<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO ____________
COMMISSION FILE NUMBER: 0-23215
TOYMAX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3391335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 EAST BETHPAGE ROAD
PLAINVIEW, NY 11803
(Address, including zip code, of principal executive offices)
(516) 391-9898
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
(1)Yes X No
- -
(2)Yes X No
- -
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, par value $.01; 10,605,000 shares as of February 15, 1999.
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
December 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
December 31, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended December 31, 1998 and 1997 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults by the Company upon its Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 17
2
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $19,071,969 $21,500,588
Due from Factor 33,392,517 19,251,619
Accounts receivable, net 3,877,428 523,340
Due from affiliates and officers 42,456 --
Inventories 10,121,008 5,474,301
Prepaid expenses and other current assets 5,405,138 1,846,513
Deferred income taxes 2,240,098 2,240,098
----------- -----------
TOTAL CURRENT ASSETS 74,150,614 50,836,459
PROPERTY AND EQUIPMENT, NET 3,553,040 1,811,731
DEFERRED INCOME TAXES 886,461 886,461
OTHER ASSETS 9,113,511 296,940
----------- -----------
$87,703,626 $53,831,591
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Bank Credit Facility $ 3,494,147 $ --
Accounts payable 4,878,898 2,016,548
Accrued expenses 14,259,013 6,223,513
Accrued rebates and allowances 6,489,240 5,792,085
Due to affiliates 8,465,796 3,781,974
Current portion of long-term obligations 35,584 30,084
Income taxes payable 4,871,276 1,237,332
----------- -----------
TOTAL CURRENT LIABILITIES 42,493,954 19,081,536
LONG-TERM OBLIGATIONS 40,092 47,162
----------- -----------
TOTAL LIABILITIES 42,534,046 19,128,698
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
5,000,000 shares authorized; none outstanding -- --
Common stock, par value $.01 per share;
50,000,000 shares authorized; 10,605,000 shares
issued and outstanding 106,050 106,050
Additional paid-in capital 23,059,355 23,059,355
Retained earnings 22,019,327 11,552,640
Accumulated other comprehensive income (15,152) (15,152)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 45,169,580 34,702,893
----------- -----------
$87,703,626 $53,831,591
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $46,269,930 $35,754,227 $95,669,024 $80,021,136
----------- ----------- ----------- -----------
COST AND EXPENSES:
Cost of goods sold 24,827,668 20,020,690 55,598,398 44,091,466
Selling and administrative 14,366,117 9,707,552 26,352,745 21,182,147
----------- ----------- ----------- -----------
39,193,785 29,728,242 81,951,143 65,273,613
----------- ----------- ----------- -----------
OPERATING INCOME 7,076,145 6,025,985 13,717,881 14,747,523
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Other income, net 262,058 269,407 461,277 212,299
Interest income 247,166 191,623 826,091 222,152
Interest expense (39,422) (234,873) (43,956) (619,001)
Finance charges (251,499) (307,691) (478,465) (693,871)
----------- ----------- ----------- -----------
218,303 (81,534) 764,947 (878,421)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 7,294,448 5,944,451 14,482,828 13,869,102
PROVISION FOR INCOME TAXES 2,224,141 1,442,285 4,016,141 3,664,898
----------- ----------- ----------- -----------
NET INCOME $ 5,070,307 $ 4,502,166 $10,466,687 $10,204,204
=========== =========== =========== ===========
BASIC INCOME PER SHARE $ 0.48 $ 0.46 $ 0.99 $ 1.23
=========== =========== =========== ===========
DILUTED INCOME PER SHARE $ 0.48 $ 0.46 $ 0.99 $ 1.23
=========== =========== =========== ===========
SHARES USED IN COMPUTING BASIC INCOME
PER SHARE 10,605,000 9,809,674 10,605,000 8,272,691
=========== =========== =========== ===========
SHARES USED IN COMPUTING DILUTED INCOME
PER SHARE 10,605,000 9,832,052 10,605,000 8,280,177
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
4
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TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,466,687 $ 10,204,204
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 824,789 897,522
Bad debts 20,470 122,020
Non-cash transactions (6,560,022) 187,000
Changes in deferred income taxes -- (1,505,000)
Changes in operating assets and liabilities:
Due from Factor and accounts receivable (17,215,151) (19,307,782)
Due from affiliates -- (291)
Inventories (2,568,053) 284,086
Prepaid expenses and other assets (1,419,429) (604,375)
Income tax refunds receivable 47,207 --
Accounts payable and accruals 10,065,072 11,470,745
Due to affiliates 4,683,822 (5,907,924)
Income taxes payable 3,633,944 2,540,624
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,979,336 (1,619,171)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (2,471,251) (932,563)
Acquisitions (4,786,852) --
Repayments from officers 2,500 149,680
Advances to officers (44,956) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (7,300,559) (782,883)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank loan (599,973) --
Increase in bank credit facility 3,494,147 (1,829,129)
(Decrease) increase in long-term obligations (1,570) (69,814)
Proceeds from issuance of common stock -- 23,029,082
Loans from officers -- (504,032)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,892,604 20,626,107
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,428,619) 18,224,053
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 21,500,588 564,659
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,071,969 $ 18,788,712
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 12,593 $ 654,713
============ ============
Income taxes paid $ 375,341 $ 2,660,798
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Capital lease obligations incurred $ 22,391 $ 95,240
============ ============
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
5
<PAGE>
TOYMAX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
- ----------------------------------------------------
The accompanying unaudited condensed consolidated financial statements of Toymax
International, Inc. ("Toymax" or the "Company") include the accounts of the
Company and its subsidiaries after elimination of all material intercompany
accounts and transactions, and have been prepared in accordance with the
instructions to Form 10-Q. Accordingly, the unaudited condensed consolidated
financial statements do not include all of the financial information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The balance sheet at March 31, 1998 has been derived from the
audited balance sheet at that date. It is suggested that these condensed
consolidated financial statements, which are presented in U.S. Dollars, be read
in conjunction with the consolidated financial statements and related notes
included in the Company's Form 10-K for the fiscal year ended March 31, 1998.
The Company follows the same accounting policies in preparation of interim
reports. The results of operations and financial position for interim periods
are not necessarily indicative of those to be expected for a full year, due, in
part, to seasonal fluctuations which are normal for the Company's business.
NOTE 2 - EARNINGS PER SHARE
For the calculation of earnings per share for the three and nine months ended
December 31, 1998, all of the Company's options and warrants are excluded from
basic and diluted earnings per share because they are anti-dilutive. There were
22,378 and 7,486 options and warrants outstanding for the three and nine months
ended December 31, 1997.
NOTE 3 - COMPREHENSIVE INCOME
Total comprehensive income for the three and nine months ended December 31, 1998
and December 31, 1997 is the same as the reported net income.
NOTE 4 - NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued a new disclosure
standard. Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities, establishes a standard for
the way that companies record derivatives. Effective for fiscal years beginning
after June 15, 1999, derivatives must be reported on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the value of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. While management
has been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures, it is not believed that this standard will have
a material impact on the Company's operations.
6
<PAGE>
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Inventories consist principally of purchased finished goods.
NOTE 6 - INCOME TAXES
The Company provides for income taxes during interim periods based upon an
estimate of the effective annual tax rate.
NOTE 7 - RECLASSIFICATIONS
Certain December 31, 1997 amounts were reclassified to conform to the December
31, 1998 presentation.
NOTE 8 - ACQUISITION OF ASSETS
On December 23, 1998, a wholly owned subsidiary of Toymax International, Inc.
acquired certain of the assets and liabilities of Go Fly A Kite, Inc. ("GFK").
GFK is a creator and distributor of a full line of kites, flags, windsocks and
other related products. The aggregate consideration for the acquisition was
$5,725,000 (the "Purchase Price"). A portion of the Purchase Price, amounting to
$1,300,000 is payable on December 1, 1999 and is contingent upon the achievement
of certain operating results for the twelve month period ending August 31, 1999.
An additional payment of up to $150,000 will be paid if certain operating
results for the twelve-month period ending August 31, 1999 exceed specified
thresholds. The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the results of operations of GFK, immaterial in the
current period, have been included in the Company's consolidated financial
statements from the date of acquisition. The excess of cost, including various
acquisition costs, over the estimated fair market value of tangible net assets
acquired was approximately $4,300,000, which is being amortized on a
straight-line basis over 15 years and is included in other assets.
NOTE 9 - BARTER TRANSACTION
In December 1998, the Company entered into an agreement with a broker of
media advertising, whereby the Company sold and transferred title to
merchandise of the Company having a fair value of approximately $6.6 million
in exchange for trade credits. Based upon the Company's historical use of
barter credits in the purchase of its advertising as well as the Company's
current advertising budget, the Company has recorded a portion of the asset
as a current prepaid asset with the remaining balance recorded as a long-term
asset.
NOTE 10 - SUBSEQUENT EVENTS
In February 1999, the Company replaced its line of credit facility with State
Street Bank and Trust Company, Hong Kong Branch with a new agreement between
Toymax Inc., its domestic operating company, State Street Bank and Trust Company
(the "Bank") and Congress Talcott Corporation ("CTC"), as collateral agent.
7
<PAGE>
Pursuant to the new agreement, the Company may borrow up to $30.0 million. Up
to $25.0 million may be borrowed against eighty percent (80%) of the
Company's eligible accounts receivable factored by CTC (the "Borrowing
Base"). The Borrowing Base may be reduced as a result of certain historical
trends. The remaining $5.0 million is not subject to the Borrowing Base. The
agreement further provides for the issuance of Letters of Credit on behalf of
the GFK subsidiary of up to $2.5 million as part of the overall availability.
