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Exhibit: 10.45FT
FINANCING AGREEMENT
THIS FINANCING AGREEMENT, dated as of March 31, 1998, is by and between
FUTECH INTERACTIVE PRODUCTS, INC., an Arizona corporation (the "Borrower"), and
U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC., a Minnesota corporation (the
"Lender").
ARTICLE I
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DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following
terms shall have the following respective meanings:
"Accounts": Each and every right to payment of Borrower, whether such
right to payment arises out of a sale or lease of goods by Borrower, or other
disposition of goods or other property of Borrower, out of a rendering of
services by Borrower, out of a loan by Borrower, out of damage to or loss of
goods in the possession of a railroad or other carrier or any other bailee, out
of overpayment of taxes or other liabilities of Borrower, or which otherwise
arises under any contract or agreement, or from any other cause, whether such
right to payment now exists or hereafter arises and whether such right to
payment is or is not yet earned by performance and howsoever such right to
payment may be evidenced, together with all other rights and interest (including
all liens and security interests) which Borrower may at any time have by law or
agreement against any account debtor (as defined in the Uniform Commercial Code
in effect in the State of Minnesota) or other obligor obligated to make any such
payment or against any of the property of such account debtor or other obligor;
specifically (but without limitation), the term includes all present and future
instruments, documents, chattel papers, accounts and contract rights of
Borrower.
"Accounts Advance": As defined in Section 2.1.
"Advance": An Accounts Advance.
"Affiliate": When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent or more of any class of voting stock
of the Person referred to (or if the Person referred to is not a corporation,
five percent or more of the equity interest), (c) each Person, five percent or
more of the voting stock (or if such Person is not a corporation, five percent
or more of the equity interest) of which is beneficially owned or held, directly
or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and partners. The term control (including
the terms "controlled by" and "under common control with") means the possession,
directly, of the power to direct or cause the direction of the management and
policies of the Person in question.
"Assignment of Patents": That Assignment of Patents to be executed by
the Borrower in form and substance satisfactory to the Lender.
"Assignment of Trademarks": That Assignment of Trademarks to be
executed by the Borrower in form and substance satisfactory to the Lender.
"Borrowing Base Certificate": As defined in Section 2.2.
"Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of where the Lender is located).
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"Change in Control": The occurrence, after the Closing Date, of any of
Vincent W. Goett not owning, directly or indirectly, securities of the Borrower
representing 26% of the securities of the borrower entitled to vote in the
election of directors.
"CLOSING DATE": The date of this Agreement: provided that all the
conditions precedent to the making of the initial Advance, as set forth in
Article III, have been, or, on such Closing Date, will be, satisfied. The
Borrower shall give the Lender not less than one Business Day's prior notice of
the day selected as the Closing Date.
"Eligible Accounts": Accounts owned by the Borrower which the Lender,
in its sole and absolute discretion, deems eligible for Advances, but which, at
a minimum, are subject to a first priority perfected security interest in favor
of the Lender and not subject to any assignment, claim or Lien other than the
Lien in favor of the Lender and other Liens consented to by the Lender in
writing, but specifically excluding (a) Accounts which are not earned; (b)
accounts which are unpaid more than ninety (90) days after the original invoice
date; (c) Accounts owed by debtors 10% or more of whose Accounts owed are
otherwise ineligible; (d) Accounts representing progress billings, or
retainages, or for work covered by any payment or performance bond; (e) Accounts
owed by any of the Borrower's Affiliates; (f) Accounts owed by debtors not
located in the United States, unless supported by a letter of credit issued by a
U.S. bank in favor of the Borrower which has been delivered to the Lender; (g)
Accounts as to which any warranty or representation contained in any security
agreement or other agreement of the Borrower with or given to the Lender with
respect to any such Receivable is untrue in any material respect; (h) Accounts
as to which the account debtor has disputed liability, or made any claim with
respect to any other Receivable due from such account debtor to the Borrower;
(i) Accounts subject to setoff; (j) Accounts as to which the account debtor has
filed a petition for bankruptcy or any other petition for relief under the
Bankruptcy Code, assigned any assets for the benefit of creditors, or if any
petition or other application for relief under the Bankruptcy Code has been
filed against the account debtor, or if the account debtor has failed, suspended
business, become insolvent, or has had or suffered a receiver or a trustee to be
appointed for all or a significant portion of its assets or affairs; (k)
Accounts owed by any government or government agency; (l) Accounts evidenced by
a promissory note or other instrument; and (m) Accounts as to which the Lender
believes that collection of any such Receivable is insecure or that any such
Receivable may not be paid by reason of the account debtor's financial inability
to pay.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"Guarantor": Vincent W. Goett.
