<PAGE>
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U. S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
----------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from __________________to__________________
Commission file number 000-20759
----------------
AMERICAN ARTISTS FILM CORPORATION
(Exact name of small business issuer as specified in its charter)
MISSOURI 43-1717111
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1245 FOWLER ST., N.W.
ATLANTA, GEORGIA 30318
(Address of principal executive offices)
(404) 876-7373
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
------
No ________
State the number of shares outstanding of each of the issuer's classes of
common equity: 1,086,922 shares of Class A Common Stock, $.001 par value per
share, and 5,328,339 shares of Class B Common Stock, $.001 par value per share,
were outstanding at June 12, 1998.
Transitional Small Business Disclosure Format: Yes________ No X
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<PAGE>
AMERICAN ARTISTS FILM CORPORATION
FORM 10-QSB
CONTENTS
PART I - FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements:
<S> <C>
Balance sheets at April 30, 1998 and July 31, 1997.................................. F-1/F-2
Statements of operations for the three months and nine months ended April 30, 1998
and April 30, 1997.................................................................. F-3
Statements of cash flows for the nine months ended April 30, 1998 and April 30, 1997 F-4
Notes to Condensed Consolidated Financial Statements................................ F-5/F-7
Item 2. Management's Discussion and Analysis or Plan of Operation............................ F-8/F-10
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K..................................................... F-10
SIGNATURES.................................................................................... F-11
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
---------------------- ---------------------
1998 1997
---------------------- ---------------------
<S> <C> <C>
ASSETS
CASH $ 23,320 $ 31,379
ACCOUNTS RECEIVABLE 255,719 508,837
FILM COSTS, NET OF ACCUMULATED AMORTIZATION 616,238 493,912
PROPERTY AND EQUIPMENT, NET 31,425 41,193
GOODWILL, NET OF ACCUMULATED AMORTIZATION 88,072 117,429
ADVANCES TO OFFICERS 254,700 220,719
---------------------- ---------------------
$ 1,269,474 $ 1,413,469
====================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
---------------------- ---------------------
1998 1997
---------------------- ---------------------
<S> <C> <C>
LIABILITIES
Line of credit $ 67,686 $ -
Accounts payable 341,046 342,860
Accrued expenses 141,951 72,087
Accrued accounting and legal 144,583 193,510
Accrued compensation and payroll taxes 33,469 108,703
Notes payable 279,660 316,128
Notes payable/related parties 325,000 155,000
---------------------- ---------------------
TOTAL LIABILITIES 1,333,395 1,188,288
---------------------- ---------------------
MINORITY INTERESTS 75,410 50,000
CONTINGENCIES
(CAPITAL DEFICIT) STOCKHOLDERS' EQUITY
Preferred stock, $.001 par - shares authorized 10,000,000;
none issued - -
Common Stock, $.001 par:
Class A - shares authorized 20,000,000; issued and
outstanding 1,042,539 and 876,620 1,042 877
Class B - shares authorized 20,000,000; issued and
outstanding 5,372,722 and 5,502,277 5,373 5,502
Additional paid-in capital 3,308,014 2,908,117
Unamortized advertising credits (121,776) (122,618)
Accumulated deficit (3,331,984) (2,616,697)
---------------------- ---------------------
TOTAL (CAPITAL DEFICIT) STOCKHOLDERS' EQUITY (139,331) 175,181
---------------------- ---------------------
$ 1,269,474 $ 1,413,469
====================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
-------------------------------------- ----------------------------------------
1998 1997 1998 1997
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES
Commercial production $ 406,577 $ 501,227 $2,313,615 $2,098,702
Film revenues - 367,237 - 417,237
----------------- ----------------- ------------------ ------------------
406,577 868,464 2,313,615 2,515,939
----------------- ----------------- ------------------ ------------------
COSTS AND EXPENSES
Cost of commercial production 376,338 388,450 1,714,477 1,578,263
Film cost amortization - 325,263 - 359,538
Selling, general and administrative 488,586 295,488 1,284,106 957,645
----------------- ----------------- ------------------ ------------------
864,924 1,009,201 2,998,583 2,895,446
----------------- ----------------- ------------------ ------------------
LOSS FROM OPERATIONS (458,347) (140,737) (684,968) (379,507)
Interest expense (12,758) (2,592) (30,319) (10,772)
Other expense - - - (90,000)
----------------- ----------------- ------------------ ------------------
NET LOSS $ (471,105) $ (143,329) $ (715,287) $ (480,279)
================= ================= ================== ==================
NET LOSS PER SHARE - BASIC AND
DILUTED $(.07) $(.02) $(.11) $(.08)
================ ================ ================= =================
WEIGHTED AVERAGE COMMON
SHARES 6,415,261 6,327,230 6,411,221 6,104,337
================= ================= ================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended April 30,
-------------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(715,287) $(480,279)
Adjustments to reconcile net loss to cash used in
operating activities:
Film costs amortization - 359,538
Depreciation and amortization 41,446 44,197
Changes in assets and liabilities:
Accounts receivable 253,118 (119,691)
Film costs additions (122,326) (344,393)
Other assets (33,139) 815
Accounts payable (1,814) 153,475
Accrued expenses (54,297) (8,073)
Deferred revenue - (11,867)
-------------------- --------------------
Cash used in operating activities (632,299) (406,278)
INVESTING ACTIVITIES
Capital expenditures (2,321) -
-------------------- --------------------
FINANCING ACTIVITIES
Repayment of notes payable (513,968) (72,348)
Borrowings under notes payable 647,500 150,000
Borrowings under line of credit, net 67,686 -
Issuance of minority interests 325,343 -
Issuance of common stock 100,000 335,000
-------------------- --------------------
Cash provided by financing activities 626,561 412,652
NET INCREASE (DECREASE) IN CASH (8,059) 6,374
-------------------- --------------------
CASH, beginning of period 31,379 -
-------------------- --------------------
CASH, end of period $ 23,320 $ 6,374
==================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements are unaudited, but
in the opinion of management, contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. Results of operations
and cash flows for the interim three month and nine month periods are not
necessarily indicative of what the results of operations and cash flows will be
for an entire fiscal year. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-
KSB for the year ended July 31, 1997.
NOTE 2 - VIDEO COMMUNICATIONS NETWORK, LLC
In August 1997, the Company, certain members of the board of directors and
an officer of one of the Company's subsidiaries organized Video Communications
Network, LLC ("VCN"). The Company acquired 83.3% of the initial ownership of
VCN in exchange for nominal consideration. In January 1998, the Company sold a
portion of its interest in VCN, representing 444 LLC shares, to certain members
of the board of directors for nominal consideration.
VCN was organized for purposes of developing, managing and providing
programming for a network of Large Screen Video Display ("LSVD") operations in
domestic and international locations. VCN plans to develop LSVD operations that
deliver a mixture of programming, advertising and special events similar to the
present LSVD operation conducted by an unaffiliated company at Times Square in
the City of New York.
In January 1998, VCN commenced a private placement offering, under
Regulation D of the Securities Act of 1933, of an aggregate of 1,110 LLC shares
in $100,000 units comprised of 222 LLC shares together with a warrant to
purchase 50,000 shares of the Company's Class A common stock at an exercise
price of $3.00 per share, exercisable through January 2001. Minority interest
on the consolidated balance sheet reflects a reduction of the Company's
ownership to 74% as a result of VCN's receipt of $300,000 for three units sold
through April 30, 1998.
VCN has incurred expenses of $424,133 as of April 30, 1998. These expenses
have been funded by advances from the Company and proceeds of VCN's private
placement offering.
The Company consolidates the accounts of VCN and reflects a minority
interest in the remaining 26% interest in VCN in its consolidated financial
statements.
NOTE 3 - DIVERSITY ENTERTAINMENT TELEVISION/ATLANTA, LLC
In June 1997, VCN and an unaffiliated consultant organized Diversity
Entertainment Television/Atlanta, LLC ("DETV"). DETV was organized for the
purpose of installing and operating a LSVD operation in Atlanta, Georgia.
VCN acquired 6,762 of DETV's LLC shares, representing 98% of the initial
ownership, in exchange for nominal consideration. VCN agreed to distribute to
an officer of VCN, in consideration of his services to VCN, all of the net cash
or other assets received by VCN at any time in respect of 1,690.5 of its DETV
LLC shares, representing 24.5% of DETV's outstanding shares. VCN accounts for
these LLC shares as a minority interest in its financial statements.
F-5
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
VCN consolidates the accounts of DETV and reflects a minority interest of
26.5% in its financial statements. VCN's minority interest in DETV is reflected
as a component of minority interest in the Company's consolidated financial
statements. DETV had not incurred a significant level of expenses nor generated
any revenues as of April 30, 1998.
NOTE 4 - STOCKHOLDERS' EQUITY
Changes in the Company's Class A and Class B common stock during the nine months
ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Class A Common Class B Common Additional
Shares Stock Stock Paid-in Capital
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Private placement, together with
37,000 warrants exercisable through
June 2000 at $2.80 per share (sold
to a board of director member) 36,364 36 - 99,964
Conversions of Class B shares to
Class A shares 129,555 129 (129) -
--------------------------------------------------------------
165 (129) 99,964
==============================================================
</TABLE>
NOTE 5 - NOTES PAYABLE
The Company entered into and/or modified existing notes payable agreements
as follows:
(a) In November 1997, the Company received an extension of the maturity
date for its unsecured installment note payable to bank. This installment
note's maturity date was extended to November 1998 with all other terms
remaining unchanged.
(b) The Company borrowed $150,000 from two board of director members
during the period from January 1998 through April 1998. These unsecured
loans bear interest at the prime rate plus 1% and are due upon demand.
(c) The Company borrowed $75,000 from a shareholder in March 1998. This
unsecured loan bears interest at the prime rate plus 1% and is due upon
demand.
NOTE 6 - LINE OF CREDIT
First Light Entertainment Corporation, a wholly-owned subsidiary, entered
into a line of credit agreement with a financial institution in April 1998.
This asset-based credit facility provides for borrowings not to exceed
$1,000,000 and bears interest at the prime rate plus 2.5%, subject to a minimum
monthly service fee of $500. All advances are made based upon availability under
a borrowing base calculation which allows for borrowings up to 85% of accounts
receivable. Unused availability under the borrowing base calculation amounted to
$62,068 at April 30, 1998.
F-6
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The credit facility has two financial covenants related to the maintenance
of minimum levels of working capital and tangible net worth. The Company was in
compliance with these covenants at April 30, 1998. This line of credit facility
has a one year term and is guaranteed by the Company.
NOTE 7 - EARNINGS PER SHARE
The Company adopted the requirements of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," effective January 31, 1998, and has
restated the earnings per share amounts for prior periods. Basic and diluted
earnings per share are computed on the basis of net income or loss divided by
the weighted average number of common shares (Class A and Class B) outstanding
during the relevant period. Diluted earnings per share excludes the effects of
stock options and warrants (and is therefore the same as basic earnings per
share) as their effects would be anti-dilutive due to the net losses. There
were 2,284,455 and 664,517 anti-dilutive common stock options and common stock
warrants outstanding at April 30, 1998 and 1997, respectively.
NOTE 8 - FALSE RIVER, LLC
In March 1998, the Company organized False River, LLC ("False River") for
the purpose of producing a feature film, currently titled False River. In
exchange for nominal consideration, the Company obtained 100% of the ordinary
LLC shares of False River.
The operating agreement, as amended and restated, also provides for the
issuance of preferred distribution LLC shares, which are entitled to a preferred
distribution from net profits, as defined. However, the preferred distribution
shares may not constitute more that 49% of the ownership interest in False
River. In April 1998, a board of director member acquired 2,450 preferred
distribution LLC shares, representing 4.6% of all outstanding LLC shares, in
exchange for $25,000.
The Company consolidates the accounts of False River and reflects a
minority interest in the remaining 4.6% interest in False River in its
consolidated financial statements.
NOTE 9 - SUBSEQUENT EVENTS
The Company completed the following transactions subsequent to April 30,
1998:
(a) A board of director member extended a loan of $200,000 to the Company.
This loan is due on demand and bears interest at the prime rate plus 1%.
(b) Two board of director members acquired 26,950 preferred distribution
LLC shares in False River representing 27% of all outstanding LLC shares,
in exchange for $300,000. The Company subscribed for the remaining 19,600
preferred distribution LLC shares, representing 19.6% of all outstanding
LLC shares in False River.
(c) False River signed collective bargaining agreements with the Screen
Actors Guild and Directors Guild of America, Inc. ("DGA"). These agreements
call for adherence to certain procedures and standards related to the
production of a feature film and the revenues generated from its
exploitation. The Company has guaranteed the full and complete performance
by False River in relation to its agreement with DGA.
F-7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
NINE AND THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THE NINE AND THREE
MONTHS ENDED APRIL 30, 1997
Revenues for the first nine months of fiscal 1998 decreased as compared to
revenues for the first nine months of fiscal 1997, principally as a result of a
lack of film revenues in the third quarter of fiscal 1998. The lack of film
revenues was partially offset by an overall increase in commercial production
revenues during the first nine months of fiscal 1998.
Commercial production revenues were $2,313,615 for the first nine months of
fiscal 1998, representing an increase of $214,913 or 10.2% from commercial
production revenues of $2,098,702 for the first nine months of fiscal 1997. This
increase was due primarily to a significant increase in the average size of
awarded commercial production contracts in the first quarter of fiscal 1998.
Commercial production revenues decreased by $94,650 to $406,577 for the
three months ended April 30, 1998 from $501,227 for the three months ended April
30, 1997. This decrease was the result of a decrease in the number of bidding
opportunities and successful bids.
The level of the Company's commercial production revenues in each period
will depend on the size and number of projects it is awarded, which can
fluctuate dependent on changes in levels of commercial advertising expenditures
by advertisers, the number and commercial appeal of the commercial producers and
directors with which the Company is working in any one period, and the success
the Company and those producers and directors have in competing for projects.
Accordingly, the level of commercial revenues or growth therein in any one
interim period may not be indicative of trends that will continue throughout the
fiscal year. The number of directors utilized by the Company varies over time.
One individual, who directed commercials representing 61.8% of the
Company's revenues in fiscal 1997, ended her relationship with the Company in
December 1997. The adverse effect of the loss of the Company's relationship with
this director was, during the second and third quarters of fiscal 1998,
partially offset by increases in commercial projects obtained with other
directors with which the Company has worked with throughout fiscal 1997 and
1998. The Company will continue to attempt to establish relationships with other
commercial directors, both to offset the effects of this departure and to lessen
the Company's exposure to adverse effects from future changes in relationships
with individual directors.
Gross profits for commercial production were $599,138 and $520,439 for the
nine months ended April 30, 1998 and 1997, respectively. Gross profits for
commercial production were $30,239 and $112,777 for the three months ended April
30, 1998 and 1997, respectively. Commercial production costs, as a percentage of
related revenues, were 74.1% and 75.2% for the nine months ended April 30, 1998
and 1997, respectively. Commercial production costs, as a percentage of related
revenues, were 92.6% for the three months ended April 30, 1998 as compared to
77.5% for the three months ended April 30, 1997. The increase in commercial
production costs, in the third quarter of fiscal 1998, primarily relates to a
significant overall decrease in gross profits on successful bids obtained by the
Company and a decrease in the average size of awarded commercial production. The
Company has faced, in the last three months, increased competition for
commercial contracts, and has noted increased pressure on prices. The Company is
unable to predict whether such competition and price pressure will increase or
lessen in the future.
There were no film revenues for the first nine months of fiscal 1998, as
well as for the three months ended April 30, 1998. Film revenues amounted to
$417,237 for the first nine months of fiscal 1997 and $367,237 for the three
months ended April 30, 1997. The decrease in film revenues relates primarily to
a delay in a scheduled broadcast date for one of the Company's television film
projects. This project was initially scheduled for broadcast in March 1998 but
has been rescheduled for broadcast in August 1998 to take advantage of a more
favorable broadcasting period.
F-8
<PAGE>
Selling, general and administrative ("SG&A") expenses increased $326,461 to
$1,284,106 for the nine months ended April 30, 1998 from $957,645 for the nine
months ended April 30, 1997 and increased $193,098 to $488,586 for the three
months ended April 30, 1998 from $295,488 for the three months ended April 30,
1997. These increases were primarily the result of the addition of several staff
positions in, August 1997, related to the startup of Video Communications
Network, LLC, promotional costs related to the introduction of VCN and DETV to
potential customers and capital sources and an increase in travel and related
expenses incurred in efforts to strengthen the Company's capital resources.
Interest expense increased to $30,319 for the first nine months of fiscal
1998 from $10,772 for the first nine months of fiscal 1997 and increased to
$12,758 for the three months ended April 30, 1998 from $2,592 for the three
months ended April 30, 1997. These increases were the result of an increase in
outstanding debt during the first nine months of fiscal 1998.
Other expense of $90,000 for the nine months ended April 30, 1997 resulted
from an accrual for the anticipated settlement by the parties of a pending
arbitration dispute ultimately resolved in the fourth quarter of fiscal 1997.
As a result of the foregoing factors the Company incurred a net loss
$715,287 for the first nine months of fiscal 1998 as compared to a net loss of
$480,279 for the first nine months of fiscal 1997 and incurred a net loss of
$471,105 for the three months ended April 30, 1998 as compared to a net loss of
$143,329 for the three months ended April 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's strategic goal is to finance its operating (i.e. selling,
general and administrative) expenses from the gross profits generated by its
television film, commercial production and LSVD operations while utilizing
equity financing, pre-production license revenues, and co-producer contributions
to finance the production of feature films. Using this strategy, the Company
seeks to reduce or eliminate the burden of significant operating losses and
negative cash flows, while retaining the potential for significant profits and
positive cash flows from feature films. The success of such a strategy is,
however, dependent on the Company's ability to control operating expenses, to
obtain sufficient, and sufficiently profitable, commercial production contracts
and television film projects, and to fully develop its LSVD operations.
Operating cash flows were a negative $632,299 for the nine months ended
April 30, 1998 and were primarily the result of a shortfall in the level of
television film revenues, a decrease in the level of gross profits on commercial
production revenues and a delay in commencement of the planned LSVD operations
of VCN and DETV. The Company may experience negative operating cash flows in
periods when television film and commercial production revenues fail to cover
SG&A expenses. Cash flows may also be negative in periods of profitable
operations if growth in the Company's level of operations causes costs to rise
in advance of collections and the increase is not offset by increases in
accounts payable or accrued expenses. Negative operating cash flows, from either
cause, will constrain the Company's liquidity, and necessitate the use of debt
or equity financing.
The Company anticipates that it will continue to incur net losses and
negative cash flows until the Company fully develops the planned LSVD operations
of VCN and DETV and/or develops a consistent level of production for its
television film and feature films projects.
Accounts receivable decreased by $253,118, primarily as a result of reduced
commercial production. Film costs increased by $122,326 due to the incurrance
of pre-production and production costs related to several television film and
feature film projects, including the feature film project False River and When
Souls Meet, a television film being co-produced with Georgia Public Television
("GPTV"), which is scheduled for broadcast on GPTV and other public television
stations in August 1998.
F-9
<PAGE>
The negative operating cash flows for the first nine months of fiscal 1998
were funded from a combination of proceeds from borrowings, the issuance of
equity securities by the Company, and the issuance of VCN equity securities
(minority interests) which were used to fund VCN expenses, which are included in
the Company's negative operating cash flows.
Operating cash flows were a negative $406,278 for the nine months ended
April 30, 1997 principally as the result of a $379,507 shortfall, which included
amortized production costs of $318,264 that were incurred in the nine month
period, in the coverage of SG&A expenses by television film and commercial
production profits. The operating cash flows shortfall was financed with
borrowings related to new debt financing and from the proceeds of equity
offerings.
Notes payable and notes payable/related parties, including amounts borrowed
subsequent April 30, 1998, aggregating approximately $838,000 mature during
fiscal 1998, which will result in a significant demand upon the Company's
operating cash flows. If operating cash flows are unavailable to repay these
notes, the Company will attempt to either negotiate an extension of the due
dates for these notes or attempt to raise additional funds through new
debt/equity financing or the sale of assets.
The development of the Company's LSVD projects will require significant
capital, which the Company generally anticipates raising through the issuance of
minority equity interest in the LSVD projects. The Company is currently
undertaking the private placement offering of minority interests in both Video
Communications Network, LLC, the subsidiary which will produce programming and
develop or hold the Company's interest in its overall LSVD activities, and in
Diversity Entertainment Television/Atlanta, LLC, the subsidiary which has been
organized to develop the Company's Atlanta, Georgia LSVD project. Accordingly,
the level of the Company's ownership of any or all of its LSVD projects may
decrease in the future as minority interests are sold to obtain development or
operating funds. However, there can be no assurance that these private placement
offerings will be successfully completed by the Company or that alternative
financing for the LSVD projects will be available from other sources.
On the basis of its discussions to date with both potential investors and
financial advisors, the Company believes that it will be able to obtain capital
sufficient to finance its fiscal 1998 business plan through debt or equity
offerings together with the sale of minority interests in its LSVD operations.
However, there can be no assurances that any such debt or equity financing will
be available to the Company, or if available, that such financing would be
available on terms considered acceptable to the Company. The inability to obtain
such debt or equity financing as needed would require the Company to suspend or
materially reduce the scope of its operations.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Loan and Security Agreement Between First Light Entertainment
Corporation and Emergent Financial Corp.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended April 30,
1998.
F-10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Artists Film Corporation
By: /s/ Steven D. Brown June 12, 1998
----------------------------------
Steven D. Brown
Chief Executive Officer
By: /s/ Robert A. Martinez June 12, 1998
---------------------------------
Robert A. Martinez
Vice President - Finance and
Chief Financial Officer
F-11
<PAGE>
EXHIBIT 10
LOAN AND SECURITY AGREEMENT
BETWEEN
FIRST LIGHT ENTERTAINMENT CORPORATION ("DEBTOR")
ADDRESS: 1245 Fowler St., N.W., Atlanta, Georgia 30318
(Chief executive office if more than one place of business)
AND
EMERGENT FINANCIAL CORP. ("SECURED PARTY")
7 North Laurens Street, Suite 601
Greenville, SC 29601
DATED : April 2, 1998
--------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
<S> <C>
1. DEFINITIONS.............................................................................. 6
1.1 Certain Specific Terms................................................................ 6
1.2 Singular and Plurals.................................................................. 9
1.3 U.C.C. Definitions.................................................................... 9
1.4 Section References.................................................................... 9
2. ADVANCES................................................................................. 9
2.1 Requests for an Advance............................................................... 9
2.2 Proceeds of an Advance................................................................ 10
2.3 Establishment of Reserves............................................................. 10
3. COLLATERAL AND INDEBTEDNESS SECURED...................................................... 10
3.1 Security Interest..................................................................... 10
3.2 Other Collateral...................................................................... 10
3.3 Indebtedness Secured.................................................................. 10
4. CONDITIONS OF ADVANCE.................................................................... 11
4.1 Corporate Action...................................................................... 11
4.2 Corporate Documents................................................................... 11
4.3 Opinions.............................................................................. 11
4.4 Transaction Documents................................................................. 11
4.5 Third Party Action.................................................................... 11
4.6 Assignment of Representations, Warranties and Indemnities............................. 11
4.7 Other Matters......................................................................... 11
5. REPRESENTATIONS AND WARRANTIES........................................................... 11
5.1 Corporate Existence................................................................... 11
5.2 Corporate Capacity.................................................................... 12
5.3 Validity of Receivables............................................................... 12
5.4 Inventory............................................................................. 12
5.5 Title to Collateral................................................................... 12
5.6 Notes Receivable...................................................................... 12
5.7 Equipment............................................................................. 12
5.8 Place of Business..................................................................... 13
5.9 Financial Condition................................................................... 13
5.10 Taxes................................................................................. 13
5.11 Litigation............................................................................ 13
5.12 ERISA Matters......................................................................... 13
5.13 Environmental Matters................................................................. 13
5.14 Validity of Transaction Documents..................................................... 14
5.15 No Consent or Filing.................................................................. 14
5.16 No Violations......................................................................... 14
5.17 Trademarks and Patents................................................................ 14
5.18 Contingent Liabilities................................................................ 14
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5.19 Solvency.............................................................................. 14
5.20 Compliance with Laws.................................................................. 14
5.21 Licenses, Permits, Etc................................................................ 15
5.22 Margin Stock.......................................................................... 15
5.23 Commissions........................................................................... 15
5.24 Labor Contracts....................................................................... 15
5.25 Consolidated Subsidiaries............................................................. 15
5.26 Accuracy of Representations........................................................... 15
5.27 Authorized Shares..................................................................... 15
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY....................................... 15
6.1 Receivable Schedule................................................................... 15
6.2 Invoices.............................................................................. 15
6.3 Aging Reports......................................................................... 15
6.4 Inventory Reports..................................................................... 16
6.5 Notes and Other Instruments........................................................... 16
6.6 Chattel Paper......................................................................... 16
6.7 Other Documents....................................................................... 16
7. COLLECTIONS.............................................................................. 16
7.1 Delivery of Proceeds to Secured Party ................................................ 16
7.2 Application of Proceeds............................................................... 16
7.3 Debtor to Forward Schedules to Secured Party.......................................... 16
8. PAYMENT OF PRINCIPAL, INTEREST, FEES AND COSTS AND EXPENSES.............................. 16
8.1 Promise to Pay Principal.............................................................. 16
8.2 Promise to Pay Interest............................................................... 17
8.3 Promise to Pay Fees................................................................... 17
8.4 Promise to Pay Costs and Expenses..................................................... 17
8.5 Method of Payment of Principal, Interest, Fees, and Costs and Expenses................ 17
8.6 Computation of Daily Outstanding Balance.............................................. 18
8.7 Account Stated........................................................................ 18
9. PROCEDURES AFTER SCHEDULING RECEIVABLES.................................................. 18
9.1 Returned Merchandise.................................................................. 18
9.2 Credits and Extensions................................................................ 18
9.3 Returned Instruments.................................................................. 19
9.4 Debit Memoranda....................................................................... 19
9.5 Notes Receivable...................................................................... 19
10. AFFIRMATIVE COVENANTS.................................................................... 19
10.1 Financial Statements.................................................................. 19
10.2 Government and Other Special Receivables.............................................. 20
10.3 Terms of Sale......................................................................... 20
10.4 Books and Records..................................................................... 20
10.5 Inventory in Possession of Third Parties.............................................. 20
10.6 Examinations.......................................................................... 20
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10.7 Verification of Collateral............................................................ 20
10.8 Responsible Parties................................................................... 20
10.9 Taxes................................................................................. 20
10.10 Litigation............................................................................ 21
10.11 Insurance............................................................................. 21
10.12 Good Standing; Business............................................................... 21
10.13 Net Working Capital; Consolidated Tangible Net Worth.................................. 21
10.14 Pension Reports....................................................................... 22
10.15 Notice of Non-Compliance.............................................................. 22
10.16 Compliance with Environmental Laws.................................................... 22
10.17 Defend Collateral..................................................................... 22
10.18 Use of Proceeds....................................................................... 22
10.19 Compliance with Laws.................................................................. 22
10.20 Maintenance of Property............................................................... 22
10.21 Licenses, Permits, etc................................................................ 22
10.22 Trademarks and Patents................................................................ 22
10.23 ERISA................................................................................. 22
10.24 Maintenance of Ownership.............................................................. 22
10.25 Activities of Consolidated Subsidiaries............................................... 23
11. NEGATIVE COVENANTS....................................................................... 23
11.1 Location of Inventory, Equipment and Business Records................................. 23
11.2 Borrowed Money........................................................................ 23
11.3 Security Interest and Other Encumbrances.............................................. 23
11.4 Storing the Collateral................................................................ 23
11.5 Use of Collateral..................................................................... 23
11.6 Mergers, Consolidations, or Sales..................................................... 23
11.7 Capital Stock......................................................................... 23
11.8 Dividends or Distributions............................................................ 23
11.9 Investments and Advances.............................................................. 24
11.10 Guaranties............................................................................ 24
11.11 Leases................................................................................ 24
11.12 Capital Expenditures.................................................................. 24
11.13 Compensation.......................................................................... 24
11.14 Name Change........................................................................... 24
11.15 Disposition of Collateral............................................................. 24
12. EVENTS OF DEFAULT........................................................................ 24
12.1 Events of Default..................................................................... 24
12.2 Effects of an Event of Default........................................................ 26
13. SECURED PARTY'S RIGHTS AND REMEDIES...................................................... 26
13.1 Generally............................................................................. 26
13.2 Notification of Account Debtors....................................................... 26
13.3 Possession of Collateral.............................................................. 26
13.4 Collection of Receivables............................................................. 27
13.5 Indorsement of Checks, Debtor's Mail.................................................. 27
13.6 Registered Holder of Collateral....................................................... 27
13.7 Income from and Interest on Instruments............................................... 27
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13.8 Increases, Profits, Payments or Distributions ........................................ 27
14. MISCELLANEOUS............................................................................
14.1 Perfecting the Security Interest; Protecting the Collateral........................... 28
14.2 Performance of the Debtor's Duties.................................................... 28
14.3 Notice of Sale........................................................................ 28
14.4 Waiver by Secured Party............................................................... 28
14.5 Waiver by Debtor...................................................................... 28
14.6 Setoff................................................................................ 28
14.7 Assignment............................................................................ 28
14.8 Successors and Assigns................................................................ 28
14.9 Modification.......................................................................... 28
14.10 Counterparts.......................................................................... 29
14.11 Generally Accepted Accounting Principals.............................................. 29
14.12 Indemnification....................................................................... 29
14.13 Termination; Prepayment Premium....................................................... 29
14.14 Further Assurances.................................................................... 30
14.15 Headings.............................................................................. 30
14.16 Cumulative Security Interest, Etc..................................................... 30
14.17 Secured Party's Duties................................................................ 30
14.18 Notices Generally..................................................................... 30
14.19 Severability.......................................................................... 30
14.20 Inconsistent Provisions............................................................... 30
14.21 Entire Agreement...................................................................... 30
14.22 Applicable Law........................................................................ 30
14.23 Arbitration........................................................................... 30
</TABLE>
SCHEDULE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT
<PAGE>
Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1 CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the
following terms shall have the following meaning:
(a) ACCOUNT DEBTOR means the person, firm or entity obligated to pay
a Receivable.
(b) ADVANCE means a loan made to Debtor by Secured Party pursuant to
this Agreement.
(c) BORROWING CAPACITY means, at the time of computation, the amount
specified in Item 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday or other
day on which banks are authorized or required to close under the laws of
the State.
(e) COLLATERAL means collectively all of the property of Debtor
subject to the Security Interest and described in Sections 3.1 and 3.2.
(f) CONSOLIDATED SUBSIDIARY means any corporation of which at least
50% of the voting stock is owned by Debtor directly, or indirectly through
one or more Consolidated Subsidiaries. If Debtor has no Consolidated
Subsidiaries, the provisions of this Agreement relating to Consolidated
Subsidiaries shall be inapplicable without affecting the applicability of
such provisions to Debtor alone.
(g) CREDIT means any discount, allowance, credit, rebate, or
adjustment granted by Debtor with respect to a Receivable, other than a
cash discount described in Item 3 of the Schedule.
(h) DEBTOR means the person or entity defined on the cover page of
this Agreement.
(i) ELIGIBLE INVENTORY means all Inventory of Debtor in which Secured
Party has a first priority perfected security interest reduced by (i) the
amount of any Inventory reserves required by Secured Party in its sole
discretion, (ii) any Inventory as to which a representation or warranty
contained in Section 5.4 or 5.5 is not, or does not continue to be, true
and accurate, and (iii) any Inventory which is otherwise unacceptable to
Secured Party it its sole discretion.
(j) ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(k) EXTENSION means the granting to an Account Debtor of additional
time within which such Account Debtor is required to pay a Receivable.
(l) FEDERAL BANKRUPTCY CODE means Title ll of the United States Code,
entitled "Bankruptcy", as amended, or any successor federal bankruptcy law.
(m) GENERAL INTANGIBLES means general intangibles as defined in the
Uniform Commercial Code as in effect in the State as of the date of this
Agreement, and in any event shall include, without limitation, patents,
trademarks, trade names, service marks, copyrights, trade secrets, customer
lists, computer programs, and computer records, and all applications for,
rights and business goodwill associated with, license and royalty
agreements with respect to, and causes of action for infringement of, any
of the foregoing.
(n) INDEBTEDNESS means the indebtedness secured by the Security
Interest and described in Section 3.3.
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(o) INELIGIBLE RECEIVABLES means the following described
Receivables and any other Receivables which, in the sole discretion of
Secured Party, are not satisfactory for credit or any other reason. Debtor
acknowledges that the following description of specific types of Ineligible
Receivables does not limit Secured Party's absolute discretion to deem
other Receivables to be Ineligible Receivables.
(i) Any Receivable which has remained unpaid for more than the
number of days specified in Item 4 of the Schedule.
(ii) Any Receivable which respect to which a representation or
warranty contained in Section 5.3, 5.5 or 5.6 is not, or does not
continue to be, true and accurate, including without limitation, any
Receivable subject to a setoff.
(iii) Any Receivable with respect to all or part of which a
check, promissory note, draft, trade acceptance, or other instrument
for the payment of money has been received, presented for payment, and
returned uncollected for any reason.
(iv) Any Receivable with respect to which Debtor has extended
the time for payment without the consent of Secured Party, except as
provided in Section 9.2 (a).
(v) Any Receivable as to which any one or more of the
following events occurs: a Responsible Party shall die or be
judicially declared incompetent; a request or petition for
liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, or other relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or
territory thereof, or any foreign jurisdiction, now or hereafter in
effect shall be filed by or against a Responsible Party; a Responsible
Party shall make any general assignment for the benefit of creditors;
a receiver or trustee, including, without limitation, a "custodian" as
defined in the Federal Bankruptcy Code, shall be appointed for a
Responsible Party or for any of the assets of a Responsible Party; any
other type of insolvency proceeding with respect to a Responsible
Party (under the bankruptcy laws of the United States or otherwise) or
any formal or informal proceeding for the dissolution or liquidation
of, settlement of claims against, or winding up of affairs of, a
Responsible Party shall be instituted; all or any material part of the
assets of a Responsible Party shall be sold, assigned, or transferred;
a Responsible Party shall fail to pay its debts as they become due; or
a Responsible Party shall cease doing business as a going concern.