Toymax International, Inc. is a guarantor under the line of credit agreement and
the Bank is secured by the accounts receivable and inventory of Toymax Inc. and
GFK. The agreement calls for certain restrictions relating to particular
investments and to the payment of dividends. Borrowings under the agreement are
due on demand and bear interest at the Bank's U.S. prime rate or, with respect
to the $25.0 million, at a Libor rate plus 1.75% and, with respect to the
remaining $5.0 million, at a Libor rate plus 2.25%, at the Company's option.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS QUARTERLY REPORT PURSUANT
TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995:
From time to time, information provided by the Company or statements made by its
employees may contain "forward-looking" statements, as that term is defined in
the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "may," "estimate," "continue,"
"intends," "expects," and similar expressions are intended to identify
forward-looking statements.
This Form 10-Q may contain forward-looking statements, which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors that could cause such a
difference include, without limitation, subsequent changes in retail
sell-through of the Company's products; differences between bookings received
from customers and actual orders received; changing consumer preferences; the
demand for Laser Challenge and other products of the Company; the Company's
dependence on timely development, introduction and customer acceptance of new
products; possible weakness of the Company's markets; dependence on a limited
number of major customers; the impact of competition on revenues, margins and
pricing; the effect of currency fluctuations; other risks and uncertainties as
may be disclosed from time to time in the Company's public announcements; the
general state of the economy in the United States and other major markets;
customer inventory levels; the cost and availability of raw materials and
changes in trade relations regarding the People's Republic of China. The risks
highlighted herein should not be assumed to be the only things that could affect
the future performance of the Company. Readers are referred to the documents
filed by the Company with the Securities and Exchange Commission, specifically,
the most recent reports filed under the Securities Exchange Act of 1934 and the
registration statement filed pursuant to the Securities Act of 1933 in
connection with its October 1997 initial public offering (Registration No.
333-33409), which identify important risk factors.
RESULTS OF OPERATIONS
FOR PURPOSES OF THE THREE AND NINE MONTH COMPARISONS BELOW, FIGURES REFERRING TO
THE FINANCIAL PERFORMANCE OF TOYMAX INC. (WHICH HAS CONDUCTED THE COMPANY'S U.S.
DOMESTIC SALES) ARE REFERRED TO AS THE "U.S. DOMESTIC OPERATION" AND THOSE
REFERRING TO THE PERFORMANCE OF TOYMAX (H.K.) LIMITED (WHICH HAS CONDUCTED THE
TOYMAX HK SALES) ARE REFERRED TO AS THE "FOB HONG KONG OPERATION."
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH THE THREE MONTHS ENDED
DECEMBER 31, 1997
NET SALES. Net sales for the quarter ended December 31, 1998 increased to
$46.3 million from $35.8 million for the quarter ended December 31, 1997, an
increase of $10.5 million, or 29.4%.
9
<PAGE>
Net sales of the FOB Hong Kong Operation increased 89.9% to $8.9 million,
or 19.2% of total net sales, in the quarter ended December 31, 1998 from $4.7
million, or 13.1% of total net sales, in the quarter ending December 31, 1997.
Net sales of the U.S. Domestic Operation increased 20.3% to $37.4 million, or
80.8% of total net sales, in the quarter ended December 31, 1998, from $31.1
million, or 86.9% of total net sales, for the quarter ended December 31, 1997.
The increase in net sales was primarily due to a combination of the successful
introduction of new product lines including the Arcadia(TM) Electronic Skeet
Shoot gaming system, the R.A.D.(TM) Robot as well as a line of Spice Girls(TM)
products and the continued strong performance of the Mighty Mo's(TM) vehicle
line and Nintendo(R) Mini Classics hand held games. These increases were
partially offset by decreased sales of the Laser Challenge(TM) product line.
GROSS PROFIT. Gross Profit for the quarter ended December 31, 1998,
increased by $5.7 million, or 36.3%, to $21.4 million, or 46.3% of net sales,
from $15.7 million, or 44.0% of net sales, for the quarter ended December 31,
1997.
Gross profit percentages increased slightly at both the U.S. Domestic and
FOB Hong Kong Operations primarily as a result of lower customer allowances and
shipping costs as a percentage of net sales.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for the quarter ended December 31, 1998 increased by $4.7 million, or 48.0%, to
$14.4 million, or 31.0% of net sales, from $9.7 million, or 27.2% of net sales,
for the quarter ended December 31, 1997. The increase in selling and
administrative expenses was mainly attributable to an increase in planned
advertising expenses of $3.8 million, primarily to support the launch of the
Company's Arcadia Electronic Skeet Shoot game system, R.A.D. Robot and
additional costs to promote a line of Spice Girls' products.
OPERATING INCOME. As a result of the foregoing, the operating income for
the quarter ended December 31, 1998 increased by $1.1 million, or 17.4%, to $7.1
million from $6.0 million for the quarter ended December 31, 1997.
INTEREST INCOME (EXPENSE), NET. Net interest income for the quarter
ended December 31, 1998 was $0.2 million, compared to a net interest expense
of $40,000 for the quarter ended December 31, 1997, an increase of $0.2
million, or 580.3%. The increase in net interest income was primarily due to
a reduction in average borrowing levels.
INCOME BEFORE TAXES. Income before taxes for the quarter ending December
31, 1998 increased by $1.4 million, or 22.7%, to $7.3 million, from $5.9 million
for the quarter ended December 31, 1997.
PROVISION FOR INCOME TAXES. The increase in the effective tax rate from 24%
for the quarter ended December 31, 1997 to 31% for the quarter ended December
31, 1998 reflects a higher effective tax rate for the U.S. Domestic Operation.
The lower tax rate in the prior year was primarily due to a one-time tax benefit
of $0.6 million resulting from the reversal of all the remaining valuation
allowances provided against certain tax assets.
NET INCOME. As a result of the foregoing, net income for the quarter ended
December 31, 1998 increased to $5.1 million, or $0.48 per share, from $4.5
million, or $0.46 per share, for the quarter ended December 31, 1997, an
increase of $0.6 million or 12.6% from the quarter ended December 31, 1997.
10
<PAGE>
Nine months ended December 31, 1998 compared with the nine months ended
December 31, 1997
NET SALES. Net sales in the nine months ended December 31, 1998 increased
to $95.7 million from $80.0 million in the nine months ended December 31, 1997,
an increase of $15.7 million, or 19.6%.
Net sales of the FOB Hong Kong Operation increased 74.3% to $34.9 million,
or 36.4% of total net sales, in the nine months ended December 31, 1998 from
$20.0 million, or 25.0% of total net sales, in the nine months ended December
31, 1997. The increase in net sales was primarily due to a combination of the
successful launches of a line of Spice Girls products, the Arcadia Electronic
Skeet Shoot game system and R.A.D. Robot, an increase in the sales of the
Precious Metals(TM) product line and the continued strong performance of the
Mighty Mo's vehicle line and Nintendo Mini Classics hand held games.
Net Sales of the U.S. Domestic Operation increased 1.3% to $60.8 million,
or 63.6% of total net sales, in the nine months ended December 31, 1998, from
$60.0 million, or 75.0% of total net sales, in the nine months ended December
31, 1997. The increase in net sales was mainly attributable to the sales of new
products, including a line of Spice Girls toys, the Arcadia Skeet Shoot game
system and the R.A.D. Robot as well as sales of the Mighty Mo's vehicle line and
Nintendo Mini Classics, partially offset by the decreased sales of the Laser
Challenge product line.
GROSS PROFIT. Gross Profit for the nine months ended December 31, 1998
increased by $4.1 million, or 11.5%, to $40.1 million, or 41.9% of net sales,
from $36.0 million, or 44.9% of net sales, for the nine months ended December
31, 1997. The decrease in gross profit as a percentage of net sales was
primarily attributable to the increased sales of products by the FOB Hong Kong
Operation, which historically carry a lower gross profit. Additionally, changes
in the Company's product mix and higher sales promotion costs in the first
quarter stemming from lower than expected retail demand for the Company's
CyberSplash(TM) product, introduced in the U.S. during this calendar year, also
contributed to the decline.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses in
the nine months ended December 31, 1998 increased by $5.2 million, or 24.4%, to
$26.4 million, or 27.5% of net sales, from $21.2 million, or 26.5% of net sales,
in the nine months ended December 31, 1997. The increase in selling and
administrative expenses in dollars and as a percentage of sales was mainly
attributable to increased advertising expenditures required to support the
launch of the Company's Arcadia Electronic Skeet Shoot game system and R.A.D.
Robot as well as to promote a line of Spice Girls Products.
OPERATING INCOME. As a result of the foregoing, the operating income for
the nine months ended December 31, 1998 decreased by $1.0 million, or 7.0%, to
$13.7 million from $14.7 million for the nine months ended December 31, 1997.
INTEREST INCOME (EXPENSE), NET. Net interest income in the nine months
ended December 31, 1998 was $0.8 million, compared to a net interest expense of
$0.4 million in the nine months ended December 31, 1997, an increase of $1.2
million, or 297.1%. The increase in net interest income was primarily due to the
investment of excess cash for nine months versus the two months of fiscal 1998
following the Company's initial public offering in October 1997, as well as
lower borrowing levels.
11
<PAGE>
OTHER EXPENSE, NET. Net other expense for the nine months ended December
31, 1998 was $20,000, compared to a net other expense of $0.5 million for the
nine months ended December 31, 1997, a decrease of $0.5 million, or 96.4%. The
decrease was primarily due from a decrease in finance charges due to a reduction
in the rate charged on factored sales.
INCOME BEFORE TAXES. Income before taxes for the nine months ending
December 31, 1998 increased by $0.6 million to $14.5 million, compared to income
before taxes of $13.9 million for the nine months ended December 31, 1997.
PROVISION FOR INCOME TAXES. The effective tax rate for the nine months
ending December 31, 1998 increased to 28% from 26% for the nine months ended
December 31, 1997. The increase was affected by two factors, a lower tax rate in
the prior year due to a one-time tax benefit of $0.6 million resulting from the
reversal of all the remaining valuation allowances provided against certain tax
assets and a higher income contribution by the Company's FOB Hong Kong Operation
in the current year, which is subject to a lower effective tax rate than the
U.S. Domestic Operation.
