a California corporation.
Net Worth means with respect to any person, at any date of determination, an
amount equal to, (a) the total assets of such person as of such date minus (b)
the total liabilities of such person as of such date, in each case determined
in accordance with GAAP, on a consistent basis with the latest audited
statements.
Obligations shall mean any and all current and future loans and advances made
by CITBC to the Companies, or any one of them, or to others for any of the
Companies' account including, without limitation, all Revolving Loans, Letters
of Credit and advances pursuant to this Financing Agreement or any of the Loan
Documents; any and all indebtedness and obligations which may at any time be
owing by the Companies, or any one of them, to CITBC howsoever arising, whether
now in existence or incurred by any of the Companies from time to time
hereafter; whether secured by pledge, lien upon or security interest in any of
the Companies' assets or property or the assets or property of any other
person, firm, entity or corporation; whether such indebtedness is absolute or
contingent, joint or several, matured or unmatured, direct or indirect and
whether the Companies, or any one of them, are liable to CITBC for such
indebtedness as principal, surety, endorser, guarantor or otherwise.
Obligations shall also include indebtedness owing to CITBC by any of the
Companies under this Financing Agreement, any other Loan Documents or under any
other agreement or arrangement now or hereafter entered into between any of the
Companies and CITBC; indebtedness or obligations incurred by, or imposed on,
CITBC as a result of environmental claims (other than as a result
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of the physical actions comprising gross negligence of CITBC on the Real
Estate) arising out of any of the Companies' operations, premises or waste
disposal practices or sites; any of the Companies' liability to CITBC as maker
or endorser on any promissory note or other instrument for the payment of
money; any of the Companies' liability to CITBC under any instrument of
guaranty or indemnity, or arising under any guaranty, endorsement or
undertaking which CITBC may make or issue to others for the Companies' account,
including any accommodation extended with respect to applications for Letters
of Credit, CITBC's acceptance of drafts or CITBC's endorsement of notes or
other instruments for the Companies' account and benefit.
Operating Leases shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases.
Other Collateral shall mean all now owned and hereafter acquired deposit
accounts maintained with any bank or financial institutions; all cash and other
monies and property in the possession or control of CITBC; all books, records,
ledger cards, disks and related data processing software at any time evidencing
or containing information relating to any of the Collateral described herein or
otherwise necessary or helpful in the collection thereof or realization
thereon; and all cash and non-cash proceeds of the foregoing.
Out-of-Pocket Expenses shall mean all of CITBC's present and future reasonable
out-of-pocket expenses incurred relative to this Financing Agreement or any
other Loan Documents, whether incurred heretofore or hereafter, which expenses
shall include, without being limited to, the cost of record searches, all costs
and expenses incurred by CITBC in opening bank accounts, depositing checks,
receiving and transferring funds, and any charges imposed on CITBC due to
"insufficient funds" of deposited checks and CITBC's standard fee relating
thereto, any amounts paid by CITBC to, or incurred by or charged to CITBC by,
the Issuing Bank under the Letter of Credit Guaranty or the Companies'
reimbursement agreement, application for Letter of Credit or other like
document which pertain either directly or indirectly to such Letters of Credit,
and CITBC's standard fees relating to the Letters of Credit and any drafts
thereunder, any applicable reasonable counsel fees and disbursements, title
insurance premiums, real estate survey costs, fees and taxes relative to the
filing of financing statements, costs of preparing and recording
mortgages/deeds of trust against Real Estate and all expenses, costs and fees
set forth in paragraph 10.3 of Section 10 of this Financing Agreement.
Perfection Certificate shall mean the Perfection Certificate signed by the
Companies and delivered to CITBC, in form and substance satisfactory to CITBC
in connection with this Financing Agreement.
Permitted Encumbrances shall mean: i) liens expressly permitted, or consented
to in writing, by CITBC ; ii) Purchase Money Liens; iii) Customarily Permitted
Liens; iv) liens granted CITBC by the Companies; v) liens of judgment creditors
provided such liens do not exceed, in
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the aggregate for the Companies, at any time, $100,000.00 (other than liens
which have been discharged, bonded or insured to the reasonable satisfaction of
CITBC); vi) liens of LLCP (subject to the Subordination Agreement dated on or
about the Closing Date between LLCP and CITBC); vii) liens for taxes not yet
due and payable or which are being diligently contested in good faith by the
Companies by appropriate proceedings and which liens are not x) other than with
respect to Real Estate, senior to the liens of CITBC or y) for taxes due the
United States of America or any state thereof having similar priority statutes;
and viii) liens held by licensees of the Companies' General intangibles.
Permitted Indebtedness shall mean: i) current Indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor; ii) Indebtedness
secured by the Purchase Money Liens; iii) Indebtedness of the Companies which
is subordinated to the prior payment and satisfaction of the Companies'
Obligations to CITBC by means of a subordination agreement in form and
substance satisfactory to CITBC; iv) Indebtedness arising under the Letters of
Credit and this Financing Agreement; v) deferred taxes and other expenses
incurred in the ordinary course of business; vi) the Subordinated Debt; vii)
other Indebtedness existing on the date of execution of this Financing
Agreement and listed in the most recent financial statement delivered to CITBC
or otherwise disclosed to CITBC in writing prior to the Closing Date; and viii)
any restructuring or refinancing of the foregoing (excluding Subordinated Debt
or any Indebtedness in excess of $200,000 absent the prior written consent of
CITBC), provided that any such restructuring or refinancing, shall not be on
terms substantially less favorable to the Companies than the terms of such
original Indebtedness and shall not be in excess of the original principal
amount thereof.
Promissory Note shall mean the note in the form of Exhibit A attached hereto,
delivered by the Companies to CITBC to evidence the Revolving Loans pursuant to
Section 3 of this Financing Agreement.
Purchase Money Liens shall mean liens on any item of equipment provided that
i) each such lien shall attach only to the property to be acquired, ii) a
description of the property so acquired is furnished to CITBC, and iii) the
debt incurred in connection with such acquisitions shall not exceed in the
aggregate $1,000,000.00 in any fiscal year.
Real Estate shall mean any of the Companies' fee and/or leasehold interests in
real property, including such property which, subsequent to the Closing Date,
may be encumbered, mortgaged, pledged or assigned to CITBC or its designee.
Revolving Line of Credit shall mean the aggregate commitment of CITBC to make
loans and advances to the Companies pursuant to Section 3 of this Financing
Agreement and issue Letters of Credit Guaranties pursuant to Section 5 hereof,
in the aggregate amount of $10,000,000.
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Revolving Loans shall mean the loans and advances made, from time to time, to
or for the account of any of the Companies by CITBC pursuant to Section 3 of
this Financing Agreement.
Revolving Loans Account shall have the meaning specified in Section 3,
paragraph 3.6 hereof.
Subordinated Debt shall mean the debt due a Subordinating Creditor (and the
notes evidencing such) which has been subordinated, by a Subordination
Agreement, to the prior payment and satisfaction of the Obligations of the
Companies to CITBC in form and substance satisfactory to CITBC.
Subordinating Creditor shall mean each of LLCP and ▇▇▇▇▇ ▇▇▇▇▇▇.
Subordination Agreement shall mean an agreement among the Companies, a
Subordinating Creditor and CITBC pursuant to which the Subordinated Debt held
by the applicable Subordinating Creditor is subordinated to the prior payment
and satisfaction of the Companies' Obligations to CITBC in form and substance
satisfactory to CITBC.
Tax Refund shall mean the anticipated Federal tax refund for fiscal year ending
March 31, 1997 (for the carryback of losses for the prior two fiscal years of
the Companies).
UCC shall mean the Uniform Commercial Code as in effect in the State of
California and as the same maybe amended from time to time.
SECTION 2. Conditions Precedent
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent:
a) Lien Searches - CITBC shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to CITBC for all locations
presently leased or owned by the Companies.
b) UCC Filings - Any documents (including without limitation,
financing statements) required to be filed in order to create, in favor of
CITBC, for the benefit of CITBC a first and exclusive perfected security
interest in the Collateral (with respect to which a security interest may be
perfected by a filing under the Uniform Commercial Code), subject to Permitted
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Encumbrances and subject to the concurrent payment of Comerica's obligations,
shall have been properly filed in each office in each jurisdiction required in
order to create in favor of CITBC a perfected lien on such Collateral. CITBC
shall have received acknowledgment copies of all such filings (or, in lieu
thereof, CITBC shall have received other evidence satisfactory to CITBC that
all such filings have been made); and CITBC shall have received evidence that
all necessary filing fees and all taxes or other expenses related to such
filings have been paid in full.
c) Examination & Verification - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, Equipment, books and records of the Companies.
d) Guaranties - The Guarantors shall have executed and delivered to
CITBC guaranties, in form acceptable to CITBC, guaranteeing all present and
future Obligations of the Companies to CITBC.
e) Opinions - Counsel for the Companies and the Guarantors shall have
delivered to CITBC opinions satisfactory to CITBC opining, inter alia, that,
subject to the i) filing, priority and remedies provisions of the Uniform
Commercial Code, ii) provisions of the Bankruptcy Code, insolvency statutes or
other like laws, iii) the equity powers of a court of law and iv) such other
matters as may be agreed upon with CITBC: a) the Guaranties of the Guarantors
are valid, binding and enforceable according to their terms; and b) the Loan
Documents including without limitation this Financing Agreement and the
Guaranties are x) valid, binding and enforceable according to their terms, y)
are duly authorized, executed and delivered and z) do not violate any terms,
provisions, representations or covenants in the charter or by-laws of the
Companies or the Guarantors or, to the best knowledge of such counsel, of any
loan agreement, mortgage, deed of trust, note, security or pledge agreement or
indenture to which the Companies or the Guarantors are a signatory or by which
the Companies or the Guarantors or their assets are bound.
f) Pledge Agreement - The Companies shall or the Companies shall
cause the appropriate person to a) execute and deliver to CITBC a pledge and
security agreement and stock powers pledging to CITBC as additional collateral
for the Obligations of the Companies not less than 100% of the issued and
outstanding stock of TKS and CCG, and 100% of the stock of any subsidiary of
the Companies, in each case to the extent registered in the name of any Company
or any subsidiary or affiliate thereof (provided further that no such
additional shares shall be issued hereafter to an individual or entity which
has not pledged such shares to CITBC absent CITBC's written consent thereto)
and, b) deliver to CITBC the applicable stock certificates, if any, and stock
powers of the Companies and any of their subsidiaries or take such other
actions as CITBC may reasonably request in connection therewith. This condition
shall survive closing.
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g) Additional Documents - The Companies shall have executed and
delivered to CITBC all loan documents necessary to consummate the lending
arrangement contemplated between the Companies and CITBC.
h) Subordination Agreement - Each of the Subordinating Creditors
shall have executed and delivered to CITBC a Subordination Agreement, in form
and substance satisfactory to CITBC, subordinating the debt due the
Subordinating Creditor by the Companies to the prior payment and satisfaction
of the Obligations of the Companies to CITBC, provided that ▇▇▇▇▇ ▇▇▇▇▇▇ shall
execute a Subordination Agreement within 30 days of the Closing Date in form
and substance substantially similar to the agreement with LLCP.