(vi) All Receivables owed by an Account Debtor owing
Receivables classified as ineligible under any criterion set forth in
any of Sections 1.1(o)(i) through 1.1(o)(v) or in Section 1.1(o)(ix),
if outstanding dollar amount of such Ineligible Receivables
constitutes a percentage of the aggregate outstanding dollar amount of
all Receivables owed by such Account Debtor equal to or greater than
the percentage specified in Item 5 of the Schedule.
(vii) All Receivables owed by an Account Debtor which does not
maintain its chief executive office in the United States or which is
not organized under the laws of the United States or any state, unless
otherwise specified in Item 6 of the Schedule.
(viii) All receivables owed by an Account Debtor if Debtor or
any person who, or entity which, directly or indirectly controls
Debtor, either owns in whole or material part, or directly or
indirectly controls, such Account Debtor.
(ix) Any Receivable as to which the perfection, enforceability,
or validity of Secured Party's Security Interest in such receivable,
or Secured Party's right or ability to obtain direct payment to
Secured Party of the Proceeds of such Receivable, is governed by any
federal or state statutory requirements other than those of the
Uniform Commercial Code, including, without limitation, any Receivable
subject to the Federal Assignment of Claims Act of 1940, as amended.
(x) Any Receivable arising from a consignment or other
arrangement pursuant to which the subject Inventory is returnable if
not sold or otherwise disposed of by the Account Debtor; any
Receivable constituting a partial billing under terms providing for
payment only after full shipment or performance; any Receivable
arising from a bill and hold sale or in connection with any prebilling
where the Inventory or services have not been delivered, performed, or
accepted by the Account Debtor; and any Receivable as to which the
Account Debtor contends the balance reported by Debtor is incorrect or
not owing.
(xi) Any Receivable which is unenforceable against the Account
Debtor for any reason.
(xii) Any Receivable which is an Instrument, Document or Chattel
Paper or which is evidenced by a note, draft, trade acceptance, or
other instrument for the payment of money where such Instrument,
Document, Chattel Paper, note, draft, trade acceptance, or other
instrument has not been endorsed and delivered by Debtor to Secured
Party.
(xiii) Any Receivable or Receivables owed by an Account Debtor
which exceeds any credit limit established by Secured Party for such
Account Debtor; provided, that such Receivable or Receivables shall be
ineligible
7
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only to the extent of such excess.
(p) INTERNAL REVENUE CODE means the Internal Revenue Code of 1986, as
amended from time to time.
(q) INVENTORY means inventory as defined in the Uniform Commercial
Code as in effect in the State as of the date of this Agreement, and in any
event shall include returned or repossessed Goods.
(r) INVENTORY BORROWING BASE means, at the time of computation, an
amount not exceeding the percentages specified in Item 2 of the Schedule of
the dollar value of Eligible Inventory, such dollar value to be calculated
at the lower of actual cost or market value and accounted for in the manner
specified in Item 7 of the Schedule, less the amount of any reserves
established by Secured Party in accordance with Section 2.3.
(s) INVOICE means any document or documents used or to be used to
evidence a Receivable.
(t) PAYMENT ACCOUNT means the special bank account owned by Secured
Party to which proceeds of Collateral, including, without limitation,
payments on Receivables and other payments from sales or leases of
Inventory, are credited. There is a Payment Account if so indicated in Item
8 of the Schedule.
(u) PENSION EVENT means, with respect to any Pension Plan, the
occurrence of (i) any prohibited transaction described in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code, (ii) any Reportable
Event, (iii) any complete or partial withdrawal or proposed complete or
partial withdrawal of Debtor or any Consolidated Subsidiary from such
Pension Plan, (iv) any complete or partial termination or proposed complete
or partial termination of such Pension Plan, or (v) any accumulated funding
deficiency (whether or not waived) as defined in Section 302 of ERISA or in
Section 412 of the Internal Revenue Code.
(v) PENSION PLAN means any pension plan as defined in Section 3(2) of
ERISA which is a multi-employer plan or a single employer plan as defined
in Section 4001 of ERISA and subject to Title IV of ERISA and which is (i)
a plan maintained by Debtor or any Consolidated Subsidiary for employees or
former employees of Debtor or of any Consolidated Subsidiary, (ii) a plan
to which Debtor or any Consolidated Subsidiary contributes or is required
to contribute, (iii) a plan to which Debtor or any Consolidated Subsidiary
was required to make contributions at any time during the five (5) calendar
years preceding the date of this Agreement, or (iv) any other plan with
respect to which Debtor or any Consolidated Subsidiary has incurred or may
incur liability, including, without limitation, contingent liability, under
Title IV of ERISA either to such plan or to the Pension Benefit Guaranty
Corporation. For purposes of this definition and for purposes of Sections
1.1(u), 5.12, and 12.1(h), Debtor shall include any trade or business
(whether or not incorporated) which, together with Debtor or any
Consolidated Subsidiary, is deemed to be a "single employer" within the
meaning of Section 4001(b)(1) of ERISA.
(w) PRIME RATE means the simple interest rate per annum publicly
announced by the bank or financial institution specified in Item 39 of the
Schedule from time to time as its prime rate and is a base rate for
calculating interest on certain loans. The rate announced by the bank or
financial institution specified in Item 39 of the Schedule as its prime
rate may or may not be the most favorable rate charged by the referenced
bank or financial institution to its customers.
(x) RECEIVABLE means the right to payment for Goods sold or leased or
services rendered by Debtor, whether or not earned by performance, and may,
without limitation, in whole or in part be in the form of an Account,
Chattel Paper, Document, or Instrument.
(y) RECEIVABLE BORROWING BASE means, at the time of its computation,
the aggregate amount of the outstanding Receivables in which Secured Party
has a first priority perfected security interest (adjusted with respect to
Credits and returned merchandise as provided in Article 9 hereof) less the
amount of Ineligible Receivables and any reserves established by Secured
Party in accordance with Section 2.3.
8
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(z) REPORTABLE EVENT means any event with regard to a Pension Plan
described in Section 4043(b) of ERISA or in regulations issued thereunder.
(aa) RESPONSIBLE PARTY means an Account Debtor, a general partner of
an Account Debtor, or any party otherwise in any way directly or indirectly
liable for the payment of a Receivable.
(bb) SCHEDULE means the schedule executed in connection with, and
which is a part of, this Agreement.
(cc) SECURED PARTY means the person or entity defined on the cover
page of this Agreement and any successors or assigns of Secured Party.
(dd) SECURITY INTEREST means the security interest granted to Secure
Party by Debtor as described in Section 3.1 of this Agreement.
(ee) SOLVENT means, with respect to any person or entity on a
particular determination date, that on such date (i) the fair value of the
property of such person or entity is greater than the total amount of debts
and other liabilities, including, without limitation, contingent and
unliquidated liabilities, of such person or entity, (ii) the present fair
salable value of the assets of such person or entity is greater than the
amount that will be required to pay the probable liability of such person
or entity on its existing debts and other liabilities as they become
absolute and matured, (iii) such person or entity is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business, (iv)
such person or entity does not intend to, and does not believe that it
will, incur debts or other liabilities beyond such person's or entity's
ability to pay as such debts and other liabilities mature or become due,
and (v) such person or entity is not engaged in a business or a
transaction, for which such person's or entity's property would constitute
unreasonably small capital.
(ff) STATE means the State of the United States specified in Item 34
of the Schedule.
(gg) THIRD PARTY means any person or entity who has executed and
delivered, or who in the future may execute and deliver, to Secured Party
any agreement, instrument, or document pursuant to which such person or
entity has guaranteed to Secured Party the payment of the Indebtedness or
has granted Secured Party a security interest in or lien on some or all of
such person's or entity's real or personal property to secure the payment
of the Indebtedness.
(hh) TRANSACTION DOCUMENTS means this Agreement and all documents
including, without limitation, collateral documents, letter of credit
agreements, security agreements, pledges, guaranties, mortgages, title
insurance, assignments and subordination agreements required to be executed
by Debtor, any Third Party or any Responsible Party pursuant hereto or in
connection herewith.
1.2 SINGULAR AND PLURALS. Unless the context otherwise requires, words
in the singular number include the plural, and in the plural include the
singular.
1.3 U.C.C. DEFINITIONS. Unless otherwise defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meaning set
forth in the Uniform Commercial Code as in effect in the State as of the
date of this Agreement.
1.4 SECTION REFERENCES. Unless otherwise specified, article, section,
subsection and schedule references are to this Agreement.
2. ADVANCES
9
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2.1 REQUESTS FOR AN ADVANCE.
(a) Written Requests. From time to time, Debtor may make a written
request for an Advance, so long as the sum of the aggregate principal
balance of outstanding Advances and the requested Advance does not exceed
the Borrowing Capacity as then computed; and Secured Party shall make such
requested Advance, provided that (i) the Borrowing Capacity would not be so
exceeded, (ii) there has not occurred an Event of Default or an event
which, with notice or lapse of time or both, would constitute an Event of
Default, (iii) all representations and warranties contained in this
Agreement and in the other Transaction Documents are true and correct on
the date such requested Advance is made as though made on and as of such
date, and (iv) all of the conditions in Article 4 have been satisfied.
Notwithstanding any other provision of this Agreement, Secured Party may in
its reasonable discretion from time to time reduce the percentages
applicable to the Receivables Borrowing Base and the Inventory Borrowing
Base as they relate to amounts of the Borrowing Capacity if Secured Party
determines in its reasonable discretion that there has been a material
change in circumstances related to any or all Receivables or Inventory from
those circumstances in existence on or prior to the date of this Agreement.
(b) Oral Requests. Secured Party may make an Advance to Debtor upon
Debtor's oral request, subject to the same conditions applicable to a
written request set forth in subparagraph (a) above. Each oral request for
an Advance shall be conclusively presumed to be made by a person authorized
by Debtor to do so; and the making of the Advance to Debtor as hereinafter
provided shall conclusively establish Debtor's obligation to repay the
Advance.
2.2 PROCEEDS OF AN ADVANCE. Advances shall be made in the manner agreed
by Debtor and Secured Party in writing (that is presently in the manner
specified in the Request for an Advance) or, absent any such agreement, as
determined by Secured Party.
2.3 ESTABLISHMENT OF RESERVES. Secured Party may at any time and from
time to time in its reasonable discretion establish reserves against the
Receivables or the Inventory of Debtor. The amount of such reserves shall
be subtracted from the Receivables Borrowing Base or Inventory Borrowing
Base, as applicable, when calculating the amount of the Borrowing Capacity.
The Secured Party shall notify the Debtor of its decision to establish such
reserves whenever the same are determined.
3. COLLATERAL AND INDEBTEDNESS
3.1 SECURITY INTEREST. Debtor hereby grants to Secured Party a security
interest in and a lien on the following property of Debtor wherever located
and whether now owned or hereafter acquired:
(a) All Accounts, Inventory, General Intangibles, Chattel Paper,
Documents, and Instruments, whether or not specifically assigned to Secured
Party, including, without limitation, all Receivables and all Equipment,
whether or not affixed to realty, and fixtures.
(b) All guaranties, collateral, liens on or security interests in
real or personal property, leases, letters of credit, and other rights,
agreements, and property securing or relating to payment of Receivables.
(c) All books, records, ledger cards, data processing records,
computer software, and other property at any time evidencing or relating to
Collateral.
(d) All monies, securities, and other property now or hereafter held
or received by, or in transit to, Secured Party from or for Debtor, and all
of Debtor's deposit accounts, credits, and balances with Secured Party
existing at any time.
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(e) All proceeds and products of all of the foregoing in any form
including, without limitation, amounts payable under any policies of
insurance insuring the foregoing against loss or damage, all parts,
accessories, attachments, special tools, additions, replacements,
substitutions and accessions to or for all of the foregoing and all
increases and profits received from all of the foregoing.
3.2 OTHER COLLATERAL. Nothing contained in this Agreement shall limit
the rights of Secured Party in and to any other Collateral securing the
Indebtedness which may have been or may hereafter be granted to Secured
Party by Debtor or any Third Party pursuant to any other agreement.
3.3 INDEBTEDNESS SECURED. The Security Interest secures payment of any and
all indebtedness, and performance of all obligations and agreements, of
Debtor to Secured Party, whether now existing or hereafter incurred or
arising, of every kind and character, primary or secondary, direct or
indirect, absolute or contingent, sole, joint or several, similar or
dissimilar or related or unrelated and whether such indebtedness is from
time to time reduced and thereafter increased, or entirely extinguished and
thereafter reincurred, including, without limitation: (a) all Advances; (b)
all interest which accrues on any such indebtedness, until payment of such
indebtedness in full, including, without limitation, all interest provided
for under this Agreement; (c) all other monies payable by Debtor, and all
obligations and agreements of Debtor to Secured Party, pursuant to the
Transaction Documents; (d) all debts owed or to be owed by Debtor to others
which Secured Party has obtained, or may obtain, by assignment or
otherwise; (e) all monies payable by any Third Party, and all obligations
and agreements of any Third Party to Secured Party, pursuant to any of the
Transaction Documents, and (f) all monies due and to become due pursuant to
Section 8.3.
4. CONDITIONS TO ADVANCES. Notwithstanding any other provision of this
Agreement or any of the other Transaction Documents, and without affecting in
any manner the rights of Secured Party under any other provision of this
Agreement, Secured Party shall not be obligated to make advances unless and
until the following conditions have been and continue to be satisfied.
4.1 CORPORATE ACTION. Debtor shall have taken all necessary and
appropriate corporate action and the Board of Directors of Debtor shall
have adopted resolutions authorizing, and the shareholders of Debtor (to
the extent required under Debtor's organizational documents or applicable
law) shall have consented to, this Agreement, and the borrowing hereunder,
the execution and delivery of the Transaction Documents and the taking of
all action required of Debtor by the Transaction Documents; and Debtor
shall have furnished to Secured Party certified copies of such corporate
resolutions and such other corporate documents as Secured Party shall
reasonable request.
4.2 CORPORATE DOCUMENTS. There shall have been furnished to Secured Party
(a) copies of the articles or certificate of incorporation and by-laws of
Debtor and each Consolidated Subsidiary, certified by its Secretary as of
the date of this Agreement; (b) a certificate of Debtor's and each
Consolidated Subsidiary's good standing or equivalent certificate duly
issued of recent date by the Secretary of State of the state specified in
Item 9 of the Schedule, and certificates of authority to do business in
each state in which Debtor is licensed or qualified to do business; (c) a
certificate of incumbency specifying the officers of Debtor, together with
their specimen signatures; and (d) such other and further documents as
Secured Party may reasonably request including, without limitation, tax
status reports covering payment of franchise taxes and other taxes.
4.3 OPINIONS. Independent counsel for Debtor shall have furnished to
Secured Party their favorable opinion, in form and content satisfactory to
Secured Party and its counsel, dated the date of this Agreement, as to the
matters referred to in Sections 5.1 and 5.2.
4.4 TRANSACTION DOCUMENTS. Debtor shall have delivered to Secured Party
all the Transaction Documents, in form and content satisfactory to Secured
Party and its counsel.
4.5 THIRD PARTY ACTION. Each Third Party shall have (i) taken all
necessary and appropriate corporation and shareholder action and the Board
of Directors of the Third Party shall have adopted resolutions authorizing
the execution and delivery of the guaranty of such Third Party and the
taking of all action called for thereby, and (ii) furnished to Secured
Party certified copies of evidence of such corporate and shareholder action
and such other corporate documents as Secured Party shall reasonably
request.
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4.6 ASSIGNMENT OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES. If this
Agreement is being executed in conjunction with the acquisition of stock or
assets by Debtor pursuant to an acquisition agreement, Debtor shall execute
and deliver to Secured Party as continuing collateral security for the
payment of the Indebtedness an assignment, in form and content satisfactory
to Secured Party, of any and all representations, warranties and
indemnities made by the seller of such stock or assets to Debtor, and such
assignment shall be duly consented to by such seller.
4.7 OTHER MATTERS. All matters incidental to the execution and delivery
of the Transaction Documents and all action required by the Transaction
Documents, shall be satisfactory to Secured Party and to its counsel.
5. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter into
this Agreement and make Advances to Debtor from time to time as herein provided,
Debtor represents and warrants and, so long as any Indebtedness remains unpaid
or this Agreement remains in effect, shall be deemed continuously to represent
and warrant as follows:
5.1 CORPORATE EXISTENCE. Debtor and each Consolidated Subsidiary is duly
organized and existing and in good standing under the laws of the state
specified in Item 9 of the Schedule and is duly licensed or qualified to do
business and in good standing in every state in which the nature of its
business or ownership of its property requires such licensing or
qualification. The Debtor shall not, and shall not permit any of its
subsidiaries to, at any time: (a) liquidate or dissolve itself (or suffer
any liquidation or dissolution) or otherwise wind up, or sell, lease,
abandon, transfer, or otherwise dispose of all or any substantial part of
its assets, property or business; (b) become a partner or joint venturer
with any third party; (c) acquire (i) all or any substantial part of the
assets, property or business of, or (ii) any assets that constitute a
division or operating unit of the business of, any other company or entity;
(d) Merge or consolidate with any other company or entity; (e) create any
subsidiary; or (f) change its fiscal year-end, without the written consent
of Lender.
5.2 CORPORATE CAPACITY. The execution, delivery, and performance of the
Transaction Documents are within Debtor's corporate powers, have been duly
authorized by all necessary and appropriate corporate and shareholder
action, and are not in contravention of any law or the terms of Debtor's
articles or certificate of incorporation or by-laws or any amendment
thereto, or of any indenture, agreement, undertaking, or other document to
which Debtor is a party or by which Debtor or any of Debtor's property is
bound or affected.
5.3 VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed and
bona fide indebtedness owing to Debtor by the Account Debtor obligated
thereon; (b) there are no defenses, setoffs, or counterclaims against any
Receivable; (c) no payment has been received on any Receivable and no
Receivable is subject to any Credit or Extension or agreements therefor
unless written notice specifying such payment, Credit, Extension, or
agreement has been delivered to Secured Party; (d) each copy of each
Invoice is a true and genuine copy of the original Invoice sent to the
Account Debtor named therein and accurately evidences the transaction from
which the underlying Receivable arose; and the date payment is due as
stated on each such Invoice or computed based on the information set forth
on each such Invoice is correct; (e) all Chattel Paper and all promissory
notes, drafts, trade acceptances, and other instruments for the payment of
money relating to or evidencing each Receivable, and each indorsement
thereon, are true and genuine and in all respects what they purport to be,
and are the valid and binding obligation of all parties thereto; and the
date or dates stated on all such items as the date on which payment in
whole or in part is due is correct; (f) all Inventory described in each
Invoice has been delivered to the Account Debtor named in such Invoice or
placed for such delivery in the possession of a carrier not owned or
controlled directly or indirectly by Debtor; (g) all evidence of the
delivery or shipment of Inventory is true and genuine; (h) all services to
be performed by Debtor in connection with each Receivable has been
performed by Debtor; and (i) all evidence of the performance of such
services by Debtor is true and genuine.
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5.4 INVENTORY. (a) All representations made by Debtor to Secured Party,
and all documents and schedules given by Debtor to Secured Party,
relating to the description, quantity, quality, condition, and
valuation of the Inventory are true and correct; (b) Debtor has not
received any Inventory on consignment or approval unless Debtor (i)
has delivered written notice to Secured Party describing any
Inventory which Debtor has received on consignment or approval, (ii)
has marked such Inventory on consignment or approval or has
segregated it from all other Inventory, and (iii) has appropriately
marked its records to reflect the existence of such Inventory on
consignment or approval; (c) Inventory is located only at the address
or addresses of Debtor set forth at the beginning of this Agreement,
the locations specified in Item 10 of the Schedule, or such other
place or places as approved by Secured Party in writing; and (d) all
Inventory is insured as required by Section 10.11 pursuant to
policies in full compliance with the requirements of such Section.
5.5 TITLE TO COLLATERAL. (a) Debtor is the owner of the Collateral free
of all security interests, liens, and other encumbrances except the
Security Interest and except as described in Item 11 of the Schedule; (b)
Debtor has the unconditional authority to grant the Security Interest to
Secured Party; and (c) assuming that all necessary Uniform Commercial Code
filings have been made, Secured Party has an enforceable first lien on all
Collateral, subordinate only to those security interests, liens, or
encumbrances described as having priority over the Security Interest in
Item 11 of the Schedule.
5.6 NOTES RECEIVABLE. Note Receivable is an Instrument, Document or
Chattel Paper or is evidenced by any note, draft, trade acceptance, or
other instrument for the payment of money, except such Instrument,
Document, Chattel Paper, note draft, trade acceptance, or other instrument
as has been indorsed and delivered by Debtor to Secured Party.
5.7 EQUIPMENT. Equipment is located, and Equipment which is a Fixture is
affixed to real property, only at the address or addresses of Debtor set
forth at the beginning of this Agreement, the locations specified in Item
10 of the Schedule, or such other place or places as approved by Secured
Party in writing. Such real property is owned by Debtor or by the person
or persons named in Item 10 of the Schedule and is encumbered only by the
mortgage or mortgages listed in Item 10 of the Schedule.
5.8 PLACE OF BUSINESS. (a) Unless otherwise disclosed to Secured Party in
Item 10 or Item 12 of the Schedule, Debtor is engaged in business
operations which are in whole or in part carried on at the address or
addresses specified at the beginning of this Agreement and at no other
address or addresses; (b) if Debtor has more than one place of business,
its chief executive office is at the address specified as such at the
beginning of this Agreement; and (c) Debtor's records concerning the
Collateral are kept at the address or addresses specified at the beginning
of this Agreement or in Item 12 of the Schedule. The Debtor shall not
engage in, and shall not permit any of its subsidiaries to engage in, any
businesses other than the businesses conducted by it or them on the date of
this Agreement and businesses of the same type or directly related thereto,
and shall not permit to occur any amendment, alteration, or modification to
its or their respective articles of incorporation, charter, or by-laws, as
constituted on the date of this Agreement.
5.9 FINANCIAL CONDITION. Debtor has furnished to Secured Party Debtor's
most recent current financial statements, which statements represent
correctly and fairly the results of the operations and transactions or
Debtor and the Consolidated Subsidiaries as of the dates and for the period
referred to, and have been prepared in accordance with generally accepted
accounting principles consistently applied during each interval involved
and from interval to interval. Since the date of such financial statements,
there have not been any materially adverse changes in the financial
condition reflected in such financial statements, except as disclosed in
writing by Debtor to Secured Party.
5.10 TAXES. Except as disclosed in writing by Debtor to Secured Party:
(a) all federal and other tax returns required to be filed by Debtor and
each Consolidated subsidiary have been filed and all taxes required by such
returns have been paid; and (b) neither Debtor nor any Consolidated
Subsidiary has received any notice from the Internal Revenue Service or any
other taxing authority proposing additional taxes.
5.11 LITIGATION. Except as disclosed in writing by Debtor to Secured
Party, there are no actions, suits, proceedings, or investigations pending
or, to the knowledge of Debtor, threatened against Debtor or any
Consolidated Subsidiary or any basis therefor which, if adversely
determined, would, in any case or in the aggregate, materially adversely
affect the property, assets, financial condition, or business of Debtor or
any Consolidated Subsidiary or materially impair the right or ability of
Debtor or any Consolidated Subsidiary to carry on its operations
substantially as conducted on the date of this Agreement.
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5.12 ERISA MATTERS. (a) No Pension Plan has been terminated or partially
terminated or is insolvent or in reorganization, nor have any proceedings
been instituted to terminate or reorganize any Pension Plan; (b) neither
Debtor nor any Consolidated Subsidiary has withdrawn, nor has a condition
occurred which if continued would result in a complete or partial
withdrawal; (c) neither Debtor nor any Consolidated Subsidiary has incurred
any withdrawal liability, including, without limitation, contingent
withdrawal liability, to any Pension Plan pursuant to Title IV of ERISA;
(d) neither Debtor nor any Consolidated Subsidiary has incurred any
liability to the Pension Benefit Guaranty Corporation other than for
required insurance premiums which have been paid when due; (e) no
Reportable Event has occurred; (f) no Pension Plan or other "employee
pension benefit plan" as defined in Section 3(2) of ERISA to which debtor
or any Consolidated subsidiary is a party has an "accumulated funding
deficiency" (whether or not waived) as defined in Section 302 of ERISA or
in Section 412 of the Internal Revenue Code; (g) the present value of all
benefits vested under any Pension Plan does not exceed the value of the
assets of such Pension Plan allocable to such vested benefits; (h) each
Pension Plan and each other "employee benefit plan" as defined in Section
3(3) of ERISA to which Debtor or any Consolidated Subsidiary is a party is
in substantial compliance with ERISA, and no such plan or any
administrator, trustee, or fiduciary thereof has engaged in a prohibited
transaction described in Section 406 of ERISA or in Section 4975 of the
Internal Revenue Code; (i) each Pension Plan and each other "employee
benefit plan" as defined in Section 3(2) of ERISA to which Debtor or any
Consolidated Subsidiary is a party has received a favorable determination
by the Internal Revenue Service with respect to qualification under Section
401(a) of the Internal Revenue Code; and (j) neither Debtor nor any
Consolidated Subsidiary has incurred any liability to a trustee or trust
established pursuant to Section 4049 of ERISA or to a trustee appointed
pursuant to Section 4042(b) or (c) of ERISA.
5.13 ENVIRONMENTAL MATTERS. (a) Debtor and each Consolidated subsidiary
have performed all of their respective obligations under, have obtained all
necessary approvals, permits, authorizations, and other consents required
by, and are not in material violation of, any applicable state or federal
health or environmental law, ordinance, rule, regulation, or order; and (b)
neither Debtor nor any Consolidated Subsidiary has received any notice or
request from any governmental agency, other entity, or person for
information, nor has Debtor or any Consolidated Subsidiary provided any
notice or information to any such agency, entity, or person, concerning the
presence or release of hazardous substances, wastes, or other materials (as
such terms are defined by any applicable federal, state, or local law)
within, on, from, related to, or affecting any real property owned or
occupied by Debtor or any Consolidated Subsidiary.
5.14 VALIDITY OF TRANSACTION DOCUMENTS. The Transaction Documents
constitute the legal, valid and binding obligations of Debtor and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy and insolvency laws and laws affecting
creditors' rights generally.
5.15 NO CONSENT OR FILING. No consent, license, approval or authorization
of, or registration, declaration or filing with, any court, governmental
body or authority or other person or entity is required in connection with
valid execution, delivery or performance of the Transaction Documents or
for the conduct of Debtor's business as now conducted, other than filings
and recordings in connection with the Transaction Documents.
5.16 NO VIOLATIONS. Neither Debtor nor any Consolidated Subsidiary is in
violation of any term of its articles or certificate of incorporation or
by-laws, or of any mortgage, borrowing agreement or other instrument of
agreement pertaining to indebtedness for borrowed money. Neither Debtor nor
any Consolidated Subsidiary is in violation of any term of any other
indenture, instrument, or agreement to which it is a party or by which it
or its property may be bound, resulting, or which might reasonably be
expected to result, in a material and adverse effect upon its business or
assets. Neither Debtor nor any Consolidated Subsidiary is in violation of
any order, writ, judgement, injunction or decree of any court of competent
jurisdiction or of any statute, rule or regulation of any governmental
authority. The execution and delivery of the Transaction Documents and the
performance of all of the same is and will be in compliance with the
foregoing and will not result in any violation thereof or result in the
creation of any mortgage, lien, security interest, charge or encumbrance
upon any properties or assets except in favor of Secured Party. There
exists no fact or circumstance (whether or not disclosed in the Transaction
Documents) which materially adversely affects or in the future (so far as
Debtor can now foresee) may materially adversely affect the condition,
business or operations of Debtor or any Consolidated Subsidiary.
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5.17 TRADEMARKS AND PATENTS. Debtor and each Consolidated Subsidiary
possesses all trademarks, trademark rights, patents, patents rights,
licenses, permits, trade names, trade name rights, copyrights, and
approvals that are required to conduct its business as now conducted
without conflict with the rights of others. A list of the foregoing is set
forth in Item 13 of the Schedule.
5.18 CONTINGENT LIABILITIES. There are no suretyship agreements,
guaranties, or other contingent liabilities of Debtor or any
Consolidated Subsidiary which are not disclosed by the financial
statements described in Section 5.9 or Item 29 of the Schedule.
5.19 SOLVENCY. Debtor individually is, and Debtor and the Consolidated
Subsidiaries taken as a whole are, and during the term of this
Agreement, Debtor individually, and Debtor and the Consolidated
Subsidiaries taken as a whole, will be at all times, Solvent, both
before and after giving effect to the transactions contemplated by
the Transaction Documents and any acquisition of stock or assets
occurring in conjunction with or related to the Transaction
Documents. The Debtor will not create, assume, incur, or otherwise
become or remain obligated in respect of, or permit to be
outstanding, and will not permit any of its subsidiaries to create,
assume, incur, or otherwise become obligated in respect of, or permit
to be outstanding, any indebtedness or liability on account of
deposits or advances for borrowed money or for the deferred purchase
price of any property or services, except:
(a) indebtedness under this Agreement and the other Transaction
Documents;
(b) Trade or accounts payable and/or similar obligations, and
accrued expenses, incurred in the ordinary course of business, other than for
borrowed money;
(c) indebtedness expressly subordinated to the indebtedness owed
to the Secured Party hereunder and under the other Transaction Documents upon
terms approved in advance by the Secured Party in writing;
(d) indebtedness existing on the date of this Agreement which is
reflected in the financial statements delivered to the Secured Party in
connection herewith and all renewals.
5.20 COMPLIANCE WITH LAWS. Debtor is in compliance with all applicable
laws, rules, regulations, and other legal requirements with respect to its
business and the use, maintenance, and operations of the real and personal
property owned or leased by it in the conduct of its business.
5.21 LICENSES, PERMITS, ETC. Each franchise, grant, authorization,
license, permit, easement, consent, certificate and order of Debtor and
each Consolidated Subsidiary is in full force and effect.
5.22 MARGIN STOCK. Neither Debtor's execution and delivery of any of the
Transaction Documents nor the borrowing by Debtor of any sums pursuant
thereto violates Section 7 of the Securities Exchange Act of 1934, as
amended, or any rule or regulation thereunder, and Debtor neither owns nor
intends to purchase or carry any "margin stock" except as set forth in Item
14 of the Schedule.
5.23 COMMISSIONS. No brokerage commission, finders fee, or investment
banking fees are payable by Debtor to any person or entity in connection
with the Transaction Documents or the transaction contemplated thereby,
other than Mark Kaplan which commissions or fees have been or will be paid.
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5.24 LABOR CONTRACTS. Neither Debtor nor any Consolidated Subsidiary is a
party to any collective bargaining agreement or to any existing or
threatened labor dispute or controversies except as set forth in Item 15 of
the Schedule.
5.25 CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated Subsidiaries
other than those listed in Item 36 of the Schedule and the percentage
ownership of Debtor in each such Consolidated Subsidiary is specified in
such Item 36.
5.26 ACCURACY OF REPRESENTATIONS. No representation, warranty or
statement by Debtor or any Third Party contained herein or in any
certificate, financial statement or other document furnished by Debtor or
any Third Party pursuant hereto or in connection herewith fails to contain
any statement of material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it is
made. There is no fact which Debtor knows or should know and has not
disclosed to Secured Party which does or may materially or adversely affect
Debtor, any Consolidated Subsidiary, or any Third Party, or any of their
respective operations.
5.27 AUTHORIZED SHARES. Debtor's total authorized common shares, the par
value of such shares, and the number of such shares issued and outstanding,
are set forth in Item 16 of the Schedule. All of such shares are of one
class and have been validly issued in full compliance with all applicable
federal and state laws, and are fully paid and non-assessable. No other
shares of the Debtor of any class or type are authorized or outstanding.
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
6.1 RECEIVABLE SCHEDULE. Debtor shall deliver to Secured Party, daily or
at such other intervals as may be specified in Item 17 of the Schedule, a
schedule in form and content satisfactory to Secured Party describing the
Invoices issued by Debtor since the last schedule submitted to Secured
Party. The schedules to be provided under this Section 6.1 are solely for
the convenience of Secured Party in administering this Agreement and
maintaining records of the Collateral. Debtor's failure to provide Secured
Party with any such schedule shall not affect the Security Interest.
6.2 INVOICES. Debtor shall cause all of its Invoices, including the
copies thereof, to be printed and to bear consecutive numbers and shall
prepare and issue its Invoices in such consecutive numerical order. If
requested by Secured Party, all copies of Invoices not previously delivered
to Secured Party shall be delivered to Secured Party with each schedule of
receivables. Copies of all Invoices which are voided or canceled or which
for any reason do not evidence a Receivable shall be included in such
delivery. If any Invoice or copy thereof is lost, destroyed, or otherwise
unavailable, Debtor shall account in writing, in form satisfactory to
Secured Party, for each missing Invoice.
6.3 AGING REPORTS. Within ten (10) calendar days after the end of each
month or on such other more frequent basis as may be required by Secured
Party from time to time, Debtor shall submit to Secured Party an aging
report in form satisfactory to Secured Party showing the amounts due and
owing on all Receivables according to Debtor's records as of the close of
such month or shorter period as may be required by Secured Party from time
to time, together with such other information as Secured Party may require.
If Debtor's aging reports are prepared by an accounting service or other
agent, Debtor hereby authorizes such service or agent to deliver such aging
reports and any other related documents to Secured Party.
6.4 INVENTORY REPORTS. Debtor shall furnish to Secured Party at the
intervals specified in Item 17 of the Schedule, the following reports in
form satisfactory to Secured Party, if such reports are required by Secured
Party as specified in Item 17 of the Schedule:
(a) An inventory value report describing all Inventory by value
based on the lower of cost or market value;
(b) A periodic summary report listing all Inventory by nature,
quantity and location, together with such other information as Secured
Party may require; and
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(c) A dispute report describing any dispute with any processor of
Inventory or other person or entity in possession of any Inventory.
6.5 NOTES OR OTHER INSTRUMENTS. Each note, draft, trade acceptance, or
other instrument for the payment of money evidencing a Receivable shall be
delivered to Secured Party with the schedule listing the Receivable which
it evidences and shall be indorsed by Debtor to the order of Secured Party.
6.6 CHATTEL PAPER. The original of each item of Chattel Paper evidencing
a Receivable shall be delivered to Secured Party with the schedule listing
the Receivable which it evidences, together with an assignment in form and
content satisfactory to Secured Party of such Chattel Paper by Debtor to
the Secured Party.