"Guaranty": That Guaranty to be executed by the Guarantor in form and
substance satisfactory to the Lender.
"Inventory": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wherever located which are or may at any time be
leased by the Borrower to a lessee, held for sale or lease, furnished under any
contract of service or held as raw materials, work in process, or supplies or
materials used or consumed in the Borrower's business, or which are held for use
in connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, and all goods, the sale or other disposition of which
has given rise to a Receivable, which are returned to and/or repossessed and/or
stopped in transit by the Borrower or
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the Lender, or at any time hereafter in the possession or under the control of
the Borrower or the Lender, or any agent or bailee of either thereof, and all
documents of title or other documents representing the same.
"Landlord's Waiver": The Waiver to be executed by Concord Equities,
Inc. and Del Monico Investments, Inc. in form and substance satisfactory to the
Lender.
"Loan Documents": This Agreement, the Security Agreement, the Guaranty,
and any documents described in Section 3.1(a).
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Person": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Private Placement": An initial public offering or private placement
currently pending with Salomon Smith Barney for which as much as $35,000,000 is
anticipated being received by the Borrower before June 1, 1998.
"Reference Rate": The rate of interest from time to time publicly
announced by U.S. Bancorp as its "reference rate"; U.S. Bancorp may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate hereunder which is based on the Reference Rate,
such interest rate shall change as and when the Reference Rate changes.
"Security Agreement": That Security Agreement to be executed by the
Borrower in form and substance satisfactory to the Lender.
"Subordination Agreement": Those Subordination Agreements to be
executed by the Borrower, the Lender and Vince W. Goett, Roderick Turner and
Stephen McTaggert in form and substance satisfactory to the Lender.
Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 Other Definitional Terms, Terms of Construction. The words
"hereof", "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or". All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all necessary definitions and related
provisions from such other agreements. All covenants, terms, definitions and
other provisions from other agreements
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incorporated into this Agreement by reference shall survive any termination of
such other agreements until the obligations of the Borrower under this Agreement
are irrevocably paid in full.
ARTICLE II
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TERMS OF LENDING
Section 2.1 The Advances. On the terms and subject to the conditions
hereof, at the Borrower's request, the Lender, in its absolute and sole
discretion and without any commitment to do so, may make available to the
Borrower Advances of up to eighty percent (80%) of the net amount of Eligible
Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion, not
to exceed a maximum amount of $4,000,000 (the "Accounts Advances").
Loans for additional sums requested by the Borrower may be made at the Lender's
sole discretion based upon the Lender's valuation of the Borrower's collateral
or other factors. The Borrower acknowledges and agrees that the Lender may from
time to time, for the Lender's convenience, segregate or apportion the
Borrower's collateral for purposes of determining the amounts and maximum
amounts of Advances which may be made hereunder. Nevertheless, the Lender's
security interest in all such collateral, and any other collateral rights,
interests and properties which may now or hereafter be available to the Lender,
shall secure and may be applied to the payment of any and all Advances and other
indebtedness secured by the Lender's security interest, in any order or manner
of application and without regard to the method by which the Lender determines
to make Advances hereunder.
Section 2.2 Procedure for Advances; Wire Transfer Fees. Any request by
the Borrower for an Advance shall be in writing and must be given so as to be
received by the Lender not later than 10:30 a.m. Central time on the requested
Advance date, or such later time as may be acceptable to the Lender in its sole
discretion. Each request for an Advance shall be irrevocable and shall be deemed
a representation by the Borrower that on the requested Advance date and after
giving effect to such Advance the applicable conditions specified in Article III
have been and will continue to be satisfied and the representations and
warranties set forth in Article IV will continue to be true. Each request for an
Advance shall specify the requested Advance date (which must be a Business Day)
and the amount of such Advance. Each request for an Advance shall be accompanied
by a Borrowing Base Certificate signed by a duly authorized officer of the
Borrower in form and substance satisfactory to the Lender (the "Borrowing Base
Certificate"). If the Lender determines, in its absolute and sole discretion, to
make the requested Advance, the Lender will wire transfer to the Borrower's
Account on the requested Advance date the amount of the requested Advance. The
Borrower will pay to the Lender a wire transfer fee of $20.00 per wire transfer
of any Advance to the Borrower's account.
