EXHIBIT 10.1
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LOAN AND SECURITY AGREEMENT
by and between
GRAPHIX ZONE, INC.
and
MADELEINE L.L.C.
Dated as of January 31, 1997
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TABLE OF CONTENTS
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Page(s)
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1. DEFINITIONS AND CONSTRUCTION....................................... 1
1.1 Definitions.................................................. 1
1.2 Accounting Terms............................................. 12
1.3 Code......................................................... 13
1.4 Construction................................................. 13
1.5 Schedules and Exhibits....................................... 13
2. LOAN AND TERMS OF PAYMENT.......................................... 13
2.1 Term Loan.................................................... 13
2.2 Mandatory Prepayments........................................ 13
2.3 Interest: Rates, Payments, and Calculations................. 14
2.4 Collections.................................................. 15
2.5 Crediting Payments; Application of Collections............... 15
2.6 Designated Account........................................... 16
2.7 Maintenance of Loan Account; Statements of Obligations....... 16
2.8 Fees......................................................... 16
3. CONDITIONS; TERM OF AGREEMENT...................................... 16
3.1 Conditions Precedent to the Term Loan........................ 17
3.2 Term......................................................... 19
3.3 Effect of Termination........................................ 19
3.4 Early Termination by Borrower................................ 19
4. CREATION OF SECURITY INTEREST...................................... 19
4.1 Grant of Security Interest................................... 19
4.2 Negotiable Collateral........................................ 19
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral................................................... 19
4.4 Delivery of Additional Documentation Required................ 20
4.5 Power of Attorney............................................ 20
4.6 Right to Inspect............................................. 20
5. REPRESENTATIONS AND WARRANTIES..................................... 21
5.1 No Encumbrances.............................................. 21
5.2 Accounts..................................................... 21
5.3 Inventory.................................................... 21
5.4 Equipment.................................................... 21
5.5 Location of Inventory and Equipment.......................... 21
5.6 Inventory Records............................................ 21
5.7 Location of Chief Executive Office; FEIN..................... 21
5.8 Due Organization and Qualification; Subsidiaries............. 21
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5.9 Due Authorization; No Conflict............................... 22
5.10 Litigation................................................... 24
5.11 No Material Adverse Change................................... 24
5.12 Solvency..................................................... 24
5.13 Employee Benefits............................................ 24
5.14 Environmental Condition...................................... 25
5.15 Intellectual Property........................................ 25
6. AFFIRMATIVE COVENANTS.............................................. 25
6.1 Accounting System............................................ 25
6.2 Collateral Reporting......................................... 25
6.3 Financial Statements, Reports, Certificates.................. 26
6.4 Tax Returns.................................................. 27
6.5 Guarantor Reports............................................ 27
6.6 Returns...................................................... 27
6.7 Title to Equipment........................................... 27
6.8 Maintenance of Equipment..................................... 27
6.9 Taxes........................................................ 27
6.10 Insurance.................................................... 28
6.11 No Setoffs or Counterclaims.................................. 29
6.12 Location of Inventory and Equipment.......................... 29
6.13 Compliance with Laws......................................... 29
6.14 Employee Benefits............................................ 29
6.15 Leases....................................................... 30
7. NEGATIVE COVENANTS................................................. 30
7.1 Indebtedness................................................. 30
7.2 Liens........................................................ 31
7.3 Restrictions on Fundamental Changes.......................... 31
7.4 Disposal of Assets........................................... 31
7.5 Change Name.................................................. 31
7.6 Guarantee.................................................... 31
7.7 Nature of Business........................................... 31
7.8 Prepayments and Amendments................................... 31
7.9 Change of Control............................................ 32
7.10 Consignments................................................. 32
7.11 Distributions................................................ 32
7.12 Accounting Methods........................................... 32
7.13 Investments.................................................. 32
7.14 Transactions with Affiliates................................. 32
7.15 Suspension................................................... 32
7.16 Compensation................................................. 32
7.17 Use of Proceeds.............................................. 33
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees....................................... 33
7.19 No Prohibited Transactions Under ERISA....................... 33
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7.20 Financial Covenants.......................................... 34
7.21 Capital Expenditures......................................... 34
8. EVENTS OF DEFAULT.................................................. 34
9. LENDER'S RIGHTS AND REMEDIES....................................... 36
9.1 Rights and Remedies.......................................... 36
9.2 Remedies Cumulative.......................................... 38
10. TAXES AND EXPENSES........................................... 38
11. WAIVERS; INDEMNIFICATION..................................... 39
11.1 Demand; Protest; etc......................................... 39
11.2 Lender's Liability for Collateral............................ 39
11.3 Indemnification.............................................. 39
12. NOTICES...................................................... 39
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................... 40
14. DESTRUCTION OF BORROWER'S DOCUMENTS.......................... 41
15. GENERAL PROVISIONS........................................... 41
15.1 Effectiveness................................................ 41
15.2 Successors and Assigns....................................... 41
15.3 Section Headings............................................. 42
15.4 Interpretation............................................... 42
15.5 Severability of Provisions................................... 42
15.6 Amendments in Writing........................................ 42
15.7 Counterparts; Telefacsimile Execution........................ 42
15.8 Revival and Reinstatement of Obligations..................... 42
15.9 Integration.................................................. 42
SCHEDULES AND EXHIBITS
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Schedule P-1 Permitted Liens
Schedule 5.8 Borrower's Subsidiaries/Capitalization
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Exhibit C-1 Form of Compliance Certificate
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LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
January 31, 1997, between MADELEINE L.L.C., a New York limited liability company
("Lender"), with a place of business located at 950 Third Avenue, 20th Floor,
New York, New York 10022 and GRAPHIX ZONE, INC., a Delaware corporation
("Borrower"), with its chief executive office located at 42 Corporate Park,
Suite 200, Irvine, California 92606.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
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under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
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accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Additive Amount" has the meaning set forth in Section 7.16.
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"Affiliate" means, as applied to any Person, any other Person who
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directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
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"Applicable Rate" means (a) for the period commencing on the Closing
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Date and continuing up to and including July 30, 1997, the Reference Rate, and
(b) for the period commencing on July 31, 1997 and continuing up to and
including the Maturity Date, a rate equal to the Reference Rate plus 2.0
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percentage points.
"Asset Disposition" means any sale, exchange, or other disposition,
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directly or indirectly (including any loss, destruction, or condemnation), of
any of the properties or assets of one or more of the Obligors.
"Authorized Person" means any officer or other employee of Borrower.
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"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
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(S) 101 et seq.), as amended, and any successor statute.
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"Benefit Plan" means a "defined benefit plan" (as defined in Section
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3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Borrower" has the meaning set forth in the preamble to this
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Agreement.
"Borrower's Books" means all of Borrower's books and records
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including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"Business Day" means any day that is not a Saturday, Sunday, or other
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day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
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"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 20% of the total voting power of all classes of Stock then
outstanding of Borrower entitled to vote in the election of directors.
"Closing Date" means the date of the funding of the Term Loan.
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"Closing Fee" has the meaning set forth in Section 2.8(a).
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"Code" means the New York Uniform Commercial Code.
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"Collateral" means each of the following:
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(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
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(g) any money, or other assets of Borrower that now or hereafter come
into the possession, custody, or control of Lender, and
(h) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, real property, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
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waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Equipment or Inventory, in each case,
in form and substance satisfactory to Lender.