6.7 OTHER DOCUMENTS. Debtor shall deliver to Secured Party all documents
specified in Item 17 of the Schedule, as frequently as indicated therein or
at such other times as Secured Party may request, and all other documents
and information requested by Secured Party.
7. COLLECTIONS.
7.1 DELIVERY OF PROCEEDS TO SECURED PARTY. Unless Secured Party notifies
Debtor that it specifically dispenses with one or more of the following
requirements, any Proceeds of Collateral received by Debtor, including,
without limitation, payments on Receivables and other payments from sales
or leases of Inventory, shall be held by Debtor in trust for Secured Party
in the same medium in which received, shall not be commingled with assets
of Debtor, and shall be delivered immediately to Secured Party. So long as
Secured Party elects to keep the Payment Account in existence, Debtor shall
deposit Proceeds of Collateral into the Payment Account and shall, on the
day of each such deposit, forward to Secured Party a copy of the deposit
receipt of the depository bank indicating that such deposit has been made.
7.2 APPLICATION OF PROCEEDS. Upon receipt of Proceeds of Collateral,
Secured Party, in its sole discretion, may apply such Proceeds directly to
the Indebtedness in the manner provided in Section 8.5. Checks drawn on
the Payment Account and all or any part of the balance of the Payment
Account may be applied from time to time to the Indebtedness in the manner
provided in Section 8.5. Such applications shall be applied within two
business days after the Secured Party is advised by its depository bank
that the amount of the proceeds has cleared.
7.3 DEBTOR TO FORWARD SCHEDULES TO SECURED PARTY. Whenever Debtor
delivers payments on Receivables and other payments from sales or leases of
Inventory to Secured Party, whether directly or indirectly by deposit to
the Payment Account, such payments shall be accompanied by a schedule in
form satisfactory to Secured Party consisting of a copy of Debtor's cash
receipt journal covering such payments, certified to be correct by an
authorized officer of Debtor. Individual cash receipt journals shall be
segregated by the months in which payments reflected thereon are received
by Debtor.
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
8.1 PROMISE TO PAY PRINCIPAL. Debtor promises to pay to Secured Party
the principal of Advances as follows:
(a) Borrowing Capacity Exceeded. Whenever the outstanding principal
balance of Advances exceeds the Borrowing Capacity, Debtor shall
immediately pay to Secured Party the excess of the outstanding principal
balance of Advances over the Borrowing Capacity.
(b) Payment in Full on Termination or Acceleration. Forthwith upon
termination of this Agreement pursuant to Section 14.13 or acceleration of
the time for payment of the Indebtedness pursuant to Section 12.2, Debtor
shall pay to Secured Party the entire outstanding principal balance of
Advances.
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8.2 PROMISE TO PAY INTEREST. Debtor promises to pay to Secured Party, on
the first day of each month in arrears, on termination of this Agreement
pursuant to Section 14.13, on acceleration of the time for payment of the
Indebtedness pursuant to Section 12.2 and on the date the Indebtedness is
paid in full, interest on the principal of Advances from time to time
unpaid at the fluctuating per annum rate specified in Item 18 of the
Schedule. Any change in the interest rate resulting from a change in the
Prime Rate shall take effect simultaneously with such change in the Prime
Rate. Interest shall be computed on the daily unpaid principal balance of
Advances. Interest shall be calculated for each calendar day at 1/360th of
the applicable per annum rate which will result in any effective per annum
rate higher than that specified in Item 18 of the Schedule. From and after
the occurrence of an Event of Default and for so long as such Event of
Default shall continue, Debtor, as additional compensation to Secured Party
for its increased credit risk, and not as penalty, shall pay interest at a
per annum rate of 3% greater than the rate of interest specified in the
Schedule. In no event shall the rate of interest exceed the maximum rate
permitted by applicable law. If Debtor pays to Secured Party interest in
excess of the amount permitted by applicable law, such excess shall be
applied in reduction of the principal of Advances made pursuant to this
Agreement, and any remaining excess interest, after application thereof to
the principal of Advances, shall be refunded to Debtor.
8.3 PROMISE TO PAY FEES. Debtor promises to pay to Secured Party any fees
specified in Item 19 of the Schedule on the applicable due dates also
specified in Item 19 of the Schedule.
8.4 PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party on demand, all costs and
expenses as provided in this Agreement, and all costs and expenses incurred
by Secured Party from time to time in connection with this Agreement,
including, without limitation those incurred in: (i) preparing,
negotiating, amending, waiving or granting consent with respect to the
terms of any and all of the Transaction Documents; (ii) enforcing the
Transaction Documents; (iii) performing, pursuant to Section 14.2, Debtor's
duties under the Transaction Documents upon Debtor's failure to perform
them; (iv) filing financing statements, assignments, or other documents
relating to the Collateral, (e.g., filing fees, recording taxes, and
documentary stamp taxes); (v) maintaining the Payment Account; (vi)
administering the Transaction Documents in accordance with the terms
thereof, excluding however the ordinary general administrative expenses of
the Secured Party; (vii) compromising, pursuing, or defending any
controversy, action, or proceeding resulting, directly or indirectly, from
Secured Party's relationship with Debtor, regardless of whether Debtor is a
party to such controversy, action, or proceeding occurs before or after the
Indebtedness has been paid in full; (viii) realizing upon or protecting any
Collateral; (ix) enforcing or collecting any Indebtedness or guaranty
thereof; (x) employing collection agencies or other agents to collect any
or all of the Receivables; (xi) examining Debtor's books and records or
inspecting the Collateral where such examinations or inspections must be
conducted, in Secured Party's sole discretion, more frequently than is
customary, including, without limitation, the reasonable costs of
examinations and inspections conducted by third parties, provided that
nothing herein shall limit Secured Party's right to audit, examination,
inspection, or other fees otherwise payable under Section 8.3 and (xii)
obtaining independent appraisals from time to time as deemed necessary or
appropriate by Secured Party.
(b) Without limiting Section 8.4(a), Debtor also agrees to pay
Secured Party, on demand, the reasonable attorneys fees and disbursements
incurred by Secured Party for attorneys retained by Secured Party for
advice, suit, appeal, or insolvency or other proceedings under the Federal
Bankruptcy Code or otherwise, or in connection with any purpose specified
in Section 8.4(a).
8.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
EXPENSES. Without limiting Debtor's obligation pursuant to Sections 8.1,
8.2, 8.3, and 8.4 to pay the principal of Advances, repayment shall be made
in accordance with the terms of the Loan Agreement and shall be evidenced
by the Note. Interest, fees, and costs and expenses, the following
provisions shall apply to the payment thereof:
(a) Payment of Principal. Debtor authorizes Secured Party to apply
any Proceeds of Collateral, including, without limitation, payments on
Receivables, other payments from sales or leases of Inventory, and any
funds in the Payment Account, to the unpaid principal of Advances.
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(b) Payment of Interest, Fees and Costs and Expenses. If any accrued
interest, fees, or costs and expenses have not been paid when due, Debtor
authorizes Secured Party in its sole discretion to (provided, however,
Secured Party shall have no obligation to): (i) make an Advance to pay for
such items; or (ii) apply Proceeds of Collateral, including, without
limitation, payments on Receivable other payments from sales or leases of
Inventory, and any funds in the Payment Account, to the payment of such
items.
(c) Notwithstanding any other provisions of this Agreement, Secured
Party, in its sole discretion, shall determine the manner and amount of
application of payments and credits, if any, to be made on all or any part of
any component or components of the Indebtedness, whether principal, interest,
fees, costs and expenses, or otherwise.
8.6 COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose of
calculating the aggregate principal balance of outstanding Advances under
Section 2.1(a) and (b), Advances shall be deemed to be paid on the date
that checks drawn on or other funds received from the Payment Account are
applied by Secured Party to Advances, or within one Business Day after any
other payments on Receivables or other payments from sales of leases of
Inventory to be so applied have been processed for collection by Secured
Party; provided, however, for the purpose of calculating interest payable
by Debtor, funds from the Payment Account, payments on Receivables, other
payments from sales or leases of Inventory and any other payments, shall be
deemed to be applied to Advances the number of days specified in Item 20 of
the Schedule after the application of such funds from the Payment Account
or receipt of such payments by Secured Party, and the amount of interest
payable will be adjusted by Secured Party from time to time accordingly.
Notwithstanding any other provision of this Agreement, if any Item
presented for collection by Secured Party is not honored, Secured Party may
reverse any provisional credit which has been given for the Item and make
appropriate adjustments to the amount of interest and principal due.
8.7 ACCOUNT STATED. Debtor agrees that each monthly or other statement
of account mailed or delivered by Secured Party to Debtor pertaining to the
outstanding balance of Advances, the amount of interest due thereon, fees,
and costs and expenses shall be final, conclusive, and binding on Debtor
and shall constitute an "account stated" with respect to the matters
contained therein unless, within thirty (30) calendar days from when such
statement was mailed or, if not mailed, delivered to Debtor, Debtor shall
deliver to Secured Party written notice of any objections which it may have
as to such statement of account, and in such event, only the items to which
objection is expressly made in such notice shall be considered to be
disputed by Debtor.
9. PROCEDURES AFTER SCHEDULING RECEIVABLES.
9.1 RETURNED MERCHANDISE. Debtor shall notify Secured Party immediately
of the return, rejection, repossession, stoppage in transit, loss, damage,
or destruction of any Inventory. In addition to making appropriate
adjustments to the Receivables Borrowing Base and the Inventory Borrowing
Base to reflect the return of such Inventory, Secured Party may, in its
sole discretion, request Debtor to pay Secured Party an amount equal to the
consideration to have been paid for such Inventory by the Account Debtor,
such payment to be applied directly to unpaid Advances.
9.2 CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant such
Credits and such Extensions as are ordinary in the usual course of Debtor's
business without the prior consent of Secured Party; provided, however,
that any such Extension shall not extend the time for payment beyond thirty
(30) days after the original due date as shown on the Invoice evidencing
the related Receivable, or as computed based on the information set forth
on such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall make a full
accounting of each grant of Credit or an Extension including a brief
description of the reasons therefor and a copy of all credit memoranda.
Such accounting shall be in form satisfactory to Secured Party daily or at
such other intervals as may be specified in Item 17 of the Schedule. All
credit memoranda issued by Debtor shall be numbered consecutively and
copies of the same, when delivered to Secured Party, shall be in numerical
order and accounted for in the same manner as provided in Section 6.2 with
respect to Invoices.
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(c) Adjustment to Receivables Borrowing Base. The Receivables
Borrowing Base will be reduced by the amount of all credits reflected in an
accounting required by Section 9.2(b) and may, in the sole discretion of
Secured Party, be reduced by the full amount of any Receivable for which
Extensions were granted. Debtor shall pay to Secured Party with each such
accounting an amount equal to the aggregate of such reductions of the
Receivables Borrowing Base resulting therefrom, such payment to be applied
directly to Advances unless Secured Party, in its sole discretion, waives
its right to such payment where, after such reductions of the Receivables
Borrowing Base, the total outstanding Advances to Debtor under this
Agreement do not exceed the Borrowing Capacity as then computed.
9.3 RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned
uncollected for any reason, Secured Party may, in its sole discretion,
again forward the same for collection or return the same to Debtor. Upon
receipt of a returned check or instrument by Debtor, Debtor shall
immediately make the necessary entries on its books and records to
reinstate the Receivable as outstanding and unpaid and immediately notify
Secured Party of such entries, Pursuant to Section 1.1(o)(iii), the
Receivable with respect to which such check or instrument was received
shall thereupon become an Ineligible Receivable.
9.4 DEBIT MEMORANDA.
(a) Debtor shall deliver to Secured Party copies of all debit
memoranda by Debtor.
(b) Unless Secured Party otherwise notifies Debtor in writing,
Debtor shall deliver at least weekly to Secured Party together with the
schedule of Receivables provided for in Section 6.1, copies of all debit
memoranda issued by Debtor since the last such debit memoranda delivered to
Secured Party.
(c) All debit memoranda issued by Debtor shall be numbered
consecutively and copies of the same, when delivered to Secured Party,
shall be in numerical order and accounted for in the same manner as
provided in Section 6.2 with respect to Invoices.
9.5 NOTES RECEIVABLE. Debtor shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Receivable without the prior written consent of
Secured Party, that shall not be unreasonably withheld. If Secured Party
in its sole discretion consents to the acceptance of any such note or
instrument, the same shall be considered as evidence of the Receivable
giving rise to such note or instrument, shall be subject to the Security
Interest, and shall not constitute payment of such Receivable, and Debtor
shall forthwith indorse such note or instrument to the order of Secured
Party and deliver the same to Secured Party. Upon collection, the proceeds
of such note or instrument may be applied directly to unpaid Advances,
interest, and costs and expenses as provided in Section 8.5.
10. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor shall comply with the
covenants contained in Item 21 of the Schedule or elsewhere in this Agreement,
and with the covenants listed below:
10.1 FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party:
(a) Unless otherwise specified in Item 22 of the Schedule, within
ninety (90) days after the end of each fiscal year, consolidated and
consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of such year, fairly presenting Debtor's and each
Consolidated Subsidiary's financial position, which statements shall
consist of a balance sheet, an income statement covering the period of
Debtor's immediately preceding fiscal year, and which shall be in the form
specified in Item 23 of the Schedule.
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(b) Unless otherwise specified in Item 24 of the Schedule, within
thirty (30) days after the end of each month, consolidated and
consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of the month fairly presenting Debtor's and such
Consolidated Subsidiary's financial position, which statements shall
consist of a balance sheet, an income statement covering the period from
the end of the immediately preceding fiscal year to the end of such month,
all in such detail as Secured Party may request and certified to be correct
by the president or chief financial officer of Debtor or other financial
officer satisfactory to Secured Party.
(c) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which Debtor sends to its
shareholders, and copies of any and all periodic and special reports and
registration statements which Debtor files with the Securities and Exchange
Commission.
(d) Such additional information as Secured Party may from time to
time reasonably request regarding the financial and business affairs of
Debtor or any Consolidated Subsidiary.
10.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall promptly
notify Secured Party in writing of the existence of any Receivable as to
which the perfection enforceability, validity of Secured Party's Security
Interest in such Receivable, or Secured Party's right or ability to obtain
direct payment to Secured Party of the Proceeds of such Receivable, is
governed by any federal or state statutory requirements other than those of
the Uniform Commercial Code, including, without limitation, any Receivable
subject to the Federal Assignment of Claims Act of 1940, as amended.
10.3 TERMS OF SALE. The terms on which sales or leases giving rise to
Receivables are made shall be as specified in Items 3 and 25 of the
Schedule.
10.4 BOOK AND RECORDS. Debtor shall maintain, at its own cost and
expense, accurate and complete books and records with respect to the
Collateral, in form satisfactory to Secured Party, and including, but not
limited to, records of all payments received and all Credits and Extensions
granted with respect to the Receivables, of the return, rejection,
repossession, stoppage in transit, loss, damage, or destruction of any
Inventory, and of all other dealings affecting the Collateral. Debtor
shall deliver such books and records to Secured Party or its representative
on request. At Secured Party's request, Debtor shall mark all or any
records to indicate the Security Interest. Debtor shall further indicate
the Security Interest on all financial statements issued by it or shall
cause the Security Interest to be so indicated by its accountants. The
Payment Account, if any, is not an asset of Debtor and shall not be shown
as an asset of Debtor in such books and records or in such financial
statements.
10.5 INVENTORY IN POSSESSION OF THIRD PARTIES. If any Inventory remains
in the hands or control of any of Debtor's agents, finishers, contractors,
or processors, or any other third party, Debtor, if requested by Secured
Party, shall notify such party of Secured Party's Security Interest in the
Inventory and shall instruct party to hold such Inventory for the account
of Secured Party and subject to the instructions of Secured Party.
10.6 EXAMINATIONS. Debtor shall at all reasonable times and from time to
time permit Secured Party or its agents to inspect the Collateral and to
examine and make extracts from or copies of any of Debtor's books, ledgers,
reports, correspondence, and other records.
10.7 VERIFICATION OF COLLATERAL. Secured Party shall have the right to
verify all or any Collateral in any manner and through any medium Secured
Party may consider appropriate and Debtor agrees to furnish all assistance
and information and perform any acts which Secured Party may require in
connection therewith.
10.8 RESPONSIBLE PARTIES. Debtor shall notify Secured Party of the
occurrence of any event specified in Section 1.1(o)(v) with respect to any
Responsible Party promptly after receiving notice thereof.
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10.9 TAXES. Debtor shall promptly pay and discharge all of its taxes,
assessments, and other governmental charges prior to the date on which
penalties are attached thereto, established adequate reserves for the
payment of such taxes, assessments, and other governmental charges, make
all required withholdings and other tax deposits, and, upon request,
provide Secured Party with receipts or other proof that such taxes,
assessments, and other governmental charges have been paid in a timely
fashion; provided, however that nothing contained herein shall require the
payment of any tax assessment, or other governmental charge so long as its
validity is being contested in good faith and appropriate proceedings
diligently conducted and adequate reserves for the payment thereof have
been established.
10.10 LITIGATION.
(a) Debtor shall promptly notify Secured Party in writing of any
litigation, proceeding, or counterclaim against, or of any investigation
of, Debtor or any Consolidated Subsidiary if: (i) the outcome of such
litigation, proceeding, counterclaim, or investigation may materially and
adversely affect the finances or operations of Debtor or any Consolidated
Subsidiary or title to, or the value of, any Collateral; or (ii) such
litigation, proceeding, counterclaim, or investigation questions the
validity of any Transaction Document or any action taken or to be taken
pursuant to any Transaction Document.
(b) Debtor shall furnish to Secured Party such information
regarding any such litigation, proceeding, counterclaim, or investigation
as Secured Party shall request.
10.11 INSURANCE.
(a) Debtor shall at all times carry and maintain in full force and
effect such insurance as Secured Party may from time to time require, in
coverage, form, and amount, and issued by insurers, satisfactory to Secured
Party, including, without limitation; (i) all workers' compensation or
similar insurance as may be required under the laws of any jurisdiction;
(ii) public liability insurance against claims of personal injury, death,
or property damage suffered upon, in, or about any premises occupied by
Debtor or occurring as a result of the ownership, maintenance, or operation
by it of any automobile, truck, or other vehicle or as a result of the use
of products manufactured, constructed, or sold by it, or services rendered
by it, (iii) business interruption insurance covering risk of loss as a
result of the cessation for all or any part of the business conducted by
Debtor; and (iv) insurance against such other risks as are usually insured
against by business entities of established reputation engaged in the same
or similar businesses as Debtor and similarly situated.
(b) Debtor shall deliver to Secured Party the policies of insurance
required by Secured Party, with appropriate endorsement designating Secured
Party as an additional insured and loss payee as requested by Secured
Party. Each policy of insurance shall provide that if such policy is
canceled for any reason whatsoever, if any substantial change is made in
the coverage which affects Secured Party, or if such policy is allowed to
lapse for nonpayment of premium, such cancellation, change, or lapse shall
not be effective as to Secured Party until thirty (30) days after receipt
by Secured Party of written notice thereof from the insurer issuing such
policy.
(c) Debtor hereby appoints Secured Party as its attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of
Debtor, Secured Party, or otherwise, from time to time in Secured Party's
discretion, to take any actions and execute any instruments which Secured
Party may deem necessary or desirable to obtain, adjust, make claims under,
and otherwise deal with insurance required pursuant hereto and to receive,
indorse, and collect any drafts or other instruments delivered in
connection therewith provided, however, Secured Party shall not exercise
this right and authority unless there shall have occurred a Event of
Default as defined in this Agreement.
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10.12 GOOD STANDING; BUSINESS.
(a) Debtor shall take all necessary steps to preserve its corporate
existence and its right to conduct business in all states in which the
nature of its business or ownership of its property requires such
qualification.
(b) Debtor shall not significantly or materially change the scope
or the conduct of the business conducted by it on the date of this
Agreement.
10.13 NET WORKING CAPITAL; CONSOLIDATED TANGIBLE NET WORTH. Debtor shall
maintain net working capital and a consolidated tangible net worth as
specified in Item 26 of the Schedule.
10.14 PENSION REPORTS. Upon the occurrence of any Pension Event, Debtor
shall furnish to Secured Party, as soon as possible and in any event within
thirty (30) days after Debtor knows or has reason to know of such
occurrence, the statement of the president or chief financial officer of
Debtor setting forth the details of such Pension Event and the action which
Debtor proposes to take with respect thereto.
10.15 NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any
provision of any Transaction Document immediately upon learning of such
non-compliance, or if any representation or warranty contained in any
Transaction Document is no longer true.
10.16 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall conduct its operation in compliance with the
provisions of all federal, state and local laws, ordinances, rules,
regulations, and orders applicable to any natural or environmental resource
or media located on, above, within, or in the vicinity of, or affected by,
any real property.
(b) Debtor shall promptly notify Secured Party in writing of Debtor
or any Consolidated Subsidiary receives any notice or request from any
governmental agency, other agency, or person for information, or if Debtor
or any Consolidated Subsidiary provides any notice or information to any
such agency, entity, or person, concerning the presence or release of
hazardous substances, wastes, or other materials (as such terms are defined
by any applicable federal, state, or local law) within, on, from, related
to, or affecting any real property.
10.17 DEFEND COLLATERAL. Debtor shall defend the Collateral against the
claims and demands of all other parties (other than Secured Party)
including, without limitation, defenses, setoffs, and counterclaims
asserted by any Account Debtor against Debtor or Secured Party.
10.18 USE OF PROCEEDS. Debtor shall use the proceeds of Advances solely
for Debtor's working capital and for such other legal and proper and
corporate purposes as are consistent with all applicable laws, Debtor's
articles or certificate of incorporation and by-laws, resolutions of
Debtor's Board of Directors, and the terms of this Agreement.
10.19 COMPLIANCE WITH LAWS. Debtor shall comply with all applicable
laws, rules, regulations, and other legal requirements with respect to its
business and the use, maintenance, and operations of the real and personal
property owned and leased by it in the conduct of its business.
10.20 MAINTENANCE OF PROPERTY. Debtor shall maintain its property
including, without limitation, the Collateral, in good condition and repair
and shall prevent the Collateral or any part thereof from being or becoming
an accession to other goods not constituting Collateral.
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10.21 LICENSES, PERMITS, ETC. Debtor shall maintain all of its
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, and orders, if any, in full force and effect until their
respective expiration dates.
10.22 TRADEMARKS AND PATENTS. Debtor shall maintain all of its
trademarks, trademark rights, patents, patent rights, licenses, permits,
trade names, trade names rights, and approvals, if any, in full force and
effect until their respective expiration dates.
10.23 ERISA. Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.
10.24 MAINTENANCE OF OWNERSHIP. Debtor shall at all times maintain
ownership of the percentages of issued and outstanding capital stock of
each Consolidated Subsidiary set forth in Item 36 of the Schedule and
notify Secured Party in writing prior to the incorporation of any new
Consolidated Subsidiary.
10.25 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions of
this Section 10.25 are expressly waived by Secured Party in writing, Debtor
shall cause each Consolidated Subsidiary to comply with Sections 10.1(b),
10.9, 10.11(a), 10.12, 10.16 and 10.19 through 10.23, inclusive, and any of
the provisions contained in Item 21 of the Schedule, and shall cause each
Consolidated Subsidiary to refrain from doing any of the acts proscribed by
Sections 11.2, 11.3, 11.6 through 11.15, inclusive, or proscribed by any of
the provisions contained in Item 21 of the Schedule. The Debtor shall not
at any time engage in, and shall not permit any of its Subsidiaries to
engage in, any transaction with an affiliate on terms generally less
advantageous to the Debtor or such subsidiary, as the case may be, than
would be the case if such transaction had been effected with a non-
affiliate.
11. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor, without the written consent
of Secured Party, shall not violate any covenant contained in Item 21 of the
Schedule and shall not:
11.1 LOCATION OF INVENTORY, EQUIPMENT AND BUSINESS RECORDS. Move the
Inventory, Equipment or the records concerning the Collateral from the
location where they are kept as specified in Items 10 and 12 of the
Schedule.
11.2 BORROWED MONEY. Create, incur, assume, or suffer to exist any
liability for borrowed money, except to Secured Party and except as may be
specified in Item 27 of the Schedule.
11.3 SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur, assume, or
suffer to exist any mortgage, security interest, lien, or other encumbrance
upon any of its properties or assets, whether now owned or hereafter
acquired, except mortgages, security interests, liens, and encumbrances (a)
in favor of Secured Party and (b) as may be specified in Item 11 of the
Schedule.
11.4 STORING THE COLLATERAL. Place the Collateral in any warehouse which
may issue a negotiable Document with respect thereto.
11.5 USE OF COLLATERAL. Use the Collateral in violation of any provision
of the Transaction Documents, of any applicable statute, regulation, or
ordinance, or of any policy insuring the Collateral.
11.6 MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or consolidate with or
into any corporation; (b) enter into any joint venture or partnership with
any person, firm, or corporation; (c) convey, lease, or sell all or any
material portion of its property or assets or business to any other person,
firm, or corporation except for the sale of Inventory in the ordinary
course of business and in accordance with the terms of this Agreement; or
(d) convey, lease, or sell any of its assets to any person, firm, or
corporation for less than the fair market value thereof.
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11.7 CAPITAL STOCK. Purchase or retire any of its capital stock or issue
any capital stock, except pro rata to its present stockholders, or
otherwise change the capital structure of Debtor or change the relative
rights, preferences or limitations relating to any of its capital stock.
11.8 DIVIDENDS OR DISTRIBUTION. Pay or declare any cash or other
dividend or distributions on any of its corporate stock, except that stock
dividends may be paid, and except that a Consolidated Subsidiary may pay
dividends of any kind to Debtor. The Debtor shall not directly or
indirectly declare or make, and shall not permit any of its subsidiaries
directly or indirectly to declare or make, any Restricted Payment or
Restricted Purchase, (as hereinafter defined) or set aside any funds for
any such purpose. "Restricted Payment" shall mean (a) any direct or
indirect distribution, dividend, or other payment to any person or entity
on account of any shares of stock or other securities of the Debtor or any
of its subsidiaries; or (b) any payment of principal or interest on any
Indebtedness issued by the Debtor or any of its subsidiaries to, or any
management, consulting, or similar fees payable by the Debtor or any of its
Subsidiaries to, any affiliate of the Debtor. "Restricted Purchase" shall
mean any payment on account of the purchase, redemption, or other
acquisition or retirement of any shares of capital stock or other
securities of the Debtor or any of its subsidiaries.
11.9 INVESTMENTS AND ADVANCES. Make any investment in or advances to any
other person, firm, or corporation, except (a) advance payments or deposits
against purchases made in the ordinary course of Debtor's regular business;
(b) direct obligations of the United States of America; (c) any existing
investments in, or existing advances to, the Consolidated Subsidiaries; or
(d) any investments or advances that may be specified in Item 28 of the
Schedule.
11.10 GUARANTIES. Become a guarantor, a surety, or otherwise liable for
the debts or other obligations of any other person, firm, or corporation,
whether by guaranty or suretyship agreement, agreement to purchase
indebtedness, agreement for furnishing funds through the purchase of goods,
supplies, or services (or by way of stock purchase, capital contribution,
advance, or loan) for the purpose of paying or discharging indebtedness, or
otherwise, except as an indorser or instruments for the payment of money
deposited to its bank account for collection in the ordinary course of
business and except as may be specified in Item 29 of the Schedule.
11.11 LEASES. Enter, as lessee, into any lease of real or personal
property (whether such lease is classified on Debtor's financial statements
as a capital lease or operating lease) if the aggregate of the rentals of
such lease and of Debtor's other than existing leases would exceed in any
one of Debtor's fiscal years the amount specified in Item 30 of the
Schedule.
11.12 CAPITAL EXPENDITURES. Make or incur any capital expenditures in
any one fiscal year in an aggregate amount in excess of the amount, if any,
specified in Item 31 of the Schedule.
11.13 COMPENSATION.
(a) Pay or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to its officers or
directors, or members of their immediate families, in the aggregate
exceeding the amount, if any, specified in Item 32 of the Schedule.
(b) Pay or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to individuals, if any,
specified in Item 33 of the Schedule in excess of the amount therein
specified for such individuals.
11.14 NAME CHANGE. Change its name without giving at least thirty (30)
days prior written notice of its proposed new name to Secured Party,
together with delivery to Secured Party of UCC-3 Financing Statements
reflecting Debtor's new name, all in form and substance satisfactory to
Secured Party.
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11.15 DISPOSITION OF COLLATERAL. Sell, assign, or otherwise transfer,
dispose of or encumber the Collateral or any interest therein, or grant a
security interest therein or license thereof, except to Secured Party and
except the sale or lease of Inventory in the ordinary course of business of
Debtor and in accordance with the terms of this Agreement.
12. EVENTS OF DEFAULT.
12.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an
Event of Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal, interest,
premium, fee, cost, or expense due under the Transaction Documents.
(b) Negative Covenants. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 11 and such default
has not been cured to Secured Party's satisfaction with 10 days form the
occurrence of such default.
(c) Other Covenants. Default in the observance of any of the
covenants or agreements or Debtor contained in the Transaction Documents,
other than in Article 11 or Sections 8.1, 8.2, 8.3 or 8.4 or any other
agreement with Secured Party which is not remedied within the earlier of
ten (10) days after (i) notice thereof by Secured Party to Debtor, or (ii)
the date Debtor was required to give notice to Secured Party under Section
10.15.
(d) Cessation of Business or Voluntary Insolvency Proceedings. The
(i) cessation of operations of Debtor's business as conducted on the date
of this Agreement; (ii) filing by Debtor of a petition or request for
liquidation reorganization, arrangement, adjudication as a bankrupt, relief
as a debtor, or other relief under the bankruptcy, insolvency, or other
similar laws of the United States of America or any state or territory
thereof or any foreign jurisdiction now or hereafter in effect; (iii)
making by Debtor of a general assignment for the benefit of creditors; (iv)
consent by the Debtor to the appointment of a receiver or trustee,
including without limitation, a "custodian" as defined in the Federal
Bankruptcy Code for Debtor or any of Debtor's assets; (v) making of any, or
sending of any notice of any intended, bulk sale by Debtor; or of
insolvency proceeding (under the Federal Bankruptcy Code or otherwise) or
any formal or informal proceeding for the dissolution or liquidation of, or
settlement of claims against or winding up of affairs of, Debtor.
(e) Involuntary Insolvency Proceedings. (i) The appointment of a
receiver, trustee, custodian, or officer performing similar functions,
including, without limitation, a "custodian" as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; or the filing
against Debtor of a request or petition for liquidation, reorganization,
arrangement, adjudication as a bankrupt, or other relief under the
bankruptcy, insolvency, or similar laws of the United States of America,
any state or territory thereof, or of any other foreign jurisdiction now or
hereafter in effect; or of any other type of insolvency proceedings (under
the Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims
against or winding up of affairs of Debtor and (ii) such appointment shall
not be vacated or such petition or proceeding shall not be dismissed within
sixty days after such appointment, filing or institution.
(f) Other Indebtedness and Agreements. Failure by Debtor to pay
when due (or, if permitted by the terms of any applicable documentation,
within any applicable grace period) any indebtedness owing by Debtor to
Secured Party or the exercise of a default remedy by any other entity as a
result of Debtor's failure to pay any indebtedness owed to them (other
than the Indebtedness incurred pursuant to this Agreement and including,
without limitation indebtedness evidencing a deferred purchase price),
whether such indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, or failure by
the Debtor to perform any term, covenant, or agreement on its part to be
performed under any agreement or instrument (other than a Transaction
Document) evidencing or securing or relating to any indebtedness owing by
Debtor when required to be performed if the effect of such failure is to
permit the holder to accelerate the maturity of such indebtedness.
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(g) Judgements. Any judgement or judgements against Debtor (other
than any judgement for which Debtor is fully insured) shall remain unpaid,
unstayed on appeal, undischarged, unbonded, or undismissed for a period of
thirty (30) days.
(h) Pension Default. Any Reportable Event which Secured Party shall
determine in good faith constitutes grounds for the termination of any
Pension Plan by the Pension Benefit Guaranty Corporation or for the
appointment by an appropriate United States district court of a trustee to
administer any Pension Plan shall occur and shall continue thirty (30) days
after written notice thereof to Debtor by Secured Party; or the Pension
Plan Guaranty Corporation shall institute proceedings to terminate any
Pension Plan or to appoint a trustee to administer any Pension Plan; or a
Trustee shall be appointed by an appropriate United States district court
to administer any Pension Plan; or any Pension Plan shall be terminated; or
Debtor or any Consolidated Subsidiary shall withdraw from a Pension Plan in
a complete withdrawal; or there shall arise vested unfunded liabilities
under any Pension Plan that, in good faith opinion of Secured Party, have
or will or might have a material adverse effect on the finances or
operations of Debtor; or Debtor of any Consolidated Subsidiary shall fail
to pay to any Pension Plan any contribution which it is obligated to pay
under the terms of such plan or any agreement or which is required to meet
statutory minimum funding standards.
(i) Collateral; Impairment. There shall occur with respect to the
Collateral any (i) misappropriation, conversion, diversion, or fraud, (ii)
levy, seizure, or attachment, or (iii) material loss, theft, or damage.
(j) Insecurity; Change. Secured Party shall believe in good faith
that the prospect of payment of all or any part of the Indebtedness or
performances of Debtor's obligations under the Transaction Documents or any
other agreement between Secured Party and Debtor is impaired; or there
shall occur any materially adverse change in the business or financial
condition of Debtor.
(k) Third Party Default. There shall occur with respect to any
Third Party or any Consolidated Subsidiary, including, without limitation,
any guarantor or Consolidated Subsidiary (i) any event described in Section
12.1(d), 12.1(e), 12.1(f) or 12.1(g), (ii) any pension default event such
as described in Section 12.1(h) with respect to any pension plan maintained
by Third Party or such Consolidated Subsidiary, or (iii) any failure by
Third Party or such Consolidated to perform in accordance with the terms of
any agreement between such Third Party and Secured Party.
(l) Representations. Any certificate, statement, representation,
warranty, or financial statement furnished by or on behalf of Debtor or
any Third Party pursuant to or in connection with this Agreement
(including, without limitation, representations and warranties contained
herein) or as an inducement to Secured Party to enter into this Agreement
or any other lending agreement with Debtor shall prove to have been false
in any material respect at the time as of which the facts therein set forth
were certified or to have omitted any substantial contingent or
unliquidated liability or claim against Debtor or any such Third Party, or
if on the date of the execution of this Agreement there shall have been any
materially adverse change in any of the facts disclosed by any such
statement or certificate which shall not have been disclosed in writing to
Secured Party at or prior to the time of execution.