I) Board Resolution - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Companies and the Guarantors (as
the case may be) authorizing the execution, delivery and performance of (i)
this Financing Agreement, (ii) the Guaranties, and (iii) any related
agreements, in each case certified by the Secretary or Assistant Secretary of
the Companies and the Guarantors (as the case may be) as of the date hereof,
together with a certificate of the Secretary or Assistant Secretary of the
Companies and the Guarantors (as the case may be) as to the incumbency and
signature of the officers of the Companies and/or the Guarantors executing such
agreements, this Financing Agreement and any certificate or other documents to
be delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary.
j) Corporate Organization - CITBC shall have received (i) a copy of
the Certificate of Incorporation of the Companies and the Guarantors certified
by the Secretary of State of their incorporation, and (ii) a copy of the
By-Laws (as amended through the date hereof) of the Companies and certified by
the Secretary or Assistant Secretary of the Companies.
k) Officer's Certificate - CITBC shall have received an executed
Officer's Certificate of each of the Companies, satisfactory in form and
substance to CITBC, certifying that (i) the representations and warranties
contained herein are true and correct in all material respects on and as of the
date hereof; (ii) the Companies are in compliance with all of the terms and
provisions set forth herein; and (iii) no Default or Event of Default has
occurred.
l) Absence of Default - No Default or Event of Default of the
Companies shall have occurred.
m) Appraisals - CITBC shall have received appraisals on the
Companies' Inventory which appraisals shall be by an appraiser acceptable to
CITBC and shall be reviewed to its satisfaction.
n) Legal Restraints/Litigation - At the date of execution of this
Financing Agreement, there shall be no x) litigation, investigation or
proceeding (judicial or administrative) pending
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or, to the best knowledge of the Companies after due inquiry threatened against
the Companies or the Guarantors or their assets, by any agency, division or
department of any county, city, state or federal government arising out of this
Financing Agreement, y) injunction, writ or restraining order restraining or
prohibiting the consummation of the financing arrangements contemplated under
this Financing Agreement or z) to the best knowledge of the Companies, suit,
action, investigation or proceeding (judicial or administrative) pending or
threatened against the Companies or the Guarantors or their assets, which, in
the opinion of CITBC, if adversely determined could have a material adverse
effect on the business, operation, assets, financial condition or Collateral of
the Companies and/or the Guarantors (other than the litigation relating to the
claims of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and JHL).
o) Disbursement Authorization - The Companies shall have delivered to
CITBC all information necessary for CITBC to issue wire transfer instructions
on behalf of the Companies for the initial and subsequent loans and/or advances
to be made under this Agreement including, but not limited to, disbursement
authorizations in form acceptable to CITBC.
p) Lock Box Agreements - As of the Closing Date, the Companies shall
enter into lock box agreements for each of their collection accounts in form
and substance satisfactory to CITBC.
q) Depository Account - The Depository Account shall be established in
form and substance satisfactory to CITBC.
r) Third Party Waivers - Subject to the succeeding sentence, the
Companies shall use their respective best efforts to provide applicable third
party documents to CITBC within thirty (30) days after the Closing Date so that
CITBC has a first lien, subject to Permitted Encumbrances, on Accounts
Receivable, Inventory, Chattel Paper and any Equipment at locations which any
of the Companies use, lease or occupy , all in form and substance satisfactory
to CITBC in its reasonable business judgement. As to Eligible Inventory
located in any facility which is not owned by the Companies, including at any
leased premises, third party processor or warehouse at which Eligible Inventory
is located and for which CITBC has not received a waiver, in form and substance
satisfactory to CITBC within thirty (30) days after the Closing Date, CITBC may
establish an Availability Reserve for up to three months rent or processing
charges for any such premises. Notwithstanding anything to the contrary
herein, for purposes of Section 3 and 6 hereof, this condition precedent shall
not terminate as of the Closing Date.
s) Minimum Closing Availability - Based upon CITBC's completion of
an updated examination of the Companies' Accounts and Inventory, after giving
effect to any Revolving Loans made by CITBC on the Closing Date, the Companies
shall have a minimum additional aggregate Availability for further Revolving
Loans of at least $1,000,000 as evidenced by the
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borrowing base certificate delivered by the Companies to CITBC on the Closing
Date. It is understood that such requirement contemplates that all of the
Companies' debts and obligations are current and that all payables are being
handled as in the normal course of the Companies' business and consistent with
their past practice (excluding debts and obligations relating to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and JHL).
t) Financial Information - Prior to the Closing Date, the Companies
shall have prepared and delivered to CITBC cash budget projections for the
Companies for the next consecutive twelve month period (commencing on the
Closing Date), which shall be in form and substance satisfactory to CITBC.
u) Insurance - The Companies shall have delivered to CITBC a
certificate from each of their insurance carriers in form and substance
satisfactory to CITBC evidencing that the coverage required by paragraph 7.5 of
Section 7 hereof; and the endorsements thereof, in form and substance
satisfactory to CITBC, listing CITBC, as loss payee or mortgagee, as the case
may be, are in full force and effect, all as set forth in Section 7 of this
Financing Agreement.
v) Fees and Expenses - On the Closing Date, the Companies shall have
reimbursed CITBC for all Out-of-Pocket Expenses for which a request for payment
shall have been made at or prior to the Closing Date and shall have paid the
Collateral Management Fee due at Closing and the Loan Facility Fee.
w) Absence of Material Adverse Change - No material adverse change
shall have occurred in the financial condition, business, prospects,
profitability, assets (including without limitation the Collateral) or
operations of the Companies, or any one of them, and/or the Guarantors or their
subsidiaries.
x) Perfection Certificate - CITBC shall have received a Perfection
Certificate from the Companies in form acceptable to CITBC.
y) Execution and Delivery of Loan Documents - CITBC shall have
received a signed Promissory Note and the other Loan Documents.
z) Intercreditor Agreement - CITBC shall have received an
Intercreditor Agreement with LLCP in form and substance satisfactory to CITBC.
aa) Pay-Out of Existing Lender - The Companies' existing loans with
Comerica Bank shall be repaid in full with the proceeds of the initial
disbursement of funds hereunder and Comerica's liens on any assets or
properties of the Companies shall be terminated on or before the Closing Date.
In connection therewith CITBC shall receive a fully executed Pay-Out Letter, in
form and substance satisfactory to CITBC, and UCC-3 or UCC-2 termination
statements.
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bb) Kinkade Licensing Agreement - CITBC shall enter into a licensing
agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and the Companies which shall provide, inter
alia, that CITBC (or its agent or assignee) may sell any Inventory which is
subject to the Companies' Licensing Agreement with ▇▇▇▇▇▇ Kinkade, in form and
substance satisfactory to CITBC.
cc) Credit Card Receivables Assignment - The Companies shall deliver a
fully executed Credit Card Receivables Assignment Letter, in form and substance
satisfactory to CITBC, within five (5) business days after the Closing Date.
Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, except as otherwise set forth herein, for purposes of each
subsequent extension of credit hereunder, all of the above conditions precedent
shall have been deemed satisfied or waived.
2.1 Conditions to Each Extension of Credit
Except to the extent expressly set forth in this Financing Agreement,
the agreement of CITBC to make any extension of credit requested to be made by
it to the Companies on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following conditions
precedent:
a) Representations and Warranties - Each of the representations
and warranties made by the Companies in or pursuant to this Financing Agreement
shall be true and correct in all material respects on and as of such date as if
made on and as of such date (except to the extent that such representations and
warranties expressly relate solely to an earlier date).
b) No Default - No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the extension
of credit requested to be made on such date.
c) Borrowing Base - Except as may be otherwise agreed to from
time to time by CITBC and the Companies in writing, after giving effect to the
extension of credit requested to be made by the Companies on such date, the
aggregate outstanding Revolving Loans and Letters of Credit owing by the
Companies will not exceed the lesser of (i) the Revolving Line of Credit or
(ii) the Borrowing Base then applicable to the Companies.
Each borrowing by the Companies hereunder shall constitute a representation and
warranty by the Companies as of the date of such loan or advance that each of
the representations,
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warranties and covenants contained in the Financing Agreement have been
satisfied and are true and correct in all material respects, except as the
Companies and CITBC shall otherwise agree herein or in a separate writing.
SECTION 3. Revolving Loans
3.1 CITBC agrees, subject to the terms and conditions of this
Financing Agreement from time to time, and within x) the Availability and y)
the Revolving Line of Credit, but subject to CITBC's right to make
"Overadvances", to make loans and advances to the Companies on a revolving
basis (i.e. subject to the limitations set forth herein, the Companies may
borrow, repay and re-borrow Revolving Loans). Such loans and advances to the
Companies shall be in amounts up to: a) eighty-five percent (85%) of the
outstanding Eligible Accounts Receivable of the Companies, and b) the sum of
(i) fifty percent (50%) of the Companies' finished goods Eligible Inventory,
plus (ii) thirty percent (30%) of the Companies' raw materials Eligible
Inventory, of the Companies as determined at the lower of cost or market,
provided that advances to the Companies against Eligible Inventory shall not
exceed $5,000,000 in the aggregate at any one time (herein the "Borrowing
Base"). All requests for loans and advances must be received by an officer of
CITBC no later than 10:00 a.m. Pacific time of the day on which such loans and
advances are required. Should CITBC for any reason honor requests for advances
in excess of the limitations set forth herein, such advances shall be
considered "Overadvances" and shall be made in CITBC's sole discretion, subject
to any additional terms CITBC deems necessary.
3.2 (a) In furtherance of the continuing assignment and security
interest in the Companies' Accounts, the Companies will, upon the creation of
Accounts, execute and deliver to CITBC in such form and manner as CITBC may
reasonably require, solely for CITBC's convenience in maintaining records of
collateral, such confirmatory schedules of Accounts as CITBC may reasonably
request, and such other appropriate reports designating, identifying and
describing the Accounts as CITBC may reasonably require. In addition, upon
CITBC's request the Companies shall provide CITBC with copies of agreements
with, or purchase orders from, the Companies' customers, and copies of invoices
to customers, proof of shipment or delivery and such other documentation and
information relating to said Accounts and other collateral as CITBC may
reasonably require. Failure to provide CITBC with any of the foregoing shall
in no way affect, diminish, modify or otherwise limit the security interests
granted herein. The Companies hereby authorize CITBC to regard the Companies'
printed name or rubber stamp signature on assignment schedules or invoices as
the equivalent of a manual signature by one of the Companies' authorized
officers or agents.
(b) The obligation of the Companies to repay the principal amount of
the Revolving Loans made pursuant to this Section 3 and pursuant to any Letter
of Credit Guaranty issued pursuant to Section 5 by CITBC and to pay interest
thereon shall be evidenced in part by the
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Promissory Note in the form of Exhibit C attached hereto. The Companies'
outstanding Obligations applicable thereto may be set forth in the balance
column on the grid page attached to said note or on the separate ledgers
maintained by CITBC. All such advances, whether or not so recorded, shall be
due as part of said note. The executed Promissory Note shall be delivered to
CITBC on the Closing Date.
3.3 Each of the Companies hereby represents and warrants that: each
Account is based on an actual and bona fide sale and delivery of goods or
rendition of services to customers, made by the Companies in the ordinary
course of their business; the goods and Inventory being sold and the Accounts
created are the exclusive property of the Companies and are not and shall not
be subject to any lien, consignment arrangement, encumbrance, security interest
or financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Accounts are in the name of a Company; and the
customers of the Companies have accepted the goods or services, owe and are
obligated to pay the full amounts stated in the invoices according to their
terms, without dispute, offset, defense, counterclaim or contra, except for
disputes and other matters arising in the ordinary course of business with
respect to which the Companies have complied with the notification requirements
pursuant to paragraph 3.5 of this Section 3. Each of the Companies confirms to
CITBC that any and all taxes or fees relating to their business, their sales,
the Accounts or goods relating thereto, are their sole responsibility and that
same will be paid by the Companies when due (unless they are being diligently
contested in good faith by appropriate proceeding in accordance with paragraph
7.6 hereof) and that none of said taxes or fees represent a lien on or claim
against the Accounts. Each of the Companies also warrants and represents that
it is a duly and validly existing corporation and is qualified in all states
where the failure to so qualify would have an adverse effect on the business of
the Companies or the ability of the Companies to enforce collection of Accounts
due from customers residing in that state. Each of the Companies agrees to
maintain such books and records regarding Accounts as CITBC may reasonably
require and agrees that the books and records of the Companies will reflect
CITBC's interest in the Accounts. In accordance with paragraph 7.2 hereof, all
of the books and records of the Companies will be available to CITBC at normal
business hours, including any records handled or maintained for the Companies
by any other company or entity.
3.4 The Companies may and will enforce, collect and receive all
amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at
the Companies' expense; such privilege shall terminate automatically upon the
institution by or against the Companies of any proceeding under any bankruptcy
or insolvency law or, at the election of CITBC, upon the occurrence of any
other Event of Default and until such Event of Default is waived in writing by
CITBC or cured to CITBC's satisfaction. The Companies shall direct all of
their account debtors and credit card processors to deposit any and all
proceeds of Collateral into the Depository Account (as defined below), and any
checks, cash, notes, chattel paper or other instruments or property received by
the Companies with respect to any sales of Inventory and/or Accounts shall be
held by the Companies in trust for CITBC for the benefit of CITBC,
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separate from the Companies' own property and funds, and turned over promptly,
to CITBC with proper assignments or endorsements by deposit to the special
depository account in CITBC's name designated by CITBC for such purposes (the
"Depository Account"), provided that with respect to TKS and CCG, commencing
March 3, 1997, any and all such proceeds shall be transfered no less frequently
than weekly or such shorter period as CITBC may advise the Companies from time
to time such that the amount of cash and cash equivalents on hand in any TKS
and CCG premises and deposit accounts does not exceed $100,000 in the aggregate
at any one time and provided further that such retained amounts shall be used
solely for ▇▇▇▇▇ cash purposes of TKS's and CCG's retail operations in the
ordinary course of business of such Companies. All amounts received by CITBC
in payment of Accounts will be credited to the Companies' Revolving Loan
Account one Business Day after CITBC's receipt of "collected funds" at CITBC's
bank account in New York, New York if received no later than 1:00 p.m. Eastern
Standard Time or on the next succeeding Business Day if received after 1:00 pm.