"Collections" means all cash, checks, notes, instruments, and other
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items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in the
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form of Exhibit C-1 and delivered by the chief accounting officer of Borrower to
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Lender.
"Concentration Account" means account number 04727663 of Borrower
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maintained with the Concentration Account Bank.
"Concentration Account Agreement" means that certain Concentration
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Account Agreement, in form and substance satisfactory to Lender, among Borrower,
Lender, and the Concentration Account Bank.
"Concentration Account Bank" means (a) National Bank of Southern
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California, whose office is located at 4100 Newport Place Drive, Newport Beach,
California 92660, and whose ABA number is 1222/39801, or (b) any other domestic
commercial bank that is reasonably acceptable to Lender and is designated in
writing from time to time by Borrower to Lender upon at least 30 days prior
written notice.
"Consolidated Current Assets" means, as of any date of determination,
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the aggregate amount of all current assets of Borrower that would, in accordance
with GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
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determination, the aggregate amount of all current liabilities of Borrower that
would, in accordance with GAAP, be classified on a balance sheet as current
liabilities. For purposes of this definition, all Obligations outstanding under
this Agreement shall be deemed to be current liabilities without regard to
whether they would be deemed to be so under GAAP.
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"Copyright Security Agreement" means a Copyright Security Agreement
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executed and delivered by GZM in form and substance satisfactory to Lender.
"deems itself insecure" means that the Person deems itself insecure in
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accordance with the provisions of Section 1-208 of the Code.
"Default" means an event, condition, or default that, with the giving
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of notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 04727663 of Borrower
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maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Lender.
"Designated Account Bank" means National Bank of Southern California,
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whose office is located at 4100 Newport Place Drive, Newport Beach, California
92660, and whose ABA number is 1222/39801.
"Disbursement Letter" means an instructional letter executed and
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delivered by Borrower to Lender regarding the extensions of credit to be made on
the Closing Date, the form and substance of which shall be satisfactory to
Lender.
"Dollars or $" means United States dollars.
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"Equipment" means all of Borrower's present and hereafter acquired
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machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
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U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
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employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
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"ERISA Event" means (a) a Reportable Event with respect to any Benefit
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Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
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"Existing Lender" means Silicon Valley Bank.
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"FEIN" means Federal Employer Identification Number.
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"GAAP" means generally accepted accounting principles as in effect
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from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
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general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
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incorporation, by-laws, or other organizational or governing documents of any
Person.
"Guarantor Collateral" means the properties and assets of the
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Guarantors that are hypothecated by them in favor of Lender pursuant to the Loan
Documents.
"Guarantors" means GZM and StarPress.
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"Guarantor Security Agreement" means that certain Security Agreement
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to be executed and delivered by each of the Guarantors in form and substance
satisfactory to Lender.
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"Guaranty" means that certain General Continuing Guaranty to be
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executed by each of the Guarantors in form and substance satisfactory to Lender.
"GZM" means GZ Multimedia, Inc., a California corporation.
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"Hazardous Materials" means (a) substances that are defined or listed
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in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity," (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hire Year" has the meaning set forth in Section 7.16.
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"Inactive Subsidiaries" means Great Bear Technology, Inc., a
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California corporation, HealthSoft, Inc., a California corporation, MicroBase,
Inc., an Arizona corporation, StarPress Multimedia, Inc., a Delaware
corporation, and iTravel International, Ltd., a Washington corporation.
"Indebtedness" means, with respect to any Person: (a) all obligations
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of such Person for borrowed money, (b) all monetary obligations of such Person
evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other monetary obligations of such Person in respect of letters
of credit, bankers acceptances, interest rate swaps, or other financial
products, (c) all monetary obligations of such Person under capital leases, (d)
all obligations of others secured by a Lien on any property or asset of such
Person, irrespective of whether such obligation is assumed, and (e) any
obligation of such Person guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse to such Person)
any indebtedness, lease, dividend, letter of credit, or other obligation of any
other Person.
"Insolvency Proceeding" means any proceeding commenced by or against
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any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of
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the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Inventory" means all present and future inventory in which Borrower
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has any interest, including goods held for sale or lease or to be furnished
under a contract of
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service and all of Borrower's present and future raw materials, work in
process, finished goods, and packing and shipping materials, wherever located.
"IRC" means the Internal Revenue Code of 1986, as amended, and
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the regulations thereunder.
"Lender" has the meaning set forth in the preamble to this
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Agreement.
"Lender Account" has the meaning set forth in Section 2.4.
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"Lender Expenses" means all: costs or expenses (including taxes, and
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insurance premiums) required to be paid by Borrower or the Guarantors under any
of the Loan Documents that are paid or incurred by Lender; fees or charges paid
or incurred by Lender in connection with Lender's transactions with Borrower or
the Guarantors, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including
tax lien, litigation, and UCC searches and including searches with the patent
and trademark office, the copyright office, or the department of motor
vehicles), filing, recording, publication, appraisal (including periodic
Collateral or Guarantor Collateral appraisals), real estate surveys, real estate
title policies and endorsements, and environmental audits; costs and expenses
incurred by Lender in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Lender resulting from the dishonor of
checks; costs and expenses paid or incurred by Lender to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral or the Guarantor Collateral, or any
portion thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Lender in examining Borrower's Books or the books
and records of the Guarantors; costs and expenses of third party claims or any
other suit paid or incurred by Lender in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Lender's relationship with Borrower or any Guarantor; and Lender's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or any
Guarantor), defending, or concerning the Loan Documents, irrespective of whether
suit is brought.
"Lien" means any interest in property securing an obligation owed to,
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or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting real
property.
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"Loan Account" has the meaning set forth in Section 2.7.
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"Loan Documents" means this Agreement, the Guaranty, the Guarantor
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Security Agreement, the Disbursement Letter, the Concentration Account
Agreement, the Pay-Off Letter, the Warrants, the Copyright Security Agreement,
the Trademark Security Agreements, the Subordination Agreement, any note or
notes executed by Borrower and payable to Lender, and any other agreement
entered into, now or in the future, in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in the
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business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower and the Guarantors, taken as a
whole, (b) the material impairment of Borrower's and the Guarantors' ability to
perform their respective obligations under the Loan Documents, taken as a whole,
or of Lender to enforce the Obligations or realize upon the Collateral and the
Guarantor Collateral, taken as a whole, (c) a material adverse effect on the
value of the Collateral or the Guarantor Collateral or the amount that Lender
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral and the Guarantor
Collateral, taken as a whole, or (d) a material impairment of the priority of
Lender's Liens with respect to the Collateral and the Guarantor Collateral,
taken as a whole.
"Maturity Date" has the meaning set forth in Section 3.2.
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"Multiemployer Plan" means a "multiemployer plan" (as defined in
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Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
"Negotiable Collateral" means all of Borrower's present and future
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letters of credit, notes, drafts, instruments, investment property, security
entitlements, securities (including the shares of Stock of Subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the lessor),
chattel paper, and Borrower's Books relating to any of the foregoing.