(m) Challenge to Validity. Debtor or any Third Party commences any
action or proceeding to contest the validity or enforceability of any
Transaction Document or any lien or security interest granted or
obligations evidenced by any Transaction Document.
(n) Death or Incapacity; Termination. Any Third Party dies or
becomes incapacitated, or terminates or attempts to terminate, in
accordance with its terms or otherwise, any guaranty or other Transaction
Document executed by such Third Party.
(o) Change of Ownership. If all or a controlling interest of the
capital stock of Debtor shall be sold, assigned, or otherwise transferred
or if a security interest or other encumbrance shall be granted or
otherwise acquired therein or with respect thereto.
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12.2 EFFECTS OF ANY EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of Default (except an
Event of Default under either Section 12.1(d) or 12.1(e), Secured Party may
declare any obligations it may have hereunder to be canceled and the
principal of the Indebtedness then outstanding to be immediately due and
payable, together with all interest thereon and costs and expenses accruing
under the Transaction Documents. Upon such declaration, any obligations
Secured Party may have hereunder shall be immediately canceled and the
Indebtedness then outstanding shall become immediately due and payable
without presentation, demand or further notice of any kind to Debtor.
(b) Upon the happening of one or more Events of Default under
Section 12.1(d) or 12.1(e), Secured Party's obligations hereunder shall be
canceled immediately, automatically, and without notice, and the
Indebtedness then outstanding shall become immediately due and payable
without presentation, demand, or notice of any kind to the Debtor.
13. SECURED PARTY'S RIGHTS AND REMEDIES.
13.1. GENERALLY. Secured Party's rights and remedies with respect to the
Collateral, in addition to those rights granted herein and in any other
agreement between Debtor and Secured Party now or hereafter in effect,
shall be those of a secured party under the Uniform Commercial Code as in
effect in the State and under any other applicable law.
13.2. NOTIFICATION OF ACCOUNT DEBTORS. Secured Party may, at any time and
from time to time, notify any or all Account Debtors of the Security
Interest and may direct such Account Debtors to make all payments on
Receivables directly to Secured Party.
13.3. POSSESSION OF COLLATERAL. Whenever Secured Party may take
possession of the Collateral pursuant to Section 13.1, Secured Party may
take possession of the Collateral on Debtor's premises or may remove the
Collateral or any part thereof to such other places as the Secured Party
may in its sole discretion determine. If requested by Secured Party,
Debtor shall assemble the Collateral and deliver it to Secured Party at
such place as may be designated by Secured Party.
13.4. COLLECTION OF RECEIVABLES. Secured Party may demand, collect, and
sue for all monies and Proceeds due or to become due on the Receivables (in
either Debtor's or Secured Party's name at the latter's option) with the
right to enforce, compromise, settle, or discharge any or all Receivables.
If Secured Party takes any action contemplated by this Section with respect
to any Receivable, Debtor shall not exercise any right that Debtor would
otherwise have had to take such action with respect to such Receivable.
13.5. INDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby irrevocably
appoints Secured Party the Debtor's agent with full power, in the same
manner, to the same extent, and with the same effect as if Debtor were to
do the same: to indorse Debtor's name on any Instruments or Documents
pertaining to any Collateral; to receive and collect all mail addressed to
Debtor; to direct the place of delivery of such mail to any location
designated by Secured Party; to open such mail; to remove all contents
therefrom; and to retain all contents thereof constituting or relating to
the Collateral. This agency is unconditional and shall not terminate until
all of the Indebtedness is paid in full and this Agreement has been
terminated provided, however, this remedy shall not be exercised until an
Event of Default has occurred as defined in this Agreement. Secured Party
agrees to give Debtor notice in the event it exercises this agency, except
with respect to the indorsement of Debtor's name on any instruments or
documents pertaining to any Collateral.
13.6. REGISTERED HOLDER OF COLLATERAL. If any Collateral consists of
investment securities, Debtor authorizes Secured Party to transfer the same
or any part thereof into its own name or that of its nominee so that
Secured Party its nominee may appear of record as the sole owner thereof
and if such securities are so transferred prior to an Event of Default, the
Secured Party gives to Debtor a revocable proxy to vote and take all action
with respect to such securities, such proxy to be effective so long as
there has not occurred an Event of Default and Secured Party has not
delivered to Debtor a written notice of revocation of such proxy. After
receipt of such revocation, Debtor waives all rights to be advised of or to
receive any notices, statements or communications received by Secured Party
or its nominee as such record owner, and agrees that no proxy or proxies
given by Secured Party to Debtor as aforesaid shall thereafter be
effective.
28
<PAGE>
13.7. INCOME FROM AND INTEREST ON INSTRUMENTS.
(a) Until the occurrence of an Event of Default, Debtor reserves
the right to receive all income from or interest on the Collateral
consisting of Instruments, and if Secured Party shall receive any such
income or interest prior to such Event of Default, Secured Party shall pay
the same promptly to Debtor.
(b) Upon the occurrence of an Event of Default, Debtor will not
demand or receive any income from or interest on such Collateral, and if
Debtor receives any such income or interest without any demand by it, same
shall be held by Debtor in trust for Secured Party in the same medium in
which received, shall not be commingled with any assets of Debtor and shall
be delivered to Secured Party in the form received, properly indorsed to
permit collection, not later than the next business day following the day
of its receipt. Secured Party may apply the net cash receipts from such
income or interest to payment of any of the Indebtedness, provided that
Secured Party shall account for and pay over to Debtor any such income or
interest remaining after payment in full of the Indebtedness.
13.8. INCREASES, PROFITS, PAYMENTS OR DISTRIBUTIONS.
(a) Whether or not any Event of Default has occurred, Debtor
authorizes Secured Party: (i) to receive any increases in or profits on
the Collateral (including, without limitation, any stock issued as a result
of any stock split or dividend, any capital distributions and the like),
and to hold the same as part of the Collateral; and (ii) to receive any
payment or distribution on the Collateral upon exchange or redemption by,
or dissolution and liquidation of, the issuer; to surrender such Collateral
or any part thereof in exchange therefor; and to hold the net cash receipts
or other property from any such payment or distribution as part of the
Collateral.
(b) If Debtor receives any such increase, profits, payments or
distributions, Debtor will receive and deliver same promptly to Secured
Party on the same terms and conditions set forth in Section 13.7(b)
respecting income or interest, to be held by Secured Party as part of the
Collateral.
14. MISCELLANEOUS.
14.1. PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL. Debtor
will execute and deliver to Secured Party such financing statements,
assignments, and other documents and will do such other things in
connection with the Transaction Documents as Secured Party may request.
Debtor hereby authorizes Secured Party to file such financing statements
relating to the Collateral without Debtor's signature thereon as Secured
Party may deem appropriate, and appoints Secured Party as Debtor's
attorney-in-fact (without requiring Secured Party) to execute any such
financing statement of statements in Debtor's name and to perform all other
acts which Secured Party deems appropriate to perfect and continue the
Security Interest and to protect, preserve, and realize upon the
Collateral.
14.2. PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to perform
any of its duties under the Transaction Documents, including, without
limitation, the duty to obtain insurance as specified in Section 10.11,
Secured Party may, but shall not be obligated to, perform any or all such
duties.
29
<PAGE>
14.3. NOTICE OF SALE. Without in any way requiring notice to be given in
the following manner, Debtor agrees that any notice by Secured Party of
sale, disposition, or other intended action hereunder or in connection
herewith, whether required by the Uniform Commercial Code as in effect in
the State or otherwise, shall constitute reasonable notice to Debtor if
such notice is mailed by regular or certified mail, postage prepaid, at
least five (5) days prior to such action, to Debtor's address or addresses
specified above or to any other address which Debtor has specified in
writing to Secured Party as the address to which notices hereunder shall be
given to Debtor.
14.4. WAIVER BY SECURED PARTY. No course of dealing between Debtor and
Secured Party and no delay or omission by Secured Party in exercising any
right or remedy under the Transaction Documents or with respect to any
Indebtedness shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other
or further exercise thereof or the exercise of any other right or remedy.
All rights and remedies of Secured Party are cumulative.
14.5. WAIVER BY DEBTOR. Secured Party shall have no obligation to take,
and Debtor shall have the sole responsibility for taking, any and all steps
to preserve rights against any and all Account Debtors and against any and
all prior parties to any note, Chattel Paper, draft, trade acceptance, or
other instrument for the payment of money covered by the Security Interest
whether or not in Secured Party's possession. Secured Party shall not be
responsible to Debtor for loss or damage resulting from Secured Party's
failure to enforce any Receivables or to collect any moneys due or to
become due thereunder or other Proceeds constituting Collateral thereunder.
Debtor waives protest of any note, check, draft, trade acceptance, or other
instrument for the payment of money constituting Collateral at any time
held by Secured Party on which Debtor is in any way liable and waives
notice of any other action taken by Secured Party.
14.6. SETOFF. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately
due and payable (whether of not it has so declared) Secured Party at its
sole election may setoff against the Indebtedness any and all monies then
or thereafter owed to Debtor by Secured Party in any capacity, whether or
not the Indebtedness or the obligation to pay such monies owed by Secured
Party is then due, and Secured Party shall be deemed to have exercised such
right to setoff immediately at the time of such election even though any
charge therefor is made or entered on Secured Party's records subsequent
thereto.
14.7. ASSIGNMENT. The rights and benefits of Secured Party hereunder
shall, if Secured Party so agrees, inure to any party acquiring any
interest in the Indebtedness or any part thereof.
14.8. SUCCESSORS AND ASSIGNS. Secured Party and Debtor as used herein
shall include the successors or assigns of those parties, except that
Debtor shall not have the right to assign its rights hereunder or any
interest herein.
14.9. MODIFICATION. No modification, rescission, waiver, release, or
amendment of any provision of this Agreement shall be made, except as may
be provided in Item 38 of the Schedule or by written agreement signed by
Debtor and a duly authorized officer of Secured Party.
14.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor or separate counterparts,
each of which when so executed and delivered shall be an original, but all
of which shall together constitute one in the same Agreement.
14.11. GENERALLY ACCEPTED ACCOUNTING PRINCIPALS. Any financial
calculation to be made, all financial statements and other financial
information to be provided, and all books and records to be kept in
connection with the provisions of this Agreement, shall be in accordance
with generally accepted accounting principles consistently applied during
each interval and from interval to interval; provided, however, that in the
event changes in generally accepted accounting principles shall be mandated
by the Financial Accounting Standards Board or similar accounting body of
comparable standing, or should be recommended by Debtor's certified public
accountants, to the extent such changes would affect any financial
calculations to be made in making such calculations only from and after
such date as Debtor and Secured Party shall have amended this Agreement to
the extent necessary to reflect such changes in the financial and other
covenants to which such calculations relate.
30
<PAGE>
14.12. INDEMNIFICATION.
(a) If after receipt of any payment of all or any part of the
Indebtedness, Secured Party is for any reason compelled to surrender such
payment to any person or entity because such payment is determined to be
void or voidable as a preference, an impermissible setoff, or a diversion
of trust funds, or for any other reason, the Transaction Documents shall
continue in full force and Debtor shall be liable, and shall indemnify and
hold Secured Party harmless for, the amount of such payment surrendered.
The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by Secured
Party in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Secured Party's rights under the Transaction
Documents and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this Section
14.12(a) shall survive the termination of this Agreement and the
Transaction Documents.
(b) Debtor agrees to pay, indemnify, and hold Secured Party
harmless, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgements, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without
limitation, counsel and special counsel fees and disbursements in
connection with any litigation, investigation, hearing or other proceeding)
with respect or in any way related to the existence, execution, delivery,
enforcement, performance and administration of this Agreement and any other
Transaction Document (all of the foregoing, collectively, the "Indemnified
Liabilities"). The agreements in this Section 14.12(c) shall survive
repayment of the Indebtedness.
14.13. TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is and is intended to be a
continuing Agreement and shall remain in full force and effect for an
initial term equal to the term set forth in Item 35 of the Schedule and for
any renewal term also specified in Item 35 of the Schedule; provided,
however, that either party may terminate this Agreement as of the end of
the initial term or any subsequent renewal term by giving the other party
notice to terminate in writing at least sixty (60) days prior to the end of
any such period whereupon at the end of such period all Indebtedness shall
be due and payable in full without presentation, demand, or further notice
of any kind. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the Security Interest, Secured Party's rights
and remedies under the Transaction Documents and Debtor's obligations and
liabilities under the Transaction Documents, shall survive any termination
of this Agreement and shall remain in full force and effect until all of
the Indebtedness outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Secured Party, and
any extensions or renewals thereof (whether made before or after receipt of
such notice), together with interest accruing thereon after such notice,
shall be finally and irrevocably paid in full. No collateral shall be
released or financing statement terminated until such final and irrevocable
payment in full of the Indebtedness as described in the preceding sentence.
(b) Prepayment Premium. If Debtor pays in full all or
substantially all of the principal balance of Advances prior to the end of
the initial term or any renewal term of this Agreement as set forth in Item
37 of the Schedule, other than temporarily from funds internally generated
in the ordinary course of business, at the time of any such payment Debtor
shall also pay to Secured Party the prepayment premium set forth in Item 37
of the Schedule. Any tender of payment in full of principal balance
following an acceleration by Secured Party of the Indebtedness pursuant to
Section 12.2 shall be for purposes of this Section 14.13(b), deemed to be
considered a prepayment requiring Debtor to pay the prepayment premium set
forth in Item 37 of the Schedule.
14.14. FURTHER ASSURANCES. From time to time, Debtor shall take such
action and execute and deliver to Secured Party such additional documents,
instruments, certificates, and agreements as Secured Party may reasonably
request to effectuate the purposes of the Transaction Documents.
31
<PAGE>
14.15. HEADINGS. Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this
Agreement.
14.16. CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery of
this Agreement shall in no manner impair or affect any other security (by
endorsement or otherwise) for payment or performance of the Indebtedness
and no security taken hereafter as security for payment or performance of
the Indebtedness shall impact in any manner or affect this Agreement or the
security interest granted hereby, all such present and future additional
security to be considered as cumulative security.
14.17. SECURED PARTY'S DUTIES. Without limiting any other provision of
this Agreement: (a) the powers conferred on Secured Party hereunder are
solely to protect its interest and shall not impose any duty to exercise
any such powers and (b) except as may be required by applicable law,
Secured party shall not have any duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against any parties or any
other rights pertaining to any Collateral.
14.18. NOTICES GENERALLY. All notices and other communications hereunder
shall be made by telegram, telex, electronic transmitter, overnight air
courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received by the party to whom sent one Business Day
after sending, if sent by telegram, telex, electronic transmitter, or
overnight air courier, and three Business Days after mailing, if sent by
certified or registered mail. All such notices and other communications to
a party hereto shall be addressed to such party at the address set forth on
the cover page hereof or to such other address as such party may designate
for itself in a notice to the other party given in accordance with this
Section 14.18.
14.19. SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other, and no such provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any reason
any other such provision may be invalid or unenforceable in whole or in
part. If any provision of this Agreement is prohibited or unenforceable in
any jurisdiction, such provision shall be ineffective in such jurisdiction
only to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate the balance of such
provision to the extent it is not prohibited or unenforceable nor render
prohibited or unenforceable such provision in any other jurisdiction.
14.20. INCONSISTENT PROVISIONS. The terms of this Agreement and other
Transaction Documents shall be cumulative except to the extent they are
specifically inconsistent with each other, in which case the terms of this
Agreement shall prevail.
14.21. ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement and understanding between the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior negotiations, understandings, and agreements between
such parties with respect to such transactions, including, without
limitation, those expressed in any commitment letter delivered by Secured
Party to Debtor.
14.22. APPLICABLE LAW. THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED
HEREBY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE
STATE, WITHOUT REGARD TO PRINCIPALS OF CONFLICT OF LAW, AS THE SAME MAY
FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN THE STATE.
14.23. ARBITRATION. Disputes regarding the nonpayment of any amount due
under this Agreement to Secured Party or any of its affiliates which arise
from, result from or relate to a counterclaim, offset, recoupment, claim or
defense of the Debtor which is founded upon, arises out of or is related
to, any theory of lender liability or other similar theory, and all
disputes and claims relating to any provision hereof or relating to or
arising out of the parties relationship or creation or termination hereof
(including, without limitation, any claim that any provision of this
Agreement is illegal, unenforceable or voidable under any law, ordinance
or ruling) shall be settled by arbitration at the office of the American
Arbitration Association in Atlanta, Georgia, in accordance with the United
States Arbitration Act (9 U.S.C. Section, et seq.) and the Rules of the
------ ------------
American Arbitration Association. Suits to compel arbitration or to
--------------------------------
determine arbitrability shall be brought in the United States District
Court for the Northern District of Georgia. All awards of the arbitration
shall be binding and non-appealable except as otherwise provided in the
United States Arbitration Act. Judgement upon the award of the arbitrator
may be entered in any court having jurisdiction thereof. PROVIDED,
HOWEVER, that nothing
32
<PAGE>
contained in this Paragraph shall be interpreted or construed so as to make
claims by the Secured Party to enforce its rights in the Collateral or for
the payment of sums due to the Secured Party or the others by the Debtor
(whether prior or subsequent to any Event of Default), subject to
arbitration, even though counterclaims, offsets, recoupments, and other
defenses and claims by Debtor are subject to arbitration.
Accepted by:
EMERGENT FINANCIAL CORP., Debtor: FIRST LIGHT ENTERTAINMENT
A SOUTH CAROLINA CORP CORPORATION, A GEORGIA CORPORATION
By: /s/ Ron Warnock By: /s/ Robert A. Martinez
-------------------------- ---------------------------------------
RON WARNOCK, SR. V.P Robert Martinez, Chief Financial
Officer
Attest: /s/ J. Eric Van Atta
-----------------------------------
J. Eric Van Atta, Secretary
(Corporate Seal)
33
<PAGE>
SCHEDULE
This Schedule is a part of a Loan and Security Agreement, dated APRIL 2,
--------
1998, between FIRST LIGHT ENTERTAINMENT CORPORATION and EMERGENT FINANCIAL
CORP., a South Carolina Corporation, ("EFC").
1. Borrowing Capacity (SS 1.1(c))
------------------------------
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) $1,000,000.00
or
(B) the amount equal to the sum of:
(i) 85.00% of the Receivable Borrowing Base;
and
(ii) the lessor of - 0 - or the amount of the Inventory Borrowing
---------
Base;
and subtracting from the lessor of (A) or (B) above, the sum of (a)
banker's acceptances, plus (b) letters of guaranty, plus (c) standby
letters of credit.
2. Inventory Borrowing Base Percentages (SS 1.1(r))
------------------------------------------------
The following percentages of dollar value (calculated at the lower of
actual cost or market value) are applicable to the following categories of
Eligible Inventory:
( N/A ) finished goods, to the extent of ___%;
( N/A ) raw materials, to the extent of ___ %;
( N/A ) work in process to the extent of ___%.
3. Cash Discount (SS 1.1(g) & 10.3)
--------------------------------
Maximum Cash Discount of 2.00%, net 10 days
4. Receivable--Age (SS 1.1(o)(i))
------------------------------
90 DAYS AFTER ( X ) INVOICE DATE
--
( ) due date (not to exceed ___ days after invoice
date)
shown on the Invoice evidencing the applicable
Receivable.
5. Receivable Disqualification Percentage (SS 1.1(o) (vi))
-------------------------------------------------------
25.00 % OR MORE
------
6. Permissible Foreign Account Debtors (SS 1.1(o)(vii))
----------------------------------------------------
NONE
7. Inventory Accounting (SS 1.1(r))
--------------------------------
( X ) First-in, first-out (FIFO)
( ) Last-in, first-out (LIFO)
( ) Other as specified below
8. Payment Account (SS 1.1(t))
---------------------------
There is ( X ) a Payment Account
is not ( )
Name and address of depository bank: NATIONSBANK, N.A.
34
<PAGE>
9. State of Incorporation (SS 4.2(b), 5.1)
---------------------------------------
Debtor: GEORGIA
Consolidated Subsidiary N/A
10. Location(s) of Inventory and Equipment (SS 5.4(c), 5.7, 5.8(a) & 11.1)
----------------------------------------------------------------------
INVENTORY LOCATIONS: - 1245 FOWLER STREET, N.W. ATLANTA, GEORGIA 30318
Equipment Locations (including names and addresses of owners or real
property and mortgages):
1245 Fowler Street, N.W. Atlanta, Georgia
11. Permitted Encumbrances (SS 5.5(a), 5.5(c) & 11.3)
-------------------------------------------------
NONE
12. Business Records Location (SS 5.7(a), 5.7(c) & 11.1)
----------------------------------------------------
1245 Fowler Street, N.W. Atlanta, Georgia 30318
13. Trademarks and Patents (SS 5.17)
--------------------------------
Debtor:
Consolidated Subsidiary:
14. Margin Stock: (SS 5.22)
----------------------------
NONE
15. Labor Contracts (SS 5.24)
-------------------------
Debtor: NONE
Consolidated Subsidiary:
16. Authorized Shares (SS 5.27)
---------------------------
No. of authorized common shares: $1,000,000
Par Value of common shares: $1.00 per share
No. of issued and outstanding shares: 100,000
17. Required Documents (SS 6.1, 6.4, 6.7, 9.2(b)
<TABLE>
<CAPTION>
Check if Required Frequency Due
----------------- -----------------------
<S> <C> <C>
Borrowing Base Certificate (X) Daily
Receivable Schedule (Aging) ( X ) Monthly, for the end of
the month, due by the
10th of the following
month.
Inventory Reports
(a) Value Reports ( ) Upon Request
(b) Periodic Summary Reports ( ) Upon Request
(c) Dispute Report ( ) Upon Request
Credits & Extension Reports ( X ) Same as Receivable Aging
Copies of billing documents
relating to the Receivables ( X ) Upon Request
List of names and addresses of
Account Debtors ( X ) At closing & upon request
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Reconciliation report, in form
satisfactory to ( X ) Monthly, for the end of
Secured Party, showing the month, due by the
all Receivables, collections, 10th of the following month.
payments, Credits, & Extensions
since the proceeding report
Payable aging report, showing the
amounts due and owing on all of ( X ) Monthly, for the end of
Debtor's payable according to the month, due by the
Debtor's records as of the close 10th of the following Month.
of such periods as shall be
specified by Secured Party.
Payroll tax returns ( X ) Quarterly
Payroll tax calculations
and deposit information ( X ) Monthly
Invoice and Credit registers ( X ) Daily or with each
Advance Request
</TABLE>
18. Interest Rate (SS 8.2)
----------------------
TWO AND ONE-HALF PERCENT (2.50%) PLUS THE GREATER OF (I) THE PRIME RATE OR
(II) SEVEN AND ONE-HALF PERCENT (7.50%).
19. Fees and Due Dates (SS 8.3)
---------------------------
Type Amount Due Date(s)
---- ------ -----------
Monthly Service Fee .0.50% of the average Due and payable on the
daily balance of the loan first day of each
outstanding, month for the
subject to a monthly preceding month.
minimum fee of $500.00
Facility Fee .25% ($2,500.00) of the At closing and each
total credit facility facility anniversary
date of the Loan and
Security Agreement,
in the event of
renewal.
Overline Fee .50% per daily Due and payable on the
occurrence of first day of each
the excess of month for the
indebtedness over preceding month.
the borrowing capacity
defined in Schedule Item
1(A).
Overcollateral Fee .50% per daily Due and payable on the
occurrence of first day of each
the excess of month for the
indebtedness over preceding month.
the borrowing capacity
defined in Schedule Item
1(A).
Audit Fee $400.00 per day, plus Due upon occurrence.
out of pocket expenses,
limited to $750.00 per
quarter as long as
the credit line is not
in default.
36
<PAGE>
20. Uncollected Funds Adjustment (SS 8.6)
-------------------------------------
( ) ________________ calendar days; or
(XX) THREE (3) BUSINESS DAYS; OR
( ) for each Item, the number of days estimated by Secured
party as necessary for collection of funds from the
particular institution on which such Item is drawn.
21. Additional Covenants (SS 10 & 11)
---------------------------------
None
22. Annual Financial Statements -- Timing (SS 10.1(a))
--------------------------------------------------
23. Annual Financial Statements -- Form (SS 10.1(a))
------------------------------------------------
The following prepared by independent certified public accountants
satisfactory to Secured Party
( ) a compilation
( ) a review or
( X ) AUDITED (AS A COMPONENT OF THE AUDITED FINANCIAL STATEMENTS
OF THE PARENT COMPANY).
24. Interim Financial Statements (SS 10.1(b)
----------------------------------------
Internally generated interim financial statements within 30 days of
each month end.
25. Terms of Sale (SS 10.3)
-----------------------
Due dates of no more than 30 calendar days from date of Invoice,
except in regard to transactions specified below under "Datings."
Datings: NONE
26. Net Working Capital; Consolidated Tangible Net Worth (SS 10.13)
---------------------------------------------------------------
Minimum net working capital NOT TO DETERIORATE MORE THAN $100,000
FROM COMPUTED LEVELS FROM THE 1/31/98
BALANCE SHEET.
Minimum consolidated tangible NOT TO DETERIORATE MORE THAN $100,000
net worth: FROM COMPUTED LEVELS FROM THE
1/31/98 BALANCE SHEET.
The New Working Capital and Tangible Net Worth covenants will not be
considered as an event of default unless the computed amounts exceed the
levels noted above for two (2) consecutive month end periods, or the
computed levels deteriorate more than $250,000 from the 1/31/98 balance
sheet, in a single month end period. Intercompany assets and liabilities are
excluded from the Net Working Capital and Tangible Net Worth covenants.
27. Permitted Borrowing (SS 11.2)
-----------------------------
Debtor: NONE, OTHER THAN THAT OF EMERGENT FINANCIAL CORP FACILITATED
THROUGH THIS TRANSACTION AND THOSE IN EXISTENCE AT THE TIME OF
CLOSING OF THIS TRANSACTION, AS DISCLOSED IN VARIOUS SCHEDULES
AND EXHIBITS RELATED TO THE LOAN DOCUMENTS OF THIS FACILITY.
Consolidated Subsidiary: N/A
28. Permitted Investments and Advances (SS 11.9(d))
-----------------------------------------------
Debtor: NONE, OTHER THAN INTERCOMPANY TRANSFERS THAT ARE WITHIN THE
NORMAL COURSE OF BUSINESS.
Consolidated Subsidiary: N/A
29. Permitted Guaranties (SS 5.18, 11.10)
-------------------------------------
37
<PAGE>
Debtor: NONE
Consolidated Subsidiary: N/A
30. Maximum Annual Lease Rentals (SS 11.11)
---------------------------------------
Debtor: THOSE IN EXISTENCE AT THE TIME OF THIS TRANSACTION PLUS ANY NEW
LEASE RENTALS IN CONJUNCTION WITH THE ANNUAL CAPITAL EXPENDITURE
ALLOWANCE OF $100,000.00 DESCRIBED IN SCHEDULE ITEM #31.
Consolidated Subsidiary: N/A
31. Permitted Capital Expenditures (SS 11.12)
-----------------------------------------
Debtor: $100,000 ANNUALLY.
Consolidated Subsidiary: N/A
32. Maximum Aggregate Compensation (SS 11.13(a))
--------------------------------------------
Debtor: $ N/A
Consolidated Subsidiary: $
33. Maximum Annual Compensation for Certain Individuals (SS 11.13(b))
-----------------------------------------------------------------
Name Amount
---- ------
Debtor: N/A
Consolidated Subsidiary: N/A
34. State (SS 1.1(ff))
------------------
Georgia
35. Initial Term and Renewal Term (SS 14.13)
----------------------------------------
Initial Term: ONE (1) YEAR TERM
Renewal Term: ANNUALLY
36. Percentage of Stock Ownership of Consolidated Subsidiaries (SS 5.25, SS
-----------------------------------------------------------------------
10.24))
-------
Consolidated Subsidiary Debtor's Percentage of ownership
----------------------- --------------------------------
N/A N/A
37. Prepayment Premium (SS 14.13)
-----------------------------
ONE PERCENT (1.00%) OF THE BORROWING CAPACITY DEFINED IN SCHEDULE ITEM
1(A).
38. Other Provisions (SS 14.9)
--------------------------
None
39. Bank or Financial Institution (SS 1.1(w))
-----------------------------------------
NationsBank, N.A.
The undersigned have executed this Schedule on the 2nd DAY OF APRIL, 1998.
---
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Secured Party: EMERGENT FINANCIAL CORP., Debtor: FIRST LIGHT ENTERTAINMENT CORPORATION,
A SOUTH CAROLINA CORPORATION A GEORGIA CORPORATION
By:/s/ Ron Warnock By: /s/ Robert A. Martinez
--------------- ----------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
RON WARNOCK, SENIOR VICE PRESIDENT Attest: /s/ J. Eric Van Atta
---------------------
(Corporate Seal) (Corporate Seal)
</TABLE>
39
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON /s/ RAM /s/ RW
DEMAND PROMISSORY NOTE
----------------------
$1,000,000.00 Atlanta, Georgia
April 2, 1998
For value received, FIRST LIGHT ENTERTAINMENT CORPORATION, a Georgia
corporation (herein the "Borrower"), promises to pay on demand to the order of
Emergent Financial Corp., a South Carolina corporation (herein the "Secured
Party" and along with each subsequent holder of this Note referred to as the
"Holder"), at its office at 7 N. Laurens Street, Greenville, SC, 29601, or at
such other place as the Holder hereof may designate, the principal sum of One
Million and 00/100 Dollars ($1,000,000.00), or if less, then so much thereof as
has been advanced and shall be then outstanding hereunder, together with
interest, calculated on the basis of 360 days per year for the actual number of
days elapsed, on the outstanding principal balance of this Note as may be
outstanding and unpaid from time to time from the date hereof until fully paid,
at the floating and fluctuating simple interest rate per annum equal to two and
one-half percent (2.50%) above the Prime Rate (as defined in that certain Loan
and Security Agreement executed by Borrower on the same date as this Demand
Promissory Note that is hereby adopted by reference and incorporated herein)
(the applicable rate per annum at any given time being hereinafter referred to
as the "Interest Rate").
The Interest Rate in effect from the date of execution and delivery hereof
is eleven percent (11.00%) per annum; accordingly the rate of interest due on
this Note on the date of execution and delivery hereof expressed in simple
interest terms is eleven percent (11.00%) per annum. After such date, the rate
of interest shall be subject to fluctuation as hereinabove provided.
Unless demand for payment is earlier made, interest to the extent accrued
shall be paid by the Debtor monthly on the first day of the calendar month
following the month in which it accrues with payments thereof commencing on the
first day of April, and continuing on the same day of each succeeding calendar
month thereafter until principal and interest are paid in full. The entire
principal amount hereof together with all accrued and unpaid interest hereon
shall be due and payable on demand. Commencing on demand, the entire unpaid
principal amount of this Note shall bear interest until paid at a simple
interest rate per annum that is three (3) percentage points in excess of the
rate that would otherwise be in effect (the "Default Rate").
For purposes of calculating interest hereunder, the Prime Rate shall be
adjusted daily. The Prime Rate as announced by the Bank ("Bank" as defined in
that certain Loan and Security Agreement executed by Borrower on the same date
as this Demand Promissory Note) on each business day shall be the Prime Rate for
that day and all immediately succeeding non-business days of Bank. In the event
the Prime Rate as announced by Bank is discontinued as a standard, the Holder
hereof shall use a comparable reference rate as a substitute thereof. Any
overdue payment of principal or interest on this Note shall bear interest at the
Default Rate until paid, but only to the extent that payment of such interest on
overdue principal or interest enforceable under applicable law.
The Borrower and Holder contemplate that the original principal sum
evidenced by this Note may be reduced from time to time and that additional
loans may be made by Holder to the undersigned in the future. Such additional
loan, as so designated, shall be evidenced by this Note and subject to its
terms; provided, however, that the principal amount evidenced by this Note shall
not exceed the principal amount shown above. The Borrower may borrow up to the
principle amount above stated, will pay all or a portion thereof and reborrow up
to such amount on revolving basis, pursuant to the terms and conditions of the
Loan Agreement, except that Borrower may not reborrow so long as Event of
Default under the Loan Agreement has occurred and is continuing. Such borrowing
as may occur, to the extent not evidenced by other notes shall be evidenced by
this Note and subject to its terms.
The rate of interest charged to the undersigned hereunder shall in no event
be higher than that allowed by law and in the event any such payment is
inadvertently paid by the Borrower or inadvertently received by Holder, then
such excess sum shall be credited as a payment of principal, unless the Borrower
shall notify the Holder, in writing, that the Borrower elects to have such
excess sum returned to their forthwith. It is the express intent hereof that
the Borrower not pay and the Holder not receive, directly or indirectly, in any
manner whatsoever, interest in excess of that which may be lawfully paid by the
Borrower under applicable law. All payments received will applied in the manner
defined in that certain Loan and Security Agreement executed by Borrower on the
same date as this Demand Promissory Note.
The undersigned has entered into a Loan and Security Agreement and other
related agreements of even date herewith (the "Transaction Documents"), pursuant
to which this Demand Promissory Note has been made and delivered to Holder. Any
act of default by the undersigned under any of the Transaction Documents shall
constitute a default under this Note. Commencing upon the occurrence of an
event of default hereunder and during the continuance thereof, the outstanding
principle upon this Note shall bear interest at the Default Rate.
If any proceedings be instituted by or against Borrower alleging that
Borrower are insolvent, unable to pay their debts as they mature, or not
generally paying their debts as such debts become due; or if any proceedings be
instituted by or against Borrower under the Federal Bankruptcy Code or any
successor statute; or if any proceeding be instituted seeking the appointment of
a receiver or trustee for all of any portion of Borrowers' property; or if any
proceedings affecting the rights of creditors generally be instituted by or
against Borrower, this Note, without demand or notice of any kind, immediately
shall become due and payable. This paragraph is in addition to and in no way is
a limitation upon the other rights of Holder under this Note, any other
instrument, or any of the Transaction Documents between Holder and Borrower, or
applicable law. The remedies of the Holder as provided herein and in
40
<PAGE>
any other documents governing or securing repayment hereof shall be cumulative
and concurrent and may be pursued singly, successively, or together, at the sole
discretion of the Holder, and may be exercised as often as occasion therefor
shall arise.