NET INCOME. As a result of the foregoing, the net income in the nine months
ended December 31, 1998 increased to $10.5 million, or $0.99 per share, from
$10.2 million, or $1.23 per share, in the nine months ended December 31, 1997,
an increase of $0.3 million or 2.6% from the nine months ended December 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its operations and capital requirements from
cash generated from operations and from financing activities. During the nine
months ended December 31, 1998, cash and cash equivalents decreased $2.4 million
to $19.1 million.
The Company's operating activities provided net cash of approximately $2.0
million, which was due to net income of $10.5 million and adjustments of $0.8
million primarily offset by a non-cash barter sale of $6.6 million in exchange
for trade credits and a net increase in operating assets and liabilities of $2.8
million. This net increase in operating assets and liabilities includes a $17.2
million increase in due from factor and accounts receivable and a $4.0 million
increase in inventories prepaids and other assets. This was partially offset by
increases in accounts payable and accruals of $10.1 million and increases in
income taxes payable and due to affiliates totaling $8.3 million.
Investing activities used $7.3 million in net cash including $4.8 million
related to the acquisition of Go Fly A Kite. Capital expenditures, principally
for the purchase of tooling for new products and equipment, were $2.5 million
for the nine months ended December 31, 1998 compared to $0.9 million for the
nine months ended December 31, 1997.
Financing activities provided $2.9 million in net cash which included a $3.5
million increase in the bank loan, offset by a $0.6 million bank loan repayment,
resulting primarily from the acquisition of Go Fly A Kite.
12
<PAGE>
The Company expects to fund its near-term cash requirements from a combination
of existing cash balances, cash flow from operations and borrowings under its
credit facility with State Street Bank and Trust Company. The Company expects to
finance its longer-term growth primarily from cash flow from operations and with
externally generated funds that will likely include borrowings under its
existing or future credit facilities. There can be no assurance that sufficient
cash flows from operations will materialize or that financing under a credit
facility will be available in amounts, or at rates, or on terms and conditions
acceptable to the Company. In such event, additional funding would be required.
In connection with any future cash needs or acquisition opportunities, the
Company may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors.
RECENT INFORMATION
In February 1999, the Company replaced its line of credit facility with State
Street Bank and Trust Company, Hong Kong Branch with a new agreement between
Toymax Inc., its domestic operating company, State Street Bank and Trust Company
(the "Bank") and Congress Talcott Corporation ("CTC"), as collateral agent.
Pursuant to the new agreement, the Company may borrow up to $30.0 million. Up to
$25.0 million may be borrowed against eighty percent (80%) of the proceeds of
the Company's eligible accounts receivable factored by CTC (the "Borrowing
Base"). The Borrowing Base may be reduced as a result of certain historical
trends. The remaining $5.0 million is not subject to the Borrowing Base. The
agreement further provides for the issuance of Letters of Credit on behalf of
the GFK subsidiary of up to $2.5 million as part of the overall availability.
Toymax International, Inc. is a guarantor under the line of credit agreement and
the Bank is secured by the accounts receivable and inventory of Toymax Inc. and
GFK. The agreement calls for certain restrictions relating to particular
investments and to the payment of dividends. Borrowings under the agreement are
due on demand and bear interest at the Bank's U.S. prime rate or, with respect
to the $25.0 million, at a Libor rate plus 1.75% and, with respect to the
remaining $5.0 million, at a Libor rate plus 2.25%, at the Company's option.
ACQUISITIONS AND NONRECURRING ITEMS
On December 23, 1998, a wholly owned subsidiary of Toymax International, Inc.
acquired certain of the assets and liabilities of Go Fly A Kite, Inc. ("GFK").
GFK is a creator and distributor of a full line of kites, flags, windsocks and
other related products. The aggregate consideration for the acquisition was
$5,725,000 (the "Purchase Price"). A portion of the Purchase Price was paid
through funds available under the Company's credit facility with State Street
Bank and Trust Company, Hong Kong Branch. The balance of the purchase price was
funded utilizing cash from operations.
YEAR 2000 COMPLIANCE
The Company has evaluated and is in the process of updating its internal
Management Information Systems to ensure that it will have the capability to
manage and manipulate data in the year 2000 and beyond. As the Company takes
measures to be in compliance, new programs are currently being tested. The
Company's information technology ("IT") systems are substantially year 2000
compliant. Costs incurred by the Company to date to implement its plan
13
<PAGE>
have not been material and are not expected to have a material effect on the
Company's financial condition or results of operations.
The Company is continuing its assessment of the compliance of its non-IT
systems. It is anticipated that these systems will be compliant by December 31,
1999.
The Company has addressed year 2000 compliance with its major customers and
vendors and anticipates that those key business partners who are not as yet
compliant will be prior to the year 2000. However, any significant disruption
in the flow of new products or of the Company's ability to communicate
electronically with its customers and suppliers could negatively impact the
Company's business, financial condition and results of operations. To that
end, the Company is attempting to discuss and develop contingency plans with
these and other participants in the Company's industry, including suppliers,
financial institutions and trading partners, which would be implemented, if
in fact they do experience functional or data abnormalities as the result of
non-compliance.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen countries of the European Union
established fixed conversion rates between their existing sovereign currencies
("legacy currencies") and a single currency called the Euro. The participating
countries adopted the Euro as their common legal currency on that date. The
legacy currencies are scheduled to remain legal tender as denominations of the
Euro during the transition period from January 1, 1999 to January 1, 2002.
Beginning January 1, 2002, Euro-denominated bills and coins will be introduced
and by July 1, 2002, legacy currencies will no longer be legal tender. The Euro
has begun trading on currency exchanges and is available for non-cash
transactions.
The Company deals exclusively in U.S. dollars for all its international sales
and as such does not believe that the conversion to the Euro will have a
significant impact on its operations.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required
14
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary course of
its business activities. The Company believes that the resolution of such legal
proceedings and claims, individually and in aggregate, are not likely to have a
material adverse effect on its financial position or results of operations.
Reference is made to Part I, Item 3, Legal Proceedings, in the Registrant's
Annual Report on Form 10-K for the year ended March 31, 1998 for a description
of Link Group International v. Toymax Inc., U.S. District Court for the District
of Connecticut.
The Company has been notified by the Internal Revenue Service concerning a
pending examination covering tax years 1993, 1994 and 1995. As of the date of
this Form 10-Q, no issues have been raised by the Internal Revenue Service. The
Company cannot predict at this time what the outcome of the examination will be
or the impact on the Company's financial condition or results of operations, if
any.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Reference is made to Part II, Item 5, Market for the Registrant's Common Equity
and Related Stockholder Matters, in the Registrant's Annual Report on Form 10-K
for the year ended March 31, 1998.
The Company has utilized the remaining net proceeds from its initial public
offering in conjunction with the acquisition of Go Fly A Kite, Inc.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third quarter
ended December 31, 1998.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
A. Asset Purchase Agreement between Go Fly A Kite Acquisition
Corp. and GFK dated December 23, 1998.
10.7(b) Credit Facility Agreement dated February 3, 1999 between the
Company and State Street and Trust Company and Congress
Talcott Corporation.
15
<PAGE>
b) Reports on Form 8-K
A Current Report on Form 8-K, dated January 6, 1999, was filed by the
Company announcing the acquisition of certain of the assets and
liabilities of Go Fly A Kite, Inc.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOYMAX INTERNATIONAL, INC.
--------------------------
(Registrant)
By /s/ Steven A. Lebensfeld
------------------------
Steven A. Lebensfeld
President and Director
By /s/ William A. Johnson, Jr.
---------------------------
William A. Johnson, Jr.
Senior Vice President - Finance,
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
Date: February 15, 1999
17
<PAGE>
Exhibit 10.7(b)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LINE OF CREDIT AGREEMENT
among
TOYMAX, INC.