"Net Proceeds" means (a) the gross cash proceeds (including insurance
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proceeds, condemnation awards, and payments received from time to time in
respect of installment obligations and other non-cash proceeds, if applicable)
received by or on behalf of Borrower or any Guarantor in respect of an Asset
Disposition, less (b) the sum of (i) the amount, if any, of all taxes (other
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than income taxes) payable by Borrower or such Guarantor in connection with such
Asset Disposition plus Borrower's or such Guarantor's good faith best estimate
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of the amount of all income taxes payable in connection with such Asset
Disposition, (ii) the amount of any reasonable reserve established in accordance
with GAAP against any liabilities associated with the properties or assets that
were the subject of such Asset Disposition, provided that the amount of any
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subsequent reduction of such reserve (other than in connection with a payment in
respect of any such liability) shall be deemed to be "Net Proceeds" of an Asset
Disposition occurring on the date of such reduction, (iii) the amount applied to
repay any Indebtedness secured by a Lien upon the properties or assets that were
the
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subject of the Asset Disposition, to the extent such Indebtedness is required by
its terms to be repaid as a result of such Asset Disposition, and (iv)
reasonable and customary fees, commissions, and expenses and other costs paid by
Borrower or such Guarantor in connection with such Asset Disposition (other than
those payable to any Affiliate of Borrower), in each case only to the extent not
already deducted in arriving at the amount referred to in clause (a).
"Obligations" means all loans, advances, debts, principal, interest
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(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), premiums, liabilities (including all amounts charged to
Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs, or
Lender Expenses (including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties owing by Borrower to Lender of any kind and description (whether
pursuant to or evidenced by the Loan Documents (including the Warrants) or
pursuant to any other agreement between Lender and Borrower, and irrespective of
whether for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from Borrower to others that
Lender may have obtained by assignment or otherwise, and further including all
interest not paid when due and all Lender Expenses that Borrower is required to
pay or reimburse by the Loan Documents, by law, or otherwise.
"Obligors" means Borrower or any Guarantor.
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"Ordinary Course Dispositions" means Asset Dispositions of (a)
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Inventory in the ordinary course of business, (b) Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business, (c)
Equipment or Inventory between Borrower and the Guarantors for reasonable and
legitimate business purposes, and (d) cash and cash equilavents consistent with
the provisions hereof.
"Participant" means any Person to which Lender has sold a
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participation interest in its rights under the Loan Documents.
"Pay-Off Letter" means a letter, in form and substance reasonably
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satisfactory to Lender, from Existing Lender respecting the amount necessary to
repay in full all of the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the Liens existing in favor of
Existing Lender in and to the properties or assets of Borrower and the
Guarantors.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
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in Title IV of ERISA, or any successor thereto.
"Permitted Disposition" means, subject to the concurrent satisfaction
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of the Release Conditions, Ordinary Course Dispositions.
"Permitted Liens" means (a) Liens granted to Lender, (b) Liens for
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unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of
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lessors under operating leases and purchase
-9-
money Liens of lessors under capital leases to the extent that the acquisition
or lease of the underlying asset is permitted under Section 7.21 and so long as
----
the Lien only attaches to the asset purchased or acquired and only secures the
purchase price of the asset, (e) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of Borrower and the
Guarantors and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable, or (ii) are the subject of
Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases (to the extent
permitted under this Agreement), incurred in the ordinary course of business of
Borrower and the Guarantors and not in connection with the borrowing of money,
(h) Liens arising by reason of security for surety or appeal bonds in the
ordinary course of business of Borrower and the Guarantors, (i) Liens of or
resulting from any judgment or award that would not have a Material Adverse
Effect and as to which the time for the appeal or petition for rehearing of
which has not yet expired, or in respect of which Borrower or the respective
Guarantor is in good faith prosecuting an appeal or proceeding for a review, and
in respect of which a stay of execution pending such appeal or proceeding for
review has been secured, (j) Liens with respect to any real property, easements,
rights of way, zoning and similar covenants and restrictions, and similar
encumbrances that customarily exist on properties of Persons engaged in similar
activities and similarly situated and that in any event do not materially
interfere with or impair the use or operation of the Collateral by Borrower or
the Guarantor Collateral by the Guarantors or the value of Lender's Lien thereon
or therein, or materially interfere with the ordinary conduct of the business of
Borrower and the Guarantors.
"Permitted Protest" means the right of Borrower or any Guarantor to
-----------------
protest any Lien other than any such Lien that secures the Obligations, tax
(other than payroll taxes or taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) a reserve with respect
to such obligation is established on the books of Borrower or such Guarantor, as
applicable, in an amount that is reasonably satisfactory to Lender, (b) any such
protest is instituted and diligently prosecuted by Borrower or such Guarantor,
as applicable, in good faith, and (c) Lender is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Liens of Lender in and to the Collateral or the
Guarantor Collateral.
"Person" means and includes natural persons, corporations, limited
------
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
"Reference Rate" means the variable rate of interest, per annum, most
--------------
recently announced by Citibank, N.A. or any successor thereto, as its "prime
rate" or "reference rate," as the case may be, irrespective of whether such
announced rate is the best rate available from such financial institution.
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"Release Conditions" means that (a) no Default or Event of Default has
------------------
occurred and is continuing or would result therefrom, (b) Borrower or the
Guarantor, as applicable, is receiving at least fair value for the property or
assets that are the subject of the Asset Disposition, (c) following such Asset
Disposition, the subject property or assets are not to be the subject of a lease
by Borrower or any Guarantor, and (d) the subject property or assets are not
being sold to, exchanged with, or disposed of to, any Affiliate of Borrower.
"Reportable Event" means any of the events described in Section
----------------
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Retiree Health Plan" means an "employee welfare benefit plan" within
-------------------
the meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Solvent" means, with respect to any Person on a particular date, that
-------
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"StarPress" means StarPress, Inc., a Colorado corporation.
---------
"Stock" means all shares, options, warrants, interests,
-----
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Exchange Act).
"Subordination Agreement" means that certain Subordination Agreement
-----------------------
executed and delivered by Borrower and the Guarantors in form and substance
satisfactory to Lender.
"Subsidiary" of a Person means a corporation, partnership, limited
----------
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or
-11-
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the
------------------
difference of (a) Borrower's total stockholder's equity, minus (b) the sum of:
-----
(i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid expenses,
and (iii) all amounts due to Borrower from Affiliates.
"Term Loan" has the meaning set forth in Section 2.1.
--------- -----------
"Term Loan to Revenue Ratio" means, as of any date of determination,
--------------------------
the ratio of (a) the outstanding principal balance of the Term Loan, to (b)
Borrower's revenue from operations for the relevant period.
"Trademark Security Agreement (Borrower)" means a Trademark Security
---------------------------------------
Agreement executed and delivered by Borrower in form and substance satisfactory
to Lender.
"Trademark Security Agreement (GZM)" means a Trademark Security
----------------------------------
Agreement executed and delivered by GZM in form and substance satisfactory to
Lender.
"Trademark Security Agreement (StarPress)" means a Trademark Security
----------------------------------------
Agreement executed and delivered by StarPress in form and substance satisfactory
to Lender.
"Trademark Security Agreements" means the Trademark Security Agreement
-----------------------------
(Borrower), the Trademark Security Agreement (GZM), and the Trademark Security
Agreement (StarPress).
"Voidable Transfer" has the meaning set forth in Section 15.8.
----------------- ------------
"Warrants" means those certain common Stock purchase warrants issued
--------
and delivered to Lender by Borrower for the purchase of 300,000 shares of
Borrower's common Stock, $0.01 par value, having the powers, preferences, and
rights, and the qualifications, limitations, or restrictions set forth in
Borrower's Governing Documents.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
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1.4 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of
Default shall "continue" or be "continuing" until such Event of Default has been
waived in writing by Lender. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Term Loan. Lender has agreed to make a term loan (the "Term
Loan") to Borrower in the original principal amount of (a) $3,500,000, plus (b)
----
the amount of the Closing Fee. The outstanding principal balance of the Term
Loan and all accrued and unpaid interest under the Term Loan shall be due and
payable upon the termination of this Agreement, whether by its terms, by
prepayment, by acceleration, or otherwise. The unpaid principal balance of the
Term Loan may be prepaid in whole or in part without penalty or premium at any
time during the term of this Agreement upon 30 days prior written notice by
Borrower to Lender. All amounts outstanding under the Term Loan shall
constitute Obligations.