Borrower agrees to indemnify and hold the Holder harmless against liability
for the payment of state intangible, documentary and recording taxes, and other
taxes (including interest and penalties, if any) which may be determined to be
payable with respect to this transaction.
In case this Note is collected by or through an attorney-at-law, all costs
of collection, including reasonable attorney's fees, shall be paid by Borrower,
whether or not suit be brought, and whether incurred in connection with
collection, trial, appeal or otherwise.
Time is of essence of this Note.
Demand, presentment, notice, notice of demand, notice of payment, protest
and notice of dishonor are hereby waived by each and every maker, guarantor,
surety and other person or entity primarily or secondarily liable on this Note.
Holder shall not be deemed to waive any of its rights unless such waiver be
in writing and signed by Holder. No delay or omission by Holder in exercising
any of its rights shall operate as a waiver of such rights and a waiver in
writing on one occasion shall not be construed as a consent to or a waiver of
any right or remedy on any future occasion.
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia. Wherever possible, each provision of this
Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision of this Note. The word "Holder" as used herein shall include
transferees, successors and assigns of Holder, and all rights of Holder
hereunder shall inure to the benefit of its transferees, successors and assigns.
All obligations of Borrower shall bind their heirs, legal representatives,
successors and assigns.
Words importing the singular number hereunder shall include the plural
number and vice versa, and any pronoun used herein shall be deemed to cover all
genders. Without limiting the generality of the foregoing, should more than one
person execute this Note as Holder, the words "Borrower," "he," "his," and "its"
as used herein shall include all such persons collectively and each person
individually, and each Holder shall be jointly and severally liable hereunder.
"Person" as used herein means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated association or
government or any agency or political subdivision thereof.
IN WITNESS WHEREOF, the undersigned have jointly and severally caused this
Demand Promissory Note to be duly executed and their seals affixed by their duly
authorized officers, or have signed and sealed this Note as the case may be, and
have delivered this Note to Holder, the day and year first written above.
BORROWER: FIRST LIGHT ENTERTAINMENT CORPORATION,
a Georgia corporation
BY: /s/ Robert A. Martinez
-------------------------------------------
Robert Martinez, Chief Financial Officer
ATTEST: /s/ J. Eric Van Atta
-------------------------------------------
J. Eric Van Atta, Secretary
(CORPORATE SEAL)
41
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
SECURITY AGREEMENT OF PLEDGOR
THIS SECURITY AGREEMENT (this "Agreement") is made as of this 2 day of
---
April 1998, by FIRST LIGHT ENTERTAINMENT CORPORATION, a Georgia corporation (the
"Pledgor"), in favor of EMERGENT FINANCIAL CORP., a South Carolina corporation
(the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to establish a line of credit (the "Loan")
of up to One Million Dollars ($1,000,000.00) for the Pledgor pursuant to the
terms and conditions of a Loan Agreement of even date herewith (the "Loan
Agreement") between the Lender and the Pledgor; and
WHEREAS, the Loan is evidenced by a promissory note of even date herewith
from the Pledgor and payable to the order of the Lender in the face amount of
$1,000,000.00 (the "Note"); and
WHEREAS, the proceeds of the Loan are to be used by the Pledgor for the
purpose of the operation of Pledgor's business; and
WHEREAS, the Lender has required, as a condition to extending such
financial accommodations, the execution and delivery of this Agreement by the
Pledgor;
NOW, THEREFORE, in order to secure the prompt payment of all past, present,
and future indebtedness, liabilities, and obligations of the Pledgor to the
Lender of any nature whatsoever in connection with the Loan, together with all
obligations of the Pledgor to the Lender hereunder and under any note, any loan
agreement, all contracts of suretyship, guaranty, or accommodation, and all
other obligations of the Pledgor to the Lender, however and wherever created,
arising, or evidenced, whether direct or indirect, absolute, contingent, or
otherwise, now or hereafter existing or due or to become due (collectively, the
"Pledgor's Liabilities"), and the performance by the Pledgor of all of the
terms, conditions, and provisions of this Agreement and of any other loan
document previously, simultaneously, or hereafter executed and delivered by the
Pledgor and/or any other person, singly or jointly with another person or
persons, evidencing, securing, guarantying, or in connection with any of the
Pledgor's Liabilities (the "Loan Documents"), the Pledgor agrees with the Lender
as follows:
1. Collateral. To secure the payment and performance of the Pledgor's
Liabilities and the Pledgor's performance of its obligations under the Loan
Documents, the Pledgor hereby grants to the Lender a continuing and
unconditional security interest in, and security title to, the following
property of the Pledgor:
A. Inventory. All of the Pledgor's inventory of every description
which is held by the Pledgor for sale or lease or is furnished by the Pledgor
under any contract of service or is held by the Pledgor as raw materials, work
in process, or materials used or consumed in a business, whether now owned or
hereafter acquired, wherever located, and as the same may now and hereafter from
time to time be constituted, together with all cash and non-cash proceeds and
products thereof and as such may be defined by the Uniform Commercial Code of
the jurisdiction where this Agreement may be enforced (the "Inventory").
B. Accounts. All of the Pledgor's accounts (including, without
limitation, all notes, notes receivable, drafts, acceptances, and similar
instruments and documents) whether now owned, hereafter acquired or other
accounts receivable that may at anytime hereafter come into existence during
the term of this Agreement and the proceeds in any form from all of Pledgor's
accounts receivable, whether specifically assigned to Lender or not, together
with (i) all cash and non-cash proceeds thereof and (ii) all returned, rejected,
or repossessed goods, the sale or lease of which shall have given or shall give
rise to an account, and all cash and non-cash proceeds and products of all such
goods (the "Accounts"). Pledgor agrees at any time or times to execute and
deliver Lender upon Lender's request an assignment or assignments at any and all
of Pledgor's accounts receivable
42
<PAGE>
which have not there before have specifically assigned to Lender, accompanied in
each case by such other documents or copies thereof with respect to such
accounts receivable as may then be in Pledgor's possession with respect to such
accounts receivable or that would be of assistance or convenience to Lender in
making collection thereof.
C. General Intangibles. All of the Pledgor's general intangibles (as
that term is defined in the Uniform Commercial Code and the jurisdiction where
this Agreement shall be enforced and including, without limitation, any proceeds
from insurance policies after payment of prior interests), patents, unpatented
inventions, trade secrets, copyrights, contract rights, goodwill, literary
rights, rights to performance, rights under licenses, choses-in-action, claims,
information contained in computer media (such as data bases, source and object
codes, and information therein) things in action, trademarks and trademarks
applied for (together with the goodwill associated therewith) and derivatives
thereof, trade names, including the right to make, use, and vend goods utilizing
any of the foregoing, and permits, licenses, certifications, authorizations and
approvals, and the rights of the Debtor thereunder, issued by any governmental,
regulatory, or private authority, agency, or entity whether now owned or
hereafter acquired, together with all cash and noncash proceeds and products
thereof.
D. Chattel Paper. All of the Pledgor's chattel paper, whether now
owned or hereafter existing, acquired, or created, together with (i) all moneys
due and to become due thereafter, (ii) all cash and non-cash proceeds thereof,
and (iii) all returned, rejected, or repossessed goods, the sale or lease of
which shall have given or shall give rise to chattel paper, and all cash and
non-cash proceeds and products of all such goods. Additionally, the Pledgor
assigns and grants to the Lender a security interest in all property and goods
both now owned and hereafter acquired by the Pledgor which are sold, leased,
secured, are the subject of, or otherwise covered by, the Pledgor's chattel
paper, together with all rights incident to such property and goods and all cash
and non-cash proceeds thereof (the "Chattel Paper").
E. All Equipment and Fixtures. All of the Pledgor's equipment and
fixtures, whether now owned or hereafter acquired, together with (i) all
additions, parts, fittings, accessories, special tools, attachments, and
accessions now and hereafter affixed thereto and/or used in connection
therewith, (ii) all replacements thereof and substitutions therefor, and (iii)
all cash and non-cash proceeds and products thereof. All such fixtures are or
will be attached to the real property described in Exhibit A attached hereto,
which is owned by the record owner of such real property, which is also
described in Exhibit A (the "Equipment").
F. Patents and Trademarks. All of the Pledgor's patents and
trademarks, whether now owned or hereafter acquired, together with (i) (1) all
United States and foreign trademarks, trade names, corporate names, company,
business names, fictitious business names, trade styles, service marks, logos,
other source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like
nature, trademark registration and applications for registration, and licenses
of United States trademarks, now owned or hereafter acquired by the Pledgor,
together with the goodwill of the business connected with the use of, and
symbolized by, such trademarks, names, etc. (collectively, "Trademarks"); (2)
all renewals, extensions and continuations-in-part of the items referred to in
clause (1) above; (3) any written agreement granting any right to use any
Trademark or Trademark registration; and (4) the right to sue for past, present
and future infringements of the foregoing; (ii) all United States and foreign
patents and applications for patents and all licenses of patents, all copyrights
owned by the Pledgor and goodwill relating to the same; all licenses or other
agreements granted to the Pledgor with respect to any of the foregoing, in each
case whether now or hereafter owned or used; the right to sue for past, present
and future infringements of the foregoing; and all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof
(collectively, "Patents"); and (iii) all proceeds of any and all of the
foregoing whether now existing or hereafter created or acquired, as to all of
the above.
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
43
<PAGE>
2. Title to Collateral, Representations and Warranties. By execution and
delivery of this Agreement and any subsequent assignment and all of the
documents and copies thereof made or delivered in connection with any assignment
of an accounts receivable by Pledgor to Lender, in this instance and in each
such instance, constitute a representation and warranty to Lender with respect
to the accounts receivable assigned that:
a) Each account receivable arose from a bona fide outright sale of goods by
Pledgor or for services performed by Pledgor and that such goods have been
shipped to the respective account debtors or such services have been performed
for the respective account debtors;
b) Each account receivable is based on an enforceable order or contract,
written or oral, for the goods shipped or the services performed and that the
same were shipped or performed in accordance with such order or contract;
c) Except as disclosed on Exhibit B, each account receivable is not subject
to any assignment, claim, lien or security interest of any character except the
security interest of Lender and that Pledgor will not make any other assignment
thereof or create any other security interest therein;
d) Each account receivable is not subject to any claim for credit,
allowance or adjustment by the account debtor or any set-off counterclaim;
e) Pledgor will immediately notify Lender in the event of the refusal by
any account debtor to accept, or the return of or offer to return, any of the
goods which are the subject of any such account receivable, and of the
bankruptcy, insolvency or financial embarrassment of any account debtor and of
any claim asserted for credit, allowance, adjustment, set-off or counterclaim;
f) Pledgor has received no note, trade acceptance, draft or other
instrument with respect to or in payment for such account receivable nor any
chattel paper with respect to the merchandise giving rise to the account
receivable and that if any such instrument or chattel paper is received by
Pledgor it will immediately notify Lender thereof and at Lender's request will
indorse or assign and deliver the same to Lender.
g) No account receivable arises out of a contract with or order from an
account debtor which by its terms forbids or makes void or unenforceable the
assignment by Pledgor to Lender of the account receivable arising with respect
thereto.
The Pledgor further warrants and represents that (i) it is the lawful owner
of the Collateral, and has the full right, power, and authority to convey,
transfer, and grant the security title and security interest in the Collateral
granted herein to the Lender; (ii) all licenses relating to the Collateral are
fully paid and freely assignable to Lender, and, upon the occurrence of an Event
of Default and foreclosure by the Lender, the Lender shall have all rights of
the Pledgor to any Collateral licensed to the Pledgor or licensed by the
Pledgor; (iii) the Collateral is not, and so long as this Agreement is in effect
will not be, subject to any liens, claims, security interests, encumbrances,
taxes, or assessments, however described or denominated, except as set forth on
Exhibit B hereto; (iv) no financing statement, mortgage, notice of lien, deed of
trust, deed to secure debt, security agreement, or any other agreement or
instrument creating an encumbrance, lien, or charge against any of the
Collateral is in existence or on file in any public office, other than financing
statements (or other appropriate security documentation) filed on behalf of the
Lender or disclosed on Exhibit B hereto; and (v) all information with respect to
the Collateral and the Pledgor's Liabilities, or any of them, set forth in any
written schedule, certificate, or other document at any time heretofore or
hereafter furnished by the Pledgor to the Lender, and all other written
information heretofore or hereafter furnished by the Pledgor to the Lender, is
and will be true and correct in all material respects as of the date furnished.
3. Further Assurances. The Pledgor will defend its title to the Collateral
against all persons and will, upon request of the Lender, (a) furnish such
further assurances of title as may be required by the Lender, (b) deliver and
execute or cause to be delivered and executed, in form and content
44
<PAGE>
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.
4. Accounts, etc. Until such time as the Lender shall notify the Pledgor in
writing of the revocation of such power and authority, the Pledgor, as agent for
the Lender, will, at its own expense, diligently collect, as and when due, all
amounts owing under the Accounts, including the taking of such action with
respect to such collection as the Lender may request from time to time, and to
hold in trust and segregate for the Lender all funds received from the Accounts;
provided, however, that until an Event of Default shall occur or would occur but
for the passage of time, or giving of notice, or both, the Pledgor may use or
consume in the ordinary course of its business any such collections on the
Accounts in any lawful manner not inconsistent with this Agreement and the other
Loan Documents. The Lender, however, may after an Event of Default shall occur
revoke such power and authority and in any event shall have the authority and
right to notify any parties obligated on any of the Accounts to make payment to
the Lender of any amounts due or to become due thereunder, and enforce
collection of performance under any of the Accounts by suit or otherwise, and
surrender, release, or exchange all or any part thereof, or compromise or extend
or renew for any period (whether or not longer than the original period) any
indebtedness thereunder or evidenced thereby, and Lender shall also have the
right to take control of the cash and other proceeds of any of Pledgor's
accounts receivable. After an Event of Default or upon request of the Lender,
the Pledgor will, at its own expense, notify any parties obligated on any of the
Accounts to make payments to the Lender and will hold in trust and immediately
forward to the Lender all payments received by the Pledgor in the form received,
with all necessary endorsements thereon for collection by the Lender. The cost
of collection and enforcement of the accounts receivable, including attorneys'
fees and expenses, shall born solely by Pledgor whether the same are incurred by
the Lender or by Pledgor. All checks, drafts and other instruments shall be
endorsed by Pledgor to Lender in the event of the failure of Pledgor to make
such endorsement, Lender is hereby irrevocably authorized to endorse the same on
Pledgor's behalf.
5. Transfer and Other Liens. The Pledgor will not sell, lease, transfer,
exchange, or otherwise dispose of the Collateral, or any part thereof, without
the prior written consent of the Lender and will not permit any lien, security
interest, or other encumbrance to attach to the Collateral, or any part thereof,
other than those in favor of the Lender or those permitted by the Lender in
writing, except that the Pledgor may, in the ordinary course of its business and
in the absence of an Event of Default hereunder or notice by the Lender to the
Pledgor under Section 6 hereof, collect its Accounts and Chattel Paper and sell
its Inventory.
6. Financial Statements, Books, and Records. The Pledgor will (a) at all
times maintain, in accordance with generally accepted accounting principles
consistently applied, accurate and complete books and records pertaining to the
operation, business affairs, and financial condition of the Pledgor and
pertaining to the Collateral and any contracts and collections relating to the
Collateral, (b) furnish to the Lender promptly upon request, certified by an
officer of the Pledgor and in the form and content and at the intervals
specified by the Lender, such financial statements, reports, schedules, and
other information with respect to the operation, business affairs, and financial
condition of the Pledgor as the Lender may from time to time require, (c) at all
reasonable times, and without hindrance or delay, permit the Lender or any
person designated by the Lender to enter any place of business of the Pledgor or
any other premises where any books, records, and other data concerning the
Pledgor and/or the Collateral may be kept and to examine, audit, inspect, and
make extracts from and photocopies of any such books, records, and other data,
(d) furnish to the Lender promptly upon request, certified by an officer of the
Pledgor and in the form and content specified by the Lender, lists of purchasers
of inventory, aging of accounts, aggregate cost or wholesale market value of
inventory, schedules of equipment, and other data concerning the Collateral as
the Lender may from time to time specify, and (e) mark its books and records in
a manner satisfactory to the Lender so that the Lender's rights in and to the
Collateral will be shown.
45
<PAGE>
7. Name of Pledgor, Place(s) of Business, and Location of Collateral. The
Pledgor represents and warrants that its correct legal name is as specified on
the signature lines of this Agreement, and each legal or trade name of the
Pledgor for the previous five (5) years (if different from the Pledgor's current
legal name) is as specified on Exhibit C of this Agreement. Without the prior
written consent of the Lender, the Pledgor will not change its name, dissolve,
merge, or consolidate with any other person. The Pledgor warrants that the
address of the Pledgor's chief executive office and the address of each other
place of business of the Pledgor are as specified below the signature lines of
this Agreement. Except for mobile equipment and motor vehicles, the Collateral
and all books and records pertaining to the Collateral have been, are, and will
be located at the Pledgor's chief executive office specified below or at any
other place of business which may be specified below. Without the prior written
consent of the Lender, the Pledgor will not open any new place of business or
change the location of any Collateral to any place not specified below. The
Pledgor will immediately advise the Lender in writing of the opening of any new
place of business and of any change in the location of the places where the
Collateral or any part thereof, or the books and records concerning the
Collateral or any part thereof, are kept.
8. Care of Collateral. The Pledgor will maintain the Collateral in first-
class condition excepting any loss, damage, or destruction which is fully
covered by proceeds of insurance and will not do or permit anything to be done
to the Collateral that may impair its value or that may violate the terms of any
insurance covering the Collateral or any part thereof. The Lender shall have no
duty to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or Chattel Paper
or to preserve rights against prior parties to the Collateral. The Pledgor will
use the Collateral for lawful purposes only, with all reasonable care and
caution and in conformity with all applicable laws, ordinances, and regulations.
9. Insurance. The Pledgor will insure such of the Collateral as specified
by the Lender against such casualties and risks in such form and amount and with
such companies as may from time to time be required by the Lender. All insurance
proceeds shall be payable to the Lender as its interests may appear (upon a New
York standard mortgagee clause long form), and such policies or certificates
thereon or duplicates thereof shall immediately be deposited with the Lender.
The Pledgor will pay all premiums due or to become due for such insurance and
hereby assigns to the Lender any returned or unearned premiums which may be due
upon cancellation of insurance coverage upon the occurrence of the an Event of
Default (as hereinafter defined), the Lender is hereby irrevocably (a) appointed
the Pledgor's attorney-in-fact (which appointment is coupled with an interest
and is irrevocable) to endorse any draft or check which may be payable to the
Pledgor in order to collect such returned or unearned premiums or the proceeds
of insurance and (b) authorized to apply such insurance proceeds for payment of
the Pledgor's Liabilities, whether or not due, in such order of application as
the Lender may determine.
10. Taxes. The Pledgor will pay as and when due and payable all taxes,
levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.
11. Equipment Not Fixtures. The Pledgor warrants that all Equipment which
constitutes a part of the Collateral is personalty and is not and will not be
affixed to real estate in such manner as to become a fixture or part of such
real estate. The Pledgor will furnish to the Lender a written waiver by the
record owner of such real estate of all interest in such equipment and a written
subordination to the Lender's security interest and lien by any person who has a
lien on or security interest in such real estate which is or may be superior to
the Lender's security interest hereunder.
12. Specific Assignments. Promptly upon request by the Lender, the Pledgor
will execute and deliver to the Lender written assignments, endorsements, and/or
schedules, in form and content satisfactory to the Lender, of specific Chattel
Paper and Accounts or groups of Accounts or Chattel Paper, but the security
interest of the Lender hereunder shall not be limited in any way by such
assignments.
13. Delivery of Chattel Paper. The Pledgor will promptly upon request by
the Lender deliver, assign, and endorse to the Lender all Chattel Paper and all
other documents held by the Pledgor in
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connection therewith.
14. Government Contracts. If any Account or Chattel Paper arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps required
by the Lender in order that all moneys due or to become due under such contract
or contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act or other applicable law.
15. Collateral Account. If all or any part of the Collateral at any time
consists of Inventory, Accounts, or Chattel Paper, the Pledgor will, upon the
request of the Lender at any time and from time to time both prior to and after
the occurrence of an Event of Default hereunder, deposit or cause to be
deposited to a bank account designated by the Lender and from which the Lender
alone has power of access and withdrawal (the "Collateral Account") all checks,
drafts, cash, and other remittances in payment or on account of payment of such
Inventory, Accounts, or Chattel Paper and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account or Chattel Paper (all
of the foregoing herein collectively referred to as "Items of Payment"). The
Pledgor shall deposit the Items of Payment for credit to the Collateral Account
within two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and apart. The Lender may at any time and from time to time apply the
whole or any part of the collected funds credited to the Collateral Account
against the Pledgor's Liabilities or credit such collected funds to a banking
account of the Pledgor with the Lender, the order and method of such application
to be in the sole discretion of the Lender.
16. Rights of Lender and Duties of Pledgor. If all or any part of the
Collateral at any time consists of Inventory, Accounts, or Chattel Paper, the
Lender may at any time and from time to time after the occurrence of an Event of
Default hereunder (a) notify the account debtors obligated on any of the
Collateral to make payments thereon directly to the Lender, and to take control
of the cash and non-cash proceeds of any such Collateral; (b) charge to any
banking account of the Pledgor with the Lender any Item of Payment credited to
the Collateral Account which is dishonored by the drawee or maker thereof; (c)
compromise, extend, or renew any of the Collateral or deal with the same as it
may deem advisable; (d) release, make exchanges or substitutions for, or
surrender all or any part of the Collateral; (e) remove from the Pledgor's place
of business all books, records, ledger sheets, correspondence, invoices, and
documents relating to or evidencing any of the Collateral or, without cost or
expense to the Lender, make such use of the Pledgor's place(s) of business as
may be reasonably necessary to administer, control, and collect the Collateral;
(f) repair, alter, or supply goods, if any, necessary to fulfill in whole or in
part the purchase order of any account debtor; (g) demand, collect, receipt for,
and give renewals, extensions, discharges, and releases of any of the
Collateral; (h) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral; (i) settle,
renew, extend, compromise, compound, exchange, or adjust claims with respect to
any of the Collateral or any legal proceedings brought with respect thereto; 0)
endorse the name of the Pledgor upon any Items of Payment relating to the
Collateral or upon any proof of claim in bankruptcy against an account debtor;
and (k) receive and open all mail addressed to the Pledgor and, if an Event of
Default exists hereunder, notify postal authorities to change the address for
the delivery of mail to the Pledgor to such address as the Lender may designate;
and for purposes of taking the actions described in Subsections (a) through (k)
the Pledgor hereby irrevocably appoints the Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any of
Pledgor's Liabilities remain unpaid), with power of substitution, in the name of
the Lender or in the name of the Pledgor or otherwise, for the use and benefit
of the Lender, but at the cost and expense of the Pledgor and without notice to
the Pledgor. The Pledgor will (a) make no material change to the terms of any
sale or lease of Inventory or of any Account or Chattel Paper without the prior
written permission of the Lender; (b) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to the sale or lease of Inventory or of an
Account or Chattel Paper, completion certificate, or other proof of the
satisfactory performance of services which gave
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rise to the sale or lease of Inventory or of an Account or Chattel Paper, copies
of the invoices arising out of the sale or lease of Inventory or for an Account,
and the Pledgor's copy of any written contract or order from which the sale or
lease of Inventory, an Account, or Chattel Paper arose; and (c) when requested,
advise the Lender whenever an account debtor returns or refuses to retain any
goods, the sale or lease of which gave rise to an Account or Chattel Paper, and
will comply with any instructions which the Lender may give regarding the sale
or other disposition of such returns.
17. Performance by Lender. If the Pledgor fails to perform, observe, or
comply with any of the conditions, terms, or covenants contained in this
Agreement, the Lender, without notice to or demand upon the Pledgor and without
waiving or releasing any of the Pledgor's liabilities or any Event of Default,
may (but shall be under no obligation to) at any time thereafter perform such
conditions, terms, or covenants for the account and at the expense of the
Pledgor, and may enter upon any place of business or other premises of the
Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection therewith (collectively, the "Expense Payments") together
with interest thereon at a simple per annum rate of interest which is equal to
the then highest rate of interest charged on the principal of any of the
Pledgor's liabilities, plus one percent (1%) per annum (but in no event higher
than the maximum interest rate permitted by applicable law), from the date of
payment until repaid in full, shall be paid by the Pledgor to the Lender on
demand and shall constitute and become a part of the Pledgor's liabilities
secured hereby.
18. Default. The occurrence of any one or more of the following events
shall constitute an event of default (an "Event of Default") under this
Agreement: (a) failure of the Pledgor to pay any of the Pledgor's Liabilities as
and when due and payable, after giving effect to any applicable grace period;
(b) failure of the Pledgor to perform, observe, or comply with any of the
provisions of this Agreement or of any of the other Loan Documents, after giving
effect to any applicable grace period; (c) the occurrence of an Event of Default
(as defined therein) under any of the other Loan Documents; (d) any information
contained in any financial statement, application, schedule, report, or any
other document given by the Pledgor or by any other person in connection with
the Pledgor's Liabilities, with the Collateral, or with any of the Loan
Documents is not in all respects true and accurate or the Pledgor or such other
person omitted to state any material fact or any fact necessary to make such
information not misleading; (e) the Pledgor is generally not paying debts as
such debts become due; (f) the filing of any petition for relief under any
provision of the Federal Bankruptcy Code or any similar state law is brought by
or against the Pledgor; (g) an application for the appointment of a receiver
for, the making of a general assignment for the benefit of creditors by or the
insolvency of, the Pledgor; (h) the dissolution, merger, consolidation, or
reorganization of the Pledgor; (i) suspension of the operation of the Pledgor's
present business; (j) transfer of a substantial part (determined by market
value) of the Pledgor's property; (k) sale, transfer, or exchange, either
directly or indirectly, of a controlling stock interest of the Pledgor; (l)
termination or withdrawal of any guaranty for the Pledgor's Liabilities; (m) the
Pension Benefit Guaranty Corporation commences proceedings under Section 4042 of
the Employee Retirement Income Security Act of 1974 (ERISA), as amended, to
terminate any employee pension benefit plan of the Pledgor; (n) the
determination in good faith by the Lender that a material adverse change has
occurred in the financial condition of the Pledgor from the condition set forth
in the most recent financial statement of the Pledgor heretofore furnished to
the Lender, or from the financial condition of the Pledgor as heretofore most
recently disclosed to the Lender in any other manner; or (o) the determination
in good faith by the Lender that the prospect of payment of any of the Pledgor's
Liabilities is impaired for any reason.
19. Rights and Remedies upon Default. Upon the occurrence of an Event of
Default hereunder (and in addition to all of its other rights, powers, and
remedies under this Agreement), the Lender may, at its option, and without
notice to the Pledgor, declare the unpaid balance of the Pledgor's Liabilities
to be immediately due and payable. The occurrence or non-occurrence of an Event
of Default shall in no manner impair the ability of the Lender to demand payment
of any portion of the Pledgor's Liabilities which are payable on demand. The
Lender shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code. Upon the occurrence of an Event of Default hereunder,
the Pledgor, upon demand by the Lender, shall assemble the Collateral and make
it available to the Lender at a place designated by the Lender which is mutually
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convenient to both parties. Upon the occurrence of an Event of Default
hereunder, the Lender or its agents may enter upon the Pledgor's premises to
take possession of the Collateral, to remove it, to render it unusable, or to
sell or otherwise dispose of it, all without judicial process or proceedings.
The parties hereto hereby declare that all accounts receivable and other
collateral transferred to Lender hereunder, are transferred in fact to secure
loans and are not, in fact, sold to Lender whether any assignment thereof which
is separate from this Agreement is in form absolute or not.
The Lender, in its sole discretion, in its name or the name of the Pledgor,
or otherwise, demand, sue for, collect or receive any money or property at any
time payable the receivable or account of or in exchange for, or make any
compromise or settlement being desirable with respect thereto, any of the
Collateral, but shall be under no obligation so to do, or Lender may extend the
time of payment, arrange for payment in installments, or otherwise modify the
term of or release, any of the Collateral, without thereby incurring any
responsibility to or discharging or otherwise affecting any liability of the
Pledgor. The Lender will not be required to take any steps to preserve any
rights against prior parties to the Collateral. If the Pledgor fails to make
any payment or take any action required under the Loan Agreement or the Note or
the Pledgor fails to take any action required herein, the Lender may make such
payments and take all such actions as the Lender deems necessary to protect the
Lender's security interests in the Collateral and/or the value thereof, and the
Lender is hereby authorized (without limiting the general nature of the
authority hereinabove conferred) to pay, purchase, contest or compromise any
encumbrances, charges or liens which in the judgment of the Lender appear to be
equal to, prior to or superior to the security interests of the Lender in the
Collateral.
Any written notice of the sale, disposition, or other intended action by
the Lender with respect to the Collateral which is required by applicable laws
and is sent by certified mail, postage prepaid, to the Pledgor at the address of
the Pledgor's chief executive office specified below, or such other address of
the Pledgor which may from time to time be shown on the Lender's records, at
least five (5) days prior to such sale, disposition, or other action, except
such other written notice to Borrower at the time and place of such sale and
such other notices as may be required by the Uniform Commercial Code or other
applicable statute and that cannot be waived: shall constitute reasonable
notice to the Pledgor. The Pledgor shall pay on demand all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses, incurred
by or on behalf of the Lender (a) in enforcing the Pledgor's Liabilities, and
(b) in connection with the taking, holding, preparing for sale or other
disposition, selling, managing, collecting, or otherwise disposing of the
Collateral. All of such costs and expenses (collectively, the "Liquidation
Costs") together with interest thereon at a simple per annum rate of interest
which is equal to the then highest rate of interest charged on the principal of
any of the Pledgor's Liabilities, plus one percent (1%) per annum (but in no
event higher than the maximum interest rate permitted by law), from the date of
payment until repaid in full, shall be paid by the Pledgor to the Lender on
demand and shall constitute and become a part of the Pledgor's Liabilities
secured hereby. Any proceeds of sale or other disposition of the Collateral will
be applied by the Lender to the payment of Liquidation Costs and Expense
Payments, and any balance of such proceeds will be applied by the Lender to the
payment of the remaining Pledgor's Liabilities in such order and manner of
application as the Lender may from time to time in its sole discretion
determine.
20. Remedies Cumulative. Each right, power, and remedy of the Lender as
provided for in this Agreement or in the other Loan Documents or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Lender or any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by the Lender of any or all such other rights, powers, or remedies.
21. Waiver. No failure or delay by the Lender to insist upon the strict
performance of any term, condition, covenant, or agreement of this Agreement or
of the other Loan Documents, or to exercise any right, power, or remedy
consequent upon a breach thereof, shall constitute a waiver of any such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after
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the due date of any of the Pledgor's Liabilities, the Lender shall not be deemed
to have waived the right either to require payment when due of all other
Pledgor's Liabilities or to declare an Event of Default for failure to effect
such payment of any such other Pledgor's Liabilities. The Pledgor waives
presentment, notice of dishonor, and notice of non-payment with respect to
Accounts and Chattel Paper.
THE PLEDGOR HEREBY ACKNOWLEDGES THAT THE LIABILITIES AROSE OUT OF A
"COMMERCIAL TRANSACTION" AS THIS TERM IS DEFINED IN OCA (S)44-14-260(1)
CONCERNING FORECLOSURE OF MORTGAGES ON PERSONALTY, AND AGREES THAT IN THE EVENT
OF ANY DEFAULT, THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE WRIT OF
POSSESSION WITHOUT NOTICE OF HEARING AND KNOWINGLY AND INTELLIGENTLY WAIVES ANY
AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE AND POSTING OF A BOND BY THE LENDER
PRIOR TO SEIZURE BY THE LENDER, ITS TRANSFEREES, ASSIGNS, OR SUCCESSORS IN
INTEREST, OF THE COLLATERAL OR ANY PORTION THEREOF. THIS IS INTENDED BY THE
PLEDGOR AS A "WAIVER" AS THIS TERM IS DEFINED IN OCA (S)44-14-260(3) RELATING TO
FORECLOSURE OF MORTGAGES ON PERSONALTY.
22. Survival of Representations. All covenants, agreements,
representations and warranties made herein and in any certificates delivered
pursuant hereto, and in the Loan Agreement shall survive the making by the
Lender of the Loans under the Loan Agreement and shall continue in full force
and effect so long as the Loans are outstanding and obligations unpaid and the
commitment under the Loan Agreement has not been terminated.
23. Severability. In the event that any part of this Security Agreement,
or the Loan Agreement or any part thereof be unenforceable, the balance of this
Security Agreement or the Loan Agreement shall remain in full force and effect
unless the Lender gives to Pledgor written notice of intention to terminate this
Security Agreement and Loan Agreement in which event the Loan shall be
immediately due and payable.
24. Miscellaneous. Time is of the essence of this Agreement. The section
headings of this Agreement are for convenience only and shall not limit or
otherwise affect any of the terms hereof. Neither this Agreement nor any term,
condition, covenant, or agreement hereof may be changed, waived, discharged, or
terminated orally but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge, or termination is
sought. This Agreement shall be governed by the laws of the State of Georgia and
shall be binding upon the Pledgor and its heirs, executors, administrators,
legal representatives, successors, and assigns, and shall inure to the benefit
of the Lender and its successors and assigns. As used herein, the singular
number shall to the extent permitted include the plural, the plural the
singular, and the use of the masculine, feminine, or neuter gender shall include
all genders, as the context may require, and the term "person" shall include an
individual, a corporation, an association, a partnership, a trust, and an
organization. Invalidation of any one or more of the provisions of this
Agreement shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect. All references herein to any document,
instrument, or agreement shall be deemed to refer to such document, instrument,
or agreement as the same may be amended, modified, restated, supplemented, or
replaced from time to time. Unless varied by this Agreement, all terms used
herein which are defined by the Georgia Uniform Commercial Code shall have the
same meanings hereunder as assigned to them by the Georgia Uniform Commercial
Code. It is understood that this Agreement is executed and delivered in
conjunction with a Loan and Security Agreement of even date. It is the purpose
and intent that the rights and remedies of the Lender under this Agreement and
under the Loan and Security Agreement shall be fulfilled to the fullest extent
possible notwithstanding that there may be inconsistencies. In the event there
are any inconsistencies, they shall be resolved by the sole and exclusive
discretion of the Lender and may be entitled to exercise such remedies in such
order as it deems appropriate. It is the intent of the parties that to the
extent permitted by applicable law, the provisions of this Agreement shall be
deemed controlling and shall override any such conflicting provisions of any
other agreement. The exercise of one or more powers or remedies granted in this
Agreement or in the Loan and Security Agreement shall not extinguish nor exhaust
such powers until the total amount owed to the Lender has been paid in full.