No checks, drafts or other instrument received by CITBC shall constitute final
payment to CITBC unless and until such instruments have actually been
collected.
3.5 Each of the Companies agrees to notify CITBC promptly of any
matters materially affecting the value, enforceability or collectibility of any
material Account and of all material customer claims, disputes, offsets,
defenses, counterclaims, returns, rejections and all reclaimed or repossessed
merchandise or goods and, in any event the aggregate amount thereof shall be
set forth, in any applicable daily, weekly and monthly collateral reporting
statements, as in effect from time to time. Each of the Companies agrees to
issue credit memoranda promptly (with duplicates to CITBC upon request after
the occurrence of an Event of Default) upon accepting returns or granting
allowances, and may continue to do so until CITBC has notified the Companies
that an Event of Default has occurred and that all future credits or allowances
are to be made only after CITBC's prior written approval. Upon the occurrence
of an Event of Default and until such time as such Event of Default is waived
or cured to CITBC's satisfaction and on notice from CITBC, the Companies agree
that all returned, reclaimed or repossessed merchandise or goods shall be set
aside by the Companies, marked with CITBC's name (as secured party) and held by
the Companies for CITBC's account.
3.6 (a) CITBC shall maintain an account on its books in the Companies'
names (herein the "Revolving Loan Account") in which the Companies will be
charged with loans and advances made by CITBC to any of the Companies or for
their account, and with any other Obligations, including any and all costs,
expenses and reasonable attorney's fees which CITBC may incur, in accordance
with the terms hereof, in connection with the exercise by or for CITBC of any
of the rights or powers herein conferred upon CITBC, or in the prosecution or
defense of any action or proceeding to enforce or protect any rights of CITBC
in connection with this Financing Agreement, the other Loan Documents or the
Collateral assigned hereunder. The Companies will be credited with all amounts
received by CITBC from the Companies or from others for the Companies' account,
including, as above set forth, all amounts received by CITBC in payment of
assigned Accounts and such amounts will be
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applied to payment of the Obligations. In no event shall prior recourse to any
Accounts or other security granted to or by the Companies be a prerequisite to
CITBC's right to demand payment of any Obligation. Further, it is understood
that CITBC shall have no obligation whatsoever to perform in any respect any of
the Companies' contracts, lease agreements or obligations relating to the
Accounts.
(b) In order to utilize the collective borrowing powers of MAGI, TKS
and CCG, (collectively the "Collective Borrowers") in the most efficient and
economical manner, and in order to facilitate the handling of the accounts of
the Collective Borrowers on CITBC's books, the Collective Borrowers have
requested, and CITBC has agreed to handle accounts of the Collective Borrowers
on CITBC's books on a combined basis, all in accordance with the following
provisions:
(I) In lieu of maintaining separate accounts on CITBC's books in the
name of each of the Collective Borrowers, CITBC shall maintain one account
under the name: Media Arts Group, Inc. (herein the "Collective Account").
Confirmatory assignments of Accounts will continue to be made to CITBC by each
of the Collective Borrowers. Loans and advances made by CITBC to any of the
Collective Borrowers will be charged to the Collective Account indicated above,
along with any charges and expenses under this Financing Agreement. The
Collective Account will be credited, with all amounts received by CITBC from
any of the Collective Borrowers or from others for their account including all
amounts received by CITBC in payment of Accounts assigned to CITBC as provided
in this Financing Agreement;
(ii) Each month CITBC will render to the Collective Borrowers one
extract of the combined Collective Account, which shall be deemed to be an
account stated as to each of the Collective Borrowers and which will be deemed
correct and accepted by all of the Collective Borrowers unless CITBC receives a
written statement of exceptions from them within thirty (30) days after such
extract has been rendered by CITBC. It is expressly understood and agreed by
each of the Collective Borrowers that CITBC shall have no obligation to account
separately to any of the Collective Borrowers;
(iii) Requests for loans and advances may be made by MAGI as agent
for the Collective Borrowers and CITBC is hereby authorized and directed to
accept, honor and rely on such instructions and requests, subject to the
limitations and provisions set forth in this Financing Agreement. It is
expressly understood and agreed by each of the Collective Borrowers that CITBC
shall have no responsibility to inquire into the correctness of the
apportionment, allocation, or disposition of (x) any loans and advances made to
any of the Collective Borrowers or (y) any of CITBC's expenses and charges
relating thereto. All loans and advances are made for the Collective Account;
(iv) The Collective Borrowers jointly and severally unconditionally
guarantee to CITBC the prompt payment in full of (A) all loans and advances
made and to be made by
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CITBC to any of them under this Financing Agreement, as well as (B) all other
Obligations of the Collective Borrowers to CITBC are joint and several;
(v) All Accounts assigned to CITBC by any of the Collective Borrowers
and any other collateral security now or hereafter given to CITBC by any of the
Collective Borrowers (be it Accounts or otherwise), shall secure all loans and
advances made by CITBC to any of the Collective Borrowers, and shall be deemed
to be pledged to CITBC as security for any and all other Obligations of the
Collective Borrowers to CITBC as set forth under this Financing Agreement or
any other agreements between CITBC and any of the Collective Borrowers;
(vi) It is understood that the handling of the accounts of the
Collective Borrowers in a combined fashion, as more fully set forth herein, is
done solely as an accommodation to the Collective Borrowers and at their
request, and that CITBC shall incur no liability to the Collective Borrowers as
a result hereof. To induce CITBC to do so, and in consideration thereof, each
of the Collective Borrowers hereby agrees to indemnify CITBC and hold CITBC
harmless against any and all liability, expense, loss or claim of damage or
injury, made against CITBC by any of the Collective Borrowers or by any third
party whosoever, arising from or incurred solely by reason of (1) the method of
handling the accounts of the Collective Borrowers as herein provided, (2) CITBC
relying on any instructions of any of the Collective Borrowers, or (3) any
other action taken by CITBC in accordance with this subparagraph (b) of
Paragraph 6 of Section 3 of this Financing Agreement; and
(vii) The foregoing request was made because the Collective Borrowers
are engaged in an integrated operation that requires financing on a basis
permitting the availability of credit from time to time to each of the
Collective Borrowers as required for the continued successful operation of each
of the Collective Borrowers and the integrated operation. Each of the
Collective Borrowers expects to derive benefit, directly or indirectly, from
such availability since the successful operation of each of the Collective
Borrowers is dependent on the continued successful performance of the functions
of the integrated group. In addition, the Companies have informed CITBC that:
(a) in order to increase the efficiency and productivity of
each of the other Collective Borrowers, MAGI has centralized in itself a cash
management system which entails, in part, central disbursement and operating
accounts in which it provides the working capital needs of each of the other
Collective Borrowers and manages and timely pays the accounts payable of each
of the other Collective Borrowers;
(b) MAGI is further enhancing the operating efficiencies of
the other Collective Borrowers by purchasing, or causing to be purchased, in
its name for its account all materials, supplies, inventory and services
required by the other Collective Borrower which will result in reducing the
operating costs of the other Collective Borrowers; and
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(c) Since all of the Collective Borrowers are now engaged in
an integrated operation that requires financing on an integrated basis and
since each Collective Borrower expects to benefit from the continued successful
performance of such integrated operations and in order to best utilize the
collective borrowing powers of each Collective Borrower in the most effective
and cost efficient manner and to avoid adverse effects on the operating
efficiencies of each Collective Borrower and the existing back-office practices
of the Collective Borrowers, each Collective Borrower has requested that all
Revolving Loans and advances be disbursed solely upon the request of MAGI and
to bank accounts managed solely by it and that it will manage for the benefit
of each Collective Borrower the expenditure and usage of such funds.
3.7 After the end of each month, CITBC shall promptly send the
Companies a statement showing the accounting for the charges, loans, advances
and other transactions occurring between CITBC and the Companies during that
month. The monthly statements shall be deemed correct and binding upon each of
the Companies and shall constitute an account stated between the Companies and
CITBC unless CITBC receives a written statement of the exceptions within thirty
(30) days of the date of the monthly statement.
3.8 In the event the total balance of Revolving Loans (after giving
effect to all amounts which may be charged to the Companies' Revolving Loan
Account hereunder) plus outstanding Letters of Credit exceed the Borrowing
Base or the Revolving Line of Credit (herein the amount of any such excess
shall be referred to as the "Excess"), such Excess shall be due and payable to
CITBC for the benefit of CITBC immediately upon CITBC's demand therefor.
SECTION 4. Intentionally Omitted
SECTION 5. Letters of Credit
In order to assist the Companies in establishing or opening
documentary and standby Letters of Credit with an Issuing Bank to cover the
purchase of inventory from sources outside of the continental United States,
the Companies have requested CITBC to join in the applications for such Letters
of Credit, and/or guarantee payment or performance of such Letters of Credit
and any drafts or acceptances thereunder through the issuance of the Letters of
Credit Guaranty, thereby lending CITBC's credit to the Companies and CITBC has
agreed to do so. These arrangements shall be handled by CITBC subject to the
terms and conditions set forth below.
5.1 The purpose and extent of the standby Letters of Credit and
changes or modifications to any documentary or standby Letter of Credit by the
Companies and/or the Issuing Bank of the terms and conditions thereof shall in
all respects be subject to the prior approval of CITBC in the exercise of its
reasonable discretion provided however, that: a) in
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no event may the aggregate amount of all such outstanding documentary and
standby Letters of Credit exceed, in the aggregate, at any one time
$2,000,000.00 (the "Letter of Credit Line of Credit"); b) the Letters of Credit
and all documentation in connection therewith shall be in form and substance
satisfactory to the Companies, CITBC and the Issuing Bank; c) the Letters of
Credit Line of Credit shall be deemed to be a subline within the Revolving
Line of Credit and all Letters of Credit shall be (i) within the Revolving
Line of Credit, (ii) within Availability and (iii) reserved dollar for dollar
from Availability as an Availability Reserve; and (d) absent CITBC's consent
to the contrary, such Letters of Credit shall expire on or before any
applicable Anniversary Date.
5.2 CITBC shall have the right, without notice to the Companies, to
charge the Companies' Revolving Loan Account on CITBC's books with the amount
of any and all indebtedness, liability or obligation of any kind incurred by
CITBC under the Letters of Credit Guaranty pursuant to this Financing
Agreement at the earlier of a) payment by CITBC under the Letters of Credit
Guaranty, or b) the occurrence of an Event of Default and acceleration of the
Obligations hereunder (upon such charge, CITBC shall not charge the Companies
the fees due pursuant to paragraph 8.3 hereof). Any payment by CITBC pursuant
to any Letter of Credit Guaranty or any fees, charges or amounts charged to
the Companies' Revolving Loan Account pursuant to this Section 5 or paragraphs
8.3 and 8.4 hereof shall be deemed a Revolving Loan hereunder and shall incur
interest at the rate provided in Section 8, paragraph 8.1 of this Financing
Agreement.
5.3 Each of the Companies jointly and severally unconditionally
indemnifies CITBC and holds CITBC harmless from any and all loss, claim or
liability incurred by CITBC arising from any transactions or occurrences
relating to Letters of Credit established or opened for the Companies'
account, the collateral relating thereto and any drafts or acceptances
thereunder, and all obligations and liabilities thereunder, including any such
loss or claim due to any action taken by any Issuing Bank, other than for any
such loss, claim or liability arising out of the gross negligence or willful
misconduct by CITBC under the Letters of Credit Guaranty. Each of the
Companies further agrees to jointly and severally hold CITBC harmless from any
errors or omission, negligence or misconduct by the Issuing Bank. Each of the
Companies' unconditional obligations to CITBC hereunder shall not be modified
or diminished for any reason or in any manner whatsoever, other than as a
result of CITBC's gross negligence or willful misconduct. Each of the
Companies agrees that any charges incurred by CITBC for the Companies account
by the Issuing Bank shall be conclusive on CITBC and may be charged to the
Companies' Revolving Loan Account. Nothing herein shall be deemed to limit the
Companies' rights with respect to the Issuing Bank.