2.2 Mandatory Prepayments.
(a) Prepayments from Asset Dispositions. Immediately upon receipt of
the Net Proceeds of any Asset Disposition other than a Permitted Disposition,
Borrower shall prepay the Obligations in an amount equal to the Net Proceeds of
such Asset Disposition. The payments shall be applied in accordance with
Section 2.2(e). Concurrently with the making of any such payment, Borrower
- --------------
shall deliver to Lender a certificate of Borrower's chief executive officer or
chief financial officer demonstrating its calculation of the amount required to
be paid.
(b) Prepayment from Extraordinary Transactions. In the event that
Borrower or any Guarantor issues Stock or Indebtedness, or enters into any
merger, recapitalization, combination, or joint venture transaction, then
immediately upon receipt of the Net Proceeds therefrom by Borrower or such
Guarantor (other than (a) proceeds of purchase money Indebtedness or capital
leases, or (b) proceeds, if any, from the issuance of Stock of Borrower to
members of the management of Borrower), Borrower shall prepay the Obligations in
an amount equal to the Net Proceeds of such transactions. The payments shall be
applied in accordance with Section 2.2(e). Concurrently with the making of any
--------------
such payment, Borrower shall deliver to Lender a certificate of Borrower's chief
executive officer or chief financial officer demonstrating its calculation of
the amount required to be paid.
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(c) Prepayment From Plan Reversions. In the event that Borrower or
any Guarantor receives any surplus assets of any Plan, Borrower immediately
shall prepay the Obligations in an amount equal to such returned surplus assets
net of related transaction costs (including income, excise, or other taxes).
The payments shall be applied in accordance with Section 2.2(e). Concurrently
--------------
with the making of any such payment, Borrower shall deliver to Lender a
certificate of Borrower's chief executive officer or chief financial officer
demonstrating its calculation of the amount required to be paid.
(d) Term Loan to Revenue Ratio. In the event that the Term Loan to
Revenue Ratio exceeds 0.7:1.0, as of the end of any month, Borrower immediately
shall prepay the outstanding principal balance of the Term Loan by an amount
sufficient to cause the Term Loan to Revenue Ratio to be equal to or less than
0.7:1.0.
(e) Application of Proceeds. With respect to mandatory prepayments
described in subsections (a) through (d) above, such prepayments shall be
---------------------------
applied (i) first, in payment of the installments due with respect to the Term
Loan in the inverse order of their maturities until the Term Loan is paid in
full, and (ii) then, in payment of any other Obligations owing by Borrower to
Lender, such payments to be applied to such Obligations by Lender in its sole
discretion.
2.3 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in clause (b) below, the Term
Loan shall bear interest at a per annum rate of 4.25 percentage points above the
Applicable Rate.
(b) Default Rate. Upon the occurrence and during the continuation of
an Event of Default, the Term Loan shall bear interest at a per annum rate equal
to 8.25 percentage points above the Applicable Rate.
(c) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 12.50% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less than
the foregoing minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate.
(d) Payments. Interest payable hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Any interest not
paid when due shall be compounded and shall thereafter accrue interest at the
rate then applicable to the Term Loan hereunder.
(e) Computation. The Reference Rate as of the date of this Agreement
is 8.25% per annum. In the event the Reference Rate is changed from time to
time hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
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(f) Intent to Limit Charges to Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and Lender, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
-------- -------
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto as
---- -----
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.4 Collections. Borrower shall at all times maintain its
Concentration Account and agrees that all Collections of Borrower and the
Guarantors shall be deposited into such Concentration Account or into a deposit
account the proceeds of which are remitted no less frequently than has been
Borrower's or such Guarantor's past practice to its Concentration Account. Upon
the occurrence and during the continuance of an Event of Default, Lender may
elect to notify the Concentration Account Bank to remit all amounts received in
the Concentration Account to an account of Lender (the "Lender Account")
maintained by Lender at a depositary selected by Lender.
2.5 Crediting Payments; Application of Collections. The receipt of
any Collections by Lender (whether from transfers to Lender by the Concentration
Account Bank or otherwise) immediately shall be applied provisionally to reduce
the Obligations outstanding under Section 2.1, but shall not be considered a
-----------
payment on account unless such Collection item is a wire transfer of immediately
available federal funds and is made to the Lender Account or unless and until
such Collection item is honored when presented for payment. Should any
Collection item not be honored when presented for payment, then Borrower shall
be deemed not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
Collection item shall be deemed received by Lender only if it is received into
the Lender Account on a Business Day on or before 11:00 a.m. New York time. If
any Collection item is received into the Lender Account on a non-Business Day or
after 11:00 a.m. New York time on a Business Day, it shall be deemed to have
been received by Lender as of the opening of business on the immediately
following Business Day.
2.6 Designated Account. Lender is authorized to make the Term Loan
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.3(d). Borrower agrees to establish and maintain the
--------------
Designated Account with the Designated Account Bank for the purpose of receiving
the proceeds of the Term Loan requested by Borrower and made by Lender
hereunder. Unless otherwise agreed by Lender and Borrower, any advance
requested by Borrower and made by Lender hereunder shall be made to the
Designated Account.
2.7 Maintenance of Loan Account; Statements of Obligations. Lender
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which
-15-
Borrower will be charged with the Term Loan made by Lender to Borrower or for
Borrower's account, including, accrued interest, Lender Expenses, and any other
payment Obligations of Borrower. The Loan Account will be credited with all
payments received by Lender from Borrower or for Borrower's account, including
all amounts received in the Lender Account from the Concentration Account Bank.
Lender shall render statements regarding the Loan Account to Borrower, including
principal, interest, fees, and including an itemization of all charges and
expenses constituting Lender Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and Lender unless, within 30 days after receipt thereof
by Borrower, Borrower shall deliver to Lender written objection thereto
describing the error or errors contained in any such statements.
2.8 Fees. Borrower shall pay to Lender the following fees:
(a) Closing Fee. On the Closing Date, a closing fee (the "Closing
-----------
Fee") of $240,000, which fee is in addition to any fees previously paid by
Borrower to Lender and shall be paid by adding the amount thereof to the balance
of the Term Loan.
(b) Financial Examination, Documentation, and Appraisal Fees.