The remedies of this Security
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Agreement shall be in addition to and not in abrogation of the rights and
remedies conveyed under the Loan and Security Agreement. Additionally, nothing
herein contained or that is contained in the Loan and Security Agreement shall
prevent Lender from pursuing any other right or remedy that is available to
Lender under all existing law, as Lender at its sole discretion shall elect.
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IN WITNESS WHEREOF, the Pledgor has caused its duly authorized officers to
execute this Agreement and to affix its corporate seal hereto, as of the day and
year first written above.
PLEDGOR:
Signed and sealed in the presence FIRST LIGHT ENTERTAINMENT CORPORATION, a
of the following: Georgia corporation
/s/ Ron Warnock By: /s/ Robert A. Martinez
- --------------------------------- ------------------------------------
_________________________________
Witness Robert Martinez, Chief Financial Officer
Name: Ron Warnock
----------------------------
Attest: /s/ J. Eric Van Atta
-------------------------------------
J. Eric Van Atta, Secretary
[CORPORATE SEAL]
1245 Fowler St., N.W.
Atlanta, Georgia 30318
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EXHIBIT A TO SECURITY AGREEMENT OF PLEDGOR
1) 1245 Fowler Street, N.W. /s/ RAM
Atlanta, Georgia 30318 /s/ RW
53
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EXHIBIT B TO SECURITY AGREEMENT OF PLEDGOR
PERMITTED LIENS
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EXHIBIT C TO SECURITY AGREEMENT OF PLEDGOR
IDENTITY OF PRIOR OR LEGAL OR TRADENAMES
1. Pledgor hereby represents and warrants pursuant to Paragraph 7 of this
Agreement that during the previous five (5) years that its only use of
another legal or tradename was the use of the name "First Light Films",
"First Light Entertainment Corporation", and "Current Corporation".
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STATE OF GEORGIA
COUNTY OF FULTON
BORROWER'S LOAN CERTIFICATE
I, /s/ J. Eric Van Atta, Secretary, hereby certify that I am the duly
-------------------------------
elected and qualified _________ of FIRST LIGHT ENTERTAINMENT CORPORATION, a
Georgia corporation (the "Borrower"), and in such capacity hereby further
certify as follows, in connection with the line of credit being extended (the
"Loan") to First Light Entertainment Corporation, a Georgia corporation, by
Emergent Financial Corp., a South Carolina corporation (the "Lender"), evidenced
by that certain Demand Promissory Note of even date herewith to be executed by
the Borrower and payable to the order of the Lender in the face principal amount
of $1,000,000.00 (the "Note"):
1. Organization; Power; Qualification. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, has the power and authority, corporate and otherwise, to own
or lease and operate its properties and to carry on its business as now being
and hereafter proposed to be conducted, and is duly qualified and is in good
standing as a foreign corporation, and authorized to do business, in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
2. Authorization; Enforceability. The Borrower has the power and has taken
all necessary action to authorize it to execute, deliver, and perform the Note
and each of the other documents to which it is a party relating to the Loan, in
accordance with their respective terms, and to consummate the transactions
contemplated thereby (the Note and such other documents being hereinafter
collectively referred to as the "Loan Documents"). Each of the Loan Documents
has been duly executed and delivered by the Borrower, and is a legal, valid, and
binding obligation of the Borrower, enforceable in accordance with its terms,
subject, as to enforcement of remedies, to the following qualifications: (a) an
order of specific performance and an injunction are discretionary remedies and,
in particular, may not be available where damages are considered an adequate
remedy at law; and (b) enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction, and other similar laws affecting
enforcement of creditors' rights generally (insofar as any such law relates to
the bankruptcy, insolvency, or similar event of the Borrower).
3. Capital Stock and Related Matters. The authorized capital stock of the
Borrower consists of 1,000,000 shares of common stock, of which 100,000 shares
are currently issued and outstanding and are fully paid and non-assessable. All
of such issued and outstanding shares are owned or held of record as shown on
Schedule 1 attached hereto. The Borrower has outstanding no stock or securities
convertible into or exchangeable for any shares of its capital stock, nor are
there any preemptive or similar rights to subscribe for or to purchase, or any
other rights to subscribe for or to purchase, or any options for the purchase
of, or any agreements providing for the issuance (contingent or otherwise) of,
or any calls, commitments, or claims of any character relating to, any capital
stock or any stock or securities convertible into or exchangeable for any
capital stock, except as may be set forth on Schedule 1. The Borrower is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock, and there are no agreements
restricting the transfer of any shares of the Borrower's capital stock, except
as set forth on Schedule 1. The Borrower is not required to file, nor has it
filed, pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, a registration statement relating to any class of debt or equity
securities of the Borrower.
4. Compliance with Laws, Other Loan Documents, and Contemplated
Transactions. The execution, delivery, and performance of each of the Loan
Documents in accordance with their respective tennis and the consummation of the
transactions contemplated thereby do not and will not (a) violate any provisions
of constitutions, statutes, rules, regulations, and orders of governmental
bodies or regulatory agencies applicable to the Borrower, and all orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Borrower is a party or by which it is bound (hereinafter referred to as
"Applicable Laws"); (b) conflict with, result in a breach of, or constitute a
default under, the articles of incorporation or by-laws of the Borrower or under
any material indenture, agreement, or other instrument to which the Borrower is
a party or by which it or any of its properties may be bound; or (c) result in
or require the creation or imposition of any security deed, mortgage, deed to
secure debt, deed of trust, lien, pledge, assignment, charge, security interest,
title retention agreement, levy, execution, seizure, attachment, garnishment, or
other encumbrance
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of any kind, whether or not choate, vested, or perfected (hereinafter referred
to as a "Lien") upon or with respect to any property pledged, assigned, or
conveyed to the Lender as security for the Loan.
5. Necessary Authorizations. The Borrower has secured all authorizations,
consents, approvals, permits, licenses and exemptions of, filings and
registrations with, and reports to, all governmental and other regulatory
authorities, whether federal, state, or local, and all agencies thereof,
including, without limitation, any specific authorizations, licenses, permits,
franchises, etc., which may be required for the particular industry or business
of the Borrower (hereinafter collectively referred to as "Necessary
Authorizations"), and all such Necessary Authorizations are in full force and
effect. None of said Necessary Authorizations is the subject of any pending or,
to the best of the Borrower's knowledge, threatened attack or revocation by the
grantor of the Necessary Authorization. The Borrower is not required to obtain
any additional Necessary Authorizations in connection with the execution,
delivery, and performance of any Loan Document.
6. Title to Properties. The Borrower has good, marketable, and legal title
to, or a valid leasehold interest in, all of its material properties and assets,
and none of such properties or assets is subject to any Liens which materially
detract from the value of such properties or assets or materially interfere with
the business or operations of the Borrower as presently conducted or proposed to
be conducted. Notwithstanding the foregoing, the Borrower has good, marketable,
and legal title to, or a valid leasehold interest in, all real and personal
property being pledged, assigned, or conveyed to the Lender as security for the
Loan (hereinafter collectively referred to as "Collateral"), subject to no Liens
except the matters, if any, set forth on Schedule 2 attached hereto, and
incorporated herein by this reference (hereinafter referred to as "Permitted
Liens"). Except for financing statements evidencing Permitted Liens, no
financing statement under the Uniform Commercial Code and no other filing which
names the Borrower as debtor or which covers or purports to cover any of the
Collateral is on file or of record in any state or other jurisdiction, and the
Borrower has not signed any such financing statement or filing or, except for
the Loan Documents, any security agreement authorizing any secured party
thereunder to file any such financing statement or filing.
7. Collective Bargaining. None of the employees of the Borrower is a party
to any collective bargaining agreement with the Borrower and, to the best
knowledge of the Borrower and its officers, there are no material grievances,
disputes, or controversies with any union or any other organization of the
employees of the Borrower or threats of strikes, work stoppages, or any asserted
pending demands for collective bargaining by any union or organization.
8. Taxes. All federal, state, and other tax returns of the Borrower
required by law to be filed have been duly filed, and all federal, state, and
other taxes, assessments, and other governmental charges or levies upon the
Borrower and any of its properties, income, profits, and assets, which are due
and payable, have been paid, except any such payment of which the Borrower is
contesting in good faith by appropriate proceedings and for which adequate
reserves have been provided on the books of the Borrower and as to which neither
any Lien other than a Permitted Lien has attached nor any foreclosure,
distraint, sale, or similar proceedings have been commenced. The charges,
accruals, and reserves on the books of the Borrower in respect of taxes are, in
the reasonable judgment of the Borrower, adequate.
9. Financial Statements. The Borrower has furnished, or caused to be
furnished, to the Lender financial statements for the Borrower which are
complete and correct in all material respects and present fairly in accordance
with generally accepted accounting principles the financial position of the
Borrower as at January 31, 1998, and the results of operations for the periods
then ended. Except as disclosed in such financial statements, the Borrower did
not have any material liabilities, contingent or otherwise, and there are no
material unrealized or anticipated losses of the Borrower which have not been
heretofore disclosed in writing to the Lender.
10. No Adverse Change. Since January 31, 1998, there has occurred no event
which would have any materially adverse effect upon the business, assets,
liabilities, financial condition, results of operations, or business prospects
of the Borrower or upon the ability of the Borrower to perform any material
obligations under any Loan Document, whether resulting from any single act,
omission,
57
<PAGE>
situation, status, event, or undertaking, or taken together with other such
acts, omissions, situations, statuses, events, or undertakings (herein referred
to as a "Materially Adverse Effect"). The Borrower has disclosed all events,
conditions and facts known to the Borrower which could have any Materially
Adverse effect on the financial condition of the Borrower. No representation or
warranty by the Borrower contained herein, nor any schedule, certificate or
other document furnished by the undersigned to Lender in connection with this
Guaranty or the other Loan Documents contains any material misstatement of fact
or omits to state a material fact or any fact necessary to make the statements
contained therein not misleading;
11. Investments and Guaranties. The Borrower has not made investments in,
advances to, or guaranties of, the obligations of any individual, corporation,
partnership, trust, or unincorporated organization, or a government or any
agency or political subdivision thereof (hereinafter referred to as "Person"),
except as reflected in the financial statements referred to above or disclosed
to the Lender in writing.
12. Liabilities, Litigation, etc. Except for liabilities incurred in the
normal course of business, the Borrower has no material (individually or in the
aggregate) liabilities, direct or contingent, except as disclosed or referred to
in the financial statements referred to above. Except as described in such
financial statements or on Schedule 3 attached hereto and incorporated herein by
this reference, there is no litigation, legal or administrative proceeding,
investigation, or other action of any nature pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its properties
which involves the possibility of any judgment or liability not fully covered by
insurance and which may have a Materially Adverse Effect. The Borrower knows of
no unusual or unduly burdensome restriction, restraint, or hazard relative to
the business or properties of the Borrower except as previously disclosed to the
Lender in writing.
13. ERISA. The Borrower and any "affiliate" of the Borrower within the
meaning of Section 414 of the Code ("ERISA Affiliate") and each of their
respective employee benefit plans (the "Plans") within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as in effect on the
date hereof and as such Act may be amended thereafter from time to time
("ERISA"), are in substantial compliance with ERISA and the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), and neither the
Borrower nor any of its ERISA Affiliates has incurred any accumulated funding
deficiency with respect to any such Plan within the meaning of ERISA or the
Code. The Borrower and each of its ERISA Affiliates have complied with all
requirements of ERISA Sections 601 through 608 and Code Section 4980B. Neither
the Borrower nor any of its ERISA Affiliates has made any promises of retirement
or other benefits to employees, except as set forth in the Plans. Neither the
Borrower nor any of its ERISA Affiliates has incurred any material liability to
the Pension Benefit Guaranty Corporation in connection with any such Plan. The
assets of each such Plan which is subject to Title IV of ERISA are sufficient to
provide the benefits under such Plan, the payment of which the Pension Benefit
Guaranty Corporation would guarantee if such Plan were terminated, and such
assets are also sufficient to provide all other "benefit liabilities" (as
defined in ERISA Section 4001(a)(16)) due under the Plan upon termination. No
Reportable Event (as defined in Title IV of ERISA) has occurred and is
continuing with respect to any such Plan. No such Plan or trust created
thereunder, or party in interest (as defined in Section 3(14) of ERISA), or any
fiduciary (as defined in Section 3(21) of ERISA), has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) which would subject such Plan or any other Plan of the Borrower or any
of its ERISA Affiliates, any trust created thereunder, or any such party in
interest or fiduciary, or any party dealing with any such Plan or any such trust
to the penalty or tax on "prohibited transactions" imposed by Section 502 of
ERISA or Section 4975 of the Code. Neither the Borrower nor any of its ERISA
Affiliates is a participant in or is obligated to make any payment to a
Multiemployer Plan (as defined in Section 4001 (a)(3) of ERISA).
14. Patents, Trademarks, Franchises, etc. The Borrower owns, possesses, or
has the right to use all necessary patents, trademarks, trademark rights, trade
names, trade name rights, service marks, copyrights, franchises, and licenses,
and rights with respect thereof, necessary to conduct its business as now
conducted, without known conflict with any patent, trademark, trade name,
service mark, franchise, license, or copyright of any other Person, and in each
case, subject to no mortgage,
58
<PAGE>
pledge, lien, lease, encumbrance, charge, security interest, title retention
agreement, or option, except as disclosed on Exhibit B to the Security Agreement
of Pledger delivered concurrently herewith. All such patents, service marks,
trademark rights, trade names, trade name rights, service marks, copyrights,
franchises, and licenses are in full force and effect, the holder thereof is in
full compliance in all material respects with all of the provisions thereof, and
no such asset or agreement is subject to any pending or, to the best of the
Borrower's knowledge, threatened attack or revocation.
15. Compliance with Law; Absence of Default. The Borrower is in compliance
with all Applicable Laws the non-compliance with which would have a Materially
Adverse Effect and with all of the provisions of its articles of incorporation
and by-laws, and no event has occurred or has failed to occur which has not been
remedied or waived, the occurrence or non-occurrence of which constitutes (a) a
default or event of default under any of the Loan Documents (a "Default") or (b)
a default by the Borrower under any other indenture, agreement, or other
instrument, or any judgment, decree, or order to which the Borrower is a party
or by which the Borrower or any of its properties may be bound, which default
could have a Materially Adverse Effect.
16. Casualties; Taking of Properties, etc. Since January 31, 1998 neither
the business nor the property of the Borrower has been materially and adversely
affected as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of property, or cancellation of contracts, permits, or concessions by any
domestic or foreign government or any agency thereof, riot, activities of armed
forces, or acts of God or of any public enemy.
17. Accuracy and Completeness of Information. All information, reports, and
other papers and data relating to the Borrower furnished to the Lender were, at
the time the same were so furnished, complete and correct in all material
respects to the extent necessary to give the Lender a true and accurate
knowledge of the subject matter. No fact is currently known to the Borrower
which has or could reasonably be expected to have a Materially Adverse Effect.
18. Jurisdiction for Enforcement. The Borrower submits and irrevocably
consents to the nonexclusive jurisdiction of any appropriate court in the State
of Georgia in the event that any action, suit, or proceeding arises out of or is
brought to enforce the provisions of this Certificate. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection that it may now or
hereafter have to the jurisdiction of the appropriate court in the State of
Georgia over the action, suit, or proceeding. The Borrower also hereby submits
to the non-exclusive jurisdiction of the competent federal courts of the United
States of America, with venue laid solely in the Northern District of Georgia,
for any and all actions, suits, or proceedings arising out of or relating to
this Certificate.
The Borrower, by its execution hereof, and the Lender, by its acceptance of
the benefits hereof, acknowledge that:
(a) it has participated in the negotiation of Loan Documents, and no
provision of the Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto or thereto by any court or other governmental
or judicial authority by reason of such party having or being deemed to have
structured, dictated or drafted such provision;
(b) each such party at all times has had access to an attorney in the
negotiation of the terms of and in the preparation and execution of the Loan
Documents and such parties have had the opportunity to review and analyze the
Loan Documents for a sufficient period of time prior to the execution and
delivery hereof;
(c) no representations or warranties have been made by or on behalf of any
party hereto or thereto, or relied upon by the Borrower, pertaining to the
subject matter of the Loan Documents, other than those that are set forth in the
Loan Documents or in this Certificate, and all prior statements, representations
and warranties, if any, are totally superseded and merged into the Loan
Documents, which represent the final and sole agreement of the parties with
respect to the matters which are the subject hereof and thereof;
59
<PAGE>
(d) all of the terms of this Certificate and the Loan Documents were
negotiated at arm's-length, and that this Certificate and the Loan Documents
were prepared and executed without fraud, duress, undue influence or coercion of
any kind by any of the parties upon the others; and
(e) the execution and delivery of this Certificate and the Loan Documents
to which the Borrower is a party is the free and voluntary act of the Borrower.
19. Compliance with Regulations G, T, U, and X. The Borrower is not engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying, and the Borrower does not own
or presently intend to acquire, any "margin security" or "margin stock" as
defined in Regulations G, T, U, and X (12 C.F.R. Parts 221 and 224) of the Board
of Governors of the Federal Reserve System (hereinafter referred to as "Margin
Stock"). None of the proceeds of the Loan will be used, directly or indirectly,
for the purpose of purchasing or carrying any Margin Stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry stock or for any other purpose which might constitute this transaction
a "purpose credit" within the meaning of said Regulations G, T, U, and X.
Neither the Borrower nor any bank acting on its or their behalf has taken or
will take any action which might cause the Note to violate Regulation G, T, U,
or X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Exchange Act of 1934, in each case as now in
effect or as the same may hereafter be in effect. Neither the making of the Loan
nor the use of proceeds thereof will violate, or be inconsistent with, the
provisions of Regulation G, T, U, or X of said Board of Governors.
20. Solvency. The Borrower has capital sufficient to carry on its business
and transactions in which it is about to engage, is able to pay its debts as
they mature, and owns property having a value, both at fair valuation and at
present fair salable value, greater than the amount required to pay its debts.
21. Broker's or Finder's Commissions. Other than Mark Kaplan, no broker's
or finder's fee or commission will be payable with respect to the making of the
Loan or issuance of the Note in connection therewith. No other similar fees or
commissions will be payable by the Borrower for any other services rendered to
the Borrower ancillary to the transactions contemplated herein.
22. Business. The Borrower is engaged in the business of production of
commercials for television broadcasting.
23. Name of Borrower. Except as may be disclosed on Exhibit C of the
Security Agreement of Pledgor delivered by Borrower concurrently herewith, the
Borrower has not changed its name within the preceding five (5) years from the
date hereof and has not transacted business under any other name or title.
24. Investment Company Act. The Borrower is not required to register under
the provisions of the Investment company Act of 1940, as amended, and the
issuance by the Borrower of the Note does not violate any provision of such Act
or require any consent, approval, or authorization of, or registration with, the
Securities and Exchange Commission or any other governmental or public body or
authority pursuant to any of the provisions of such Act.
25. Payment of Wages. The Borrower is in compliance with the Fair Labor
Standards Act, as amended, and the Borrower has paid all minimum and overtime
wages required by law to be paid to its employees.
26. Governmental Regulation. The Borrower is not required to obtain any
consent, approval, authorization, permit, or license which has not already been
obtained from, or effect any filing or registration which has not already been
effected with, any federal, state, or local regulatory authority in connection
with the execution and delivery of any Loan Document. The Borrower is not
required to obtain any consent, approval, authorization, permit, or license
which has not already been obtained from, or effect any filing or registration
which has not already been effected with, any federal, state, or local
regulatory authority in connection with the performance, in accordance with
60
<PAGE>
their respective terms, of any Loan Document.
27. Absence of Default and Indemnity. Borrower is in compliance in all
material respects with all of the provisions of its articles of incorporation
and by-laws, and no event has occurred or has failed to occur which has not been
remedied or waived, the occurrence or non-occurrence of which constitutes, or
with the passage of time or giving of notice, or both, would constitute (a) a
Default or (b) a default by the Borrower under any material indenture,
agreement, or other instrument, or any judgment, decree, or order to which the
Borrower is a party or by which the Borrower or any of its properties may be
bound or affected. The Borrower hereby indemnifies Lender and agrees to defend
and hold harmless Lender from and against (a) any loss, cost, damage or expense
occurring by reason of a breach of the foregoing representations and warranties
The undersigned acknowledges that the Lender will rely, and is authorized
to rely, on the truth, accuracy, and completeness of the foregoing
representations, warranties, and certifications in consummating the Loan.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of
---
April, 1998.
- -----
FIRST LIGHT ENTERTAINMENT CORPORATION,
a Georgia corporation
By: /s/ Robert A. Martinez
------------------------------------------
Robert Martinez, Chief Financial Officer
Attest: /s/ J. Eric Van Atta
--------------------------------------
J. Eric Van Atta
[CORPORATE SEAL]
61
<PAGE>
SCHEDULE 1
----------
STOCKHOLDERS
------------
American Artist Film Corporation - 100,000 shares issued and outstanding
62
<PAGE>
SCHEDULE 2
----------
PERMITTED LIENS
---------------
63
<PAGE>
SCHEDULE 3
----------
PENDING LITIGATION/JUDGMENTS
----------------------------
64
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
AGREEMENT REGARDING INTEREST AND OTHER CHARGES
THIS AGREEMENT, made as of this 2nd day of April, 1998, by First Light
--- -----
Entertainment Corporation, a Georgia corporation (hereinafter "Borrower").
WITNESSETH:
WHEREAS, pursuant to the Loan and Security Agreement of even date herewith
(the "Loan Agreement") by and between the Borrower and the Lender, the Borrower
has issued its promissory note (the "Note") to the Lender in the original
principal amount of $1,000,000.00; and
WHEREAS, the Lender and the Borrower have agreed on the rate of interest
which will be charged under the Note and the line of credit fee to be paid by
the Borrower to compensate the Lender for certain services to be rendered by the
Lender and for certain costs to be incurred by the Lender; and
WHEREAS, the Lender and the Borrower desire to evidence in writing their
agreement with respect to interest and other charges in connection with the Note
and the Loan Agreement;
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and pursuant to O.C.G.A. (S) 7-4-2(a)(1), the Lender
and the Borrower agree that all capitalized terms not otherwise defined herein
shall have the meanings as described in the Loan Agreement and further agree as
follows:
1. Rate of Interest. As of the date of this Agreement, the rate of
interest under the Note expressed in simple interest terms is eleven percent
(11%) per annum, which rate of interest may be subject to adjustment from time
to time pursuant to the provisions of the Loan Agreement. The interest shall be
calculated on the daily outstanding principal balance of the indebtedness
evidenced by the Note on the basis of the 365/360 method, which computes a daily
amount of interest for a hypothetical year of 360 days, then multiplies such
amount by the actual number of days elapsed in an interest calculation period.
2. Interest and Charges. The Lender and the Borrower hereby agree that
the only charge imposed by the Lender upon the Borrower for the use of money in
connection with the Note is and shall be (a) the interest expressed in the Note,
at the rate set forth in the Note, which rate of interest is expressed in simple
interest terms as of the date hereof in Paragraph I above, a Facility Fee (as
defined in the Schedule to the Loan Agreement) due on the date hereof, such fee
being a charge other than interest and being duly earned and non-refundable when
due. The Lender and the Borrower have agreed that the Borrower shall pay to the
Lender line of credit fees as provided for in the Loan Agreement, such fee being
a charge other than interest and being duly earned and non-refundable when due.
The Lender and the Borrower hereby acknowledge and agree that the Lender has
imposed no minimum borrowing requirements, reserve or escrow balances, or
compensating balances related in any way to the Note. In the event that the
Borrower has been or shall be required to provide security in the form of cash,
certificates of deposit, or other deposit accounts, the Borrower has been and
shall be permitted to provide such additional security in the form of
certificates of deposits issued by financial institutions satisfactory to the
Lender upon certificate forms satisfactory to the Lender and endorsed and
assigned to the Lender by wording in form and substance satisfactory to the
Lender. Any use by the Borrower of certificates of deposit issued by the Lender
or other accounts maintained by the Lender (except for the account used for
disbursement of proceeds of the Note in which no minimum balance is required)
has been and shall be voluntary on the part of the Borrower.
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<PAGE>
The Lender and the Borrower have agreed upon a post-maturity charge,
payable on demand, which is equal to a per annum rate of 5.5 percentage points
above the Prime Rate, times the overdue principal amount of the Note for the
period from the date such payment is due until paid in full; and it is hereby
agreed that such post-maturity charge is not a charge for the use of money but
is imposed to compensate the Lender for some of the administrative services,
costs, and losses associated with a default under the Note, and such post-
maturity charge shall be fully earned and non-refundable when accrued. All other
charges imposed by the Lender upon the Borrower in connection with the Note,
including, without limitation, the line of credit fee, commitment fees, loan
fees, facility fees, origination fees, discount points, any default and late
charges, prepayment premiums, statutory attorneys' fees, and reimbursements for
costs and expenses paid by the Lender to third parties or for damages incurred
by the Lender are and shall be deemed to be charges made to compensate the
Lender for underwriting and administrative services and costs, and other
services, costs, or losses performed or incurred, and to be performed or
incurred, by the Lender in connection with the Note, and shall under no
circumstances be deemed to be charges for the use of money. All such charges
shall be fully earned and non-refundable when due.
3. Acknowledgments of the Borrower. The Borrower acknowledges that its
officers and directors are sophisticated in financing transactions, and that its
representatives fully understand, appreciate, and agree to the meaning and
implication of this Agreement.
4. Maximum Interest Allowed by Law. In no event shall the amount of
interest due and payable on the Note exceed the maximum rate of interest allowed
by applicable law and, in the event any such payment is inadvertently paid by
the Borrower or inadvertently received by the Lender, such excess sum shall be
credited as a payment of principal (with assessment of any applicable prepayment
fee or charge), unless the Borrower shall notify the Lender in writing that the
Borrower elects to have such excess sum returned to it forthwith. It is the
express intent hereof that the Borrower not pay and the Lender not receive,
directly or indirectly, in any amount, interest in excess of that which may be
lawfully paid by the Borrower under applicable law.
5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective heirs, personal representatives,
successors, and assigns of the parties hereto.
IN WITNESS WHEREOF, the Lender and the Borrower have hereunto caused their
duly authorized officers or representatives to execute, seal and deliver this
Agreement as of the day and year first above written.
BORROWER:
FIRST LIGHT ENTERTAINMENT CORPORATION,
a Georgia corporation
By: /s/ Robert A. Martinez
--------------------------------------------
Robert Martinez, Chief Financial Officer
Attest: /s/ J. Eric Van Atta
-----------------------------------------
J. Eric Van Atta, Secretary
[CORPORATE SEAL]
66
<PAGE>
CERTIFICATE OF BOARD RESOLUTIONS AND INCUMBENCY
WHEREAS, EMERGENT FINANCIAL CORP., a South Carolina corporation (the
"Lender") has agreed to make certain financial accommodations to FIRST LIGHT
ENTERTAINMENT CORPORATION, a Georgia corporation (the "Borrower") for the
purpose of operation of its business; and
WHEREAS, the Lender is not willing to make such financial accommodations to
the Borrower unless American Artists Film Corporation, a Missouri corporation
("Corporation") guarantees payment of the same to the Lender and guarantees the
performance of the Borrower's obligations in connection therewith; and
WHEREAS, it is in the best interests of the Corporation to assist the
Borrower in obtaining such financial accommodations from the Lender because the
Borrower, and the Corporation will therefore directly and indirectly benefit
from the making of such financial accommodations to the Borrower;
NOW, THEREFORE, be it
RESOLVED, that the Corporation guarantee to the Lender payment of the
Borrower's aforesaid financial accommodations, up to a maximum principal amount
of $1,000,000.00, together with all interest now or hereafter accruing thereon
and all fees and charges now or hereafter payable by the Borrower in connection
therewith, and all other monetary obligations of the Borrower now or hereafter
arising under the loan agreement and any of the other loan documents evidencing
or securing said financial accommodations, and guarantee performance of all non-
monetary obligations of the Borrower now or hereafter arising under the terms of
said loan agreement and other loan documents;
FURTHER RESOLVED, that the Chairman/CEO of the Corporation be and hereby is
authorized and empowered in the name of and on behalf of the Corporation (a) to
execute, seal, and deliver to the Lender one or more guaranty agreements
containing such terms and conditions as may be agreed upon by the Lender and
said officer, the execution, sealing, and delivery of any such guaranty
agreement(s) by such corporate officer to be conclusive evidence of such
agreement, (b) to execute, seal, acknowledge, and deliver to the Lender any
other instruments, documents, agreements, or certifications of the Corporation
which may at any time or from time to time be required by the Lender in
connection with such guaranty or guaranties, the execution, sealing, and
delivery of any such other instruments, documents, agreements, or certifications
(whether or not acknowledged) by such corporate officer to be conclusive
evidence of such requirement, and (c) to take such further actions and do all
things as may be necessary or advisable, in the judgment of the Chairman/CEO of
the Corporation, to consummate the transactions herein authorized, to carry out
the terms of the guaranty or guaranties herein referred to, and to effectuate
the purpose of these resolutions; and
FURTHER RESOLVED, that the Secretary or the Assistant Secretary of the
Corporation be and they are hereby authorized and directed to certify to the
Lender a copy of these resolutions and the incumbency of the officer specified
herein and that the Lender may consider such officer to continue in office and
these resolutions to remain in full force and effect until written notice to the
contrary shall be received by an officer of the Lender.
I further certify and attest that on the date of such meeting, and the
present time, the following was and still is the duly elected, qualified and
acting officer of the Corporation and the true signature and title of such
officer are set forth below:
(Signature) (Printed Name) (Title)
/s/ Steven D. Brown, CEO/Chairman Steven D. Brown Chairman/CEO
---------------------------------------
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<PAGE>
I certify that the foregoing resolutions remain in full force and effect,
have not been rescinded or modified, and conform with the charter and by-laws of
the Corporation.
WITNESS my hand and seal of said Corporation, this 2nd day of April, 1998.
--- -----
/s/ J. Eric Van Atta
----------------------------
J. Eric Van Atta, Secretary
[CORPORATE SEAL]
68
<PAGE>
CERTIFIED COPY OF RESOLUTIONS OF BOARD OF DIRECTOR OF
FIRST LIGHT ENTERTAINMENT CORPORATION
RESOLVED: That this Corporation, FIRST LIGHT ENTERTAINMENT CORPORATION hereby
authorizes any of the following individuals, in the name and on behalf of this
Corporation (hereby ratifying and confirming all similar acts heretofore done by
them on behalf of this Corporation), to assign, pledge and deliver to Emergent
Financial Corp., herein called "EFC", or to any of its affiliated or subsidiary
corporations, or to give EFC a security interest in, any accounts, inventory or
other similar property of this Corporation; to furnish collateral or additional
collateral to EFC and to make substitutions of collateral with respect to any
indebtedness or obligations to EFC; to sign Daily Reports, Loan Statements,
Assignment of Accounts, Security Agreements, Lien Statements and Pledge
Agreements pursuant to the Loan and Security Agreement between this Corporation
and EFC, and generally to act for and on behalf of this Corporation with respect
to transactions with EFC under said Loan and Security Agreement:
Robert Martinez, Chief Financial Officer
J. Eric Van Atta, Secretary
RESOLVED: That this authorization shall be effective until written notice of
the recession thereof be delivered to EFC, and that the Secretary of this
Corporation is authorized and directed to deliver to EFC a copy of these
resolutions in evidence of the authority of said individuals to act on behalf of
this Corporation and to append thereto the signatures of said individuals:
/s/ Robert A. Martinez
----------------------------------------
Robert Martinez, Chief Financial Officer
/s/ J. Eric Van Atta
----------------------------------------
J. Eric Van Atta, Secretary
I hereby certify that I am the duly elected, qualified and acting Secretary of
FIRST LIGHT ENTERTAINMENT CORPORATION; as such officer I have custody of the
records of said Corporation, including the minutes of the meeting of its Board
of Directors; at a special meeting of said Board of Directors, duly called and
regularly held, on ____________, 1998, at which meeting a quorum was present and
acting throughout, the foregoing Resolutions were submitted to and adopted by
it; the signatures appearing above are the signatures of the individuals
mentioned in said Resolutions and so authorized to act on behalf of said
Corporation, and said Resolutions have not been amended or rescinded.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of said
Corporation, this 2nd day of April, 1998.
--- -----
/s/ J. Eric Van Atta
---------------------------
J. Eric Van Atta, Secretary
[CORPORATE SEAL]
69
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
==============================================================================================================================
THIS FINANCING STATEMENT IS PRESENTED TO A THIS SPACE FOR RECORDING INFORMATION ONLY
FILING OFFICER FOR FILING PURSUANT TO THE
UNIFORM COMMERCIAL CODE, STATE OF GEORGIA.
- ----------------------------------------------------
1. Debtor Name and Mailing Address:
[_] Individual (Last Name, First Name, Middle
Initial)
[_] Business (Legal Name)
FIRST LIGHT ENTERTAINMENT CORPORATION
_____________________________________________
_____________________________________________
Social Security #/Tax ID #_______________
- -----------------------------------------------------
2. Debtor Name and Mailing Address:
--------------------------------------------------------------
[_] Individual (Last Name, First Name, Middle 5. Assignee Name and Mailing Address:
Initial) [_] Individual (Last Name, First Name,
[_] Business (Legal Name) Middle Initial)
_____________________________________________ [_] Business (Legal Name)
_____________________________________________ __________________________________________
_____________________________________________ __________________________________________
Social Security #/Tax ID #_______________ __________________________________________
- -----------------------------------------------------
3. Debtor Name and Mailing Address:
-------------------------------------------------------------
[_] Individual (Last Name, First Name, Middle 6. Exceptions for Social Security/Tax
Initial) ID#: O.C.G.A. 11-9-402(9): Financing
[_] Business (Legal Name) Statement filed to perfect a security
_____________________________________________ interest in collateral already subject to
_____________________________________________ a security interest in another
_____________________________________________ jurisdiction when it is brought into this
Social Security #/Tax ID #________________ state or when the debtor's location is
changed to this state, or the debtor is
not required to have such a number.