Section 2.3 Interest Rates and Interest Payments. Interest shall accrue
on the unpaid balance of the Advances at a floating rate per annum equal to the
sum of the Reference Rate plus 2.5% provided, however that if the Private
Placement is not completed by June 1, 1998 then interest shall accrue from June
1, 1998 and thereafter at a floating rate per annum equal to the sum of the
Reference Rate plus 5% (the "Applicable Rate") and shall be due and payable
monthly in arrears on the last day of each calendar month; and provided further
that upon the occurrence and during the continuance of any failure by the
Borrower to comply with any agreement or covenant of the Borrower under any Loan
Document, the unpaid balance of the Advances shall thereafter bear interest at a
floating rate equal to the sum of (a) the Applicable Rate, plus (b) 2% and shall
be due and payable on demand.
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Section 2.4 Repayment and Prepayment.
ALL ADVANCES SHALL BE DUE AND PAYABLE ON DEMAND. NOTHING SET FORTH IN
THIS AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER AGREEMENT BETWEEN THE
BORROWER AND THE LENDER SHALL IN ANY WAY LIMIT THE LENDER'S RIGHT TO DEMAND
PAYMENT OF THE ADVANCES IN WHOLE OR IN PART.
Section 2.5 Computation. Interest on the Advances shall be computed on
the basis of actual days elapsed and a year of 360 days.
Section 2.6 Annual Fee. The Borrower shall pay to the Lender an annual
fee in an amount equal to one-half of one percent (.50%) of the maximum
aggregate amount of the Advances (the "Annual Fee"). The Annual Fee shall be
payable in advance on the Closing Date and on each anniversary of the date of
this Agreement.
Section 2.7 Success Fee. The Borrower shall pay to the Lender a success
fee in an amount equal to $200,000 immediately upon Borrower's receipt of funds
from the Private Placement. The success fee shall be waived in the event that
the Advances are refinanced with Lender at market rates upon Borrower's receipt
of funds from the Private Placement.
ARTICLE III
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CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent. No Advances shall be made hereunder
except upon the prior or simultaneous fulfillment of each of the following
conditions:
3.l(a) Documents. The Lender shall have received the following:
(i) This Agreement executed by a duly authorized officer (or
officers) of the Borrower and dated the Closing Date.
(ii) A copy of the corporate resolutions of the Borrower authorizing
the execution, delivery and performance of this Agreement and containing an
incumbency certificate showing the names and titles, and bearing the
signatures of, the officers of the Borrower authorized to execute this
Agreement, certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Borrower.
(iii) A copy of the Articles of Incorporation of the Borrower with
all amendments thereto, certified by the appropriate governmental official
of the jurisdiction of its incorporation as of a date not more than ten days
prior to the Closing Date.
(iv) A certificate of good standing for the Borrower in the
jurisdiction of its incorporation, certified by the appropriate governmental
officials as of a date not more than ten days prior to the Closing Date.
(v) A copy of the bylaws of the Borrower, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the Borrower.
(vi) The Security Agreement, duly executed by the Borrower.
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(vii) An initial Borrowing Base Certificate.
(viii) The Guaranty, duly executed by the Guarantor.
(ix) Evidence of insurance required to be maintained under Section
5.3, naming the Lender as loss payee in form and substance satisfactory to
the Lender.
(x) The opinion of counsel to the Borrower covering such matters as
the Lender may request.
(xi) The duly executed Subordination Agreements.
(xii) The Landlord's Waivers, duly executed by Concord Equities,
Inc. and Del Monico Investments, Inc.
(xiii) The Collateral Assignment of Patents, duly executed by the
Borrower.