--------------------------------------------------------
Lender's customary fee of $650 per day per examiner, plus out-of-pocket expenses
for each financial analysis and examination (i.e., audits) of Borrower performed
by personnel employed by Lender; Lender's customary appraisal fee of $1,500 per
day per appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral and the Guarantor Collateral performed by personnel employed by
Lender; and, the actual charges paid or incurred by Lender if it elects to
employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower or to appraise the
Collateral or the Guarantor Collateral; and
(c) Servicing Fee. On the first day of each April, July, October, and
-------------
January during the term of this Agreement, and thereafter so long as any
Obligations are outstanding, a servicing fee in an amount equal to $25,000.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Term Loan. The obligation of Lender
to make the Term Loan is subject to the fulfillment, to the satisfaction of
Lender and its counsel, of each of the following conditions on or before the
Closing Date:
(a) the Closing Date shall occur on or before January 31, 1997;
(b) Lender shall have received searches reflecting the filing of
its financing statements and fixture filings;
(c) Lender shall have received each of the following documents,
duly executed, and each such document shall be in full force and effect:
i. the Disbursement Letter;
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ii. the Guaranty;
iii. the Guarantor Security Agreement;
iv. the Copyright Security Agreement;
v. the Trademark Security Agreements;
vi. the Warrants;
vii. the Concentration Account Agreement;
viii. the Subordination Agreement; and
ix. the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the
termination by Existing Lender of its Liens in and to the
properties and assets of Borrower and the Guarantors, as
applicable;
(d) Lender shall have received a certificate from the Secretary of
each Obligor attesting to the resolutions of such Obligor's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which such Obligor is a party and authorizing specific
officers of such Obligor to execute the same;
(e) Lender shall have received copies of each Obligor's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Obligor;
(f) Lender shall have received a certificate of status with respect to
each Obligor, dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of such
Obligor, which certificate shall indicate that such Obligor is in good standing
in such jurisdiction;
(g) Lender shall have received certificates of status with respect to
each Obligor, each dated within 15 days of the Closing Date, such certificates
to be issued by the appropriate officer of the jurisdictions in which its
failure to be duly qualified or licensed would constitute a Material Adverse
Change, which certificates shall indicate that such Obligor is in good standing
in such jurisdictions;
(h) Lender shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.10, the form and
------------
substance of which shall be satisfactory to Lender and its counsel;
(i) Lender shall have received such Collateral Access Agreements from
lessors as Lender may require;
-17-
(j) Lender shall have received an opinion of the Obligor's counsel in
form and substance satisfactory to Lender in its sole discretion;
(k) Lender shall have received satisfactory evidence that all tax
returns required to be filed by Borrower have been timely filed and all taxes
upon Borrower or its properties, assets, income, and franchises (including real
property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(l) Lender shall have completed its due diligence in respect of
Borrower, the results of which are satisfactory to Lender;
(m) Lender shall have received the results of an appraisal of Borrower
conducted by a "valuation firm" selected by Lender, such results to be
satisfactory to Lender;
(n) Lender shall have received the results of an audit of Borrower's
financial records, dated June 30, 1996, conducted by KPMG Peat Marwick LLP, such
results to be satisfactory to Lender;
(o) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as of
such date;
(p) no Default or Event of Default shall have occurred and be
continuing on such date, nor shall either result from the making thereof;
(q) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit shall
have been issued and remain in force by any governmental authority against
Borrower, Lender, or any of their Affiliates;
(r) Lender shall have received evidence satisfactory to it that the
holders of the preferred Stock of Borrower have approved of the execution,
delivery, and performance by Borrower of the Warrants; and
(s) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Lender and its
counsel.
3.2 Term. This Agreement shall become effective upon the execution
and delivery hereof by Borrower and Lender and shall continue in full force and
effect for a term ending on January 30, 1998 (the "Maturity Date"). The
foregoing notwithstanding, Lender shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.3 Effect of Termination. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's
-18-
duties, Obligations, or covenants hereunder, and Lender's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Lender's obligation to provide additional
credit hereunder is terminated.
3.4 Early Termination by Borrower. The provisions of Section 3.3
-----------
notwithstanding, Borrower has the option, at any time upon 30 days prior written
notice to Lender, to terminate this Agreement by paying to Lender, in cash, the
Obligations, in full, without payment or premium.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Lender a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Lender's security interests in
the Collateral shall attach to all Collateral without further act on the part of
Lender or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for Ordinary Course
Dispositions, Borrower has no authority, express or implied, to dispose of any
item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Lender, shall endorse and deliver
physical possession of such Negotiable Collateral to Lender.
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time following the occurrence and during the continuance of
an Event of Default or that Lender deems itself insecure, Lender or Lender's
designee may (a) notify customers or Account Debtors of Borrower that the
Accounts, General Intangibles, or Negotiable Collateral have been assigned to
Lender or that Lender has a security interest therein, and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge
Borrower with the collection costs and expenses. Borrower agrees that it will
hold in trust for Lender, as Lender's trustee, any Collections that it receives
and immediately will deliver said Collections to Lender in their original form
as received by Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon
the request of Lender, Borrower shall execute and deliver to Lender all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Lender reasonably
may request, in form satisfactory to Lender, to perfect and continue perfected
Lender's security interests in the Collateral, and in order to fully consummate
all of the transactions contemplated hereby and under the other the Loan
Documents.
4.5 Power of Attorney. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees, or
agents designated by Lender) as
-19-
Borrower's true and lawful attorney, with power to (a) if Borrower refuses to,
or fails timely to execute and deliver any of the documents described in
Section 4.4, sign the name of Borrower on any of the documents described
- -----------
in Section 4.4, (b) at any time that an Event of Default has occurred and is
-----------
continuing or Lender deems itself insecure, sign Borrower's name on any invoice
or bill of lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into Lender's possession,
(e) at any time that an Event of Default has occurred and is continuing or
Lender deems itself insecure, notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated by Lender, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward all other mail to Borrower, (f) at any time that
an Event of Default has occurred and is continuing or Lender deems itself
insecure, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has occurred
and is continuing or Lender deems itself insecure, settle and adjust disputes
and claims respecting the Accounts directly with Account Debtors, for amounts
and upon terms that Lender determines to be reasonable, and Lender may cause to
be executed and delivered any documents and releases that Lender determines to
be necessary. The appointment of Lender as Borrower's attorney, and each and
every one of Lender's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Lender's obligation to extend credit hereunder is terminated.
4.6 Right to Inspect. Lender (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter during
normal business hours to inspect Borrower's Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement, Borrower makes
the following representations and warranties which shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date, and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens. Each Guarantor
has good and indefeasible title to its portion of the Guarantor Collateral, free
and clear of Liens except for Permitted Liens.
5.2 Accounts. The Accounts are bona fide existing obligations
created by the sale and delivery of Inventory or the rendition of services to
Account Debtors in the ordinary course of Borrower's business, unconditionally
owed to Borrower without defenses, disputes, offsets, counterclaims, or rights
of return or cancellation that are not generally granted within
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Borrower's industry. The property giving rise to such Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and acceptance by the Account Debtor. Borrower has not received
notice of actual or imminent bankruptcy, insolvency, or material impairment of
the financial condition of any Account Debtor regarding any Account.
5.3 Inventory. All Inventory is of good and merchantable quality,
free from defects.
5.4 Equipment. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Lender's
prior written consent) and are located only at the locations identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
- ------------- ------------
5.6 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement. Borrower's FEIN is 33-0697932.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(b) Each Guarantor is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to have a
Material Adverse Change. Other than with respect to StarPress' internet business
located in Venice, California, neither Guarantor currently engages in any
business, nor intends in the future to engage in any business.
(c) Set forth on Schedule 5.8, is a complete and accurate list of
------------
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
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(d) Except as set forth on Schedule 5.8, no capital Stock (or any
------------
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital Stock) of any direct or indirect Subsidiary of
Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or claim
of any right, title, or interest therein or thereto.
(e) As to each Inactive Subsidiary: each such Subsidiary does not own
any property or assets of any consequential value, does not currently engage in
any business, and does not intend in the future to engage in any business.