5.4 CITBC shall not be responsible for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; any difference or variation in
the character, quality, quantity, condition, packing, value or delivery of the
goods from that expressed in the documents; the validity, sufficiency
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or genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in which
shipment is made; partial or incomplete shipment, or failure or omission to
ship any or all of the goods referred to in the Letters of Credit or
documents; any deviation from instructions; delay, default, or fraud by the
shipper and/or anyone else in connection with the goods or the shipping
thereof; or any breach of contract between the shipper or vendors and the
Companies. Furthermore, without being limited by the foregoing, CITBC shall
not be responsible for any act or omission with respect to or in connection
with any such goods, absent its gross negligence or willful misconduct.
5.5 Each of the Companies agrees that any action taken by CITBC, if
taken in good faith, or any action taken by any Issuing Bank, under or in
connection with the Letters of Credit, the guarantees, the drafts or
acceptances, or the related goods, shall be binding on the Companies and shall
not put CITBC in any resulting liability to the Companies, absent CITBC's gross
negligence or willful misconduct. In furtherance thereof, CITBC shall have the
full right and authority to clear and resolve any questions of non-compliance
of documents; to give any instructions as to acceptance or rejection of any
documents or goods; to execute any and all steamship or airways guaranties (and
applications therefor), indemnities or delivery orders; to grant any extensions
of the maturity of, time of payment for, or time of presentation of, any
drafts, acceptances, or documents; and to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or
acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed by
or received solely from CITBC, all without any notice to or any consent from
the Companies.
5.6 Without CITBC's express consent and endorsement in writing, each
of the Companies agrees in respect of Letters of Credit for which Letter of
Credit Guaranties have been issued by CIT hereunder: a) not to execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances or documents; or to agree to
any amendments, renewals, extensions, modifications, changes or cancellations
of any of the terms or conditions of any of the applications, Letters of Credit
, drafts or acceptances; and b) after the occurrence of an Event of Default
which is not cured within any applicable grace period, if any, or waived by
CITBC, not to i) clear and resolve any questions of non-compliance of
documents, or ii) give any instructions as to acceptance or rejection of any
documents or goods.
5.7 Each of the Companies agrees that any necessary import, export
or other licenses or certificates for the import or handling of shipped goods
will have been promptly procured; all foreign and domestic governmental laws
and regulations in regard to the shipment and importation of the shipped goods,
or the financing thereof will have been promptly and fully
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complied with; and any certificates in that regard that CITBC may at any time
request will be promptly furnished. In this connection, each of the Companies
warrants and represents that all shipments made under any such Letters of
Credit are in accordance in all material respects with the laws and
regulations of the countries in which the shipments originate and terminate,
and are not prohibited by any such laws and regulations. Each of the Companies
assumes all risk, liability and responsibility for, and agrees to pay and
discharge, all present and future local, state, federal or foreign taxes,
duties, or levies. Any embargo, restriction, laws, customs or regulations of
any country, state, city, or other political subdivision, where the shipped
goods are or may be located, or wherein payments are to be made, or wherein
drafts may be drawn, negotiated, accepted, or paid, shall be solely the
Companies' risk, liability and responsibility.
5.8 Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Companies to the Issuing
Bank in any application for Letters of Credit , any standing agreement relating
to Letters of Credit or otherwise, all of which shall be deemed to have been
granted to CITBC and apply in all respects to CITBC and shall be in addition to
any rights, remedies, duties or obligations contained herein.
SECTION 6. Collateral
6.1 As security for the prompt payment in full of all loans and
advances made and to be made to the Companies from time to time by CITBC
pursuant hereto, as well as to secure the payment in full of the other
Obligations, subject to Permitted Encumbrances, each of the Companies hereby
pledges and grants to CITBC a first and exclusive continuing general lien upon
and security interest in all of its and their respective:
(a) present and hereafter acquired Inventory;
(b) present and hereafter acquired Equipment;
(c) present and future Accounts;
(d) present and future Documents of Title;
(e) present and future General Intangibles;
(f) now or hereafter issued capital stock of TKS, CCG, MAGIEP and
MAGIS owned of record by the Companies;
(g) Other Collateral;
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(h) any Real Estate pledged as collateral security (subsequent to the
Closing Date); and
(i) the proceeds of any and all of the foregoing.
6.2 The security interests granted hereunder shall extend and attach
to:
(a) All Collateral which is presently in existence and which is owned
by any of the Companies or in which any of the Companies have any interest,
whether held by the Companies or others for their account, and, if any
Collateral is Equipment, whether the applicable Company's interest in such
Equipment is as owner or lessee or conditional vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, tables, accretions, component parts thereof and
additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Companies from the
Companies' customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Companies, or to the sale, promotion
or shipment thereof.
6.3 Each of the Companies agrees to safeguard, protect and hold all
Inventory for CITBC's account and make no disposition thereof, provided that
the Companies may sell and/or lease their Inventory in the ordinary course of
the business of the Companies or pursuant to otherwise arms length transactions
and on fair and reasonable terms and as further provided herein. Absent the
occurrence of an Event of Default and notice from CITBC to the Companies to the
contrary, as provided for below, any Inventory may be sold and shipped by the
Companies to their customers in the ordinary course of the Companies' business,
on open account and on terms currently being extended by the Companies to their
customers, provided that all proceeds of all sales (including cash, accounts
receivable, checks, notes, instruments for the payment of money and similar
proceeds) are forthwith transferred, endorsed, and turned over and delivered to
CITBC for the benefit of CITBC in accordance with paragraph 3.4 of Section 3 of
this Financing Agreement. CITBC shall have the right to withdraw this
permission upon notice from CITBC to the Companies at any time upon the
occurrence of an Event of Default and until such time as such Event of Default
is waived or cured to CITBC's satisfaction, in which event no further
disposition shall be made of the Inventory by the Companies without CITBC's
prior written approval. Cash sales or sales of Inventory in which a lien upon,
or security interest in, Inventory is retained by such Companies shall be made
by the Companies only with the approval of CITBC, and the proceeds of such
sales or sales of inventory for cash shall not be commingled with the
Companies' other property, but shall be
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segregated, held by the Companies in trust for CITBC as CITBC's exclusive
property, and shall be delivered immediately by the Companies to CITBC in the
identical form received by the Companies by deposit to the Depository Account.
Upon the sale, exchange, or other disposition of Inventory, as herein provided,
the security interest in each of the Companies' Inventory provided for herein
shall, without break in continuity and without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sale, exchange or disposition. As to any such sale, exchange or other
disposition, CITBC shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation. Notwithstanding the
foregoing the Companies may make cash sales of Inventory, provided that (i) the
same arise from retail sales in the ordinary course of business and (ii) the
proceeds of such sales are turned over to CITBC by deposit in the Depository
Account.
6.4 Each of the Companies agrees at their own cost and expense to
keep the Equipment in as good and substantial repair and condition as the same
is now or at the time the lien and security interest granted herein shall
attach thereto, reasonable wear and tear excepted, making any and all repairs
and replacements when and where necessary. Each of the Companies also agrees
to safeguard, protect and hold all Equipment for CITBC's account and make no
disposition thereof unless the Companies first obtain the prior written
approval of CITBC. Any sale, exchange or other disposition of any Equipment
shall only be made by the Companies with the prior written approval of CITBC,
and the proceeds of any such sales shall not be commingled with the Companies'
other property, but shall be segregated, held by the Companies in trust for
CITBC for the benefit of CITBC as CITBC's exclusive property, and shall be
delivered immediately by the Companies to CITBC in the identical form received
by the Companies by deposit to the Depository Account. Upon the sale,
exchange, or other disposition of the Equipment, as herein provided, the
security interest provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and all
other cash and non-cash proceeds of such sales, exchange or disposition. As to
any such sale, exchange or other disposition, CITBC shall have all of the
rights of an unpaid seller, including stoppage in transit, replevin, rescission
and reclamation. Notwithstanding anything hereinabove contained to the
contrary, the Companies may sell, exchange or otherwise dispose of obsolete
Equipment or Equipment no longer needed in the Companies' operations, provided,
however, that (a) the then book value of the Equipment so disposed of does not
exceed $100,000 in the aggregate for the Companies in any fiscal year and (b)
the proceeds of such sales or dispositions are delivered to CITBC in accordance
with the foregoing provisions of this paragraph, except that the Companies may
retain and use such proceeds to purchase forthwith replacement Equipment which
the Companies determine in their reasonable business judgment to have a
collateral value at least equal to the Equipment so disposed of or sold,
provided, however, that the
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aforesaid right shall automatically cease upon the occurrence of an Event of
Default which is not cured within any applicable grace period or waived.
6.5 The rights and security interests granted to CITBC hereunder are
to continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the Revolving Loan Account maintained in
the Companies' name on the books of CITBC may from time to time be temporarily
in a credit position, until the final payment in full to CITBC of all
Obligations and the termination of this Financing Agreement. Any delay, or
omission by CITBC to exercise any right hereunder, shall not be deemed a
waiver thereof, or be deemed a waiver of any other right, unless such waiver
shall be in writing and signed by CITBC. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right or remedy on any future
occasion.
6.6 To the extent that the Obligations are now or hereafter secured
by any assets or property other than the Collateral or by the guarantee,
endorsement, assets or property of any other person, then CITBC shall have the
right in its sole discretion to determine which rights, security, liens,
security interests or remedies CITBC shall at any time pursue, foreclose upon,
relinquish, subordinate, modify or take any other action with respect to,
without in any way modifying or affecting any of them, or any of CITBC's rights
hereunder.
6.7 Any reserves or balances to the credit of the Companies and any
other property or assets of the Companies in the possession of CITBC may be
held by CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest CITBC may have in any
other assets of the Companies, shall secure payment and performance of all now
existing and future Obligations. CITBC may in its discretion charge any or all
of the Obligations to the Revolving Loan Account of the Companies when due.
6.8 The Companies shall use their best efforts to give to CITBC for
the benefit of CITBC from time to time such mortgage, deed of trust or
assignment on Real Estate acquired after the date hereof as CITBC shall require
to obtain a valid first lien thereon subject only to those exceptions of title
as set forth in future title insurance policies that are satisfactory to CITBC
and to the Permitted Encumbrances.
6.9 The Companies shall give to CITBC for the benefit of CITBC,
and/or shall cause the appropriate party to give to CITBC, from time to time
such pledge or security agreements with respect to General Intangibles (now or
hereafter acquired) and capital stock (now or hereafter issued to and held by
the Companies) of TKS, CCG, MAGIEP, JHL and MAGIS as CITBC shall require to
obtain valid first liens thereon. In furtherance of the foregoing, the
Companies shall provide timely notice to CITBC of any additional material
United States patents, trademarks, tradenames, service marks, copyrights, brand
names, trade names, logos and other trade designations acquired or applied for
subsequent to the Closing Date pursuant to
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filings under U.S. federal law and the Companies shall execute such
documentation as CITBC may reasonably require to obtain and perfect its lien
thereon. The Companies may enter into licensing agreements with respect to
their General Intangibles in the ordinary course of their business and on fair
and reasonable terms, provided that any such licensing agreements shall not
adversely affect CITBC's security interest therein.
SECTION 7. Representations, Warranties and Covenants
7.1 Each of the Companies hereby warrants and represents and/or
covenants that: i) the fair value of the Companies' assets on a consolidated
basis exceed the book value of the Companies' liabilities; ii) each of the
Companies is generally able to pay its debts as they become due and payable;
and iii) each of the Companies does not have unreasonably small capital to
carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances. Each of the Companies further warrants and
represents that: a) except for the Permitted Encumbrances, the security
interests granted herein constitute and shall at all times constitute the first
and only liens on the Collateral; b) Schedule 1 hereto correctly and completely
sets forth each of the Companies' chief executive office and all of the
Companies' Collateral locations and after filing of financing statements in the
applicable filing clerks office in the states listed on the Perfection
Certificate, this Financing Agreement, to the best of the Companies' knowledge
after due inquiry, creates a valid, perfected, first priority lien on the
Collateral, except for the Permitted Encumbrances; c) except for the Permitted
Encumbrances, each of the Companies is or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer and create a security interest
therein, free and clear of any and all claims or liens in favor of others; d)
each of the Companies will at their expense forever warrant and, at CITBC's
reasonable request, defend the same from any and all claims and demands of any
other person other than the Permitted Encumbrances; e) each of the Companies
will not grant, create or permit to exist, any lien upon or security interest
in the Collateral, or any proceeds thereof, in favor of any other person other
than the holders of the Permitted Encumbrances; f) the representations and
warranties in the Perfection Certificate are true and correct; and g) the
Equipment does not comprise a part of the Inventory of any of the Companies and
that the Equipment is and will only be used by any of the Companies in their
business and will not be held for sale or lease, or removed from their
premises, or otherwise disposed of by any of the Companies without the prior
written approval of CITBC except as otherwise permitted in paragraph 6.4 of
Section 6 of this Financing Agreement.