and
STATE STREET BANK AND TRUST COMPANY
and
CONGRESS TALCOTT CORPORATION
AS COLLATERAL AGENT
Dated February 3, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION............................ 1
Section 1.1. DEFINITIONS........................................ 1
Section 1.2. RULES OF INTERPRETATION............................ 10
2. THE CREDIT FACILITIES.............................................. 11
Section 2.1. DISCRETIONARY LOANS................................ 11
Section 2.2. THE NOTE........................................... 11
Section 2.3. REDUCTION OF LINE CEILING......................... 11
Section 2.4. INTEREST ON CREDIT LOANS........................... 11
Section 2.5. REQUESTS FOR CREDIT LOANS.......................... 12
Section 2.6. DEMAND OBLIGATIONS................................. 12
Section 2.7. MANDATORY REPAYMENTS OF CREDIT LOANS............... 12
Section 2.8. OPTIONAL PREPAYMENTS OF CREDIT LOANS............... 12
Section 2.9. EARLY TERMINATION FEE.............................. 12
Section 2.10. CONVERSION OPTIONS................................. 13
Section 2.11. FUNDS FOR CREDIT LOANS............................. 13
Section 2.12. ESTABLISHMENT OF LETTER OF CREDIT FACILITY......... 14
Section 2.13. L/C'S FEES......................................... 14
Section 2.14. EFFECT OF HONOR OF L/C'S........................... 14
Section 2.15. ADDITIONAL PROVISIONS RELATING TO L/C'S............ 14
3. CERTAIN GENERAL PROVISIONS......................................... 17
Section 3.1. CLOSING FEE........................................ 17
Section 3.2. FUNDS FOR PAYMENTS................................. 17
Section 3.3. COMPUTATIONS....................................... 18
Section 3.4. INABILITY TO DETERMINE LIBOR RATE.................. 18
Section 3.5. ILLEGALITY......................................... 18
Section 3.6. ADDITIONAL COSTS, ETC.............................. 19
Section 3.7. CAPITAL ADEQUACY................................... 20
Section 3.8. CERTIFICATE........................................ 20
Section 3.9. INDEMNITY.......................................... 20
Section 3.10. INTEREST AFTER DEFAULT............................. 21
Section 3.11. LIMITATIONS ON INTEREST PERIODS.................... 21
4. COLLATERAL SECURITY................................................ 21
5. REPRESENTATIONS AND WARRANTIES..................................... 21
Section 5.1. CORPORATE AUTHORITY; ETC........................... 21
Section 5.2. GOVERNMENTAL APPROVALS............................. 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C> <C>
Section 5.3. TITLE TO PROPERTIES; LEASES........................ 22
Section 5.4. FINANCIAL STATEMENTS............................... 22
Section 5.5. NO MATERIAL CHANGES, ETC........................... 23
Section 5.6. FRANCHISES, PATENTS, COPYRIGHTS,
INFRASTRUCTURE, ETC............................... 23
Section 5.7. LITIGATION......................................... 23
Section 5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC............... 23
Section 5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC....... 24
Section 5.10. TAX STATUS......................................... 24
Section 5.11. NO EVENT OF DEFAULT................................ 24
Section 5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS........ 24
Section 5.13. ABSENCE OF UCC FINANCING STATEMENTS, ETC........... 24
Section 5.14. SETOFF, ETC........................................ 24
Section 5.15. CERTAIN TRANSACTIONS............................... 24
Section 5.16. EMPLOYEE BENEFIT PLANS; MULTIEMPLOYER PLANS;
GUARANTEED PENSION PLANS.......................... 25
Section 5.17. REGULATIONS T, U, AND X............................ 25
Section 5.18. ENVIRONMENTAL COMPLIANCE........................... 25
Section 5.19. SUBSIDIARIES....................................... 26
Section 5.20. DELIVERY OF LEASES................................. 26
Section 5.21. LOAN DOCUMENTS..................................... 26
6. AFFIRMATIVE COVENANTS OF THE BORROWER.............................. 26
Section 6.1. PUNCTUAL PAYMENT................................... 26
Section 6.2. MAINTENANCE OF OFFICE.............................. 26
Section 6.3. RECORDS AND ACCOUNTS............................... 26
Section 6.4. FINANCIAL STATEMENTS, CERTIFICATES AND
INFORMATION....................................... 26
Section 6.5. NOTICES............................................ 28
Section 6.6. EXISTENCE; MAINTENANCE OF PROPERTIES............... 29
Section 6.7. INSURANCE.......................................... 29
Section 6.8. TAXES.............................................. 29
Section 6.9. INSPECTION OF PROPERTIES AND BOOKS................. 29
Section 6.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES,
AND PERMITS....................................... 30
Section 6.11. USE OF PROCEEDS.................................... 30
Section 6.12. BANK ACCOUNTS...................................... 30
Section 6.13. FURTHER ASSURANCES................................. 30
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER......................... 30
Section 7.1. RESTRICTIONS ON INDEBTEDNESS....................... 30
Section 7.2. RESTRICTIONS ON LIENS, ETC......................... 31
Section 7.3. RESTRICTIONS ON INVESTMENTS........................ 32
Section 7.4. MERGER, CONSOLIDATION.............................. 33
Section 7.5. SALE AND LEASEBACK................................. 33
Section 7.6. COMPLIANCE WITH ENVIRONMENTAL LAWS................. 33
Section 7.7. DISTRIBUTIONS...................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C> <C>
Section 7.8. SUBSIDIARIES....................................... 34
Section 7.9. FISCAL YEAR........................................ 34
Section 7.10. LOANS AND ADVANCES................................. 34
8. CLOSING CONDITIONS................................................. 34
Section 8.1. LOAN DOCUMENTS..................................... 34
Section 8.2. CERTIFIED COPIES OF ORGANIZATION DOCUMENTS......... 34
Section 8.3. BY-LAWS; RESOLUTIONS............................... 34
Section 8.4. INCUMBENCY CERTIFICATE; AUTHORIZED SIGNERS......... 35
Section 8.5. VALIDITY OF LIENS.................................. 35
Section 8.6. BORROWING BASE REPORT.............................. 35
Section 8.7. CORPORATE STRUCTURE................................ 35
Section 8.8. LITIGATION......................................... 35
Section 8.9. EVIDENCE OF INSURANCE.............................. 35
Section 8.10. FINANCIAL STATEMENTS............................... 35
Section 8.11. COMPLIANCE WITH LAW................................ 36
Section 8.12. OPINION OF COUNSEL CONCERNING ORGANIZATION
AND LOAN DOCUMENTS 36
Section 8.13. PAYMENT OF FEES AND EXPENSES....................... 36
Section 8.14. GUARANTIES......................................... 36
Section 8.15. PARTICIPATION AGREEMENT............................ 36
Section 8.16. ADDITIONAL DOCUMENTS............................... 36
9. CONDITIONS TO ALL BORROWINGS....................................... 36
Section 9.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT.......... 36
Section 9.2. NO LEGAL IMPEDIMENT................................ 37
Section 9.3. GOVERNMENTAL REGULATION............................ 37
Section 9.4. PROCEEDINGS AND DOCUMENTS.......................... 37
10. EVENTS OF DEFAULT; ACCELERATION; ETC............................... 37
Section 10.1. EVENTS OF DEFAULT AND ACCELERATION................. 37
Section 10.2. TERMINATION OF CREDIT LOANS........................ 40
Section 10.3. REMEDIES........................................... 40
Section 10.4. DISTRIBUTION OF COLLATERAL PROCEEDS................ 40
11. SETOFF............................................................. 41
12. THE COLLATERAL AGENT............................................... 41
Section 12.1. AUTHORIZATION...................................... 41
Section 12.2. EMPLOYEES AND AGENTS............................... 42
Section 12.3. NO LIABILITY....................................... 42
Section 12.4. NO REPRESENTATIONS................................. 42
Section 12.5. PAYMENTS........................................... 42
Section 12.6. INDEMNITY.......................................... 43
Section 12.7. RESIGNATION........................................ 43
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C> <C>
Section 12.8. DUTIES IN THE CASE OF ENFORCEMENT.................. 43
Section 12.9. COMPENSATION....................................... 44
13. EXPENSES........................................................... 44
14. INDEMNIFICATION.................................................... 44
15. SURVIVAL OF COVENANTS, ETC......................................... 45
16. ASSIGNMENT AND PARTICIPATION....................................... 45
Section 16.1. PLEDGE BY LENDER................................... 45
Section 16.2. PLEDGE TO FEDERAL RESERVE.......................... 45
Section 16.3. NO ASSIGNMENT BY BORROWER.......................... 46
Section 16.4. DISCLOSURE......................................... 46
17. NOTICES, ETC....................................................... 46
18. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE................. 46
19. HEADINGS........................................................... 47
20. COUNTERPARTS....................................................... 47
21. ENTIRE AGREEMENT, ETC.............................................. 47
22. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS..................... 47
23. CONSENTS, AMENDMENTS, WAIVERS, ETC................................. 48
24. SEVERABILITY....................................................... 48
</TABLE>
iv
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
SECTION
- -------
<S> <C>
A. Form of Note
B. Form of Loan Request
C. Form of Notice of Conversion
D. Form of L/C Agreement
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
SECTION
- -------
<S> <C>
5.7 Litigation
5.16 Employee Benefit Plans
5.18 Hazardous Substances and Underground Tanks
5.19 Subsidiaries
6.7 Insurance
7.1 Outstanding Indebtedness
7.2 Outstanding Liens
7.3 Outstanding Investments
7.4 Pre-approved Acquisitions
15 Survival of Covenants
</TABLE>
v
<PAGE>
LINE OF CREDIT AGREEMENT
This CREDIT AGREEMENT is made as of the 3rd day of February, 1999, by and
among TOYMAX, INC. (the "BORROWER"), a New York corporation with its principal
executive offices at 125 East Bethpage Road, Plainview, New York 11803 and STATE
STREET BANK AND TRUST COMPANY (THE "LENDER"), a Massachusetts trust company with
its principal place of business at 225 Franklin Street, Boston, Massachusetts
02110, and CONGRESS TALCOTT CORPORATION, as collateral agent for the Lender (in
such capacity, the "COLLATERAL AGENT").
1. DEFINITIONS AND RULES OF INTERPRETATION.
Section 1.1. Definitions. The following terms shall have the meanings set
forth in this Section 1 or elsewhere in the provisions of this Agreement
referred to below:
ACCOUNTS. "Accounts" as defined in the UCC and also all accounts receivable
and other forms of obligations and rights to payment for credit extended for
goods sold or leased, or services rendered.
ACQUISITION. The purchase or other acquisition, by the Borrower or by any
Subsidiary (no matter how structured in one transaction or in a series of
transactions), of: (a) equity interests in any other Person which would
constitute or which results in a Change in Control of such other Person, or (b)
a substantial portion of the assets of any Person.
ADVANCE RATE. Eighty percent (80.0%) less the Dilution Reserve, if any.
AGREEMENT. This Line of Credit Agreement, including the SCHEDULES and
EXHIBITS hereto, all as modified, amended, supplemented or restated.
APPLICABLE MARGIN. The per annum rates set forth below for Prime Rate Loans
and LIBOR Rate Loans:
<TABLE>
<CAPTION>
PRIME RATE LOANS LIBOR RATE LOANS
NATURE OF ADVANCES APPLICABLE MARGIN APPLICABLE MARGIN
------------------ ----------------- -----------------
<S> <C> <C>
Borrowing Base Advances 0% 1.75%
Overadvances 0% 2.25%
</TABLE>
AVAILABILITY. The lesser of (a) or (b), below.
(a) (i) The Line Ceiling
MINUS
1
<PAGE>
(ii) the aggregate amounts then undrawn on all outstanding L/Cs,
issued by the Lender for the account of the Borrower or Kite.
(b) (i) the Borrowing Base
MINUS
(ii) the aggregate amounts then undrawn on all outstanding L/Cs,
issued by the Lender for the account of the Borrower or Kite
PLUS
(iii) the Borrowing Supplement.