(xiv) The Assignment of Patents, duly executed by the Borrower.
(xv) The Collateral Assignment of Trademarks, duly executed by the
Borrower.
(xvi) The Assignment of Trademarks, duly executed by the Borrower.
3.1(b) Other Matters. All organizational and legal proceedings relating
to the Borrower and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Lender and its counsel, and the Lender shall have received
all information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper Borrower or
governmental authorities.
3.1(c) Fees and Expenses. The Lender shall have received all fees and
other amounts due and payable by the Borrower on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Lender payable
pursuant to Section 8.2.
3.1(d) Perfection. The Security Agreement and/or any and all financing
statements with respect thereto shall have been appropriately filed to the
satisfaction of the Lender; the Lender shall have received UCC searches, patent
and trademark searches and/or other Lien searches satisfactory to the Lender;
and the priority and perfection of the Lien created thereby shall have been
established to the satisfaction of the Lender.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 Organization, Standing Etc. The Borrower is a corporation
duly incorporated and validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now
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conducted, to enter into this Agreement and to perform its obligations hereunder
and thereunder. This Agreement has been duly authorized by all necessary
corporate action and when executed and delivered will be the legal and binding
obligations of the Borrower. The execution and delivery of this Agreement will
not violate the Borrower's Articles of Incorporation or bylaws or any law
applicable to the borrower. No governmental consent or exemption is required in
connection with the Borrower's execution and delivery of this Agreement.
Section 4.2 Financial Statements and No Material Adverse Change. The
Borrower's audited financial statements as at December 31, 1997 and its
unaudited financial statements as at January 31, 1998, as heretofore furnished
to the Lender, have been prepared in accordance with GAAP. The Borrower has no
material obligation or liability not disclosed in such financial statements, and
there has been no material adverse change in the condition of the Borrower since
the dates of such financial statements.
Section 4.3 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower which, if determined adversely to the Borrower, would have, a
material adverse effect on the condition of the Borrower. The Borrower is not in
violation of any law or regulation (including environmental laws and regulations
and laws relating to employee benefit plans) where such violation could
reasonably be expected to impose a material liability on the Borrower.
Section 4.4 Taxes. The Borrower has filed all federal, state and local
tax returns required to be Filed and has paid or made provision for the payment
of all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property (other than taxes, fees or
charges the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).
Section 4.5 Subsidiaries. The Borrower has no subsidiaries.
ARTICLE V
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AFFIRMATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
the Borrower's other obligations to the Lender under this Agreement shall have
been paid in full, unless the Lender shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Borrower will furnish
to the Lender:
5.1(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower (except fiscal year end 1997 in
which year Borrower shall furnish to Lender within 120 days after the end of
each fiscal year), financial statements of the Borrower consisting of at least
statements of income, cash flow and changes in stockholders' equity, and a
balance sheet as at the end of such year, setting forth in each case in
comparative form corresponding figures from the previous annual audit, certified
without qualification by independent certified public accountants selected by
the Borrower and acceptable to the Lender.
5.1(b) As soon as available and in any event within 30 days
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after the end of each fiscal month, unaudited financial statements for the
Borrower for such month and for the period from the beginning of such fiscal
year to the end of such month, substantially similar to the annual audited
statements.
5.1(c) Concurrently with each request for an Advance, and in any
event not less than weekly a Borrowing Base Certificate.
5.1(d) As soon as practicable and in any event within ten days of
the end of each month, (i) a listing of all accounts, together with an aging of
all accounts and a reconciliation of such accounts against the listing submitted
pursuant hereto for the immediately preceding month including addresses and
phone numbers of each account debtor, and (ii) a listing of all accounts
payable, together with an aging of all accounts payable all in form and
substance satisfactory to the Lender.
5.1(e) Within 30 days of filing, copies of all state and federal tax
returns filed by the Guarantor and within 90 days of fiscal year end together an
updated personal financial statement of the Guarantor in form and substance
satisfactory to the Lender.
5.1(f) Within five days after the due date, proof of payment or
deposit, when due, of all withholding and F.I.C.A. taxes owing by the Borrower
from time to time, in form and substance satisfactory to the Lender by a payroll
service satisfactory to the Lender and whose services the Borrower shall at all
times retain.