-----------------------------------------------------------------------------------------------------------------------------
4. Secured Party Name and Mailing Address: 7. [_]Check only if BOTH: (i) Collateral is
[_] Individual (Last Name, First Name, Middle consumer goods as defined in O.C.G..A.
Initial) 11-9-109 and (ii) the secured obligation
[_] Business (Legal Name) is originally $5,000 or less, and give
EMERGENT FINANCIAL CORP. maturity date (Month/date/year) or state
7 N. Laurens Street, Suite 600 "none": _____________________
Greenville, South Carolina
-------------------------------------------------------------
8. Check ONLY if applicable:
A. [_]Collateral on Consignment.
B. [_]Collateral on Lease.
- ------------------------------------------------------------------------------------------------------------------------------
9. This financing statement covers the following types or items of collateral: Enter collateral
code(s) that best
describe the collateral
SEE EXHIBIT "A" ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE. covered by this filing:
_________ _______
_________ _______
_________ _______
_________ _______
_________ _______
_________ _______
-----------------------------------
Number of additional
sheets attached for
filing: __________
- ------------------------------------------------------------------------------------------------------------------------------
10. Check if applicable and include reasonable description of the real estate in item 9:
a. [_] crops growing or to be grown; b. [_] minerals or the like (including oil and gas) or accounts subject to OCGA 11-9-103(5); c.
[_] fixture filing pursuant to OCGA 11-9-313.
- ------------------------------------------------------------------------------------------------------------------------------
11. Name of the record Owner(s) or record Lessee(s) (if Debtor does not have an interest of record in the real estate:
- ------------------------------------------------------------------------------------------------------------------------------
12. County or counties in which the affected real estate is located (must be identified if filing covers crops, minerals, or
fixtures):
- ------------------------------------------------------------------------------------------------------------------------------
13. This statement is filed without debtor's signature to perfect a security interest in collateral (check only if applicable):
a. [_] already subject to a security interest in another jurisdiction when it was brought into this state or debtor's location
changed to this state;
b. [_] which is proceeds of the original collateral described above in which a security interest was perfected;
c. [_] as to which the filing has lapsed;
d. [_] acquired after a change of debtor's name, identity or corporate structure; or
e. [_] described in a security agreement/real estate mortgage attached hereto pursuant to OCGA 11-9-402(1).
- ------------------------------------------------------------------------------------------------------------------------------
14. Signature of Debtor: 15. Signature of Secured Party:
FIRST LIGHT ENTERTAINMENT CORPORATION EMERGENT FINANCIAL CORP.
By: /s/ Robert A. Martinez By: /s/ Ron Warnock
------------------------- ------------------
- ------------------------------------------------------------------------------------------------------------------------------
16. Return Copy to:
RACHELSON & WHITE STATE OF GEORGIA - FINANCING STATEMENT
Suite 700, One Lakeside Commons, 990 Hammond Drive UCC-1 (REVISED 1/1/95)
Atlanta, Georgia 30328 FORM MUST BE TYPED.
ATTN: MICHELLE S. BUDD
==============================================================================================================================
</TABLE>
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EXHIBIT A
9A. This Financing Statement covers all of the following types (or items)
of property:
A. Inventory. All of the Debtor's inventory, both now owned and hereafter
acquired, wherever located, and as the same may now and hereafter from time to
time be constituted, together with all cash and noncash proceeds and products
thereof.
B. Accounts. All of the Debtor's accounts (including, without limitation,
all notes, notes receivable, drafts, acceptances, and similar instruments and
documents) both now owned and hereafter acquired, together with (i) all cash and
non-cash proceeds thereof and (ii) all returned, rejected, or repossessed goods,
the sale or lease of which shall have given or shall give rise to an account and
all cash and non-cash proceeds and products of all such goods.
C. General Intangibles. All of the Debtor's general intangibles (including,
without limitation, all things in action, contractual rights, goodwill, literary
rights, rights to performance, copyrights, trademarks, and patents), both now
owned and hereafter acquired, together with all cash and non-cash proceeds and
products thereof.
D. Chattel Paper. All of the Debtor's chattel paper, both now owned and
hereafter existing, acquired, or created, together with (i) all moneys due and
to become due thereunder, (ii) all cash and non-cash proceeds thereof, and (iii)
all returned, rejected, or repossessed goods, the sale or lease of which shall
have given or shall give rise to chattel paper, and all cash and non-cash
proceeds and products of all such goods. Additionally, all property and goods
both now owned and hereafter acquired by the Debtor which are sold, leased,
secured, are the subject of, or otherwise covered by, the Debtor's chattel
paper, together with all rights incident to such property and goods and all cash
and non-cash proceeds thereof.
E. All Equipment and Fixtures. All of the Debtor's equipment and fixtures,
both now owned and hereafter acquired, together with (i) all additions, parts,
fittings, accessories, special tools, attachments, and accessions now and
hereafter affixed thereto and/or used in connection therewith, (ii) all
replacements thereof and substitutions therefor, and (iii) all cash and non-cash
proceeds and products thereof.
F. Patents and Trademarks. All of the Debtor's patents and trademarks, whether
now owned or hereafter acquired, together with (i) (1) all United States and
foreign trademarks, trade names, corporate names, company, business names,
fictitious business names, trade styles, service marks, logos, other source or
business indentifiers, prints and labels on which any of the foregoing have
appeared or appear, desings and general intangibles of like nature, trademark
registration and applications for registration, and licenses of United States
trademarks, now owned or hereafter acquired by the Debtor, together with the
goodwill of the business connected with the use of, and symbolized by, such
trademarks, names, etc. (collectively, "Trademarks"); (2) all renewals,
extensions and continuations-in-part of the items referred to in clause (1)
above; (3) any written agreement granting any right to use any Trademark or
Trademark registration; and (4) the right to sue for past, present and future
infringements of the foregoing; (ii) all United
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States and foreign patents and applications for patents and all licenses of
patents, all copyrights owned by the Debtor and goodwill relating to the same;
all licenses of other agreements granted to the Debtor with respect to any of
the foregoing, in each case whether now or hereafter owned or used; the right
to sue for past, present and future infringements of the foregoing; and all
reissues, divisions, continuations, renewals, extensions and continuations-in-
part thereof (collectively, "Patents"); and (iii) all proceeds of any and all
of the foregoing whether now existing or hereafter created or acquired, as to
all of the above.
Debtor: First Light Entertainment Corporation
By: /s/ Robert A. Martinez
--------------------------------
Robert Martinez, CFO
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Search Results Page 1 of 1
[GEORGIA STATE SEAL] GEORGIA
SECRETARY OF STATE
LEWIS A. MASSEY
<TABLE>
<CAPTION>
Search Results
Information current as of 4/2/98 3:27:52 AM
Records 1 1 of 1 Total Records Found Click here for an explanation of terms
--------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIRST LIGHT ENTERTAINMENT CORPORATION (DOMESTIC PROFIT) Officers
--------
1245 FOWLER ST. N.W.
ATLANTA, GA 30318
Control # Status Filing Date Last AR Paid Jurisdiction
9315825 ACTIVE/OWES CURRENT YEAR AR 07/14/1993 02/20/1997 FULTON
Registered Agent Agent Address Agent County
VIVIAN WALKER JONES 1245 FOWLER ST NW ATLANTA, GA 30318 FULTON
</TABLE>
New Search
- ----------
http://www2.sos.state.ga.us./cgi-bin/corp.asp 4/2/98
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GUARANTY
--------
STATE OF GEORGIA
COUNTY OF FULTON
In consideration of the sum of One Dollar ($1.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the undersigned AMERICAN ARTISTS FILM CORPORATION, a Missouri
corporation (the "Guarantor"), and to induce EMERGENT FINANCIAL CORP., a South
Carolina corporation (hereinafter referred to as "Lender") to make loans or
otherwise extend credit to FIRST LIGHT ENTERTAINMENT CORPORATION, a Georgia
corporation (hereinafter referred to as "Borrower") and/or to renew or extend in
whole or in part any indebtedness of Borrower to Lender, or to make other
financial accommodations to Borrower, does hereby unconditionally and
irrevocably guarantee to Lender and to its endorsers, transferees, successors
and assigns, of either this Guaranty or any of the obligations secured hereby,
the prompt payment and performance according to their terms of all obligations
whether by acceleration or otherwise, with such interest as may accrue thereon,
either before or after maturity thereof (as hereinafter defined) of Borrower to
the Lender of any kind or character, the full and prompt payment and performance
of any and all other obligations of Borrower to Lender under any other documents
or instruments now or hereafter evidencing, securing, or otherwise relating to
the indebtedness evidenced thereby and do agree that if such obligations, or any
of them, are not performed or paid by the Borrower, the undersigned will
immediately do so.
The obligations covered by this Guaranty include all obligations of the
Borrower to the Lender now existing or hereafter coming into existence,
including but not limited to all obligations of Borrower to Lender arising under
or pertaining to: any loan agreement, security agreement, instrument of lien,
security deed or other security device; any promissory note, loans, advances,
over-advances, and/or accounts; any and all other indebtedness and obligations
of Borrower to Lender however evidenced or arising whether direct, indirect or
by way of assignment, whether joint or several, absolute or contingent, or due
or to become due; and any renewals, extensions, or modifications, in whole or in
part of any of the obligations heretofore described, together with all damages,
losses, costs, interest, charges, expenses and liabilities of every kind, nature
and description suffered or incurred by the Lender, arising in any manner out of
or in any way connected with, or growing out of said obligations of the Borrower
to the Lender (the "Obligations"). Lender shall not be liable for failure to
collect Obligations covered by this Guaranty or to realize upon any collateral
or security therefore, or any part thereof or for any delay in so doing, nor
shall Lender be under any obligation to take any action whatsoever with regard
thereto.
The liability of the Guarantor hereunder shall be equal to the obligations
of Borrower from time to time as hereinabove described. This Guaranty is
absolute, unconditional and continuing, regardless of the validity, regularity,
or enforceability of any of the Obligations covered by this Guaranty or the fact
that a security interest or lien or any collateral or security therefor may not
be enforceable by Lender or may otherwise be subject to equities or defenses or
prior claims in favor of others or may be invalid or defective in any way and
for any reason, including any action, or failure to act, on Lender's part. This
Guaranty shall remain in force and effect, whether or not Borrower changes its
status, ownership, composition, personnel, name or location.
This Guaranty shall continue in full force and effect until the Obligations
are fully paid, performed, and discharged, and the Lender shall not be under any
further obligation to make any additional advances to the Borrower under any
loan agreement or any other agreement. The Guarantor warrants and represents to
the Lender that (a) the Guarantor will directly benefit from the financial
accommodations being extended to the Borrower by the Lender; (b) this Guaranty
is binding upon and enforceable against the Guarantor, in accordance with its
terms; (c) the execution and delivery of this Guaranty do not violate or
constitute a breach of any agreement to which the Guarantor is a party or of any
applicable laws; and (d) there is no litigation, claim, action, or proceeding
pending, or, to the best knowledge of the Guarantor, threatened against the
Guarantor that would materially adversely affect the financial condition of the
Guarantor or its ability to fulfill its Obligations hereunder.
The Guarantor represents and warrants to the Lender that (a) it is a
corporation duly organized and existing, and in good standing, under the laws of
the State of South Carolina; (b) it has the power to carry on its business as it
is now being conducted by it and is duly qualified to do business and is in good
standing in each jurisdiction in which the type of property owned by it therein
or in which the transaction of its business therein makes such qualification
necessary; (c) it has full power and authority to execute and deliver this
Guaranty and to incur the obligations provided for herein, all of which have
been duly authorized by all proper and necessary corporate action; (d) there is
no consent, approval, or other authorization of any shareholder or of any
governmental authority required as a condition to the validity or enforceability
of this Guaranty; (e) the execution, delivery, and performance of this Guaranty
will not violate or conflict with its articles of incorporation, by-laws or any
of its securities or any law, regulation, rule, order, or statute of any
governmental authority to which it is subject or by which it is bound, or
violate, conflict with, or constitute a default under any loan or credit
agreement, indenture, or other document, instrument, or agreement to which the
Guarantor is a party or by which it or its assets are bound; (f) the Guarantor
will directly benefit from the financial accommodations being extended by the
Lender to the Borrower; and (g) this Guaranty is valid, enforceable, and binding
upon it in accordance with its terms, conditions, and provisions.
The Guarantor submits and irrevocably consents to the nonexclusive
jurisdiction of any appropriate court in the State of Georgia in the event that
any action, suit, or proceeding arises out of or is brought to enforce the
provisions of this Guaranty. The Guarantor irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to the
jurisdiction of the appropriate court in the State of Georgia over the action,
suit, or proceeding. The Guarantor also hereby submits to the non-exclusive
jurisdiction of the competent federal courts of the United States of America,
with venue laid solely in the Northern District of Georgia, for any and all
actions, suits, or proceedings arising out of or relating to this Guaranty.
The Guarantor hereby designates and appoints First Light Entertainment
Corporation, currently located at 1245 Fowler St., N.W., Atlanta, Georgia,
30318 as its agent to accept service of process for it and on its behalf in any
action, suit, or proceeding arising out of or relating to this Guaranty. The
Lender shall for all purposes be entitled to treat such designee of the
Guarantor as the authorized agent to receive for and on its behalf service of
writs or summons or other legal process in the State of Georgia. Delivery of
such service to the Guarantor's authorized agent shall be deemed to be made when
personally delivered to such agent or, if mailed, seventy-two (72) hours after
the deposit of such process in the United States mail, sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed to
such agent at the address hereinabove specified, or at such other address as
such agent shall have designated in written notice received by the Lender. In
the event that, for any reason, such agent or his successor shall no longer
serve as agent to the Guarantor to receive service of process in the State of
Georgia, the Guarantor shall appoint another person in the State of Georgia as a
successor agent and advise the Lender thereof in writing, such that the
Guarantor shall at all times maintain an agent to receive service of process in
the State of Georgia on its behalf with respect to this Guaranty. In the event
that, for any reason, service of legal process cannot be made in the manner
described above,
74
<PAGE>
such service may be made in any other manner permitted by applicable law.
The Guarantor, by its execution hereof, and the Lender, by its acceptance
of the benefits hereof, acknowledge that:
(a) it has participated in the negotiation of this Guaranty and each of
the other loan documents (the "Loan Documents") to which it is a party, and no
provision of this Guaranty or any other such loan document to which it is a
party (the "Loan Document" or "Loan Documents" as the context may require) shall
be construed against or interpreted to the disadvantage of any party hereto or
thereto by any court or other governmental or judicial authority by reason of
such party having or being deemed to have structured, dictated or drafted such
provision;
(b) each such party at all times has had access to an attorney in the
negotiation of the terms of an in the preparation and execution of this Guaranty
and each such other Loan Document, and such parties have had the opportunity to
review and analyze this Guaranty and each such other Loan Document for a
sufficient period of time prior to the execution and delivery hereof;
(c) No representations or warranties have been made by or on behalf of any
party hereto or thereto, or relied upon by the Guarantor, pertaining to the
subject matter of this Guaranty or any of the other Loan Documents, other than
those that are set forth in this Guaranty, in the other Loan Documents or in any
certificate delivered on the date of execution and delivery of this Guaranty,
and all prior statements, representations and warranties, if any, are totally
superseded and merged into this Guaranty and the other Loan Documents, which
represent the final and sole agreement of the parties with respect to the
matters which are the subject hereof and thereof;
(d) all of the terms of this Guaranty and the other Loan Documents were
negotiated at arm's-length, and that this Guaranty and the other Loan Documents
were prepared and executed without fraud, duress, undue influence or coercion of
any kind by any of the parties upon the others; and
(e) the execution and delivery of this Guaranty and the other Loan
Documents to which the Guarantor is a party is the free and voluntary act of the
Guarantor.
In addition to and independent of any other obligation or liability under
this Guaranty, the undersigned hereby represents and warrants to Lender that:
(a) All financial data submitted to Lender by or on behalf of Borrower are
true, correct and complete, and Borrower has the financial ability to pay, and
will fully pay, satisfy and discharge its obligations and liabilities under the
Obligations;
(b) All financial data with respect to the undersigned which have
heretofore been given to the Lender by or on behalf of the undersigned fairly
and accurately present the financial condition of the undersigned as of the
respective dates thereof, and, since the respective dates thereof, there has
been no material adverse change in the financial condition of the undersigned;
(c) The execution, delivery and performance by the undersigned of this
guaranty does not and will not contravene or conflict with (i) any limited
partnership agreement of Borrower, (ii) any law, order, rule, regulation, writ,
injunction or decree now in effect of any government, governmental
instrumentality or court having jurisdiction over the undersigned, or (iii) any
contractual restriction binding on or affecting the undersigned or any of the
undersigned property or assets;
(d) This Guaranty creates legal, valid and binding obligations of the
undersigned enforceable against the undersigned in accordance with its terms;
(e) Except as disclosed in writing to Lender, there is no action,
proceeding or investigation pending or, to the knowledge of the Guarantor,
threatened or affecting the Guarantor, which may adversely affect the ability of
the Guarantor to pay the obligations in full and to fulfill and perform the
other undertakings under this Guaranty. There are no judgments or orders for the
payment of money rendered against the Guarantor for an amount in excess of five
thousand dollars ($5,000.00) which have been undischarged for a period of ten
(10) or more consecutive days and the enforcement of which is not stayed by
reason of a pending appeal or otherwise. The Guarantor is not in default under
any agreement to which the Guarantor is a party;
(f) The Guarantor has disclosed all events, conditions and facts known to
the Guarantor which could have any material adverse effect on the financial
condition of the Guarantor. No representation or warranty by the Guarantor
contained herein, nor any schedule, certificate or other document furnished by
the undersigned to Lender in connection with this Guaranty or the other Loan
Documents contains any material misstatement of fact or omits to state a
material fact or any fact necessary to make the statements contained therein not
misleading;
(g) Borrower has no unpaid or unsatisfied loans or advances from, or other
obligations to, the Guarantor, other than advances in the normal course of
business.
The Guarantor hereby indemnifies Lender and agrees to defend and hold
harmless Lender from and against (a) any loss, cost, damage or expense occurring
by reason of a breach of the foregoing representations and warranties; and (b)
the loss, mitigation, subordination or other consequences adverse to Lender by
reason of this Guaranty being challenged as a preference or suffering any other
subjugation under any bankruptcy or other law, whether state or federal,
affecting debtors, Lenders, and/or the relationship between and among them.
Without limiting the generality of the foregoing, any and all debts and
obligations of Borrower to the Guarantor whether past, present, or future, are
hereby waived, satisfied and discharged.
Nothing herein contained shall obligate Lender to grant credit to, or
continue Lender's financing arrangements with Borrower. This Guaranty may not be
terminated so long as any obligations of Borrower to Lender are outstanding and
unpaid. This Guaranty shall be continuing, irrevocable and shall bind any inure
to the benefit of the respective heirs, legal representatives, successors and
assigns of Guarantor, and to Lender's successors and assigns. This Guaranty
shall be revived and reinstated in the event that any payment received by
Lender, or any of Lender's successors and assigns, endorsers or transferees, on
any of the Obligations, is required to be repaid or rescinded under present or
future federal or state law or regulation relative to bankruptcy, insolvency, or
other relief of debtors, to the same extent as if such payment had never been
made, and the amount of such payment and interest thereon shall be part of the
Obligations guaranteed hereby.
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<PAGE>
This Guaranty shall be effective regardless of the solvency or insolvency
of Borrower, the dissolution of Borrower, the institution by or against Borrower
of any proceeding under the Federal Bankruptcy Code, any reorganization, merger
or consolidation of Borrower, or any change in the ownership, composition, or
nature of Borrower.
In the event any proceeding is instituted by or against Borrower under the
Federal Bankruptcy Code or any other bankruptcy, insolvency or moratorium law,
as between the Guarantor and Lender, all of the Obligations shall be immediately
due and payable, without notice and demand of any kind, and the Guarantor agrees
immediately to pay the Obligations in full, irrespective of whether the
Obligations can be accelerated against Borrower and irrespective of any right
which Borrower may have under any bankruptcy, insolvency or moratorium law to
cure defaults and reinstate the maturities of the Obligations.
The Guarantor acknowledges and agrees that no change in the nature or terms
of the Obligations or any of the Loan Documents, or other agreements,
instruments, or contracts evidencing, related to, or attendant with the
Obligations (including any novation), whether by operation of law or otherwise,
shall discharge all or any part of the liabilities and obligations of the
Guarantor pursuant to this Guaranty. It is the purpose and intent of the
Guarantor and the Lender that the covenants, agreements, and all liabilities and
obligations of the Guarantor hereunder are absolute, unconditional, and
irrevocable under any and all circumstances, including, without limitation, the
invalidity or unenforceability of any or all of the Loan Documents. Without
limiting the generality of the foregoing, the Guarantor agrees that until each
and every one of the covenants and agreements of this Guaranty are fully
performed, the Guarantor's undertakings hereunder shall not be released, in
whole or in part, by any action or thing which might, but for this paragraph of
this Guaranty, be deemed a legal or equitable discharge of a surety or
guarantor, or by reason of any waiver, omission of the Lender, or its failure to
proceed promptly or otherwise, or by reason of any action taken or omitted by
the Lender, whether or not such action or failure to act varies or increases the
risk of, or affects the rights or remedies of, the Guarantor, including, without
limitation, the failure of the Lender to perfect, or to continue the perfection
of, any lien or security interest in any security or any delay by the Lender in
perfecting any such lien or security interest, or by reason of any further
dealings between the Borrower and the Lender, or any other guarantor or surety,
and the Guarantor hereby expressly waives and surrenders any defense to its
liability hereunder based upon, and shall be deemed to have consented to, any of
the foregoing acts, omissions, things, agreements, or waivers. Without limiting
the generality of the foregoing, the Guarantor gives its consents for the Lender
to do any one or more of the following without in any manner affecting,
impairing, limiting, modifying, or releasing any of the obligations of the
Guarantor under this Agreement and without notice to or consent of the
Guarantor: (a) exchange, compromise, or surrender the whole or any part of the
security now or hereafter held for the Obligations; (b) exchange, extend, or
renew the time or place of payment of the Obligations in whole or in part, to a
time certain or otherwise whether or not longer than the original period, or
withdraw credit or rime to pay; (c) extend or change the terms of performance of
any other obligations of the Borrower under the Loan Documents; (d) modify,
amend, or waive any of the provisions of the Loan documents; (e) release or
grant indulgences to the Borrower, any co-guarantor, or any party to the Loan
Documents; (f) receive additional property or other security as collateral for
the Obligations; (g) fail to exercise due diligence or omit to enforce any
right, power, or privilege under the Loan Documents; and (h) apply any payment
received by the Lender from the Borrower of, or on account of, the Obligations,
in any manner the Lender elects.
The Guarantor waives notice of: the creation of any of the Obligations,
notice of nonpayment or default by Borrower under any of the Obligations or
under any agreement now or hereafter existing between Borrower and Lender;
notice of presentment, demand, notice of dishonor, protest, notice of acceptance
of this Guaranty or the creation or extension or renewal of any obligation of
the Borrower to which this Guaranty relates; and any other notices whatever; and
agrees that no modification of any of the Obligations (including the release of
any of the Guarantor), or of any collateral security given by Borrower shall
affect, impair or release the Guarantor from any of the indebtedness then
accrued or thereafter to accrue under this Guaranty or any part hereof. In the
event any claim hereunder is collected by law or through an attorney-at-law, the
Guarantor shall be liable to Lender for all costs of collection including
reasonable attorney's fees. Until all the obligations of the Borrower to the
Lender shall have been paid in full, the Guarantor hereby expressly waives,
renounces and agrees not to assert, any right, claim or cause of action,
including, without limitation, a claim for reimbursement, subrogation,
indemnification or otherwise, against the Borrower arising out of or by reason
of this instrument or the Obligations of the Guarantor hereunder, including,
without limitation, the payment or securing or purchasing of any of the
Obligations by the Guarantor. The waiver, renunciation and agreement contained
in the preceding sentence is for the benefit of Lender and also for the benefit
of the Borrower, who may assert the benefits thereof as a third party
beneficiary, and the Guarantor may be released from such waiver, renunciation
and agreement only by the execution and delivery, by Lender and Borrower, of any
instrument expressly releasing the Guarantor therefrom, provided, however, it is
understood that this waiver, renunciation and agreement shall terminate upon
payment of the obligations of Borrower to Lender.
The Guarantor agrees that no act or omission on the part of the Lender
shall in any way affect or impair this Guaranty. The Guarantor hereby waives the
right to require the holder of the Obligations guaranteed to take action against
the principal as provided for in O.C.G.A. Section 10-7-24. At the option of the
Lender this may be treated as a guaranty or as a suretyship, with the right to
proceed against the Guarantor without first proceeding against the Borrower.
This guaranty is made subject to all the terms, conditions, agreements, or
stipulations contained in the agreements, deeds, notes, instruments and other
documents evidencing the Obligations hereby guaranteed, which are hereby
expressly incorporated herein, and the Guarantor agrees that the terms,
conditions and provisions of any agreements, deeds, notes, instruments or other
documents which may be executed by the Borrower to evidence such Obligations in
the future shall simultaneously with their execution, become a part of this
Guaranty.
The liability of the Guarantor shall not be modified in any manner
whatsoever by any extension that may be granted to Borrower by any court in any
proceeding under the Bankruptcy Act or any amendments thereof and the Guarantor
expressly waives the benefit of any such extension.
It is especially and expressly agreed if the indebtedness of said Borrower
now or at any time hereafter exceeds the amount permitted by law, or said
Borrower is not liable because the act of creating the obligation is ultra
vires, or the officers creating same acted without authority, and for these
reasons the indebtedness to Lender which the Guarantor agreed to pay cannot be
enforced against the Borrower, such facts shall in no manner affect the
liability of the Guarantor hereunder, notwithstanding said Borrower is not
liable for such indebtedness, unto the same extent as the Guarantor would have
been liable if the indebtedness of the said Borrower had been enforceable
against it.
It being the express intention of the parties hereto to conform strictly
with the applicable usury laws, it is agreed that nothing contained herein shall
be so construed as to require the payment of interest at a rate in excess of the
maximum allowable by
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law, and in no event shall the Guarantor be obligated to pay interest exceeding
such maximum rate of interest permitted by law, and all such agreements,
conditions, or stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate, or compel the Guarantor to pay a rate of
interest exceeding the maximum rate of interest permitted by law shall be
without binding force or effect at law or in equity to the extent only of the
excess of interest over such maximum rate of interest permitted by law. It is
the intention of the parties hereto that in the construction and interpretation
of this Guaranty, the foregoing sentence shall be given precedence over any
other agreement, condition, or stipulation herein contained which is in conflict
with same.
No act on Lender's part and nothing other than the full payment,
performance and discharge of all aforementioned indebtedness and Obligations of
Borrower shall operate to discharge or satisfy the liability of the Guarantor
hereunder. Lender's accounting records of any transactions with Borrower shall
be admissible in evidence in any action or proceeding, and shall be binding upon
the Guarantor in establishing transactions and entries reflected therein, and
shall be accepted as prima facie proof thereof. In the event any claim or
action, or action on any judgement, based on this Guaranty, is made or brought
against the Guarantor, the Guarantor agrees not to assert against Lender any
setoff or counterclaim which the Borrower may have, and further the Guarantor
agrees not to deduct any setoff or seek to counterclaim for or recoup any
amounts which are or may be owed by Lender to Guarantor, or for any loss of
contribution from any other guarantor. Furthermore, in any litigation based on
this Guaranty in which Lender and Guarantor shall be adverse parties, the
Guarantor hereby waives trial by jury and waive the right to interpose any
defense based upon any Statutes of Limitations or any claim of laches and waive
the performance of each and every condition precedent to which the Guarantor
might otherwise be entitled by law.
In the event of any breach, default under or termination of any of the
agreements between Lender and Borrower, or in the event that Guarantor shall
fail to observe or perform any agreements, warranties, or covenants contained
herein, or upon the death of Guarantor, or should Guarantor dissolve or cease
its business, call a meeting of its creditors, fail to meet its debts as they
mature, commit an act of bankruptcy, have commenced by or against the Guarantor
any bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceeding under any federal or state law, then the liability of Guarantor for
the entire Obligations covered by this Guaranty shall mature even if the
liability of Borrower therefor does not.
The Guarantor waives and renounces for himself and family any and all
homestead of exemption rights either of them may have under or by virtue of the
constitution or laws of Georgia, any other State, or the United States, against
the liabilities and obligations hereby created, and do hereby jointly and
severally transfer, convey and assign to the Lender or holder hereof a
sufficient amount of any homestead or exemption that may be allowed to the
Guarantor, including such homestead or exemption that may be set apart in
bankruptcy to pay this obligation in full, with all costs of collection; and
Guarantor hereby directs the trustee in bankruptcy having possession of such
homestead or exemption to deliver to the Lender a sufficient amount of property
or money so set apart as exempt to pay the obligation hereby created.
Where the obligation of Borrower hereby guaranteed is an obligation of a
corporation, this Guaranty is to cover all Obligations to the Lender purporting
to be made in behalf of Borrower by an officer or agent of Borrower without
regard to the actual authority or such officer or agent. The term corporation or
Borrower shall include associations of all kinds and all purported corporations
whether correctly and legally chartered and organized or not. Where the
Guarantor is a natural person this agreement binds his heirs, administrators and
executors, and where a corporation, its successors and assigns.
The word "Lender" as herein used shall include transferees, assigns and
successors of Lender, and all rights of Lender hereunder shall inure to the
benefit of its transferees, successors and assigns.
The words importing the singular number hereunder shall include the plural
number and vice versa and any pronouns used herein shall be deemed to cover all
genders. Without limiting the generality of the foregoing, if more than one
person executes this Guaranty, the words "Guarantor", "his", and "him" as used
herein shall include all such persons collectively and each such person
individually, and all such persons shall be jointly and severally liable
hereunder. "Person" as used herein means individual, corporation, partnership,
joint venture, association, joint stock company, trusts, unincorporated
associated, government or any agency or political subdivision thereof.
No termination hereof shall be effected by death of the Guarantor. In the
event of the death of the Guarantor, his Obligations hereunder shall continue in
full force and effect against his estate as to all indebtedness and Obligations
which shall have been created or incurred by Borrower prior to the time when
Lender shall have actually received notice, in writing, of such death; and this
Guaranty shall, from the date of such death as to all indebtedness or
Obligations created, incurred or arising after such death remain in full force
as a guaranty by the surviving Guarantor.
Notwithstanding any provision in this Guaranty to the contrary, the
aggregate dollar amount of the Guarantor's liability under this Guaranty shall
be limited to the largest dollar amount which would render the Obligations of
the Guarantor hereunder subject to avoidance under Section 548 or any other
section of the Federal Bankruptcy Code, or subject to being set aside under any
applicable state fraudulent conveyance law.
This Guaranty embodies the whole agreement of the parties and may not be
modified except in writing, and no course of dealing between Lender and of the
Guarantor shall be effective to change or modify this Guaranty. Lender's failure
to exercise any right hereunder shall not be construed as a waiver of the right
to exercise the same or any other right at any other time and from time to time
thereafter, and such rights shall be considered as cumulative rather than
alternative. All rights of the Lender hereunder or otherwise arising under any
of the Loan Documents are separate and cumulative and may be pursued separately,
successively, or concurrently, or not pursued, without affecting or limiting any
other right of the Lender and without affecting or impairing the liability of
the Guarantor. No knowledge of any breach or other nonobservance by Guarantor of
the terms and provisions of this Guaranty shall constitute a waiver thereof, nor
a waiver of any Obligations to be performed by the Guarantor hereunder. The
Guarantor agrees that this Guaranty shall be governed by and construed and
enforced according to the laws of the State of Georgia. Guarantor hereby
consents to the in personam jurisdiction of the courts of the State of Georgia.
Wherever possible each provision of the Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Guaranty.
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IN WITNESS WHEREOF, the Guarantor, intending to be jointly and severally
legally bound hereby, as hereinabove described, has caused this Guaranty to be
signed by its duly authorized officers, and its seal affixed, or has signed and
sealed this Guaranty, as the case may be, this 2nd DAY OF APRIL, 1998, at
--- -----------
Atlanta, Georgia.
AMERICAN ARTISTS FILM CORPORATION,
a Missouri corporation
By: /s/ Steven D. Brown
----------------------------------------
Steven D. Brown, Chairman/CEO
[CORPORATE SEAL]
ACCEPTANCE:
The foregoing Guaranty is accepted in Atlanta, Georgia, this 2ND DAY OF APRIL,
--- -----
1998
EMERGENT FINANCIAL CORP., A SOUTH CAROLINA
CORP.
By: /s/ Ron Warnock
----------------------------------------
Sr. Vice Pres
[CORPORATE SEAL]
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CERTIFICATE OF BOARD RESOLUTIONS AND INCUMBENCY
FIRST LIGHT ENTERTAINMENT CORPORATION
I, the undersigned, J. ERIC VAN ATTA, hereby certify that I am the
Secretary and the official custodian of certain records, including the Charter,
By-Laws, and the minutes of the meetings of the Board of Directors of FIRST
LIGHT ENTERTAINMENT CORPORATION (the "Company"), a corporation duly chartered
and existing under the laws of the State of Georgia, and that the following is a
true, accurate and compared copy of the resolutions of the Board of Directors of
said Corporation, duly adopted by written consent of the Board of Directors in
lieu of a meeting, and that the same have not been revoked, annulled, modified
or amended in any manner whatsoever, that same are in full force and effecting,
and that all the Directors have duly approved same.
As said Secretary, I further certify that there are no provisions in the
laws of the State of incorporation, or the Charter, or the By-Laws of this
Corporation, or in any amendments thereto, or in any contracts or indentures of
the Corporation, restricting the action contemplated by the below resolutions or
requiring the consent or authorization of stockholders or of any other person,
firm, entity, or corporation, other than the Board of Directors of the
Corporation.