BALANCE SHEET DATE. September 30, 1998.
BORROWER. As defined in the preamble hereto.
BORROWING BASE. The Advance Rate multiplied by the Borrower's Eligible
Accounts.
BORROWING BASE ADVANCES. Credit Loans, which when aggregated with all other
Credit Loans, do not exceed Availability.
BORROWING SUPPLEMENT The sum of $5,000,000.00.
BUSINESS DAY. Any day, other than a Saturday or Sunday, or legal holiday on
which banking institutions in Boston, Massachusetts are open for the transaction
of banking business and, in the case of LIBOR Rate Loans, also a day which is a
LIBOR Business Day.
CLOSING DATE. The first date on which the conditions set forth in Section 8
and Section 9 have been satisfied and any Loans are to be made.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively as the same may be supplemented or amended and in
effect from time to time.
COLLATERAL. All of the Borrower's Accounts, including, without limitation,
all Factored Accounts Proceeds, and Inventory, and all products and proceeds
thereof, in each case, whether now existing or hereafter arising.
COLLATERAL AGENT. As defined in the Preamble hereto.
COLLATERAL AGENT'S HEAD OFFICE. The Collateral Agent's head office located
at 1133 Sixth Avenue, New York, New York 10036.
2
<PAGE>
CONGRESS. Congress Talcott Corporation.
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with Generally Accepted Accounting
Principles.
COLLECTIONS. All cash, checks, notes, instruments, and other items of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds).
CONVERSION REQUEST. A notice given by the Borrower to the Lender of its
election to convert or continue a Credit Loan in accordance with Section 2.10.
CREDIT LOANS. Credit Loans made or to be made by the Lender to the Borrower
pursuant to Section 2.
DEFAULT. See Section 10.1.
DILUTION. In each case, based upon the experience of the immediately prior
twelve (12) months, the result of dividing the Dollar amount of (a) discounts,
advertising, returns, promotions, credits, or other dilution with respect to the
Accounts during such twelve (12) months, by (b) the sum of the Borrower's gross
sales during such twelve (12) months plus the amount determined pursuant to
clause (a) of this definition.
DILUTION RESERVE. As of any date of determination, an amount equal to one
(1) percentage point for each full percentage point by which Dilution is in
excess of ten percent (10%). The Dilution Reserve shall be calculated as of the
end of each month.
DISTRIBUTION. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly by the Borrower through a
Subsidiary of the Borrower or otherwise; the return of capital by the Borrower
to its shareholders as such; or any other distribution on or in respect of any
shares of any class of capital stock of the Borrower.
DOLLARS OR $. Dollars in lawful currency of the United States of America.
DOMESTIC LENDING OFFICE. Initially, the Lender's Head Office; thereafter,
such other office of the Lender, if any, located within the United States that
will be making or maintaining Prime Rate Loans.
DRAWDOWN DATE. The date on which any Credit Loan is made or is to be made,
and the date on which any Credit Loan is converted or continued in accordance
with Section 2.10.
3
<PAGE>
EARLY TERMINATION FEE. Is defined in Section 2.9 hereof.
ELIGIBLE ACCOUNTS. Those of the Borrower's Factored Accounts Proceeds in
which the Collateral Agent and the Lender have a valid and perfected first
priority security interest, but excluding any Account to the extent that the
Factor claims any offset or contra or is otherwise disputed.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
END DATE. The earlier of (x) the date on which the Lender furnishes written
notice to the Borrower of the occurrence of an Event of Default and termination
of the Lender's agreement to make discretionary Credit Loans, or (y) the filing
by or against the Borrower or any of its Subsidiaries of any case or other
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law of any
jurisdiction, now or hereafter in effect.
ENVIRONMENTAL LAWS. Any and all applicable federal, state and local
environmental, health or safety statutes, laws, regulations, rules, and
ordinances (whether now existing or hereafter enacted or promulgated), of all
governmental agencies, bureaus or departments which may now or hereafter have
jurisdiction over the Borrower or any of its Subsidiaries and all appli cable
judicial and administrative and regulatory decrees, judgments and orders
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Substances, whether solid, liquid or gaseous in nature, into the environment or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of such Hazardous Substances.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
and regulations thereunder, collectively as the same may be supplemented or
amended and in effect from time to time.
ERISA AFFILIATE. Any Person which is treated as a single employer with the
Borrower under Section 414 of the Code.
ERISA REPORTABLE EVENT. A reportable event (other than a reportable event
described in Subsections 4043(b)(2)-(4) and 4043(b)(6)-(9) of ERISA, which do
not require a thirty (30) day notice to the PBGC) with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
4
<PAGE>
EUROCURRENCY RESERVE RATE. For any day with respect to a LIBOR Rate Loan,
the maximum rate (expressed as a decimal) at which any lender subject thereto
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
that term is used in Regulation D), if such liabilities were outstanding. The
Eurocurrency Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurocurrency Reserve Rate.
EVENT OF DEFAULT. See Section 10.1.
FACTOR. Congress and any other Person satisfactory to the Lender who enters
into Factoring Agreements with the Borrower.
FACTORED ACCOUNTS. Those Accounts of the Borrower which are deemed
"eligible" under the Factoring Agreements.
FACTORED ACCOUNTS PROCEEDS. The proceeds required to be paid to the
Borrower for the Factored Accounts pursuant to the Factoring Agreements.
FACTORING AGREEMENTS. Any factoring agreement entered into by the Borrower
with a Factor and approved by the Lender, including, without limitation, that
factoring agreement dated February 2, 1999 between the Borrower and Congress.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES OR GAAP. Principles that are (i)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (ii) consistently applied with past financial statements of the Borrower
adopting the same principles; PROVIDED that in each case referred to in this
definition of "Generally Accepted Accounting Principles" a certified public
accountant would, insofar as the use of such accounting principles is pertinent,
be in a position to deliver an unqualified opinion (other than a qualification
regarding changes in Generally Accepted Accounting Principles) as to financial
statements in which such principles have been properly applied.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
GUARANTORS. Kite and Toymax International, Inc., jointly and severally.
HAZARDOUS SUBSTANCES. Any substance (i) the presence of which requires or
may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste,"
hazardous material" or "hazardous substance" or "controlled industrial waste" or
"pollutant" or "contaminant" under any present or
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future Environmental Law or amendments thereto including, without limitation,
the Comprehen sive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 ET SEQ.) and any applicable local statutes and the
regulations promulgated thereunder; (iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any governmental authority, agency,
department, commission, board, agency or instrumentality of the United States,
any state of the United States, or any political subdivision thereof to the
extent any of the foregoing has or had jurisdiction over the Company; or (iv)
without limitation, which contains gasoline, diesel fuel or other petroleum
products, asbestos or polychlorinated biphenyls ("PCB's").
INDEBTEDNESS. All obligations, contingent and otherwise, that in accordance
with Generally Accepted Accounting Principles should be classified upon the
consolidated balance sheet of the Borrower and the Borrower's Subsidiaries as
liabilities, or to which reference should be made by footnotes thereto,
including in any event and whether or not so classified: (a) all obligations for
borrowed money or other extensions of credit whether or not secured or
unsecured, absolute or contingent, including, without limitation, unmatured
reimbursement obligations with respect to letters of credit or guarantees issued
for the account of or on behalf of the Borrower and its Subsidiaries and all
obligations representing the deferred purchase price of property, other than
accounts payable arising in the ordinary course of business, (b) all obligations
evidenced by bonds, notes, debentures or other similar instruments; (c) all
liabilities secured by any mortgage, pledge, security interest, lien, charge, or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; and (d)
all guarantees, endorsements and other contingent obligations whether direct or
indirect in respect of indebtedness of others or otherwise, including any
obligations with respect to puts, swaps, and other similar undertakings, any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase indebtedness, or to assure the owner of
indebtedness against loss, through an agreement to purchase goods, supplies, or
services for the purpose of enabling the debtor to make payment of the
indebtedness held by such owner or otherwise, and the obligations to reimburse
the issuer in respect of any letters of credit; and (e) that portion of all
obligations arising under capital leases that is required to be capitalized on
the consolidated balance sheet of the Borrower and its Subsidiaries.
INTEREST PAYMENT DATE. (a) As to any Prime Rate Loan, the Business Day
immediately following the last day of the Interest Period relating thereto and
on the End Date and (b) as to any LIBOR Rate Loan, the last day of any Interest
Period, and the End Date, but if the subject Interest Period exceeds ninety (90)
days, then the last day of each three (3) consecutive month period of such
Interest Period.
INTEREST PERIOD. With respect to each Credit Loan, (a) initially, the
period commencing on the Drawdown Date of such Credit Loan and ending (i) for
any Prime Rate Loan, on the last day of the calendar month; and (ii) for any
LIBOR Rate Loan, 1, 2, 3, or 6 months as the Borrower may elect in the request
for such Credit Loan; and (b) thereafter, each period commencing on the last day
of the next preceding Interest Period applicable to such Credit Loan and ending
on the last day of one of the periods set forth above, as selected by the
Borrower in a
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Conversion Request; PROVIDED that all of the foregoing provisions relating to
Interest Periods are subject to the following:
(A) if any Interest Period with respect to a LIBOR Rate Loan would
otherwise end on a day that is not a LIBOR Business Day, that Interest
Period shall be extended to the next succeeding LIBOR Business Day unless
the result of such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period shall end on
the immediately preceding LIBOR Business Day;
(B) if any Interest Period with respect to a Prime Rate Loan would end
on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(C) if the Borrower shall fail to give notice as provided in Section
2.10, the Borrower shall be deemed to have requested a conversion of the
affected LIBOR Rate Loan to a Prime Rate Loan on the last day of the then
current Interest Period with respect thereto;
(D) any Interest Period relating to any LIBOR Rate Loan that begins on
the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last LIBOR Business Day of a
calendar month; and
(E) any Interest Period relating to any LIBOR Rate Loan that would
otherwise extend beyond the End Date shall end, instead, on the End Date.