5.1(g) At least weekly and as Lender may request, information
regarding the status of the Private Placement.
5.1(h) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Lender may
reasonably request.
Section 5.2 Corporate Existence. The Borrower will maintain its
corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each Jurisdiction
where failure so to qualify would permanently preclude the Borrower from
enforcing its rights with respect to any material asset or would expose the
Borrower to any material liability.
Section 5.3 Insurance. The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated, including without limitation such insurance as
may be required under the Security Agreement.
Section 5.4 Payment of Taxes and Claims. The Borrower will file all tax
returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid. might result in the creation of a Lien
upon its property.
Section 5.5 Inspection. The Borrower will permit any Person designated
by the Lender to visit and inspect any of the properties, books and financial
records of the Borrower, to examine and to make copies of the books of accounts
and other financial records of the Borrower, and to discuss the affairs,
finances and accounts of the Borrower with its officers at such reasonable times
and intervals as the Lender may designate. The Borrower shall also allow the
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Lender and its agents to CONDUCT periodic collateral audits of the Borrower's
assets at such intervals as the Lender may choose, and the Borrower shall pay to
Lender a fee in the amount of $750 per day per collateral audit, plus
out-of-pocket costs and expenses incurred in connection with such collateral
audits, (provided that so long as no Event of Default (as that term is defined
in the Security Agreement) has occurred under the Security Agreement and is
continuing, the Borrower shall not be required to pay for more than four (4)
collateral audits in any calendar year).
Section 5.6 Maintenance of Properties. The Borrower will maintain
its properties in good condition, repair and working order, and supplied with
all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
Section 5.7 Books and Records. The Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs.
Section 5.8 Compliance. The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.
Section 5.9 Notice of Litigation. The Borrower will give prompt
written notice to the Lender of the commencement of any action, suit or
proceeding affecting the Borrower.
Section 5.10 Plans. The Borrower will maintain any employee benefit
plans in compliance with all material requirements of applicable laws and
regulations.
Section 5.11 Reaffirmation of Guaranties. When so requested by the
Lender from time to time, the Borrower will promptly cause the Guarantor or any
other Persons who have guaranteed the obligations of the Borrower hereunder or
any part thereof to execute and deliver to the Lender reaffirmations of their
respective guaranties in such form as the Lender may require.
Section 5.12 Special Agreements Regarding Accounts.
5.12(a) Collection of Accounts and all other amounts due to the
Borrower shall be subject to the provisions of paragraphs 5 and 6 of the
Security Agreement concerning the Lockbox and Collateral Account (as those terms
are defined in the Security Agreement). The Borrower shall provide to the Lender
a daily collection report of all Accounts collected. All collections received in
the Collateral Account and reported to Republic before 8:00 a.m. (Central time)
on any Business Day that is a Monday through Thursday, or before 2:00 p.m.
(Central time) on any Business Day that is a Friday, shall be applied to the
payment of the Advances (in such order of application as the Lender may
determine) on the day so received, or otherwise on the next business day;
provided however, that for purposes of determining the interest due and payable
on the unpaid balance of the Advances under Section 2.3, all collections
received in the Collateral Account shall be applied to the unpaid balance of the
Advances when such collections become finally collected funds after allowing not
less than two (2) Business Days for collection. At Lender's request, the
Borrower will deliver all customer billing statements to the Lender for
examination and for mailing in the Borrower's stamped and addressed envelopes.
5.12(b) Subject to the rights granted to the Lender in paragraph 5
of the Security Agreement. all ledger sheets or cards, invoices, shipping
records, correspondence, and other writings relating to accounts shall, until
delivered to the Lender or removed by the Lender from the Borrower's premises,
be kept on the Borrower's premises without cost to the Lender in appropriate
containers in safe places.
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5.12(c) Upon the Lender's demand for payment, the Lender may remove
from the Borrower's premises all books and records, correspondence, documents
and files relating to accounts; and the Lender may without cost or expense to
the Lender use such of the Borrower's personnel, supplies, space and equipment
at the Borrower's place of business as the Lender may desire for the handling of
collections. The Borrower will pay any and all out of pocket expenses and cost
of collection (including reasonable attorney fees) incurred by the Lender in the
Lender's handling of or effort to enforce collections.