5.9 Due Authorization; No Conflict.
(a) Borrower:
(i) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(ii) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not (a)
violate any provision of federal, state, or local law or regulation (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower, (b) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any material contractual obligation or material lease of
Borrower, (c) result in or require the creation or imposition of any Lien of any
nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (d) other than the holders of the preferred Stock of
Borrower, require any approval of stockholders or any approval or consent of any
Person under any material contractual obligation of Borrower.
(iii) Other than the filing of appropriate financing statements,
fixture filings, and related documents in respect of the Collateral, the
execution, delivery, and performance by Borrower of this Agreement and the Loan
Documents to which Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any federal, state, foreign, or other Governmental Authority or other
Person.
(iv) This Agreement and the Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
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(v) The Liens granted by Borrower to Lender in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
(b) Guarantors:
(i) The execution, delivery, and performance by each Guarantor of
the Loan Documents to which it is a party have been duly authorized by all
necessary corporate action.
(ii) The execution, delivery, and performance by each Guarantor
of the Loan Documents to which it is a party do not and will not (a) violate, in
any material respect, any provision of federal, state, or local law or
regulation (including Regulations G, T, U, and X of the Federal Reserve Board)
applicable to such Guarantor, the Governing Documents of such Guarantor, or any
order, judgment, or decree of any court or other Governmental Authority binding
on such Guarantor, (b) conflict with, result in a material breach of, or
constitute (with due notice or lapse of time or both) a material default under
any material contractual obligation or material lease of such Guarantor, (c)
result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of such Guarantor, other than Permitted
Liens, or (d) require any approval of stockholders or any approval or consent of
any Person under any material contractual obligation of such Guarantor.
(iii) Other than the filing of appropriate financing statements,
fixture filings, and related documents in respect of the Guarantor Collateral,
the execution, delivery, and performance by each Guarantor of the Loan Documents
to which it is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any federal,
state, foreign, or other Governmental Authority or other Person.
(iv) The Loan Documents to which each Guarantor is a party, and
all other documents contemplated hereby and thereby, when executed and delivered
by such Guarantor will be the legally valid and binding obligations of such
Guarantor, enforceable against it in accordance with their respective terms,
except as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
(v) The Liens granted by each Guarantor to Lender in and to its
properties and assets are validly created, perfected, and first priority Liens,
subject only to Permitted Liens.
5.10 Litigation. There are no actions or proceedings pending by or
against Borrower or any Guarantor before any court or administrative agency and
Borrower does not have knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower or any Guarantor, except for: (a)
ongoing collection matters in which Borrower or a Guarantor is the plaintiff;
(b) matters disclosed on Schedule 5.10; and (c) matters arising after the date
-------------
hereof
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that, if decided adversely to Borrower or the Guarantor, would not have a
Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower or any Guarantor that have been delivered by Borrower to Lender have
been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and fairly present Borrower's (or such Guarantor's, as
applicable) financial condition as of the date thereof and its results of
operations for the period then ended. There has not been a Material Adverse
Change with respect to Borrower (or such Guarantor, as applicable) since the
date of the latest financial statements submitted to Lender after the Closing
Date.
5.12 Solvency. Borrower and the Guarantors are Solvent. No transfer
of property is being made by Borrower or a Guarantor and no obligation is being
incurred by Borrower or any Guarantor in connection with the transactions
contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Borrower or any
Guarantor.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on Schedule 5.13. Borrower, each of its Subsidiaries
-------------
and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrower or its Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct or indirect
liability with respect to any Plan under any applicable law, treaty, rule,
regulation, or agreement. None of Borrower or its Subsidiaries or any ERISA
Affiliate is required to provide security to any Plan under Section 401(a)(29)
of the IRC.
5.14 Environmental Condition. None of Borrower's or the Guarantors'
properties or assets has ever been used by Borrower or the Guarantors or, to the
best of Borrower's knowledge, by previous owners or operators in the disposal
of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials. None of Borrower's or the Guarantors' properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute. No Lien arising under
any environmental protection statute has attached to any revenues or to any real
or personal property owned or operated by Borrower or a Guarantor. Neither
Borrower nor any Guarantor has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower or such
Guarantor resulting in the releasing or disposing of Hazardous Materials into
the environment.
5.15 Intellectual Property. Neither Borrower nor StarPress owns,
holds (whether pursuant to a license or otherwise), or uses in the conduct of
its business, in whole or
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in part, any copyrights, registrations in the United States Copyright Office, or
applications for registrations in the United States Copyright Office. None of
the Obligors owns, holds (whether pursuant to a license or otherwise), or uses
in the conduct of its business, in whole or in part, any patents, registrations
in the United States Patent and Trademark Office, or applications for
registrations in the United States Patent and Trademark Office.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Lender shall otherwise consent in writing, Borrower shall and shall cause
each of the Guarantors to do all of the following (and each reference to
Borrower also shall be deemed to include the Guarantors):
6.1 Accounting System. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may be requested by Lender. Borrower also
shall keep a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
6.2 Collateral Reporting. Provide Lender with the following
documents at the following times in form satisfactory to Lender: (a) every 2
weeks during the term of this Agreement, company prepared [Collateral reports],
and such other reports as to the Collateral or the financial condition of
Borrower as Lender may request from time to time. Original sales invoices
evidencing daily sales shall be mailed by Borrower to each Account Debtor and,
at Lender's direction, the invoices shall indicate on their face that the
Account has been assigned to Lender and that all payments are to be made
directly to Lender.
6.3 Financial Statements, Reports, Certificates. Deliver to Lender:
(a) as soon as available, but in any event within 30 days after the end of each
month during each of Borrower's fiscal years, a company prepared balance sheet,
income statement, and statement of cash flow covering Borrower's operations
during such period; and (b) as soon as available, but in any event within 90
days after the end of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Lender and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP. Such audited financial statements shall include a balance sheet, profit
and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. In addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidated basis.
Together with the above, Borrower also shall deliver to Lender
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Lender relating to the financial condition of
Borrower.
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Each month, together with the financial statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Lender a certificate signed by its
--------------
chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Lender hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in Sections 7.20
-------------
and 7.21 is to be tested, a Compliance Certificate demonstrating in reasonable
- --------
detail compliance at the end of such period with the applicable financial
covenants contained in Sections 7.20 and 7.21, and (iv) on the date of delivery
----------------------
of such certificate to Lender there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i), (ii),
or (iii), to the extent of any non-compliance, describing such non-compliance as
to which he or she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Lender and to
release to Lender whatever financial information concerning Borrower that Lender
may request. Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Lender, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to Lender
any information they may have regarding Borrower's business affairs and
financial conditions.
6.4 Tax Returns. Deliver to Lender copies of each of Borrower's future
federal income tax returns, and any amendments thereto, within 30 days of the
filing thereof with the Internal Revenue Service.
6.5 Guarantor Reports. Cause any Guarantor to deliver its annual financial
statements at the time when Borrower provides its audited financial statements
to Lender and copies of all federal income tax returns as soon as the same are
available and in any event no later than 30 days after the same are required to
be filed by law.
6.6 Returns. Cause returns and allowances, if any, as between Borrower and
its Account Debtors to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and, if Borrower
accepts such return, issue a credit memorandum (with a copy to be sent to
Lender) in the appropriate amount to such Account Debtor. If, at a time when an
Event of Default has occurred and is continuing, any Account Debtor returns any
Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Lender consents (which
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consent shall not be unreasonably withheld), issue a credit memorandum (with a
copy to be sent to Lender) in the appropriate amount to such Account Debtor.