INVENTORY. "Inventory" as defined in the UCC and all goods, wares,
merchandise, raw materials, work in process, finished goods, and all packaging,
advertising, and shipping materials and documents related to any of the
foregoing, and all labels and other names or marks affixed or to be affixed
thereto for identifying or selling the same, and other personal property of
every description held for sale or lease or furnished or to be furnished under a
contract of sale or service, or used or consumed or to be used or consumed in
the Borrower's business.
INVESTMENTS. All expenditures made and all liabilities and commitments
incurred (contingently or otherwise) for the purchase or acquisition of capital
stock, partnership interests, or equity interests or securities, or Indebtedness
of, or for loans, advances, capital contributions or transfers of property to,
or in respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person.
KITE. Go Fly a Kite, Inc., a Delaware corporation with its principal office
at 385 Town Street, East Haddam, Connecticut 06423.
L/C. Any letter of credit caused by the Lender to be issued for the account
of the Borrower or Kite.
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L/C AGREEMENT. As defined in Section 2.12.
LENDER. As defined in the Preamble hereto.
LENDER'S HEAD OFFICE. The Lender's head office located at 225 Franklin
Street, Boston, Massachusetts 02110, or at such other location as the Lender may
designate from time to time.
LIABILITIES. All indebtedness, obligations and liabilities of the Borrower
and its Subsidiaries or Kite to the Lender and/or the Collateral Agent,
individually or collectively, under this Agreement or any of the other Loan
Documents or in respect of any of the Credit Loans or the Notes, or L/Cs or
other instruments at any time evidencing any thereof, whether existing on the
date of this Agreement or arising or incurred hereafter, direct or indirect,
joint or several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law of
otherwise.
LIBOR BUSINESS DAY. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London.
LIBOR LENDING OFFICE. Initially, the Lender's Head Office; thereafter, such
other office of the Lender, if any, that shall be making or maintaining LIBOR
Rate Loans.
LIBOR RATE. For any Interest Period with respect to a LIBOR Rate Loan, the
rate of interest, expressed as an annual rate, rounded up to the nearest 1/16 of
1%, equal to the average of the rates shown on the display referred to as the
"Telerate Page 3750" (or any display substituted therefor) of the Dow Jones
Telerate Service as being the respective rates at which deposits in Dollars
would be offered by the principal London offices of each of the banks named
thereon to major banks in the London interbank market at approximately 11:00
A.M. (London time) two LIBOR Business Days prior to the beginning of such
Interest Period for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable to the amount of
the LIBOR Rate Loan to which such Interest Period applies, divided by a number
equal to 1.00 minus the Eurocurrency Reserve Rate.
LIBOR RATE LOANS. Those Credit Loans bearing interest calculated by
reference to the LIBOR Rate.
LINE CEILING. $30,000,000.00 (subject to reduction as provided in Section
2.3, below).
LOAN DOCUMENTS. This Agreement, the Note, the Security Documents, L/C
Agreements, and all other instruments, documents and agreements executed in
connection therewith, as each may be modified, amended, supplemented or
restated.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of Section
3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
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NOTE. See Section 2.2.
OUTSTANDING. With respect to the Credit Loans, the aggregate unpaid
principal thereof as of any date of determination. With respect to any L/C, any
L/C which has not then expired, on which payment has not then been made
OVERADVANCES Such portion of the Outstanding Credit Loans which exceeds the
Availability.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of
ERISA and any successor entity or entities having similar responsibilities.
PERMITTED LIENS. Liens, security interests and other encumbrances permitted
by Section 7.2.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, limited liability company, business, or other legal entity, and any
government or any governmental agency or political subdivision thereof.
PRIME RATE. The annual rate of interest announced from time to time by the
Lender as its "prime rate."
PRIME RATE LOANS. Those Credit Loans bearing interest calculated by
reference to the Prime Rate.
QUALIFIED TERMINATION. Either (a) a refinancing of the Credit Loans which
is in connection with a refinancing provided or led by the Lender, or (b) a
refinancing of the Credit Loans with another Person on commercially reasonable
terms as to which refinancing the Lender has been offered a right of first
refusal and has declined to proceed with such refinancing.
REAL ESTATE. All real property at any time owned or leased (as lessee or
sublessee) by the Borrower or any of its Subsidiaries.
SECURITY DOCUMENTS. All security agreements and other instruments,
documents, and agreements from the Borrower and/or any Subsidiary and/or Kite,
granting a lien, security interest or other right in favor of the Collateral
Agent and the Lender in any asset of the Borrower or its Subsidiaries to secure
the Liabilities, whether such agreements now exist or hereafter arise.
SUBSIDIARY. Any corporation, association, partnership, trust, limited
liability company, or other business entity of which the designated parent shall
at any time own directly or indirectly through a Subsidiary or Subsidiaries at
least a majority (by number of votes or controlling interests) of the
outstanding Voting Interests.
TYPE. As to any Credit Loan, its nature as a Prime Rate Loan or a LIBOR
Rate Loan.
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UCC. The Uniform Commercial Code as enacted in The Commonwealth of
Massachusetts, as such may be supplemented or amended and in effect from time to
time.
VOTING INTERESTS. Stock or similar ownership interests, of any class or
classes (however designated), the holders of which are at the time entitled, as
such holders, (a) to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association,
partnership, trust or other business entity involved, or (b) to control, manage,
or conduct the business of the corporation, partnership, association, trust,
limited liability company, or other business entity involved.
YEAR 2000 PROBLEM The risk that a computer application may not be able to
recognize certain dates or properly perform date sensitive functions involving
dates prior to and after December 31, 1999.
Section 1.2. RULES OF INTERPRETATION.
(1) A reference to any document or agreement shall include such document or
agreement as amended, modified or supplemented from time to time in accordance
with its terms and the terms of this Agreement.
(2) The singular includes the plural and the plural includes the singular.
(3) A reference to any law includes any amendment or modification to such
law.
(4) A reference to any Person includes its permitted successors and
permitted assigns.
(5) Accounting terms not otherwise defined herein have the meanings
assigned to them by Generally Accepted Accounting Principles.
(6) The words "include", "includes" and "including" are not limiting.
(7) All terms not specifically defined herein or by Generally Accepted
Accounting Principles, which terms are defined in the UCC, have the meanings
assigned to them therein.
(8) Reference to a particular "Section " refers to that section of this
Agreement unless otherwise indicated.
(9) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Agreement as a whole and not to any particular section or
subdivision of this Agreement.
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2. THE CREDIT FACILITIES.
SUBPART A: THE CREDIT LOANS
Section 2.1. DISCRETIONARY LOANS. Subject to the terms and conditions set
forth in this Agreement, the Lender may lend to the Borrower and the Borrower
may borrow, from time to time between the Closing Date and the End Date, upon
notice by the Borrower to the Lender given in accordance with Section 2.5, such
sums as are requested by the Borrower (each a "CREDIT LOAN"), PROVIDED, that
the sum of the Outstanding amount of the Credit Loans (after giving effect to
all amounts requested) shall not at any time exceed Availability. THIS AGREEMENT
DOES NOT CONSTITUTE A COMMITTED LINE OF CREDIT; RATHER ALL CREDIT LOANS SHALL BE
MADE IN THE DISCRETION OF THE LENDER. Each request for a Credit Loan hereunder
shall constitute a representation and warranty by the Borrower that the
conditions set forth in Section 8 and Section 9, in the case of the initial
Credit Loan, and Section 9, in the case of all other Credit Loans, have been
satisfied on the date of such request.
Section 2.2. THE NOTE. The Credit Loans shall be evidenced by a promissory
note of the Borrower in substantially the form of EXHIBIT A hereto (the "NOTE"),
dated as of the Closing Date and completed with appropriate insertions. The
Outstanding amount of the Credit Loans set forth in the Lender's record shall be
PRIMA FACIE evidence of the principal amount thereof owing and unpaid to the
Lender.
Section 2.3. REDUCTION OF LINE CEILING. The Borrower shall have the right
at any time and from time to time upon three (3) Business Days' prior written
notice to the Lender to reduce by an integral multiple of $500,000.00 or
terminate entirely the unborrowed portion of such Line Ceiling, whereupon the
Line Ceiling shall be reduced by the amount specified in such notice or, as the
case may be, terminated. No reduction or termination of the Line Ceiling may be
reinstated.
Section 2.4. INTEREST ON CREDIT LOANS.
(1) Each Prime Rate Loan shall bear interest for the period commencing with
the Drawdown Date thereof and ending on the last day of the Interest Period with
respect thereto at a rate equal to the aggregate of the Prime Rate, plus the
Applicable Margin for Prime Rate Loans.
(2) Each LIBOR Rate Loan shall bear interest for the period commencing with
the Drawdown Date thereof and ending on the last day of the Interest Period with
respect thereto at a rate equal to the aggregate of the LIBOR Rate determined
for such Interest Period, plus the Applicable Margin for LIBOR Rate Loans.
(3) The Borrower shall pay interest on each Credit Loan in arrears on each
Interest Payment Date with respect thereto.
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Section 2.5. Requests for Credit Loans. The Borrower shall give to the
Lender facsimile notice (confirmed in writing in the form of EXHIBIT B hereto)
of each Credit Loan requested hereunder, with appropriate security
authorization, or shall establish such other method for requests as is mutually
agreed upon between the Borrower and the Lender. Each such notice shall be
irrevocable and binding on the Borrower and shall obligate the Borrower to
accept the Credit Loan requested from the Lender on the proposed Drawdown Date.
(1) Notices for any Prime Rate Loans shall be furnished to the Lender no
later than 11:00 a.m. (Boston time) one Business Day prior to the proposed
Drawdown Date. Each such notice shall specify (i) the principal amount of the
Credit Loan requested and (ii) the proposed Drawdown Date of such Credit Loan.