7.2 Each of the Companies agrees to maintain books and records
pertaining to the Collateral in such detail, form and scope as CITBC shall
reasonably require. Each of the Companies agrees that CITBC or its agents may
enter upon the Companies' premises at any time during normal business hours,
and from time to time, for the purpose of inspecting the Collateral, and any
and all records pertaining thereto. Each of the Companies agrees to afford
CITBC thirty (30) days prior written notice of any change in the location of
any Collateral,
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other than in the ordinary course of business and to locations, that as of the
date hereof, are known to CITBC and at which CITBC has filed financing
statements and otherwise fully perfected its liens thereon, subject to
Permitted Encumbrances. Each of the Companies is also to advise CITBC
promptly, in sufficient detail, of any material adverse change relating to the
type, quantity or quality of the Collateral or to the security interests
granted to CITBC therein.
7.3 Each of the Companies agrees to: execute and deliver to CITBC,
from time to time, solely for CITBC's convenience in maintaining a record of
the Collateral, such written statements, and schedules as CITBC may reasonably
require, designating, identifying or describing the Collateral pledged to CITBC
hereunder. Any of the Companies' failure, however, to promptly give CITBC such
statements, or schedules shall not affect, diminish, modify or otherwise limit
CITBC's security interests in the Collateral.
7.4 Each of the Companies agrees to comply with the requirements of
all state and federal laws in order to grant to CITBC valid and perfected first
security interests in the Collateral, subject only to the Permitted
Encumbrances. CITBC is hereby authorized by the Companies to file any
financing statements covering the Collateral whether or not such Companies'
signature appears thereon. Each of the Companies agrees to do whatever CITBC
may reasonably request, from time to time, by way of: searching records, filing
notices of liens, financing statements, amendments, renewals and continuations
thereof; cooperating with CITBC's custodians; keeping stock records;
transferring proceeds of Collateral to CITBC's possession; and performing such
further acts as CITBC may reasonably require in order to effect the purposes of
this Financing Agreement.
7.5 (a) Each of the Companies agrees to maintain insurance on its
Real Estate, Equipment and Inventory (wherever located), if any, under such
policies of insurance, with such insurance companies, in such reasonable
amounts and covering such insurable risks as are at all times reasonably
satisfactory to CITBC. CITBC acknowledges and accepts the insurance coverage
in effect as of the Closing Date as being satisfactory (solely with respect to
the Closing Date). All policies covering the Real Estate, Equipment and
Inventory are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, to be made payable to CITBC, for the benefit of
CITBC in case of loss, under a standard non-contributory "mortgagee", "lender"
or "secured party" clause and are to contain such other provisions as CITBC may
reasonably require to fully protect CITBC's interest in the Real Estate,
Inventory and Equipment and to any payments to be made under such policies.
All original policies or true copies thereof are to be delivered to CITBC,
premium prepaid, with the loss payable endorsement in CITBC's favor, and shall
provide for not less than thirty (30) days prior written notice to CITBC of the
exercise of any right of cancellation. At the Companies' request, or if any of
the Companies fail to maintain such insurance, CITBC may, in its reasonable
business judgement arrange for such insurance, but at the Companies' expense
and without any responsibility by CITBC's part and CITBC for: obtaining the
insurance, the solvency of the insurance companies, the adequacy of the
coverage, or the
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collection of claims. Upon the occurrence of an Event of Default which is not
waived or cured to CITBC's satisfaction, CITBC shall, subject to the rights of
any holders of Permitted Encumbrances holding claims senior to CITBC, have the
sole right, in the name of CITBC or the Companies, to file claims under any
insurance policies, to receive, receipt and give acquittance for any payments
that may be payable thereunder, and to execute any and all endorsements,
receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims
under any such insurance policies.
(b)(i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory of any Company shall first reduce the
Revolving Loan Account, provided that upon the occurrence of an Event of
Default CITBC may apply such proceeds as it may reasonably deem appropriate;
ii) In the event any part of any of the Companies' Real Estate or
Equipment is damaged by fire or other casualty and the insurance proceeds for
such damage or other casualty (the "Proceeds") are less than or equal to
$100,000.00, the Companies may in their discretion either apply such proceeds
to the restoration or replacement thereof or such proceeds shall reduce such
Company's outstanding Obligations and be applied to the Revolving Loan Account.
iii) As long as an Event of Default has not occurred (which is not
cured to CITBC's satisfaction), the Companies have sufficient business
interruption insurance to replace the related lost profits of any of the
Companies' facilities, and the Proceeds are in excess of $100,000.00, such
Companies may elect (by delivering written notice to CITBC) to apply all such
proceeds to replace, repair or restore such Real Estate or Equipment to
substantially the equivalent condition prior to such fire or other casualty as
set forth herein. If the Companies do not, or cannot, elect to use the
Proceeds as set forth above, CITBC may, subject to the rights of any holders of
Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to
the payment of the Obligations in such manner and in such order as CITBC may
reasonably elect. If the Companies elect to so use the Proceeds, proceeds of
insurance on Equipment and Real Estate in excess of $100,000.00 will be applied
to the reduction of the Revolving Loans. Prior to the commencement of any
restoration, repair or replacement of Real Estate, the Companies shall provide
CITBC with a restoration plan and a total budget certified by an independent
third party experienced in construction costing. If there are insufficient
Proceeds to cover the cost of restoration as so determined, the Companies shall
be responsible for the amount of any such insufficiency, and shall demonstrate
evidence of such prior to the commencement of restoration.
7.6 Each of the Companies agrees to pay, when due, all taxes,
assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon any of the Companies or the Collateral and if such taxes remain
unpaid after the date fixed for the payment thereof
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unless: (i) such taxes are being diligently contested in good faith by the
Companies by appropriate proceedings, (ii) the Companies establish such
reserves as may be required by GAAP or, in the alternative or in addition
thereto, CITBC establishes an Availability Reserve in such amount as CITBC may
determined in its reasonable discretion, or (iii) or if any lien shall be
claimed thereunder x) for taxes due the United States of America or any state
thereof having similar tax priority status, or y) which in CITBC's opinion
might create a valid obligation having priority over the rights granted to
CITBC herein, CITBC may, on the Companies' behalf, pay such taxes, and the
amount thereof shall be an Obligation secured hereby and due to CITBC on
demand.
7.7 Each of the Companies: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
any of the Companies' business; provided that the Companies may contest any
acts, rules, regulations, orders and directions of such bodies or officials in
any reasonable manner which will not, in CITBC's reasonable opinion, materially
and adversely affect CITBC's rights or priority in the Collateral; (b) shall
qualify to do business or shall provide CITBC with reasonable evidence that
they are exempt from any such qualifications and/or filing requirement for any
state requiring the filing of a business activity report or similar document in
order for the Companies to file a claim or other judicial remedy with respect
to any of their account debtors in such state, provided that the aggregate
amount of such Accounts in any such state exceed $10,000; (c) agrees to comply
with all environmental statutes, acts, rules, regulations or orders as
presently existing or as adopted or amended in the future applicable to the
ownership and/or use of their real property and operation of their business
which the failure to comply with would have a material and adverse impact on
the Collateral, or any material part thereof, or on the operation of the
business of the Companies. Each of the Companies jointly and severally hereby
indemnifies CITBC, and agrees to defend and hold CITBC harmless from and
against any and all loss, damage, claim, liability, injury or expense which
CITBC may sustain or incur (other than solely as a result of the physical
actions comprising gross negligence of CITBC on the Companies' premises) in
connection with: any claim or expense asserted against CITBC as a result of
any environmental pollution, hazardous material or environmental clean-up of
any of the Companies' Real Estate or any claim or expense which results from
any of the Companies' operations (including, but not limited to, any of the
Companies' off-site disposal practices); any claim or expense relating to any
of the Companies' Inventory and/or Equipment and each of the Companies further
agrees that this indemnification shall survive termination of this Financing
Agreement as well as the payment of all Obligations or amounts payable
hereunder; and (d) shall not be deemed to have breached any provision of
paragraph 7.7 (c) if (i) the failure to comply with the requirements of this
paragraph 7.7 resulted from good faith error or innocent omission, (ii) the
Companies promptly commence and diligently pursue a cure of such breach, (iii)
such failure is cured within fifteen (15) business days following the
Companies' receipt of notice of such failure, and (iv) such failure has not
resulted in a material
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adverse effect on the business, financial condition or operations of any of the
Companies or on the Collateral. Upon receipt by any of the Companies of any
notice of non-compliance with any applicable environmental rules or regulation,
of any required expenditures for compliance, any spill or omission or other
regulated "event", or any claim resulting from any of the Companies' business
or practices or relating to the Collateral, the applicable Companies shall
establish such reserves as may be required by GAAP or, in the alternative or in
addition thereto, CITBC may establish an Availability Reserve in such amount as
CITBC may require in its reasonable discretion (based on projected costs of
remediation as set forth in any applicable environmental audit).
7.8 Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Companies agree that, unless
CITBC shall have otherwise consented in writing, the Companies will furnish to
CITBC: (a) within ninety (90) days after the end of each fiscal year of the
Companies, an audited Consolidated Balance Sheet and (unaudited) Consolidating
Balance Sheet attached thereto (the latter shall be certified by the chief
financial officer of each Company as at the close of such year), and
statements of profit and loss, cash flow and reconciliation of surplus of the
Companies, their affiliates and all subsidiaries of each for such year, audited
by independent public accountants selected by the Companies and reasonably
satisfactory to CITBC, provided that the Companies shall provide CITBC with an
internal draft year end consolidated balance sheet, statement of profit and
loss and cash flow within sixty (60) days of each fiscal year end; (b) within
forty-five (45) days after the end of each fiscal quarter that is not the last
quarter of a fiscal year, a Consolidated Balance Sheet and Consolidating
Balance Sheet as at the end of such period and statements of profit and loss,
cash flow and surplus of the Companies and their subsidiaries of each,
certified by an authorized financial or accounting officer of the Companies;
(c) within forty-five (45) days after the end of each month that is not the
last month of a fiscal year a Consolidated Balance Sheet as at the end of such
period and statements of profit and loss, cash flow and surplus of the
Companies and all subsidiaries for such period, certified by an authorized
financial or accounting officer of the Companies; and (d) from time to time,
such further information regarding the business affairs and financial condition
of the Companies as CITBC may reasonably request, including without limitation
(a) the accountant's management practice letter and (b) annual cash flow
projections in form satisfactory to CITBC. Each financial statement which the
Companies are required to submit hereunder must be accompanied by an officer's
certificate, signed by the President, Vice President, Controller, or Treasurer,
pursuant to which any one such officer must certify that: (i) the financial
statement(s) fairly and accurately represent(s) the Companies' financial
condition at the end of the particular accounting period, as well as the
Companies' operating results during such accounting period, subject to year-end
audit adjustments; (ii) during the particular accounting period (y) there has
been no Default or Event of Default under this Financing Agreement, provided
however that, if any such officer has knowledge that any such Default or Event
of Default has occurred during such period, the existence of and a detailed
description of same shall be set forth in such officer's certificate and (z)
the Companies have not received any
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notice of cancellation with respect to their property insurance policies; and
(iii) the exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in this
Financing Agreement.