6.7 Title to Equipment. Upon Lender's request, Borrower immediately
shall deliver to Lender, properly endorsed, any and all evidences of ownership
of, certificates of title, or applications for title to any items of Equipment.
6.8 Maintenance of Equipment. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 Taxes. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest.
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Lender, on demand, appropriate certificates
attesting to the payment thereof or deposit with respect thereto. Borrower will
make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Lender with proof satisfactory to Lender indicating
that Borrower has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Collateral insured against loss or damage
by fire, theft, explosion, sprinklers, and all other hazards and risks, and in
such amounts, as are ordinarily insured against by other owners in similar
businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with such
companies, and in such commercially reasonable amounts as may be reasonably
satisfactory to Lender. All insurance required herein shall be written by
companies which are authorized to do insurance business in the State of
California. All hazard insurance and such other insurance as Lender shall
specify, shall contain a California Form 438BFU (NS) mortgagee endorsement, or
an equivalent endorsement satisfactory to Lender, showing Lender as sole loss
payee thereof, and shall contain a waiver of warranties. Every policy of
insurance referred to in this Section 6.10 shall contain an agreement by the
------------
insurer that it will not cancel such policy except after 30 days prior written
notice to Lender and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of Borrower or Lender which might, absent
such
-27-
agreement, result in a forfeiture of all or a part of such insurance payment.
Borrower shall deliver to Lender certified copies of such policies of insurance
and evidence of the payment of all premiums therefor.
(c) Original policies or certificates thereof satisfactory to Lender
evidencing such insurance shall be delivered to Lender at least 30 days prior to
the expiration of the existing or preceding policies. Borrower shall give
Lender prompt notice of any loss covered by such insurance, and Lender shall
have the right to adjust any loss. Lender shall have the exclusive right to
adjust all losses payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Lender to be applied
at the option of Lender either to the prepayment of the Obligations without
premium, in such order or manner as Lender may elect, or shall be disbursed to
Borrower under stage payment terms satisfactory to Lender for application to the
cost of repairs, replacements, or restorations. All repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, Lender
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Lender shall determine.
(d) Borrower shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 6.10, unless Lender is included thereon as named insured with the
------------
loss payable to Lender under a standard California 438BFU (NS) Mortgagee
endorsement, or its local equivalent. Borrower immediately shall notify Lender
whenever such separate insurance is taken out, specifying the insurer thereunder
and full particulars as to the policies evidencing the same, and originals of
such policies immediately shall be provided to Lender.
6.11 No Setoffs or Counterclaims. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
------------- -------- -------
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
-------------
written notice to Lender not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Lender's security interests
in such assets and also provides to Lender a Collateral Access Agreement.
6.13 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any governmental authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and
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orders the non-compliance with which, individually or in the aggregate, would
not have and could not reasonably be expected to have a Material Adverse Change.
6.14 Employee Benefits.
(a) Promptly, and in any event within 10 Business Days after
Borrower or any of its Subsidiaries knows or has reason to know that an ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change, a written statement of the chief financial officer of Borrower
describing such ERISA Event and any action that is being taking with respect
thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any action
taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within 3 Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any Benefit
Plan and all communications received by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate with respect to such request, and
(iii) promptly, and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate, of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Lender, upon Lender's request, each
of the following: (i) a copy of each Plan (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not and will not
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permit any Guarantor to do any of the following without Lender's prior written
consent (and each reference to Borrower also shall be deemed to include the
Guarantors):
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to Lender on or prior to the Closing Date (other than the
Indebtedness owed to Existing Lender);
(c) Indebtedness owed by one Obligor to another Obligor, so long
as such Indebtedness is unsecured and is the subject of the Subordination
Agreement;
(d) Indebtedness secured by Permitted Liens;
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (d) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i)
the terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Lender as those applicable to the
refinanced Indebtedness; and
[(f) Indebtedness in an aggregate amount not to exceed $200,000 owed
by Borrower to Intel Corporation for the purchase of certain Equipment from
Intel Corporation.]
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement Liens only encumber those assets
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or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
Stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets. Without in any way limiting the generality of the
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foregoing, no Inactive Subsidiary shall acquire any property or assets, and
other than with respect to StarPress' internet business located in Venice,
California, no Guarantor or Inactive Subsidiary shall engage in any business.
7.4 Disposal of Assets. Except for Permitted Dispositions, sell,
lease, assign, transfer, or otherwise dispose of any of Borrower's properties or
assets other than sales of Inventory to buyers in the ordinary course of
Borrower's business as currently conducted.
7.5 Change Name. Change Borrower's name, FEIN, corporate structure
(within the meaning of Section 9-402(7) of the Code), or identity, or add any
new fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person which is not Borrower or a
Guarantor except by endorsement of instruments or items of payment for deposit
to the account of Borrower or which are transmitted or turned over to Lender.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
-------
7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire any
- ------
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), or (d).
----------------------------
7.9 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital Stock, of any class,
whether now or hereafter outstanding.
7.12 Accounting Methods. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Lender information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
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accounting firm or service bureau in connection with any information requested
by Lender pursuant to or in accordance with this Agreement, and agrees that
Lender may contact directly any such accounting firm or service bureau in order
to obtain such information.
7.13 Investments. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person; provided, however, that, so long as no Default or Event of Default
-------- -------
has occurred and is continuing, Borrower shall be entitled to make investments
under this clause (a) during the term of this Agreement in an aggregate amount
----------
not to exceed $500,000, (b) loans, advances, capital contributions, or transfers
of property to a Person, or (c) the acquisition of all or substantially all of
the properties or assets of a Person.
7.14 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Lender, and that are
no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 Suspension. Other than the suspension of StarPress' internet
business located in Venice, California, suspend or go out of a substantial
portion of its business.
7.16 Compensation. Increase the annual fee or per-meeting fees paid
to directors during any year by more than 15% over the prior year; pay or accrue
total cash compensation, during any year, to officers and senior management
employees in an aggregate amount in excess of 115% of that paid or accrued in
the prior year; provided, however, that if Borrower hires or appoints a chief
-------- -------
financial officer (who is not a replacement for another officer), the total cash
compensation paid or accrued by Borrower with respect to such individual (the
"Additive Amount") during such year of hire or appointment (the "Hire Year")
shall not be included in the aggregate amount of total cash compensation paid or
accrued by Borrower for purposes of calculating whether Borrower exceeded the
aggregate amount of total cash compensation allowable during such year; provided
--------
further, however, that, in the year following the Hire Year, the Additive Amount
- ------- -------
(annualized if the individual was hired or appointed for less than a full year)
shall be included in the aggregate amount of total cash compensation paid or
accrued by Borrower for the Hire Year solely for the purpose of calculating the
total cash compensation paid or accrued by Borrower for the prior year.