(2) Notices for any LIBOR Rate Loans shall be furnished to the Lender by
12:00 noon (Boston time) two (2) LIBOR Business Days prior to the proposed
Drawdown Date. Each such notice shall specify (i) the principal amount of the
Credit Loan requested, (ii) the proposed Drawdown Date of such Credit Loan and
(iii) the Interest Period for such Credit Loan. Each such notice shall be in a
minimum amount of $1,000,000 or an integral multiple of $1,000,000 in excess
thereof.
Section 2.6. DEMAND OBLIGATIONS. The Liabilities are payable ON DEMAND. The
Borrower promises to pay on the End Date, and there shall become absolutely due
and payable on such date, all of the Credit Loans Outstanding on such date and
any other Liabilities, together with any and all accrued and unpaid interest
thereon.
Section 2.7. MANDATORY REPAYMENTS OF CREDIT LOANS. If at any time the
aggregate Outstanding principal balance of the Credit Loans exceeds
Availability, then the Borrower shall, within 48 hours after written notice from
the Lender, pay the amount of such excess to the Lender for application to the
Credit Loans.
Section 2.8. OPTIONAL PREPAYMENTS OF CREDIT LOANS.
Subject to the provisions of Section 2.9, the Borrower shall have the
right, at its election, to repay the Outstanding amount of the Credit Loans, as
a whole or in part, at any time without penalty or premium; PROVIDED that the
full or partial prepayment of the Outstanding amount of any LIBOR Rate Loans
pursuant to this Section may be made only on the last day of the Interest Period
relating thereto. The Borrower shall give the Lender, no later than 10:00 a.m.,
Boston time, at least three (3) LIBOR Business Days' prior written notice of any
proposed repayment pursuant to this Section 2.8 of LIBOR Rate Loans, specifying
the proposed date of payment of Credit Loans and the principal amount to be
paid. No prepayment hereunder shall postpone the date for, or reduce the amount
of, any subsequent payment under the Credit Loans. Any amounts prepaid may not
be reborrowed.
Section 2.9. EARLY TERMINATION FEE. In the event that before one (1) year
from the date hereof, any of the Credit Loans are refinanced in whole or in part
with another lender (other than in
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connection with a Qualified Termination), the Borrower shall pay to the Lender,
an Early Termination Fee (so referred to herein) in an amount equal to
$25,000.00.
Section 2.10. CONVERSION OPTIONS.
(a) The Borrower may elect from time to time to convert any Credit Loan to
a Credit Loan of another Type, PROVIDED that (i) with respect to any such
conversion of a LIBOR Rate Loan into a Credit Loan of another Type, such
conversion shall only be made on the last day of the Interest Period with
respect thereto; (ii) with respect to any such conversion of a Prime Rate Loan
to a LIBOR Rate Loan, the Borrower shall give the Lender notice of such election
no later than 12:00 noon (Boston time) two (2) LIBOR Business Days prior to the
proposed date of conversion; and (iii) no Credit Loan may be converted into a
LIBOR Rate Loan when any Default or Event of Default has occurred and is
continuing. Any notice of conversion shall be in the form of EXHIBIT C, annexed
hereto. All or any part of Outstanding Credit Loans of any Type may be converted
as provided herein, PROVIDED that (x) partial conversions shall be in an aggre
gate principal amount of $1,000,000 or an integral multiple of $1,000,000 in
excess thereof and (y) no more than five (5) Interest Periods for Credit Loans
which are LIBOR Rate Loans may be outstanding at any one time. Each Conversion
Request shall be irrevocable by the Borrower.
(b) Any Credit Loan of any Type may be continued as such upon the
expiration of an Interest Period with respect thereto by compliance by the
Borrower with the notice provisions contained in Section 2.10(a); PROVIDED that
no LIBOR Rate Loan may be continued as such when any Default or Event of Default
has occurred and is continuing, but shall be automatically converted to a Prime
Rate Loan on the last day of the first Interest Period relating thereto ending
during the continuance of any Default or Event of Default of which the officers
of the Lender active upon the Borrower's account have actual knowledge.
(c) In the event that the Borrower does not notify the Lender of the
Borrower's election under Section 2.10(b) with respect to any Credit Loan, such
Credit Loan shall be automatically converted to a Prime Rate Loan at the end of
the applicable Interest Period.
Section 2.11. FUNDS FOR CREDIT LOANS.
(1) Notwithstanding anything to the contrary herein contained, and without
modifying the discretionary nature of this Agreement, the Lender shall not be
required to provide Credit Loans in excess of a maximum principal amount
outstanding at any time of $15,000,000.00. The Lender's willingness to provide
Credit Loans in excess of such amount is subject to and conditioned upon a
participant providing funding to the Lender in support thereof pursuant to a
Participation Agreement with the Lender. If such a participation is not
obtained, or is terminated, or if a participant fails to fund to the Lender its
share of the Credit Loans, then the Lender shall have no obligation to make
Credit Loans in excess of $15,000,000.00.
(2) The Lender may, unless notified to the contrary by any participant
prior to the Business Day immediately following a Drawdown Date, assume that
such participant has
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made available to the Lender the amount of such participant's percentage of the
Credit Loan made on such Drawdown Date. If the amount of such participant's
percentage of such Credit Loans is not made available to the Lender within three
(3) Business Days following such Drawdown Date, the Lender shall be entitled to
recover such amount from the Borrower on demand, with interest thereon at the
rate per annum applicable to the subject Credit Loans made on such Drawdown
Date.
SUBPART B: LETTER OF CREDIT FACILITY
Section 2.12. ESTABLISHMENT OF LETTER OF CREDIT FACILITY. (a) Upon the
written, telephonic, or electronic request of the Borrower, the Lender may, in
its discretion, issue L/C's for the account of the Borrower or Kite as provided
herein. To the extent that L/C's are issued for the account of Kite, Kite shall
pay a fee to the Borrower, in an amount to be mutually agreed upon between the
Borrower and Kite. The Borrower and/or Kite may request issuance of L/C's in
such manner as may from time to time be reasonably acceptable to the Lender. The
Borrower and Kite shall execute and deliver to the Lender such further documents
and instruments in connection with any L/C's, as the Lender, in accordance with
the Lender's then customary practices with respect to similar facilities, may
reasonably request including, without limitation, the Lender's standard letter
of credit agreements (hereinafter, the "L/C Agreement") in the form of EXHIBIT
D, annexed hereto. In the event of any inconsistency between the terms of the
L/C Agreement and this Agreement the terms and conditions of the L/C Agreement
shall control.
(b) The maximum aggregate amount of L/C's Outstanding at any one time
shall not exceed the lesser of: (i) Two Million Five Hundred Thousand Dollars
($2,500,000.00) or (ii) Availability.
(c) No L/C shall have a maturity date which is later than one hundred
twenty (120) days after the date of such L/C's issuance.
Section 2.13. L/C'S FEES. At the time of issuance of each L/C, the Borrower
and/or Kite, as applicable, shall pay the Lender the Lender's standard issuance,
processing, and administrative fee on account of each such L/C, each of which
shall be determined in accordance with the Lender's then effective customary
fees and charges for similar facilities.
Section 2.14. EFFECT OF HONOR OF L/C'S. The Borrower and Kite shall
reimburse the Lender for the amount of any honoring of any L/C as provided for
under the L/C Agreement.
Section 2.15. ADDITIONAL PROVISIONS RELATING TO L/C'S. (a) The obligations
of the Borrower and Kite with respect to L/C's shall be absolute and
unconditional. The Lender's rights, powers, privileges and immunities specified
in or arising under this Agreement are in addition to any heretofore or at any
time hereafter otherwise created or arising, whether by statute or rule of law
or contract.
(b) The Borrower or Kite, as account party, will
(i) promptly examine the copy of any L/C (and any amendments thereof)
sent to it by the Lender;
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(ii) promptly examine all instruments and documents delivered to it
from time to time by the Lender; and
(iii) within two (2) Business Days of receipt thereof, provide the
Lender with written notice of any irregularity or claim of non-compliance
with the instructions of such person or entity.
The Borrower and Kite are conclusively deemed to have waived any such
claim against the Lender and its correspondents unless such notice is so
timely given.
(c) The Borrower or Kite, as account party, will
(i) procure promptly any necessary documentation, permits, or licenses
for the import, export or shipping of the property in connection with which
any L/C is issued;
(ii) comply with all foreign and domestic governmental requirements
relating to the shipment or financing of such property; and
(iii) furnish such evidence that the above requirements have been
fulfilled as the Lender reasonably may require.
(d) The Borrower and Kite will indemnify the Lender for and hold harmless
against any and all claims, loss, liability, or damage, including attorneys'
reasonable fees, howsoever arising from or in connection with the surrender or
endorsement of any bill of lading, warehouse receipt or documents of title at
any time held by the Lender, or any of its correspon dents in connection with
any L/C.
(e) As further security for the payment or performance of any and all other
obligations and liabilities hereunder, certain or contingent, and also for the
payment or performance of any and all other obligations and liabilities, certain
or contingent, due or to become due, now existing or hereafter arising, which
are now, or may at any time or times hereafter be owing by the Borrower to the
Lender, the Borrower and Kite hereby
(i) recognize and admit the Lender's security interest in, and, after
the earlier of demand by the Lender or the occurrence of an Event of
Default, unqualified right to the possession and disposal of, any and all
shipping documents, warehouse re ceipts, policies or certificates of
insurance, and other documents accompanying or relative to any L/C (whether
or not such documents, goods, or other property have been released to or
upon the order of the Borrower or Kite under a security agreement or trust
or bailee receipt) and in and to the proceeds of each and all of the
foregoing; and
(ii) if any third party shall have joined in the application for the
L/C, assigns and transfers to the Lender all right, title and interest of
the Borrower and Kite in and to all property and interests which the
Borrower or Kite may now or hereafter obtain from such third party arising
in connection with the transaction to which the L/C relates, to the extent
that same can be lawfully assigned.