7.9 The Companies shall maintain at all times during the periods
below, Net Worth of not less than the following amounts during the following
periods:
a) MAGI shall maintain a Net Worth on a stand alone basis of not
less than $14,000,000 at all times.
b) TKS and CCG shall maintain a combined Net Worth of not less
than $50,000 at all times.
c) The Companies and their consolidated subsidiaries shall
maintain, on a consolidated basis, a Net Worth of not less than the following
amounts at all times during each of the following fiscal quarters:
Fiscal Quarter Net Worth
(i) Closing Date through March 31, 1997 $2,000,000
(ii) April 1, 1997 through June 30, 1997 $2,100,000
(iii) July 1, 1997 through September 30, 1997 $2,800,000
(iv) October 1, 1997 through December 31, 1997 $4,300,000
(v) January 1, 1998 through March 31, 1998 $4,500,000
(vi) April 1, 1998 through June 30, 1998 $4,700,000
(vii) July 1, 1998 through September 30, 1998 $5,500,000
(viii) October 1, 1998 through December 31, 1998 $6,900,000
(ix) January 1, 1999 and at all times thereafter $7,000,000
7.10 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, each of the Companies agrees
that, without the prior written consent of CITBC, except as otherwise herein
provided, the Companies or any one of them, will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any
lien, charge, security interest, encumbrance or judgment (whether as a result
of a purchase money or title retention transaction, or other security interest,
or otherwise), to exist on any of the Collateral, any other assets or goods,
capital stock, whether real, personal or mixed, whether now owned or hereafter
acquired, except for the Permitted Encumbrances;
B. Incur or create any Indebtedness other than the Permitted
Indebtedness;
C. Borrow any money on the security of the Companies' Collateral
from sources other than CITBC except for Permitted Indebtedness;
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D. Sell, lease, assign, transfer or otherwise dispose of i)
Collateral, except for the use of cash in the ordinary course of business or as
otherwise specifically permitted by this Financing Agreement or ii) either all
or substantially all of the Companies' assets, which do not constitute
Collateral;
E. Merge, consolidate or otherwise alter or modify their
corporate name, principal place of business, structure, status or existence, or
enter into or engage in any operation or activity materially different from
that presently being conducted by the Companies or acquire all or substantially
all of the stock or assets of any corporation or entity, except that the
Companies may (i) merge with each other and/or (ii) change their corporate name
or address, provided that in any instance under clause (i) and (ii), (x) the
Companies shall give CITBC thirty (30) days prior written notice thereof and
(y) the applicable Companies shall execute and deliver prior to or
simultaneously with any such action any and all documents and agreements
requested by CITBC (including, without limitation, any and all U.C.C. financing
statements) to confirm (A) the assumption by the surviving corporation of all
Obligations to CITBC of the other Company so merged, (B) the continuation and
preservation of all security interests and liens granted to CITBC hereunder,
and (C) that such surviving corporation adopts, ratifies and confirms its
agreement to be bound by and comply with this Financing Agreement;
F. Assume, guarantee, endorse, or otherwise become liable upon
the obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and except for obligations of
other Companies with respect to leased obligations;
G. Except for inter-company loans or distributions set forth in
(H) below, declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding, and MAGI and the Companies
shall not make any cash payments pursuant to any now or hereafter issued
warrants or warrant agreements and any "put" or "call" rights thereunder,
including without limitation any warrant or similar agreements with LLCP,
and/or pursuant to any convertible notes issued to ▇▇▇▇ ▇▇▇▇, JHL or any
affiliate thereof, except that: (a) TKS or CCG may declare and pay dividends
on their capital stock to MAGI and the Companies may redeem the capital stock
owned by its or their retired, deceased or terminated officers or shareholders
which MAGI is contractually obligated to redeem, provided that, in no event
shall the aggregate amount of such dividends under this clause (a) exceed
$100,000.00 in the aggregate in any fiscal year; (b) pay income or franchise
taxes of the Companies due as a result of the filing of a consolidated,
combined or unitary tax return in which the operations of the Companies are
included, provided further that, in any instance under this subparagraph G, i)
the Companies, or any one of them, are not then in breach or violation of this
Financing Agreement, ii) after giving effect to such payment, no Default or
Event of Default has occurred hereunder, and iii) each of the Companies has
sufficient working capital to pay its debts as they come due;
H. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation, provided that the Companies may make (a)
inter-company loans in an amount not to exceed $1,000,000 in the aggregate at
any one time outstanding and (b) loans and advances
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39
to their employees in the ordinary course of their business in an amount not to
exceed $250,000 in the aggregate at any one time outstanding; or
I. Make any cash payments to ▇▇▇▇ ▇▇▇▇, JHL or any affiliates
thereof.
7.11 Without the prior written consent of CITBC, the Companies will
not: a) enter into any Operating Lease if after giving effect thereto the
aggregate obligations, on a consolidated basis, with respect to Operating
Leases of the Companies during any fiscal year would exceed $3,000,000 or b)
contract for, purchase, make expenditures for, lease pursuant to a Capital
Lease or otherwise incur obligations, on a consolidated basis, with respect to
Capital Expenditures (whether subject to a security interest or otherwise)
during any period below in the aggregate amount in excess of:
a) $300,000.00 for the fiscal quarter ending March 31, 1997;
b) $2,000,000.00 for the fiscal year ending March 31, 1998; and
c) $2,200,000.00 for the fiscal year ending March 31, 1999, and
for each fiscal year ending thereafter.
7.12 The Companies shall maintain a Fixed Charge Coverage Ratio
(calculated at the end of each fiscal quarter indicated below for the
applicable period) of at least:
Period Ratio
a) For the two (2) fiscal quarters ending
March 31, 1997 1.05 to 1.0
b) For the three (3) fiscal quarters ending
June 30, 1997 1.05 to 1.0
c) For the four (4) fiscal quarters ending
September 30, 1997 1.05 to 1.0
d) and the four (4) fiscal quarters ending
December 31, March 31, June 30,
September 30 and thereafter 1.05 to 1.0
For purposes hereof the calculation of the Fixed Charge Coverage Ratio shall
not include: (I) the $150,000 fee payment and the $592,500 principal payment to
LLCP made on or about the Closing Date by the Companies; (ii) any amount
received pursuant to the Tax Refund and (iii) the $2,000,000 principal payment
which is anticipated to be made to LLCP in accordance with paragraph 10.1 (h)
hereof.
7.13 Notwithstanding any provision to the contrary contained herein,
in the event that the Companies' aggregate Availability for each day of the
thirty (30) day period immediately preceding any applicable calculation date
for any of the above Financial Covenants is $2,500,000 or more, such Financial
Covenants shall not be effective solely for any such
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calculation date and the Companies shall have no obligation hereunder to comply
with such Financial Covenants with respect to such calculation date. The
foregoing contemplates that the Companies' accounts payable and any other
Indebtedness is current in the ordinary course of business of each Company
(excluding debts and obligations relating to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
and JHL).
7.14 The Companies shall maintain life insurance on (a) ▇▇▇▇▇▇
Kinkade in the amount of not less than $5,000,000.00 and (b) ▇▇▇ ▇▇▇▇▇▇ in the
amount of not less than $1,000,000, and assign to CITBC within thirty (30) days
of the Closing Date, all rights under the aforesaid life insurance policies as
additional collateral for the Obligations.
7.15 Each of the Companies agrees to advise CITBC in writing of: a)
all expenditures (actual or anticipated) in excess of $150,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental testing
and the impact of said expenses on such Company's working capital; and b) any
notices any of the Companies receive from any local, state or federal authority
advising the Companies of any environmental liability (real or potential)
stemming from any of the Companies' operations, their premises, their waste
disposal practices, or waste disposal sites used by any of the Companies and to
provide CITBC with copies of all such notices.
7.16 Without the prior written consent of CITBC, each of the
Companies agrees that they will not enter into any transaction, including,
without limitation, any purchase, sale, lease, loan or exchange of property
with any of the Companies or their subsidiaries or affiliates, provided that
the Companies may extend or amend any such transactions in effect as of the
Closing Date and enter into sale and service transactions in the ordinary
course of their business and pursuant to the reasonable requirements of such
Company with such other Company or its subsidiaries or affiliates upon fair and
reasonable terms or less favorable to such Company, subsidiary or affiliate
than could be obtained in a comparable arms-length transaction with an
unrelated third party, provided further that no Default or Event of Default
exists or will occur hereunder prior to and after giving effect to such
transaction.
7.17 CCG shall merge with TKS on or before April 30, 1997 and TKS
shall be the survivor thereof, all in form and substance satisfactory to CITBC.
SECTION 8. Interest, Fees and Expenses
8.1 a) Interest on the Revolving Loans shall be payable monthly as of
the end of each month and with respect to Chase Bank Rate Loans shall be an
amount equal to the lesser of (a) the Maximum Legal Rate or (b) the Chase Bank
Rate plus one percent (1%) per annum on the average of the net balances owing
by the Companies to CITBC in the Companies' Revolving
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Loan Account at the close of each day during such month. In the event of any
change in said Chase Bank Rate, the rate hereunder shall change, as of the
first of the month following any change, so as to remain one percent (1%) above
the Chase Bank Rate. The rate hereunder shall be calculated based on a 360-day
year. CITBC shall be entitled to charge the Companies' Revolving Loan Account
at the rate provided for herein when due until all Obligations have been paid
in full.
b) Subject to compliance with each of the conditions set forth
below, and for periods ending subsequent to September 30, 1997, the Companies
will be entitled to interest rate concessions (each an "Interest Rate
Concession") as outlined below:
(x) if the Companies maintain an EBITDA of more than $8,000,000 for
any consecutive twelve (12) month period tested at the end of each fiscal
quarter, the interest rates set forth in subparagraph (a) above will be reduced
by one-quarter of one percent (1/4 of 1%) as of the effective date indicated
below and only after the CITBC's receipt of the Companies' financial statements
(as more fully provided in Section 7, Paragraph 7.8 hereof) for such twelve
(12) month period, provided that the Companies shall be entitled to only one
(1) 1/4 of 1% Interest Rate Concession under this clause (x), provided
further that in the event that the Companies shall, at any time after the
effective date of any Interest Rate Concession hereunder, fail to maintain the
EBITDA (calculated and tested in accordance with the provisions hereof)
required to achieve any such Interest Rate Concession, the rate in subparagraph
(a) above shall be increased (as of the effective date determined below) by one
quarter of one percent (1/4 of 1%); and
(y) if the Companies maintain an EBITDA of more than $10,000,000 for
any consecutive twelve (12) month period tested at the end of each fiscal
quarter, the interest rates set forth in subparagraph (a) above will be further
reduced by one quarter of one percent (1/4 of 1%) as the effective date
indicated below and only after CITBC's receipt of the Companies' financial
statements (as more fully provided in Section 7, Paragraph 7.8 hereof) for
such twelve (12) month period, provided that the Companies shall be entitled to
only one (1) 1/4 of 1% Interest Rate Concession under this clause (y), provided
further that in the event that the Companies shall, at any time after the
effective date of any Interest Rate Concession hereunder, fail to maintain the
EBITDA (calculated and tested in accordance with the provisions hereof)
required to achieve any such Interest Rate Concession, the rate in subparagraph
(a) above shall be increased (as of the effective date determined below) by one
quarter of one percent (1/4 of 1%);.
In addition to the foregoing requirements, each Interest Rate
Concession is subject to the Companies' compliance with each of the following
conditions:
i) timely receipt of the Companies' financial statements referred
to above;
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ii) the absence of any Default or Event of Default on the date of
receipt of such financial statements and the absence of any Default or Event of
Default on the effective date of any Interest Rate Concession;
iii) as to the spread over the Chase Bank Rate, the Interest Rate
Concession will be effective on the first day of the month occurring after
receipt of such financial statements; and
iv) in no event may the total of all Interest Rate Concessions
exceed one-half of one percent ( 1/2 of 1%).
8.2 Intentionally Omitted
8.3 In consideration of the Letter of Credit Guaranty of CITBC, the
Companies shall pay CITBC the Letter of Credit Guaranty Fee which shall be an
amount equal to (a) one and one half percent (1.5%) per annum, payable
monthly, on the face amount of each standby Letter of Credit less the amount of
any and all amounts previously drawn under such Letter of Credit, and (b) one
and one half percent (1.5%) of the face amount of each documentary Letter of
Credit, payable upon issuance, in each case to the extent CITBC has issued a
Letter of Credit Guaranty in connection therewith.
8.4 Any charges, fees, commissions, costs and expenses charged to
CITBC for the Companies' account by any Issuing Bank in connection with or
arising out of Letters of Credit issued pursuant to this Financing Agreement
or out of transactions relating thereto will be charged to the Companies'
Revolving Loan Account in full when charged to or paid by CITBC and when made
by any such Issuing Bank shall be conclusive on CITBC.
8.5 The Companies shall jointly and severally reimburse or pay CITBC,
as the case may be, for: (i) all Out-of-Pocket Expenses of CITBC and (ii) any
applicable Documentation Fee (other than such portion paid pursuant to Section
8.7).