7.17 Use of Proceeds. Use the proceeds of the Term Loan made
hereunder for any purpose other than (a) on the Closing Date, (i) to repay (y)
in full the outstanding principal, accrued interest, and accrued fees and
expenses owing to Existing Lender and (z) trade payables; provided, however,
-------- -------
that not more than $3,000,000 of the proceeds of the Term Loan may be used to
complete the payments under this clause (i), and (ii) to pay transactional costs
----------
and expenses incurred in connection with this Agreement, and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
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7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Lender and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Lender's security interests and also provides to Lender a Collateral
Access Agreement with respect to such new location. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Lender's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
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which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 Financial Covenants. Fail to maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets divided
by Consolidated Current Liabilities of at least 0.75: 1.0, measured on a fiscal
quarter-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities divided by Tangible Net Worth of 30: 1.0, or less,
measured on a fiscal quarter-end basis;
(c) Tangible Net Worth. Tangible Net Worth of at least $300,000,
measured on a fiscal quarter-end basis; and
7.21 Capital Expenditures. Make capital expenditures in any fiscal
year in excess of $200,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If any Obligor (a) fails to pay any installment of principal of
the Term Loan when due, whether at stated maturity, by acceleration, by notice
of required prepayment, or otherwise, or (b) fails to pay any interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), Lender Expenses, or other amounts
constituting Obligations (other than amounts covered by clause (a) above) when
---------
due, if, in any such case under this clause (b), such payment is not made within
----------
5 days after the date that such payment was first due;
8.2 If any Obligor (a) fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in Section 6 of this
---------
Agreement and such failure continues for a period of 14 days from the date of
such failure, or (b) fails to perform, keep, or observe any other term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between one
or more of the Obligors and Lender (other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this Section 8);
---------
8.3 If there is a Material Adverse Change;
8.4 If any portion of any Obligor's properties or assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any third Person and such attachment, seizure, writ,
warrant, or levy involves a claim of $100,000 or more, and is not released,
discharged, or bonded against before the earlier of 30 days from
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the date it first arises or 5 days from the date when such property or asset is
subjected to being forfeited by the respective Obligor;
8.5 If an Insolvency Proceeding is commenced by any Obligor;
8.6 If an Insolvency Proceeding is commenced against Borrower and any
of the following events occur: (a) any Obligor consents to the institution of
the Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
-------- -------
Lender shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an order for relief shall have been issued or
entered therein;
8.7 If any Obligor is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any Guarantor's properties or assets by the
United States Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, or if any taxes or
debts owing at any time hereafter to any one or more of such entities becomes a
Lien, whether choate or otherwise, upon any of Borrower's or any Guarantor's
properties or assets and the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of any Obligor's properties or assets;
8.10 If there is a default after the expiration of any applicable cure
periods in any material agreement to which an Obligor is a party with one or
more third Persons and such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of such Obligor's
obligations thereunder;
8.11 If any Obligor makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or report made to Lender by an
Obligor or any officer, employee, agent, or director of such Obligor, or if any
such warranty or representation is withdrawn; or
8.13 If the obligation of any Guarantor or other third Person under
any Loan Document is limited or terminated by operation of law or by such
Guarantor or other third
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Person thereunder, or any such Guarantor or other third Person becomes the
subject of an Insolvency Proceeding.
9. LENDER'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default Lender may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Lender;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Lender, but without affecting
Lender's rights and security interests in the Collateral and without affecting
the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Lender considers advisable, and in such
cases, Lender will credit Borrower's Loan Account with only the net amounts
received by Lender in payment of such disputed Accounts after deducting all
Lender Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Lender, segregate all returned Inventory from all other property of Borrower or
in Borrower's possession and conspicuously label said returned Inventory as the
property of Lender;
(f) Without notice to or demand upon Borrower or any Guarantor,
make such payments and do such acts as Lender considers necessary or reasonable
to protect its security interests in the Collateral. Borrower agrees to assemble
the Collateral if Lender so requires, and to make the Collateral available to
Lender as Lender may designate. Borrower authorizes Lender to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Lender's determination appears to conflict
with its security interests and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's owned or leased premises, Borrower
hereby grants Lender a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise any of
Lender's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9-505 of the Code), set off and
apply to the Obligations any and all (i)
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balances and deposits of Borrower held by Lender, or (ii) indebtedness at any
time owing to or for the credit or the account of Borrower held by Lender;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by Lender to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Lender is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit;
(j) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Lender determines
is commercially reasonable. It is not necessary that the Collateral be present
at any such sale;
(k) Lender shall give notice of the disposition of the Collateral
as follows:
(1) Lender shall give Borrower and each holder of a security
interest in the Collateral who has filed with Lender a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least 5 days before the date
----------
fixed for the sale, or at least 5 days before the date on or after which the
private sale or other disposition is to be made; no notice needs to be given
prior to the disposition of any portion of the Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily sold on
a recognized market. Notice to Persons other than Borrower claiming an interest
in the Collateral shall be sent to such addresses as they have furnished to
Lender;
(3) If the sale is to be a public sale, Lender also shall give
notice of the time and place by publishing a notice one time at least 5 days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held;
(l) Lender may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by Lender
to Borrower.
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9.2 Remedies Cumulative. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default shall be deemed a continuing waiver. No delay by Lender shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower or a Guarantor fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Lender
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Lender may do
any or all of the following: (a) make payment of the same or any part thereof,
or (b) obtain and maintain insurance policies of the type described in Section
-------
6.10, and take any action with respect to such policies as Lender deems prudent.
- ----
Any such amounts paid by Lender shall constitute Lender Expenses. Any such
payments made by Lender shall not constitute an agreement by Lender to make
similar payments in the future or a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity
of, any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was validly
due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Lender on which Borrower may in any way be liable.
11.2 Lender's Liability for Collateral. So long as Lender complies
with its obligations, if any, under Section 9-207 of the Code, Lender shall not
in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
Lender, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and
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irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them in connection with or as a result of or related
to the execution, delivery, enforcement, performance, and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person under this Section
-------
11.3 with respect to any Indemnified Liability that a court of competent
- ----
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Lender, as the case may be, at its address set forth below:
If to Borrower: GRAPHIX ZONE, INC.
42 Corporate Park, Suite 200
Irvine, California 92606
Attn: Mr. Norman Block
Fax No. 714.833.3990
with copies to: SNELL & WILMER L.L.P.
1920 Main Street, Suite 1200
Irvine, California 92614
Attn: Gregg A. Amber, Esq.
Fax No. 714.955.2507
If to Lender: MADELEINE L.L.C.
450 Third Avenue
28th Floor
New York, New York 10022
Attn: Mr. Kevin P. Genda
Fax No. 212.758.5305
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with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
----------
than notices by Lender in connection with Sections 9-504 or 9-505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Lender in connection with Sections 9-504 or 9-505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND LENDER WAIVES,
TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND
----------
LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF
BORROWER AND LENDER REPRESENTS
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THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Lender may be destroyed or otherwise disposed of by Lender 4 months after
they are delivered to or received by Lender, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and Lender.
15.2 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
- -------- -------
duties hereunder without Lender's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Lender
shall release Borrower from its Obligations. Lender may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Lender reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Lender's rights and benefits hereunder. In connection
with any such assignment or participation, Lender may disclose all documents and
information which Lender now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Lender assigns its rights and
obligations hereunder to a third Person, Lender thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Lender or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
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15.6 Amendments in Writing. This Agreement can only be amended by a
writing signed by both Lender and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any Guarantor of the Obligations or
the transfer by either or both of such parties to Lender of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Lender is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Lender is required or elects
to repay or restore, and as to all reasonable costs, expenses, and attorneys
fees of Lender related thereto, the liability of Borrower or such Guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in New York, New York.
GRAPHIX ZONE, INC.,
a Delaware corporation
By /s/ NORMAN H. BLOCK
----------------------------------------------------
Title: President
-------------------------------------------------
MADELEINE L.L.C.,
a New York limited liability company
By /s/ KEVIN P. GENDA
---------------------------------------------------
Title: Kevin P. Genda
Attorney-in-Fact
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