5.12(d) The Borrower warrants that, except as may be disclosed in
the lists of Accounts furnished to the Lender: each customer billing statement
correctly states the subject matter and terms of sale; the merchandise conforms
thereto and is in all respects acceptable to the customer; the date of the
billing statement is not prior to the date of shipment; the Account is not
subject to any dispute, defense, offset or counterclaim; the account debtor is
not a subsidiary or affiliated company; and the Borrower has no reason to
believe the Account will not be paid in the regular course of business. The
Borrower will notify the Lender promptly of any event, circumstance or
communication with respect to any Account that is inconsistent with the
foregoing representation.
ARTICLE VI
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NEGATIVE COVENANTS
Until this Agreement shall have expired or been terminated and all of
the Borrower's other obligations to the Lender under this Agreement shall have
been paid in full, unless the Lender shall otherwise consent in writing:
Section 6.1 Merger. The Borrower will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), except
any merger or consolidation that occurs as a result of the Private Placement.
Section 6.2 Sale of Assets. The Borrower will not sell, transfer, lease
or otherwise convey all or any substantial part of its assets except for sales
and leases of inventory in the ordinary course of business.
Section 6.3 Dividends. The Borrower will not pay any dividends or
otherwise make any distributions on, or redemptions of, any of its outstanding
stock,
Section 6.4 Investments. The Borrower will not make any loans, advances
or extensions of credit to any other Person (except for trade and customer
accounts receivable for inventory sold or services rendered in the ordinary
course of business and payable in accordance with customary trade terms) or
purchase or acquire any stock or other debt or equity securities of or any
interest in any other Person or any integral part of any business or the assets
comprising such business or part thereof, except for:
6.4(a) Investments in readily marketable direct obligations issued
or unconditionally guaranteed by the United States government or any agency
thereof and supported by the full faith and credit of the United States.
6.4(b) Certificates of deposit or bankers' acceptances issued by any
commercial Bank organized under the laws of the United States or any State
thereof which has (i) combined capital and surplus of at least $100,000,000, and
(ii) a credit rating with respect to its
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unsecured indebtedness from a nationally recognized rating service that is
satisfactory to the Lender.
6.4(c) Commercial paper given the highest rating by a nationally
recognized rating service.
6.4(d) Repurchase agreements relating to securities of the kind
described in Section 6.4 (a).
6.4(e) Other readily marketable investments in debt securities
which are reasonably acceptable to the Lender.
6.4(f) Travel advances to officers and employees in the ordinary
course of business.
6.4(g) Investments directly arising out of the purchase of the
assets of Gick Publishing, Inc.
Any investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower.
Section 6.5 Indebtedness. The Borrower will not borrow any money or
issue any bonds, debentures or other debt securities or otherwise become
obligated on any interest-bearing indebtedness except for the Advances under
this Agreement, assumed out of the purchase of the assets of Gick Publishing,
Inc. and except for existing indebtedness as disclosed on the most recent
financial statement of the Borrower referred to in Section 4.1.
Section 6.6 Liens. The Borrower will not create, incur, assume or
suffer to exist any Lien, or enter into any arrangement for the acquisition of
any property through conditional sale, lease-purchase or other title retention
agreements except:
6.6(a) Liens granted to the Lender.
6.6(b) Liens existing on the date of this Agreement and disclosed
in those UCC or other Lien searches referred to in Section 3.1(d).
6.6(c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower.
6.6(d) Liens for taxes, fees, assessments and governmental
charges not delinquent.
6.6(e) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens arising in the ordinary course of business,
for sums not due.
6.6(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.6(g) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower.
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Section 6.7 Contingent Obligations. The Borrower will not guarantee or
otherwise become liable on the indebtedness of any other Person.
Section 6.8 Change in Control. The Borrower will not allow a Change in
Control to occur except arising out of the purchase of the assets of Gick
Publishing, Inc.
ARTICLE VII
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TERMINATION BY BORROWER
This agreement shall continue in effect until terminated upon not less
than 30 days' prior written notice delivered by the Borrower certified mail to
Lender by certified mail. Termination shall not impair or affect the Lender's
rights existing as of the time notice of Termination is given. Borrowers
obligations with respect to payment of any Termination fee shall be fixed and
owing as of date such notice is given and not when such notice becomes
effective.