8.6 Upon the last Business Day of each month, commencing with
February 28, 1997, the Companies shall jointly and severally pay CITBC the Line
of Credit Fee.
8.7 To induce CITBC to enter into this Financing Agreement and to
extend to the Companies the Revolving Loans and Letters of Credit Guaranties,
the Companies shall jointly and severally pay to CITBC a Loan Facility Fee in
the amount of $75,000.00 (which amount includes the Documentation Fee in
subparagraph (i) of the definition thereof) payable upon execution of this
Financing Agreement, provided that the $50,000 Commitment Fee previously paid
by the Companies to CITBC shall be either returned to the Companies or credited
against the foregoing Loan Facility Fee.
8.8 On the Closing Date and each anniversary of the Closing Date
thereafter, the Companies shall jointly and severally pay to CITBC the
Collateral Management Fee.
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8.9 The Companies shall jointly and severally pay CITBC's standard
charges for, and the fees and expenses of, CITBC personnel used by CITBC for
reviewing the books and records of the Companies and for verifying, testing
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral provided, however, that the foregoing shall not be payable until the
occurrence of an Event of Default if the Companies are paying a Collateral
Management Fee.
8.10 Each of the Companies hereby (i) confirms that it is jointly
and severally liable for any and all Obligations hereunder, and (ii) authorizes
CITBC to charge the Companies' Revolving Loan Account or other such other
account maintained with CITBC with the amount of any and all Obligations and/or
payments due hereunder as such payments become due; all irrespective of whether
any such amount is due from such Company. The Companies confirm that any
charges which CITBC may so make to the Companies' Revolving Loan Account as
herein provided will be made as an accommodation to the Companies and solely at
CITBC's discretion.
SECTION 9. Powers
Each of the Companies hereby constitutes CITBC or any person or agent
CITBC may designate as their attorney-in-fact, at the Companies' cost and
expense, to exercise all of the following powers, which being coupled with an
interest, shall be irrevocable until all of the Companies' Obligations to CITBC
have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the
name of CITBC or any of the Companies, any and all checks, notes, drafts, and
other documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to any of the
Companies and to notify postal authorities to change the address for delivery
thereof to such address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in
the name of CITBC or any of the Companies or that of CITBC's designee,
information concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make payment
directly to CITBC for the Companies' account; and
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(e) To take or bring, in the name of CITBC or any of the Companies,
all steps, actions, suits or proceedings deemed by CITBC necessary or desirable
to enforce or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of Default
is waived in writing by CITBC or cured to CITBC's satisfaction. In addition,
absent the occurrence of a Default or Event of Default, the powers set forth in
(c) above will only be exercised in the name of the Companies or a certified
public accountant designated by CITBC.
SECTION 10. Events of Default and Remedies
10.1 Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any of
the following (herein "Events of Default"):
a) cessation of the business of the Companies, or any one of them
or the calling by the Companies of a meeting of the creditors of the Companies,
or any one of them for purposes of compromising its or their debts and
obligations, excluding the Companies negotiation of their Indebtedness
allegedly due to ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and/or shareholders or
creditors of JHL;
b) the failure of the Companies, or any one of them, to generally
meet its or their debts as they mature (excluding debts relating to JHL and
▇▇▇▇ ▇▇▇▇);
c) (i) the commencement by any of the Companies or the Guarantors
of any bankruptcy, insolvency, arrangement (including a general assignment for
the benefit of creditors), reorganization, receivership or similar proceedings
under any federal or state law; and (ii) the commencement against any of the
Companies or the Guarantors of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any federal or state
law by creditors of the Companies or any one of them, as applicable, which
proceeding shall not have been controverted within ten (10) days or shall not
have been dismissed and vacated within thirty (30) days of commencement, or any
of the actions sought in any such proceeding shall occur or the Companies (or
Company, as applicable) shall take action to authorize or effect any of the
actions in any such proceeding;
d) breach by the Companies, or any one of them, in any material
respect of any warranty, representation or covenant contained herein (other
than those referred to in sub-paragraph e below), the Loan Documents or in any
other written agreement between the Companies and CITBC, provided that such
breach by such Companies of any of the warranties, representations or covenants
referred in this clause (d) shall not be deemed to be
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an Event of Default unless and until such breach shall remain unremedied to
CITBC's satisfaction for a period of thirty (30) days from the date of notice
of such breach;
e) breach by the Companies, or any one of them, of any warranty,
representation or covenant of Section 3, the first two sentences of Paragraph
3.3, and Paragraph 3.4; Section 6, Paragraphs 6.3 and 6.4 (other than the
first sentence of paragraph 6.4); Section 7, Paragraphs 7.1, 7.5, 7.6, and 7.9
through 7.12;
f) failure of any of the Companies to pay any of the Obligations
within five (5) Business Days of the due date thereof, provided that nothing
contained herein shall prohibit CITBC from charging such amounts to the
Companies' Revolving Loan Account on the due date thereof;
g) the Companies, or any one of them, shall I) engage in any
"prohibited transaction" as defined in ERISA, ii) have any "accumulated funding
deficiency" as defined in ERISA, iii) have any Reportable Event as defined in
ERISA, iv) terminate any Plan, as defined in ERISA or v) be engaged in any
proceeding in which the Pension Benefit Guaranty Corporation shall seek
appointment, or is appointed, as trustee or administrator of any Plan, as
defined in ERISA, and with respect to this sub-paragraph (g) such event or
condition x) remains uncured for a period of thirty (30) days from date of
occurrence and y) could, in the reasonable opinion of CITBC, subject the
Companies to any tax, penalty or other liability material to the business,
operations or financial condition of any of the Companies;
h) without the prior written consent of CITBC, the Companies
shall x) amend or modify the Subordinated Debt, y) make any payment on account
of the Subordinated Debt, except for regularly scheduled payments of principal
and interest (absent prepayment or acceleration), as expressly permitted in the
Subordination Agreement, provided that the Companies may pay (i) a $11,500 fee
and a principal payment of approximately $592,000 on or about the Closing Date,
provided that the Companies' availability is in an amount of $1,000,000 or
more after giving effect to any such payments (the foregoing contemplates that
the Companies' payables are current in the ordinary course of their business),
and (ii) a payment of up to $2,000,000 A) after receipt of the Tax Refund,
provided that such payment does not exceed the amount of the Tax Refund, or B)
on or about December 15, 1997, provided that, after giving effect to the
foregoing payment the Companies' aggregate Availability is in an amount of
$4,000,000 or more (the foregoing contemplates that each of the Companies'
accounts payable and other Indebtedness is current in the ordinary course of
business (excluding debts and obligations relating to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇ and JHL)), or z) fail to deliver or cause to be delivered any now or
hereafter issued capital stock of TKS, CCG, MAGIEP and MAGIS;
i) upon the occurrence of an event of default which would permit
the Indebtedness due thereunder to be accelerated pursuant to (i) any of the
Subordinated Debt, or (ii) any document or agreement of the Companies, or any
one of them, evidencing Indebtedness of any of the Companies in excess of the
amount of $100,000;
j) (I) ▇▇▇ ▇▇▇▇▇▇ ceases for any reason whatsoever (other than as
a result of death or disability) to be actively engaged in the management of
the Companies, (ii) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ceases for any reason whatsoever (other than
as a result of death or disability) to be
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actively engaged as a director of and art director to the Companies, or (iii)
upon the occurrence of a "change of control" (as set forth in the Senior
Secured Subordinated Note and agreements between LLCP and the Companies);
k) upon the occurrence of any material breach pursuant to the
Companies' worldwide licensing agreement with ▇▇▇▇▇▇ Kinkade or upon (i)
termination thereof, or (ii) any modification or amendment thereof in any
material adverse manner to the Companies; or
l) the Companies failure to file applicable federal tax returns
on or before July 10, 1997 with respect to the Tax Refund.
10.2 Upon the occurrence of a Default and/or an Event of Default,
CITBC may, at its option, declare that, all loans, advances and extensions of
credit provided for in paragraph 3.1 of Section 3, 4 and 5 of this Financing
Agreement shall be thereafter in CITBC's sole discretion and the obligation of
CITBC to make Revolving Loans and/or open Letters of Credit shall cease unless
such Default or Event of Default is waived in writing by CITBC or cured to
CITBC's satisfaction, and upon the occurrence of an Event of Default CITBC may,
at its option, declare that: i) all Obligations shall become immediately due
and payable; ii) CITBC may charge the Companies the Default Rate of Interest on
all then outstanding or thereafter incurred Obligations in lieu of the interest
provided for in Section 8 of this Financing Agreement provided that in respect
to clause "(ii)" above a) CITBC has given the Companies written notice of the
Event of Default, provided, however, that no notice is required if the Event of
Default is the Event listed in paragraphs 10.1(a), (b) or (c) of this Section
10 and b) the Companies have failed to cure the Event of Default within ten
(10) days after x) CITBC deposited such notice in the United States mail or y)
immediately upon the occurrence of the Event of Default listed in paragraph
10.1(a), (b) or (c) of this Section 10; and iii) CITBC may immediately
terminate this Financing Agreement upon notice to the Companies, provided,
however, that no notice of termination is required if the Event of Default is
the Event listed in paragraph 10.1(a), (b) or (c) of this Section 10. The
exercise of any option is not exclusive of any other option which may be
exercised at any time by CITBC.
10.3 Immediately upon the occurrence of any Event of Default, CITBC
may, at its option, and to the extent permitted by law and subject to the
rights of any holders of Permitted Encumbrances holding claims senior to CITBC:
(a) remove from any premises where same may be located any and all documents,
instruments, files and records, and any receptacles or cabinets containing
same, relating to the Accounts, or CITBC may use, at the Companies' expense,
such of the Companies' personnel, supplies or space at the Companies' places of
business or otherwise, as may be necessary to properly administer and control
the Accounts or the handling of collections and realizations thereon; (b) bring
suit, in the name of the Companies or CITBC, and generally shall have all other
rights respecting said Accounts, including without limitation the right to:
accelerate or extend the time of payment, settle, compromise, release in whole
or in part any amounts owing on any Accounts and issue credits in the name of
any of the Companies or CITBC; (c) sell, assign and deliver the Collateral and
any returned, reclaimed or repossessed merchandise, with or without
advertisement, at public
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or private sale, for cash, on credit or otherwise, at CITBC's sole option and
discretion, and CITBC may bid or become a purchaser at any such sale, free from
any right of redemption, which right is hereby expressly waived by each of the
Companies; (d) foreclose the security interests created herein by any available
judicial procedure, or to take possession of any or all of the Inventory and
Equipment and/or Other Collateral without judicial process, and to enter any
premises where any Inventory and Equipment and/or Other Collateral may be
located for the purpose of taking possession of or removing the same and (e)
exercise any other rights and remedies provided in law, in equity, by contract
or otherwise. CITBC shall have the right, without notice or advertisement, to
sell, lease, or otherwise dispose of all or any part of the Collateral whether
in its then condition or after further preparation or processing, in the name
of any of the Companies or CITBC, or in the name of such other party as CITBC
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as CITBC in their
sole discretion may deem advisable, and CITBC shall have the right to purchase
at any such sale. If any Inventory and Equipment shall require rebuilding,
repairing, maintenance or preparation, CITBC shall have the right, at its
option and in its reasonable business judgement, to do such of the aforesaid as
is necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as CITBC shall deem appropriate. Each of the Companies agrees,
at the request of CITBC, to assemble the Inventory and Equipment and to make it
available to CITBC at premises of any of the Companies or elsewhere and to make
available to CITBC the premises and facilities of the Companies for the purpose
of CITBC's taking possession of, removing or putting the Inventory and
Equipment in saleable form. However, if notice of intended disposition of any
Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The net
cash proceeds resulting from CITBC's exercise of any of the foregoing rights,
(after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by CITBC to the payment of the Companies'
Obligations, whether due or to become due, in such order as CITBC may elect,
and the Companies shall remain liable to CITBC for any deficiencies, and CITBC
in turn agrees to remit to the Companies or their successors or assigns, any
surplus resulting therefrom. The enumeration of the foregoing rights is not
intended to be exhaustive and the exercise of any right shall not preclude the
exercise of any other rights, all of which shall be cumulative. The mortgage,
deed of trust or assignment on Real Estate shall govern the rights and remedies
of CITBC with respect thereto.