The following resolutions were unanimously adopted:
RESOLVED, that the Chief Financial Officer and the Secretary
of the Company be, and they severally hereby are, authorized and
directed to execute and deliver to Emergent Financial Corp., a
South Carolina corporation ("EFC") in the name and on behalf of
this corporation (1) the Loan and Security Agreement, Demand
Promissory Note, Disclosure Statement Regarding Interest & Other
Charges and all related Transaction Documents thereto forms of
which having been submitted to this meeting and having been duly
and fully considered thereat, and the execution thereof being
deemed to be in the best interest of the Company and within the
express implied powers of the Company (and the delivery of such,
whether or not acknowledged, by such corporate officers shall be
deemed conclusive evidence of such agreement), and (2) such other
agreements, instruments, statements and writings as the officer
or officers executing the same may deem desirable or necessary in
connection therewith (the execution, seal and delivery of any
such other documents, agreements, or certifications, whether or
not acknowledged, by such corporate officers shall be conclusive
evidence of such requirement), and it was further
RESOLVED, that said agreements and other statements in
writing executed in the name and on behalf of the Company by the
Chief Financial Officer and the Secretary shall be presumed
conclusively to be the Instruments, the execution of which is
authorized by these resolutions, and it was further
RESOLVED, that it is to the best interest of the Company to
borrow money and obtain credit for the Company in any amount from
EFC on such terms as may seem to the Chief Financial Officer and
the Secretary of this Company advisable, and such officers on
behalf of this company are authorized and empowered to enter
into, execute and deliver to EFC any promissory or collateral
note evidencing any indebtedness to EFC, all drafts, acceptances
of this company; to execute powers of attorney; to assign
accounts receivable as collateral security; to execute
applications for letter of credit; to pledge inventory or
material as collateral security for any loan; to assign with full
recourse to third party promissory notes, conditional sales
contracts, chattel mortgages or other third party evidences of
indebtedness together with any collateral securing such third
party indebtedness; to execute mortgages on the personal property
of this company to EFC as security for any loan; to execute
assignments or satisfactions of any mechanic's lien; to execute
security instruments and financing statements under the Uniform
Commercial Code; to assign letters of credit in favor of this
Company to EFC as
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security for any loan; to deliver financial and other statements
to this Company to EFC and to make, execute and deliver any and
all agreements, security instruments, documents and certificates
as may from time to time be required by EFC to carry out and give
effect to the above; and as security to pledge or assign and
deliver accounts receivables or any other indebtedness or choses-
in-action, stocks, bonds, bills receivable and other negotiable
papers, bills of lading, warehouse receipts, insurance policies
and certificates or any other property held by or belonging to
this company and such officer has full authority to endorse,
assign or guarantee the same in the name of this company; to
guarantee the obligations of any other person, firm or
corporation to EFC; hereby empowering any such officer to
withdraw from EFC to authorize EFC to deliver to such officer or
to one or more designated employees of this company any or all
documents and securities or other property held by EFC in pledge
or otherwise, and it was further
RESOLVED, that any officer, agent or nominee of EFC is
hereby authorized and empowered to endorse the name of this
corporation to any and all checks, drafts and other instruments
or orders for the payment of money payable to this corporation or
its order, to deposit the same in any account or accounts of said
EFC with any bank or trust company, and to deal with any and all
such checks, drafts and other instruments or orders for the
payment of money, and proceeds thereof and the property of said
EFC; and it was further
RESOLVED, that any bank or trust company be, and it hereby
is, authorized and requested to receive for deposit to the credit
of said EFC without further inquiry, all such checks, drafts and
other orders or instruments for the payment of money, payable to
this corporation or its order, and that said bank shall be under
no liability to this corporation for the disposition which said
EFC may or shall make of the said instruments or the proceeds
thereof."
I certify that the foregoing resolutions remain in full force and effect,
have not been rescinded or modified, and conform with the charter and by-laws of
the corporation.
I further certify and attest that on the date of such meeting, and the
present time, the following were and still are the duly elected, qualified and
acting officers of this corporation and the true signatures and titles of such
officers are set forth below:
(Signatures) (Printed Names) (Title)
/s/ Robert A. Martinez Robert Martinez Chief Financial Officer
----------------------------
/s/ J. Eric Van Atta J. Eric Van Atta Secretary
----------------------------
WITNESS my hand and seal of said corporation, this 2nd day of April,
---- ------
1998.
/s/ J. Eric Van Atta
---------------------------------
J Eric Van Atta, Secretary
(Corporate Seal)
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STATE OF GEORGIA
COUNTY OF FULTON
GUARANTOR'S LOAN CERTIFICATE
I, STEVEN D. BROWN, hereby certify that I am the duly elected and qualified
Chairman/CEO of AMERICAN ARTISTS FILM CORPORATION, a Missouri corporation (the
"Guarantor"), and in such capacity hereby further certify as follows, in
connection with the line of credit (the "Loan") being extended to First Light
Entertainment Corporation, a Georgia corporation, (hereinafter, the "Borrower")
by Emergent Financial Corp., a South Carolina corporation (the "Lender"),
evidenced by that certain Demand Promissory Note of even date herewith to be
executed by the Borrower and payable to the order of the Lender in the face
principal amount of $1,000,000.00 (the "Note") that is secured by a Guaranty
from Guarantor to Lender and documents that secure the Guaranty.
1. Organization; Power; Qualification. The Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, has the power and authority, corporate and otherwise, to own
or lease and operate its properties and to carry on its business as now being
and hereafter proposed to be conducted, and is duly qualified and is in good
standing as a foreign corporation, and authorized to do business, in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization
2. Authorization; Enforceability. The Guarantor has the power and has taken
all necessary action to authorize it to execute, deliver, and perform the
Guaranty and each of the other documents to which it is a party relating to or
securing the Loan or the Guaranty to the Loan, in accordance with their
respective terms, and to consummate the transactions contemplated thereby (the
Guaranty and such other documents being hereinafter collectively referred to as
the "Loan Documents"). Each of the Loan Documents has been duly executed and
delivered by the Guarantor, and is a legal, valid, and binding obligation of the
Guarantor, enforceable in accordance with its terms, subject, as to enforcement
of remedies, to the following qualifications: (a) an order of specific
performance and an injunction are discretionary remedies and, in particular, may
not be available where damages are considered an adequate remedy at law; and (b)
enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction, and other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency, or similar event of the Guarantor).
3. Compliance with Laws, Other Loan Documents, and Contemplated
Transactions. The execution, delivery, and performance of each of the Loan
Documents in accordance with their respective tennis and the consummation of the
transactions contemplated thereby do not and will not (a) violate any provisions
of constitutions, statutes, rules, regulations, and orders of governmental
bodies or regulatory agencies applicable to the Guarantor, and all orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Guarantor is a party or by which it is bound (hereinafter referred to as
"Applicable Laws"); (b) conflict with, result in a breach of, or constitute a
default under, the articles of incorporation or by-laws of the Guarantor or
under any material indenture, agreement, or other instrument to which the
Guarantor is a party or by which it or any of its properties may be bound; or
(c) result in or require the creation or imposition of any security deed,
mortgage, deed to secure debt, deed of trust, lien, pledge, assignment, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment, or other encumbrance of any kind, whether or not
choate, vested, or perfected (hereinafter referred to as a "Lien") upon or with
respect to any property pledged, assigned, or conveyed to the Lender as security
for the Loan.
4. Necessary Authorizations. The Guarantor has secured all authorizations,
consents, approvals, permits, licenses and exemptions of, filings and
registrations with, and reports to, all governmental and other regulatory
authorities, whether federal, state, or local, and all agencies thereof,
including, without limitation, any specific authorizations, licenses, permits,
franchises, etc., which may be required for the particular industry or business
of the Guarantor (hereinafter collectively referred to as "Necessary
Authorizations"), and all such Necessary Authorizations are in full force and
effect. None of said Necessary Authorizations is the subject of any pending or,
to the best of the Guarantor's knowledge, threatened attack or revocation by the
grantor of the Necessary Authorization. The Guarantor is not required to obtain
any additional Necessary Authorizations in connection with the execution,
delivery, and performance of any Loan Document.
5. Taxes. All federal, state, and other tax returns of the Guarantor
required by law to be filed have been duly filed, and all federal, state, and
other taxes, assessments, and other governmental charges or levies upon the
Guarantor and any of its properties, income, profits, and assets, which are due
and payable, have been paid, except any such payment of which the Guarantor is
contesting in good faith by appropriate proceedings and for which adequate
reserves have been provided on the books of the Guarantor and as to which
neither any Lien other than a Permitted Lien has attached nor any foreclosure,
distraint, sale, or similar proceedings have been commenced. The charges,
accruals, and reserves on the books of the Guarantor in respect of taxes are, in
the reasonable judgment of the Guarantor, adequate.
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6. Financial Statements. The Guarantor has furnished, or caused to be
furnished, to the Lender financial statements for the Guarantor which are
complete and correct in all material respects and present fairly in accordance
with generally accepted accounting principles the financial position of the
Guarantor as of the dat thereof, and the results of operations for the periods
then ended. Except as disclosed in such financial statements, the Guarantor did
not have any material liabilities, contingent or otherwise, and there are no
material unrealized or anticipated losses of the Guarantor that have not been
heretofore disclosed in writing to the Lender.
7. No Adverse Change. There has occurred no event which would have any
materially adverse effect upon the business, assets, liabilities, financial
condition, results of operations, or business prospects of the Guarantor or upon
the ability of the Guarantor to perform any material obligations under any Loan
Document, whether resulting from any single act, omission, situation, status,
event, or undertaking, or taken together with other such acts, omissions,
situations, statuses, events, or undertakings (herein referred to as a
"Materially Adverse Effect").
8. Investments and Guaranties. The Guarantor has not made investments in,
advances to, or guaranties of, the obligations of any individual, corporation,
partnership, trust, or unincorporated organization, or a government or any
agency or political subdivision thereof (hereinafter referred to as "Person"),
except as reflected in the financial statements referred to above or disclosed
to the Lender in writing.
9. Liabilities, Litigation, etc. Except for liabilities incurred in the
normal course of business, the Guarantor has no material (individually or in the
aggregate) liabilities, direct or contingent, except as disclosed or referred to
in the financial statements referred to above. Except as described in such
financial statements there is no litigation, legal or administrative proceeding,
investigation, or other action of any nature pending or, to the knowledge of the
Guarantor, threatened against or affecting the Guarantor or any of its
properties which involves the possibility of any judgment or liability not fully
covered by insurance and which may have a Materially Adverse Effect. The
Guarantor knows of no unusual or unduly burdensome restriction, restraint, or
hazard relative to the business or properties of the Guarantor except as
previously disclosed to the Lender in writing.
10. ERISA. The Guarantor and any "affiliate" of the Guarantor within the
meaning of Section 414 of the Code ("ERISA Affiliate") and each of their
respective employee benefit plans (the "Plans") within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as in effect on the
date hereof and as such Act may be amended thereafter from time to time
("ERISA"), are in substantial compliance with ERISA and the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), and neither the
Guarantor nor any of its ERISA Affiliates has incurred any accumulated funding
deficiency with respect to any such Plan within the meaning of ERISA or the
Code. The Guarantor and each of its ERISA Affiliates have complied with all
requirements of ERISA Sections 601 through 608 and Code Section 4980B. Neither
the Guarantor nor any of its ERISA Affiliates has made any promises of
retirement or other benefits to employees, except as set forth in the Plans.
Neither the Guarantor nor any of its ERISA Affiliates has incurred any material
liability to the Pension Benefit Guaranty Corporation in connection with any
such Plan. The assets of each such Plan which is subject to Title IV of ERISA
are sufficient to provide the benefits under such Plan, the payment of which the
Pension Benefit Guaranty Corporation would guarantee if such Plan were
terminated, and such assets are also sufficient to provide all other "benefit
liabilities" (as defined in ERISA Section 4001(a)(16)) due under the Plan upon
termination. No Reportable Event (as defined in Title IV of ERISA) has occurred
and is continuing with respect to any such Plan. No such Plan or trust created
thereunder, or party in interest (as defined in Section 3(14) of ERISA), or any
fiduciary (as defined in Section 3(21) of ERISA), has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) which would subject such Plan or any other Plan of the Guarantor or
any of its ERISA Affiliates, any trust created thereunder, or any such party in
interest or fiduciary, or any party dealing with any such Plan or any such trust
to the penalty or tax on "prohibited transactions" imposed by Section 502 of
ERISA or Section 4975 of the Code. Neither the Guarantor nor any of its ERISA
Affiliates is a participant in or is obligated to make any payment to a
Multiemployer Plan (as defined in Section 4001 (a)(3) of ERISA).
11. Patents, Trademarks, Franchises, etc. The Guarantor owns, possesses, or
has the right to use all necessary patents, trademarks, trademark rights, trade
names, trade name rights, service marks, copyrights, franchises, and licenses,
and rights with respect thereof, necessary to conduct its business as now
conducted, without known conflict with any patent, trademark, trade name,
service mark, franchise, license, or copyright of any other Person, and in each
case, subject to no mortgage, pledge, lien, lease, encumbrance, charge, security
interest, title retention agreement, or option. All such patents, service marks,
trademark rights, trade names, trade name rights, service marks, copyrights,
franchises, and licenses are in full force and effect, the holder thereof is in
full compliance in all material respects with all of the provisions thereof, and
no such asset or agreement is subject to any pending or, to the best of the
Guarantor's knowledge, threatened attack or revocation.
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12. Compliance with Law; Absence of Default. The Guarantor is in compliance
with all Applicable Laws the non-compliance with which would have a Materially
Adverse Effect and with all of the provisions of its articles of incorporation
and by-laws, and no event has occurred or has failed to occur which has not been
remedied or waived, the occurrence or non-occurrence of which constitutes (a) a
default or event of default under any of the Loan Documents (a "Default") or (b)
a default by the Guarantor under any other indenture, agreement, or other
instrument, or any judgment, decree, or order to which the Guarantor is a party
or by which the Guarantor or any of its properties may be bound, which default
could have a Materially Adverse Effect.
13. Casualties; Taking of Properties, etc. Neither the business nor the
property of the Guarantor has been materially and adversely affected as a result
of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike
or other labor disturbance, embargo, requisition or taking of property, or
cancellation of contracts, permits, or concessions by any domestic or foreign
government or any agency thereof, riot, activities of armed forces, or acts of
God or of any public enemy.
14. Accuracy and Completeness of Information. All information, reports, and
other papers and data relating to the Guarantor furnished to the Lender were, at
the time the same were so furnished, complete and correct in all material
respects to the extent necessary to give the Lender a true and accurate
knowledge of the subject matter. No fact is currently known to the Guarantor
which has or could reasonably be expected to have a Materially Adverse Effect.
15. Compliance with Regulations G, T, U, and X. The Guarantor is not
engaged principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying, and the Guarantor
does not own or presently intend to acquire, any "margin security" or "margin
stock" as defined in Regulations G, T, U, and X (12 C.F.R. Parts 221 and 224) of
the Board of Governors of the Federal Reserve System (hereinafter referred to as
"Margin Stock"). None of the proceeds of the Loan will be used, directly or
indirectly, for the purpose of purchasing or carrying any Margin Stock or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of said
Regulations G, T, U, and X. Neither the Guarantor nor any bank acting on its or
their behalf has taken or will take any action which might cause the Guaranty to
violate Regulation G, T, U, or X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, in each case as now in effect or as the same may hereafter be in
effect. Neither the making of the Loan nor the use of proceeds thereof will
violate, or be inconsistent with, the provisions of Regulation G, T, U, or X of
said Board of Governors.
16. Solvency. The Guarantor has capital sufficient to carry on its business
and transactions in which it is about to engage, is able to pay its debts as
they mature, and owns property having a value, both at fair valuation and at
present fair salable value, greater than the amount required to pay its debts.
17. Broker's or Finder's Commissions. No broker's or finder's fee or
commission other than to Mark Kaplan will be payable with respect to the making
of the Loan or issuance of the Guaranty in connection therewith. No other
similar fees or commissions will be payable by the Guarantor for any other
services rendered to the Guarantor ancillary to the transactions contemplated
herein.
18. Business. The Guarantor is engaged in the business of making and
producing television specials and motion pictures.
19. Name of Guarantor. The Guarantor has not changed its name within the
preceding five (5) years from the date hereof and has not transacted business
under any other name or title; although the Board of Directors of Guarantor has
approved a name change to American Artist Entertainment Corporation and an
application is being submitted to have such name changed.
20. Governmental Regulation. The Guarantor is not required to obtain any
consent, approval, authorization, permit, or license which has not already been
obtained from, or effect any filing or registration which has not already been
effected with, any federal, state, or local regulatory authority in connection
with the execution and delivery of any Loan Document. The Guarantor is not
required to obtain any consent, approval, authorization, permit, or license
which has not already been obtained from, or effect any filing or registration
which has not already been effected with, any federal, state, or local
regulatory authority in connection with the performance, in accordance with
their respective terms, of any Loan Document.
21. Absence of Default. The Guarantor is in compliance in all material
respects with all of the provisions of its articles of incorporation and by-
laws, and no event has occurred or has failed to occur which has not been
remedied or waived, the occurrence or non-occurrence of which constitutes, or
with the passage of time or giving of notice, or both, would constitute (a) a
Default or (b) a default by the Guarantor under any material indenture,
agreement, or other instrument, or any judgment, decree, or order to which the
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Guarantor is a party or by which the Guarantor or any of its properties may be
bound or affected.
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The undersigned acknowledges that the Lender will rely, and is authorized
to rely, on the truth, accuracy, and completeness of the foregoing
representations, warranties, and certifications in consummating the Loan.
[EXECUTION ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of April,
1998.
AMERICAN ARTISTS FILM CORPORATION, a
Missouri corporation
By: /s/ Steven D. Brown CEO/Chairman
-----------------------------------
Steven D. Brown, Chairman/CEO
[CORPORATE SEAL]
86
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STATE OF GEORGIA
COUNTY OF FULTON
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Agreement"), is made as of the 2nd day
---
of April, 1998, by and among AMERICAN ARTISTS FILM CORPORATION, a Missouri
-----
corporation (the "Subordinated Lender"), FIRST LIGHT ENTERTAINMENT CORPORATION,
a Georgia corporation (the "Borrower"), and EMERGENT FINANCIAL CORP., a South
Carolina corporation (the "Senior Lender");
WITNESSETH:
WHEREAS, the Senior Lender has this day extended a certain loan/certain
credit facility in the aggregate principal amount of up to One Million Dollars
($1,000,000.00) (the "Loan") to First Light Entertainment Corporation, a Georgia
corporation pursuant to a certain Loan Agreement (the "Loan Agreement") of even
date by and between the Borrower and the Senior Lender; and
WHEREAS, the Loan is evidenced by that certain promissory note of even date
from the Borrower to the order of the Senior Lender in the face principal amount
of One Million Dollars ($1,000,000.00) (the "Note");
WHEREAS, the Senior Lender may, in the future, extend further loans or
credit facilities to the Borrower; and
WHEREAS, it is in the best interests of the Subordinated Lender to assist
the Borrower in obtaining from the Lender because the Borrower, and the
Subordinated Lender will therefore directly and indirectly benefit from the
making of such financial accommodations to the Borrower; and
WHEREAS, the execution and delivery of this Subordination Agreement is a
condition, among others, to the making of the Loan and the extension of any
further loans or credit by the Senior Lender to the Borrower; and
WHEREAS, the Subordinated Lender has in the past made loans or otherwise
extended credit to the Borrower, and may in the future make loans and otherwise
extend credit to the Borrower; and
NOW, THEREFORE, to induce the Senior Lender to make the Loan to the
Borrower, and in consideration of the Senior Lender's doing so, and for Ten
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Subordinated
Lender hereby agree with the Senior Lender as follows:
1. Definitions. "Senior Indebtedness" shall mean all indebtedness,
liabilities, and obligations of the Borrower to the Senior Lender, whether now
existing or hereafter created, and evidenced or secured by those certain loan
documents more particularly described in Exhibit A attached hereto and by this
reference made a part hereof, and by any other notes, security agreements, deeds
to secure debt, loan agreements, or other instruments previously, simultaneously
or hereafter executed and delivered by the Borrower to the Senior Lender whether
or not in connection with the Loan (as the same may be amended, extended,
renewed, supplemented, or replaced from time to time, hereinafter collectively
referred to as the "Loan Documents"). "Subordinated Debt" shall mean,
collectively, all indebtedness and other obligations of the Borrower to the
Subordinated Lender, however evidenced or incurred, whether direct or indirect,
absolute or contingent, now existing or hereafter arising, due or to become due.
87
<PAGE>
2. Subordination; Unauthorized Payments
(a) All Senior Indebtedness shall be paid by the Borrower in full before
any payment is made on account of any Subordinated Debt. The Borrower and
the Subordinated Lender agree that no prepayment of Subordinated Debt shall
be made while this Agreement is in effect. The Borrower and the
Subordinated Lender further acknowledge and agree that none of the
documents evidencing, securing, or otherwise pertaining to the Subordinated
Debt shall be modified, amended, renewed, extended, or otherwise altered in
any manner whatsoever without the prior written consent of the Senior
Lender.
(b) In the event that the Borrower shall make any payment on account of the
principal, interest, fees, or other amounts on or with respect to the
Subordinated Debt to the Subordinated Lender which is not permitted
hereunder, such payment shall be held by the Subordinated Lender in trust
for the benefit of and shall be paid forthwith over and delivered to the
Senior Lender for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in
full in accordance with its terms.
3. Continuing Subordination. The Subordinated Lender, for itself, its
successors, and assigns (including, without limitation, all subsequent holders
of all documents and instruments evidencing or securing the Subordinated Debt)
does hereby subordinate (a) the Subordinated Debt, (b) all documents evidencing
or securing the Subordinated Debt (as the same may be amended, extended,
renewed, supplemented, or replaced in accordance with the provisions thereof and
hereof, hereinafter collectively referred to as the "Subordinated Loan
Documents"), (c) all indebtedness and other obligations now or hereafter
evidenced or secured by the Subordinated Loan Documents, and (d) any present or
future right, title, lien, and interest it may have in and to any assets of the
Borrower or any other assets which are collateral for the Subordinated Debt or
any portion thereof, and the issues and profits therefrom, to (i) the Senior
Indebtedness, (ii) the Loan Documents, and (iii) all of the right, title, lien,
and interest held by the Senior Lender, its successors and assigns (including
all subsequent holders of the Senior Indebtedness), in and to the collateral for
the Senior Indebtedness as described in the Loan Documents (the "Collateral"),
and the rents, issues, and profits therefrom under and pursuant to the Loan
Documents and any and all extensions and supplements to the same.
4. Collateral. The Subordinated Lender agrees that if at any time the
Subordinated Lender shall be in possession of any assets of the Borrower, or any
other assets which are Collateral, the Subordinated Lender shall hold such
Collateral in trust for the Senior Lender or subsequent holder of the Senior
Indebtedness so long as any of the Senior Indebtedness remains unpaid.
5. Bankruptcy, etc. Upon any distribution of the assets or properties of
the Borrower or upon any dissolution, winding up, liquidation, or reorganization
involving the Borrower (whether in bankruptcy, insolvency, or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(a) the Senior Lender shall first be entitled to receive payment
in full of the principal of and interest on the Senior Indebtedness and all fees
and any other payments (including post-petition interest and all costs and
expenses) due pursuant to the terms of the Loan Documents, before the
Subordinated Lender is entitled to receive any payment on account of any
Subordinated Debt;
(b) any payment or distribution of the assets or properties of
the Borrower of any kind or character, whether in cash, property, or securities,
to which the Subordinated Lender would be entitled except for the provisions of
this Agreement, shall be paid by the liquidating trustee or agent or other
person making such payment or distribution directly to the Senior Lender;
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of the assets or properties of the Borrower of any kind or
character, whether in cash, property, or securities, shall be received by the
Subordinated Lender on account of principal, interest, fees, or other amounts on
or with respect to the Subordinated Debt before all Senior Indebtedness is paid
in full, such payment or distribution shall be received and held in trust for
and shall be paid over to the Senior Lender forthwith, for application to the
payment of such Senior Indebtedness until all such Senior Indebtedness shall
have been paid in full.
6. Continuing Benefits. No right of the Senior Lender or any present or
future holder of any Senior Indebtedness to enforce subordination as provided
herein shall at any time in any way be
88
<PAGE>
prejudiced or impaired by any act or failure to act on the part of any Borrower,
or by any act or failure to act, in good faith, by the holder of the Senior
Indebtedness, or by any noncompliance by any Borrower with the terms of the Note
or any other Loan Document regardless of any knowledge thereof which such holder
may have or be otherwise charged with.
7. Enforcement of Subordination. The Subordinated Lender, by its execution
of this Agreement, authorizes and expressly directs the Senior Lender to take
such action as may be necessary or appropriate, in the Senior Lender's sole
discretion, from time to time to effectuate the subordination provided herein
and appoints the Senior Lender its attorney-in-fact for such purpose, including,
without limitation, in the event of any dissolution, winding up, liquidation, or
reorganization of the Borrower (whether in bankruptcy, insolvency, or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise) tending toward liquidation of the business or the assets of the
Borrower, the immediate filing of a claim for the unpaid balance of the
Subordinated Debt in the form required in such proceedings, the voting of such
claim during the pendency of such proceedings, and the taking of all steps
necessary to cause such claim to be approved.
8. Dealings with the Borrower. The Senior Lender may extend, renew, modify,
or amend the terms of the Senior Indebtedness and any of the Loan Documents, or
increase the principal amount of the Senior Indebtedness, or extend, renew,
modify, or amend the terms of any security therefor and release, transfer,
assign, sell, or exchange such security and otherwise deal freely with the
Borrower to the same extent as could any person, all without notice to or
consent of the Subordinated Lender and without affecting the liabilities and
obligations of the Subordinated Lender, pursuant to the provisions hereof.
9. Assignment of Senior Indebtedness. The Senior Lender may assign or
transfer any or all of the Senior Indebtedness or any interest herein and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Senior Indebtedness shall be and remain Senior
Indebtedness for the purposes of this Agreement, and every immediate and
successive assignee or transferee of any of the Senior Indebtedness or of any
interest therein shall, to the extent of the interest of such assignee or
transferee in the Senior Indebtedness, be entitled to the benefits of this
Agreement to the same extent as if such assignee or transferee were the Senior
Lender; provided, however, that, unless the Senior Lender shall otherwise
consent in writing, the Senior Lender shall have an unimpaired right, prior and
superior to that of any such assignee or transferee, to enforce this Agreement,
for the benefit of the Senior Lender, as to those portions of the Senior
Indebtedness which the Senior Lender has not assigned or transferred.
10. Waiver; Modification. No delay on the part of the Senior Lender in the
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by the Senior Lender of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or remedy;
nor shall any modification or waiver of any of the provisions of this Agreement
be binding upon the Senior Lender except as expressly set forth in a writing
duly signed and delivered by or on behalf of the Senior Lender.
11. Waiver of Rights. The Subordinated Lender and the Borrower hereby waive
(a) notice of acceptance of this Agreement by the Senior Lender, (b) notice of
the existence or creation or nonpayment of all or any of the Senior
Indebtedness, and (c) all diligence in the collection or protection of or
realization upon the Senior Indebtedness or the Collateral therefor.
12. Legend. The Subordinated Lender and the Borrower hereby agree to cause
all instruments evidencing indebtedness or other obligations of the Borrower to
the Subordinated Lender which are or may be subject to the provisions of this
Subordination Agreement to be subject to an appropriate legend to the effect
that such indebtedness or other obligation evidenced by such instrument is
subordinated to the Senior Indebtedness in the manner and to the extent set
forth in this Subordination Agreement, and the Subordinated Lender will make
appropriate entries in the books and records of the Subordinated Lender to
indicate that the Subordinated Debt is subject to the Senior Indebtedness.
89
<PAGE>
13. Priority. The priorities herein specified are applicable irrespective
of the time of creation of the Borrower's indebtedness or obligations to the
Senior Lender or the Subordinated Lender.
14. Inducement; Successors and Assigns. The Borrower and the Subordinated
Lender hereby expressly agree and represent that this Agreement is to induce the
Senior Lender to make the Loan. The provisions hereof shall be binding upon the
successors and assigns of the Borrower and the Subordinated Lender, and shall
inure to the benefit of the Senior Lender and any participant of the Senior
Lender and all subsequent holders of the Senior Indebtedness or any portion
thereof. It is hereby further agreed that the Senior Lender may enforce any and
all rights derived from this Agreement by suit, either in equity or law, for
specific performance of any agreement herein contained or for judgment at law
and any other relief whatsoever appropriate to such action or procedure. In the
event this Agreement shall be enforced by the Senior Lender or by its selected
counsel, the Subordinated Lender agrees to pay all reasonable costs and expenses
(including attorneys' fees) of such enforcement.
15. Notices. Any and all notices, elections, or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election, or demand or its counsel, and shall be
delivered personally or by reputable local or national courier, or sent by
registered or certified United States mail, postage prepaid, return receipt
requested, to the other party at the address set forth below, or at such other
address within the United States of America as may have theretofore been
designated in writing at least thirty (30) days in advance. All notices,
elections, or demands shall be effective upon being delivered personally or
being deposited in the United States mail. However, the time period in which a
response to any notice, election, or demand must be given, if any, shall
commence to run from the date of personal delivery or receipt of the notice,
election, or demand. Rejection or other refusal to accept or inability to
deliver because of changed address of which no notice is given shall be deemed
to be receipt of the notice, election, or demand. For the purposes of this
Agreement:
The address of the Subordinated Lender is:
American Artists Film Corporation, a Missouri Corporation
1245 Fowler Street, N.W.
Atlanta, Georgia 30318
The address of the Borrower is:
First Light Entertainment Corporation, a Georgia corporation
1245 Fowler St., N.W.
Atlanta, Georgia 30318
The address of the Senior Lender is:
Emergent Financial Corp.
7 North Laurens Street
Suite 601
Greenville, South Carolina 29601
Attn: Connie Warne
90
<PAGE>
16. Miscellaneous. This Agreement shall be construed in accordance with,
and the rights of the parties shall be governed by, the laws of the State of
Georgia. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement. Time is of the essence of this
Agreement.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all such separate counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Borrower, the Senior Lender, and the Subordinated
Lender have executed, sealed, and delivered this Agreement as of the date first
above written.
SUBORDINATED LENDER:
AMERICAN ARTISTS FILM CORPORATION,
A Missouri Corporation
/s/ Ron Warnock By: /s/ Steven D. Brown CEO/Chairman
- --------------- --------------------------------
Witness Steven D. Brown, Chairman/CEO
[CORPORATE SEAL]
BORROWER:
FIRST LIGHT ENTERTAINMENT CORPORATION,
a Georgia Corporation
/s/ Ron Warnock By: /s/ J. Eric Van Atta (Seal)
- --------------- ------------------------------
Witness J. Eric Van Atta, Secretary
(CORPORATE SEAL)
91
<PAGE>
13. Priority. The priorities herein specified are applicable irrespective
of the time of creation of the Borrower's indebtedness or obligations to the
Senior Lender or the Subordinated Lender.
14. Inducement; Successors and Assigns. The Borrower and the Subordinated
Lender hereby expressly agree and represent that this Agreement is to induce the
Senior Lender to make the Loan. The provisions hereof shall be binding upon the
successors and assigns of the Borrower and the Subordinated Lender, and shall
inure to the benefit of the Senior Lender and any participant of the Senior
Lender and all subsequent holders of the Senior Indebtedness or any portion
thereof. It is hereby further agreed that the Senior Lender may enforce any and
all rights derived from this Agreement by suit, either in equity or law, for
specific performance of any agreement herein contained or for judgment at law
and any other relief whatsoever appropriate to such action or procedure. In the
event this Agreement shall be enforced by the Senior Lender or by its selected
counsel, the Subordinated Lender agrees to pay all reasonable costs and expenses
(including attorneys' fees) of such enforcement.
15. Notices. Any and all notices, elections, or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election, or demand or its counsel, and shall be
delivered personally or by reputable local or national courier, or sent by
registered or certified United States mail, postage prepaid, return receipt
requested, to the other party at the address set forth below, or at such other
address within the United States of America as may have theretofore been
designated in writing at least thirty (30) days in advance. All notices,
elections, or demands shall be effective upon being delivered personally or
being deposited in the United States mail. However, the time period in which a
response to any notice, election, or demand must be given, if any, shall
commence to run from the date of personal delivery or receipt of the notice,
election, or demand. Rejection or other refusal to accept or inability to
deliver because of changed address of which no notice is given shall be deemed
to be receipt of the notice, election, or demand. For the purposes of this
Agreement:
The address of the Subordinated Lender is:
American Artists Film Corporation
1245 Fowler Street, N.W.
Atlanta, Georgia 30318
The address of the Borrower is:
First Light Entertainment Corporation, a Georgia corporation
1245 Fowler St., N.W.
Atlanta, Georgia 30318
The address of the Senior Lender is:
Emergent Financial Corp.
7 North Laurens Street
Suite 601
Greenville, South Carolina 29601
Attn: Connie Warne
92
<PAGE>
16. Miscellaneous. This Agreement shall be construed in accordance with,
and the rights of the parties shall be governed by, the laws of the State of
Georgia. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement. Time is of the essence of this
Agreement.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all such separate counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Borrower, the Senior Lender, and the Subordinated
Lender have executed, sealed, and delivered this Agreement as of the date first
above written.
SUBORDINATED LENDER:
AMERICAN ARTISTS FILM CORPORATION,
A Missouri Corporation
/s/ Ron Warnock By: /s/ Steven D. Brown CEO/Chairman
- --------------- --------------------------------
Witness Steven D. Brown, Chairman/CEO
[CORPORATE SEAL]
BORROWER:
FIRST LIGHT ENTERTAINMENT CORPORATION,
a Georgia Corporation
/s/ Ron Warnock By: /s/ J. Eric Van Atta (Seal)
- --------------- ------------------------------
Witness J. Eric Van Atta, Secretary
(CORPORATE SEAL)
93
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED APRIL 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<CASH> 23,320
<SECURITIES> 0
<RECEIVABLES> 255,719
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 134,181
<DEPRECIATION> 102,756
<TOTAL-ASSETS> 1,269,474
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,415
<OTHER-SE> (170,746)
<TOTAL-LIABILITY-AND-EQUITY> 1,269,474
<SALES> 406,577
<TOTAL-REVENUES> 406,577
<CGS> 376,338
<TOTAL-COSTS> 864,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,758
<INCOME-PRETAX> (471,105)
<INCOME-TAX> 0
<INCOME-CONTINUING> (471,105)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471,105)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