In the event that the Borrower gives notice to the Lender of the
termination of this Agreement under Section VII hereof at any time prior to the
180 days after the Closing Date, the Borrower will pay to the Lender a
prepayment charge, as additional compensation for the Lender's costs of entering
into this Agreement, in the amount of 1% of the maximum aggregate amount of the
Advances unless the outstanding amount of Borrower's obligations hereunder are
refinanced in full by an affiliate of U.S. Bancorp, or are paid out in full by
the Private Placement and the Success Fee is paid in full to Lender.
ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 8.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender) in connection with the negotiation,
preparation, approval, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of this Agreement including all fees
due Lender incurred pursuant to this Agreement. The obligations of the Borrower
under this Section shall survive any termination of this Agreement. In the event
such costs, fees or expenses are not promptly paid by Borrower on demand Lender
may set off the amount of any such costs, fees or expenses from funds available
to Borrower. If the Borrower elects, the Borrower may treat the amount of any
such costs, fees or expenses as an Advance hereunder.
Section 8.3 Waivers, etc. No failure on the part of the Lender to
exercise and no delay in exercising any power or right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any power or
right preclude any other or further exercise thereof or the
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exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.
Section 8.4 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Lender under Article II hereof shall be deemed to have been
given only when received by the Lender.
Section 8.5 Successors and Assigns; Disposition of Loans. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participations in, or otherwise dispose of any portion of the
Advances to banks or other financial institutions. The Lender may disclose any
information regarding the Borrower in the Lender's possession to any prospective
buyer or participant.
Section 8.6 Offset. The Borrower hereby irrevocably authorizes the
Lender to set off all sums owing by the Borrower to the Lender against all
deposits and credits of the Borrower with, and any and all claims of the
Borrower against, the Lender. The Borrower further agrees that any bank
participating with the Lender in Advances hereunder may exercise any and all
rights of setoff with respect to such participation as fully as if such
participant had lent directly to the Borrower the amount of such participation.
Section 8.7 Governing Law and Construction. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF.
Section 8.8 Consent to Jurisdiction. AT THE OPTION OF THE LENDER, THIS
AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE JURISDICTION AND
VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 8.9 Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
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TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE ADVANCES AND ANY OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
Section 8.10 Indemnification. The Borrower hereby agrees to defend,
protect, indemnify and hold harmless the Lender and its affiliates and the
directors, officers, employees, attorneys and agents of the Lender and its
affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise: (a) by reason of,
relating, to or in connection with the execution, delivery, performance or
enforcement of any Loan Document, any commitments relating thereto, or any
transaction contemplated by any Loan Document; or (b) by reason of, relating to
or in connection with any credit extended or used under the Loan Documents or
any act done or omitted by any Person, or the exercise of any rights or remedies
thereunder, including the acquisition of any collateral by the Lender by way of
foreclosure of the Lien thereon, deed or bill of sale in lieu of such
foreclosure or otherwise; provided, however, that the Borrower shall not be
liable to any Indemnitee for any portion of such claims, damages, liabilities
and expenses resulting from such Indemnitee's negligence or willful misconduct.
In the event this indemnity is unenforceable as a matter of law as to a
particular matter or consequence referred to herein, it shall be enforceable to
the full extent permitted by law.
Section 8.11 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 8.12 Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Section 8.13 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
FUTECH INTERACTIVE PRODUCTS, INC.
By
-----------------------------------------------
Print Name
---------------------------------------
Title
--------------------------------------------
Borrower's Address:
2999 North 44th
Suite 225
Phoenix, AZ 85018-7247
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC.
By
-----------------------------------------------
Print Name
---------------------------------------
Title
--------------------------------------------
Lender's Address:
2338 Central Avenue NE, Suite 200
Minneapolis, MN 55418
Fax: (612) 782-1801
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SCHEDULE I
to
Security Agreement
Locations of Equipment and Inventory
as of Date of Security Agreement
2999 North 44th
Suite 225
Phoenix, AZ 85018-7247
9 Studebaker Drive
Irvine California 92618