SECTION 11. Termination
Except as otherwise permitted herein, the Companies and CITBC may
terminate this Financing Agreement and the Line of Credit only as of the
initial or any subsequent Anniversary Date and then only by giving the other at
least sixty (60) days prior written notice of termination. Notwithstanding the
foregoing CITBC may terminate the Financing
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Agreement immediately upon the occurrence of an Event of Default, provided,
however, that if the Event of Default is an event listed in paragraph 10.1(a)
(b) (c) of Section 10 of this Financing Agreement, CITBC may regard the
Financing Agreement as terminated and notice to that effect is not required.
This Financing Agreement, unless terminated as herein provided, shall
automatically continue from Anniversary Date to Anniversary Date.
Notwithstanding the foregoing, the Companies may terminate this Financing
Agreement and the Line of Credit prior to any applicable Anniversary Date upon
sixty (60) days' prior written notice to CITBC and payment of the Early
Termination Fee. All Obligations shall become due and payable as of any
termination hereunder or under Section 10 hereof and, pending a final
accounting, CITBC may withhold any balances in the Companies' Revolving Loan
Account (unless supplied with an indemnity satisfactory to CITBC) to cover all
of the Companies' Obligations, whether absolute or contingent. All of CITBC's,
liens and security interests shall continue after any termination until all
Obligations have been paid and satisfied in full.
SECTION 12. Miscellaneous
12.1 Each of the Companies hereby waives diligence, demand,
presentment and protest and any notices thereof as well as notice of
nonpayment. No delay or omission of CITBC or the Companies to exercise any
right or remedy hereunder, whether before or after the happening of any Event
of Default, shall impair any such right or shall operate as a waiver thereof or
as a waiver of any such Event of Default. No single or partial exercise by
CITBC of any right or remedy precludes any other or further exercise thereof,
or precludes any other right or remedy.
12.2 THIS WRITTEN AGREEMENT, THE LOAN DOCUMENTS AND THE OTHER
DOCUMENTS REFERENCED HEREIN OR CONTEMPLATED HEREBY REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES, SUPERSEDES ANY PRIOR AGREEMENTS AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO, MAY ONLY BE MODIFIED IN WRITING SIGNED BY THE
PARTIES HERETO, AND SHALL BIND THE RESPECTIVE PARTIES HERETO AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
AMONG THE PARTIES.
12.3 In no event shall the Companies, or any one of them, upon demand
by CITBC for payment of any indebtedness relating hereto, by acceleration of
the maturity thereof, or otherwise, be obligated to pay interest and fees in
excess of the amount permitted by law. Regardless of any provision herein or
in any agreement made in connection herewith, CITBC shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto, any
amount in excess of the maximum amount of interest permissible under applicable
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law (herein "Maximum Legal Amount"). It is the intent of the Companies and
CITBC to conform strictly to all applicable state and federal usury laws. All
agreements between the Companies and CITBC whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of the
maturity hereof or otherwise, shall the amount contracted for, charged or
received by CITBC for the use, forbearance, or detention of the money loaned
hereunder or otherwise, or for the payment or performance of any covenants or
obligations contained herein or in any other document evidencing, securing or
pertaining to the Obligations evidenced hereby which may be legally deemed to
be for the use, forbearance or detention of money, exceed the maximum amount
which any of the Companies is legally entitled to contract for, charge or
collect under applicable state or federal law. If from any circumstance
whatsoever fulfillment of any provision hereof or of such other documents, at
the time performance of such provision shall be due, shall involve transcending
the limit of validity prescribed by law, then the obligation to be fulfilled
shall be automatically reduced to the limit of such validity, and if from any
such circumstance CITBC shall ever receive as interest or otherwise an amount
in excess of the maximum that can be legally collected, then such amount which
would be excessive interest shall be applied to the reduction of the principal
indebtedness hereof and any other amounts due with respect to the Obligations
evidenced hereby, but not to the payment of interest and if such amount which
would be excessive interest exceeds the Obligations and all other non interest
indebtedness described above, then such additional amount shall be refunded to
the Companies. This paragraph shall control every other provision hereof and
any other agreement made in connection herewith.
12.4 If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected by
such provision's severance. Furthermore, in lieu of any such provision, there
shall be added automatically as a part of the applicable agreement a legal and
enforceable provision as similar in terms to the severed provision as may be
possible.
12.5 EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. EACH OF THE
COMPANIES HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO
SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
12.6 Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
confirmed telegram, telecopy or telex, or three days after deposit in the
United States mails, with proper first class postage prepaid and addressed to
the party to be notified as follows:
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(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Regional Manager
(B) if to the Companies at:
c/o Media Arts Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇▇
or to such other address as any party may designate for itself by like notice.
12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
12.8 The Companies have made and will, from time to time, make
available to CITBC certain non-public and confidential financial and other
business information (the "Confidential Information") relating to their
businesses. CITBC agrees to maintain the confidentiality of all Confidential
Information provided to CITBC by or on behalf of the Companies or any of their
subsidiaries, and to disclose such information only (a) to officers, directors
or employees of CITBC or to CITBC's legal or financial advisors or its
affiliates or assigns, in each case to the extent necessary to carry out this
Financing Agreement and the other Loan Documents in the ordinary course of its
business and consistent with its practices, (b) to any other person to the
extent the disclosure of such information to such person is required in
connection with the examination of CITBC's records by appropriate authorities,
or pursuant to court order, subpoena or other legal process, or otherwise as
required by law or regulation, and (c) to participants or potential
participants or co-lenders, but only after such participants or potential
participants have executed a written confidentiality agreement substantially in
the form of this paragraph 12.8. CITBC shall not be required to maintain the
confidentiality of any portion of the Confidential Information which (a)
becomes generally available to the public other than by CITBC's unauthorized
disclosure, (b) is know by CITBC or its agents, affiliates, directors,
officers, advisors or representatives prior to disclosure by the Companies or
(c) becomes available to CITBC from a source other than the Companies, provided
that the disclosure of Confidential Information to CITBC by such source does
not violate a confidentiality agreement or duty imposed on such source of which
CITBC has actual knowledge.
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12.9 This Financing Agreement embodies the whole agreement of the
parties and may not be modified except in writing, and no course of dealing
between CITBC and any of the Companies shall be effective to change or modify
this Financing Agreement. CITBC's failure to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or any
other right at any other time and from time to time thereafter, and such rights
shall be considered as cumulative rather than alternative. No knowledge of any
breach or other nonobservance by any of the Companies of the terms and
provisions of this Financing Agreement shall constitute a waiver thereof, nor a
waiver of any obligations to be performed by the Companies hereunder.
Upon a default by the Companies, CITBC may elect to non-judicially or
judicially foreclose against any real or personal property security CITBC
holds for the Obligations, or any part thereof, or exercise any other remedy
against the Companies or the Collateral. No such action by CITBC will release
or limit the liability of the Companies hereunder, even if the effect of that
action is to deprive the Companies of the right to collect reimbursement from
any of the other Companies for any sums paid to CITBC.
The Companies hereby acknowledge and agree that the Companies are
knowingly waiving in advance as a result of the provisions hereof a complete or
partial defense it or they may later have had arising from CCP Section 580d or
580a based upon the CITBC's subsequent election to conduct a private
nonjudicial foreclosure sale, even though such election would destroy, diminish
or affect either the Companies' rights against the principal obligor or the
Companies' rights to pursue the principal obligor for reimbursement,
subrogation, contribution or indemnity.
Without limiting the foregoing or any provision hereof, the Companies
hereby expressly waive any and all rights, estoppels and benefits which might
otherwise be available from time to time under California Civil Code Sections
2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899 and 3433, and California Code of
Civil Procedure Sections 580a, 580b, 580d and 726, or any of such sections.
Each of the Companies represents and warrants to CITBC that the
execution, delivery and performance of this Financing Agreement, and of any
documents securing the obligations under this Financing Agreement, (a) are not
done with actual intent to hinder, delay or defraud creditors, (b) are not done
at a time when the fair value of their consolidated assets, are less than their
consolidated debts, (c) are not done at a time when any such Company intends or
believes or reasonably should believe that it will incur debts beyond its
ability to pay as such debts mature or otherwise become due and (d) based upon
the Companies' historical needs and future projections, are not done at a time
when they are engaged in business or a transaction, or are about to engage in
business or a transaction, for which their property is unreasonably small
capital or for which their remaining assets are unreasonably small in relation
to their
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business or transaction absent extraordinary and unforeseen circumstances.
Each of the Companies hereby confirms that each of the waivers set forth herein
are made with full knowledge of their significance and consequences and after
due deliberation.
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IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above. This Financing Agreement shall take
effect as of the date set forth above after being accepted below by an officer
of CITBC after which, CITBC shall forward to the Companies a fully executed
original for its files.
Very truly yours,
The CIT Group/Business Credit, Inc.
as Lender
By /s/ ▇▇▇▇ ▇▇▇▇▇
---------------------------------
Vice President
Read and Agreed to:
Media Arts Group, Inc.
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Title: President
▇▇▇▇▇▇ Kinkade Stores, Inc.
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Title: President
California Coast Galleries, Inc.
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Title: President
Executed and Accepted at
Los Angeles, CA
The CIT Group/Business Credit, Inc.
as Lender
By /s/ ▇▇▇▇ ▇▇▇▇▇
---------------------------------
Vice President
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EXHIBIT A
REVOLVING CREDIT NOTE
February 21, 1997
$10,000,000
FOR VALUE RECEIVED, the undersigned, Media Arts Group, Inc., ▇▇▇▇▇▇ Kinkade
Stores, Inc., and California Coast Galleries, Inc. (the "Companies"), hereby
absolutely and unconditionally promise to pay to the order of The CIT
Group/Business Credit, Inc., (herein "CITBC"), with offices located at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, in lawful money of the United States
of America and in immediately available funds, the principal amount of Ten
Million Dollars ($10,000,000), or such other principal amount advanced pursuant
to Section 3, paragraph 3.1 and Section 5, paragraph 5.1 of the Financing
Agreement (as herein defined), such Revolving Loan advances shall be repaid on
a daily basis as a result of the application of the proceeds of collections of
the Accounts and the making of additional Revolving Loans as described in
Section 3. The Revolving Loans may be borrowed, repaid and reborrowed by the
Companies. A final balloon payment in an amount equal to the outstanding
aggregate balance of principal and interest remaining unpaid, if any, under
this Note as shown on the books and records of CITBC shall be due and payable
on the termination of the Financing Agreement, as set forth in Section 11
thereof.
The Companies further absolutely and unconditionally jointly and severally
promise to pay to the order of CITBC at said office, interest, in like money,
on the unpaid principal amount owing hereunder from time to time from the date
hereof on the dates and at the rates specified in Section 8, of the Financing
Agreement.
If any payment on this Note becomes due and payable on a day other than a
business day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is one of the Promissory Notes referred to in the Financing
Agreement, dated as of the date hereof, as the same may be amended and restated
and in effect from time to time, among the Companies and CITBC, (the "Financing
Agreement"), and is subject to, and entitled to, all of the terms, provisions
and benefits thereof and is subject to optional and mandatory prepayment, in
whole or in part, as provided therein. All capitalized terms used herein shall
have the meaning provided therefor in the Financing Agreement, unless otherwise
defined herein.
The date and amount of the advance(s) made hereunder may be recorded on the
grid page or pages which are attached hereto and hereby made part of this Note
or the separate ledgers maintained by CITBC. The aggregate unpaid principal
amount of all advances made pursuant hereto may be set forth in the balance
column on said grid page or such ledgers maintained by CITBC. All such
advances, whether or not so recorded, shall be due as part of this Note.
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The Companies confirm that any amount received by or paid to CITBC in
connection with the Financing Agreement and/or any balances standing to their
credit on any of their accounts on CITBC's books under the Financing Agreement
may in accordance with the terms of the Financing Agreement be applied in
reduction of this Note, but no balance or amounts shall be deemed to effect
payment in whole or in part of this Note unless CITBC shall have actually
charged such account or accounts for the purposes of such reduction or payment
of this Note.
Upon the occurrence of any one or more of the Events of Default specified in
the Financing Agreement or upon termination of the Financing Agreement, all
amounts then remaining unpaid on this Note may become, or be declared to be,
immediately due and payable as provided in the Financing Agreement.
MEDIA ARTS GROUP, INC.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Title: President
▇▇▇▇▇▇ KINKADE STORES, INC.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Title: President
CALIFORNIA COAST GALLERIES, INC.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Title: President
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