(f) Following the earlier of demand by the Lender or the occurrence of any
Event of Default, the Lender, with power of substitution and revocation, may:
(i) sign, in the name of the Lender, and/or the name of the Borrower
or Kite, any document called for from the Borrower and/or endorse, in the
name of the Borrower or Kite, any and all notes, checks, drafts, documents
of title, or other instru ments or documents in which the Lender may at any
time have any interest in connection with any L/C; and
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(ii) perform any obligation or agreement in connection with any L/C
which the Lender deems necessary or desirable to protect the Lender's
right, powers and remedies under this Agreement.
(g) None of the Lender, the Lender's correspondents or any advising, negoti
ating, or paying bank with respect to any L/C, shall be responsible in any way
for:
(i) performance by any beneficiary under any L/C of that beneficiary's
obligations to the Borrower or Kite; or
(ii) the form, sufficiency, correctness, genuineness, authority of any
person signing; falsification; or the legal effect of; any documents called
for under any L/C if (with respect to the foregoing) such documents on
their face appear to be in order.
(h) The Lender may honor, as complying with the terms of any L/C and of any
drawing thereunder, any drafts or other documents otherwise in order, but signed
or issued by an administrator, executor, conservator, trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, liquidator,
receiver, or other legal representative of the party authorized under such L/C
to draw or issue such drafts or other documents.
(i) Unless otherwise agreed to, in the particular instance, the Borrower
and Kite hereby authorize the Lender to (i) select an advising bank, if any;
(ii) select a paying bank, if any; and (iii) select a negotiating bank.
(j) All directions, correspondence, and funds transfers relating to any L/C
are at the risk of the Borrower and Kite. The Lender shall have discharged its
obligations under any L/C which, or the drawing under which, includes payment
instructions, by the initiation of the method of payment called for in, and in
accordance with, such instructions (or by any other commercially reasonable and
comparable method). The Lender does not assume any responsi bility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post,
tele graph or cable, or for any inaccuracy of translation.
(k) The Lender's rights, powers, privileges and immunities specified in or
arising under this Agreement are in addition to any heretofore or at any time
hereafter otherwise created or arising, whether by statute or rule of law or
contract.
(l) Except to the extent otherwise expressly provided hereunder or agreed
to in writing by the Lender and the Borrower or Kite, as account party, the L/C
will be governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce, Publication No. 500, and any subsequent
revisions thereof.
(m) If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirements against L/C's heretofore or hereafter caused to be
issued by the Lender or with respect to which the Lender has an obligation
to lend to fund drawings thereunder; or
(ii) impose on the Lender any other condition or requirements relating
to any such L/C's;
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and the result of any event referred to in clause (i) or (ii), above, shall be
to increase the cost to the Lender of issuing or maintaining any L/C, then, upon
demand by the Lender and delivery by the Lender to the Borrower or Kite, as
account party, of a certificate of an officer of the Lender describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on the Lender, and the basis for determining such increased
costs and their allocation, the Borrower within five (5) days after receipt of
such notice shall pay to the Lender, from time to time as specified by the
Lender, such amounts as shall be sufficient to compensate the Lender for such
increased cost.
(n) The obligations of the Borrower and Kite under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction, restraint,
or stay in the enforcement of this Agreement or any L/C, or any other
agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure from, all
or any of the above.
(iii) The existence of any claim, set-off, defense, or other right
which the Borrower or Kite may have at any time against the beneficiary of
the L/C.
3. CERTAIN GENERAL PROVISIONS.
Section 3.1. CLOSING FEE. The Borrower agrees to pay to the Lender for its
account on the Closing Date a closing fee in the amount of Fifteen Thousand and
No/100 Dollars ($15,000.00). Such fee shall be deemed fully earned on payment
and shall not be refundable in whole or in part under any circumstances.
Section 3.2. FUNDS FOR PAYMENTS.
(1) All payments of principal, interest, closing fees and any other amounts
due hereunder or under any of the other Loan Documents shall be made to the
Lender at the Lender's Head Office at 225 Franklin Street, Boston, Massachusetts
02110, or at such other location in the Boston, Massachusetts area that the
Lender may from time to time designate, in each case in immediately available
funds.
(2) All payments by the Borrower hereunder and under any of the other Loan
Documents shall be made without setoff or counterclaim and free and clear of and
without deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless the Borrower is
compelled by law to make such deduction or withholding. If any such obligation
is imposed upon the Borrower with respect to any amount payable by it hereunder
or under any of the other Loan Documents, the Borrower will pay to the Lender,
on the date on which such
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amount is due and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary to enable the Lender to
receive the same net amount which the Lender would have received on such due
date had no such obligation been imposed upon the Borrower. The Borrower will
deliver promptly to the Lender certificates or other valid vouchers for all
taxes or other charges deducted from or paid with respect to payments made by
the Borrower hereunder or under such other Loan Document.
Section 3.3. COMPUTATIONS. All computations of interest on the Credit Loans
and of other fees payable by the Borrower to the extent applicable shall be
based on a 360-day year and paid for the actual number of days elapsed. Each
change in the Prime Rate shall be effective, for purposes of the determination
of interest hereunder, contemporaneously with the effectiveness of such change
in the Prime Rate. Except as otherwise provided in the definition of the term
"INTEREST PERIOD" with respect to LIBOR Rate Loans, whenever a payment hereunder
or under any of the other Loan Documents becomes due on a day that is not a
Business Day, the due date for such payment shall be extended to the next
succeeding Business Day, and interest shall accrue during such extension. The
Outstanding amount of the Credit Loans as reflected on the Lender's records from
time to time shall be considered correct and binding on the Borrower unless
within ten (10) Business Days after receipt by the Borrower from the Lender of
any notice of such Outstanding amount, the Borrower shall notify the Lender to
the contrary.
Section 3.4. INABILITY TO DETERMINE LIBOR RATE. In the event, prior to the
commencement of any Interest Period relating to any LIBOR Rate Loan, the Lender
shall determine that adequate and reasonable methods do not exist for
ascertaining the LIBOR Rate that would otherwise determine the rate of interest
to be applicable to any LIBOR Rate Loan during any Interest Period, the Lender
shall forthwith give written notice of such determination (which shall be
conclusive and binding on the Borrower) to the Borrower. In such event (a) any
request for a Loan with respect to LIBOR Rate Loans shall be automatically
withdrawn and shall be deemed a request for Prime Rate Loans, (b) each LIBOR
Rate Loan on the last day of the then current Interest Period thereof will
automatically become a Prime Rate Loan, and (c) the obligations of the Lender to
make LIBOR Rate Loans shall be suspended until the Lender determines that the
circumstances giving rise to such suspension no longer exist, whereupon the
Lender shall so notify the Borrower.
Section 3.5. ILLEGALITY. Notwithstanding any other provisions herein, if
any present or future law, regulation, treaty or directive or in the
interpretation or application thereof shall make it unlawful for the Lender to
make or maintain LIBOR Rate Loans, the Lender shall forthwith give written
notice of such circumstances to the Borrower (together with a description of the
applicable circumstances and a calculation of the amounts necessary to
compensate the Lender as provided herein) and thereupon (a) the agreement of the
Lender to make LIBOR Rate Loans or convert Credit Loans of another Type to LIBOR
Rate Loans shall forthwith be suspended until such time as the Lender may again
make such LIBOR Rate Loans, and (b) the LIBOR Rate Loans then Outstanding shall
be converted automatically to Prime Rate Loans on the last day of each Interest
Period applicable to such LIBOR Rate Loans or within such earlier period as may
be required by law. The Borrower hereby agrees promptly to pay the Lender, upon
demand by
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the Lender, any additional amounts necessary to compensate the Lender for any
costs incurred by the Lender in making any conversion in accordance with this
Section 3.5, including any interest or fees payable by the Lender to lenders of
funds obtained by it in order to make or maintain its LIBOR Loans hereunder and
any amounts payable under Section 3.9 hereof.
Section 3.6. ADDITIONAL COSTS, ETC. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Lender by any central bank or other fiscal, monetary or
other authority (whether or not having the force of law), shall:
(1) subject the Lender to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement, the
other Loan Documents, or the Credit Loans (other than taxes based upon or
measured by the income or profits of the Lender); or
(2) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Lender of the principal of
or the interest on any Credit Loans or any other amounts payable to the
Lender under this Agreement or the other Loan Documents; or
(3) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, of an office of the
Lender; or
(4) impose on the Lender any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Credit Loans, or
any class of loans of which any of the Credit Loans forms a part;
and the result of any of the foregoing is
(1) to increase the cost to the Lender of making, funding, issuing,
renewing, extending or maintaining any of the Credit Loans; or
(2) to reduce the amount of principal, interest or other amount
payable to the Lender hereunder on account of such Credit Loans; or
(3) to require the Lender to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregone interest or other
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sum is calculated by reference to the gross amount of any sum receivable or
deemed received by the Lender from the Borrower hereunder,
then, and in each such case, the Borrower will, upon written demand (to include
a description of the applicable change in law and a calculation of the amount
being assessed in reasonable detail) made by the Lender at any time and from
time to time and as often as the occasion therefor may arise, but only for so
long as the occasion continues, pay to the Lender such additional amounts as
will be sufficient to compensate the Lender for such additional cost, reduction,
payment or foregone interest or other sum.
Section 3.7. CAPITAL ADEQUACY. If any present or future law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or the interpretation thereof by a court or governmental authority
with appropriate jurisdiction affects the amount of capital required or expected
to be maintained by the Lender or any corporation controlling the Lender and the
Lender determines in good faith that the amount of capital required to be
maintained by it is increased by or based upon the existence of the Credit Loans
or the agreements made or deemed to be made pursuant hereto, then the Lender may
notify the Borrower of such fact (notice to include a description of the reason
for the increase in capital and a calculation of the amount being assessed in
reasonable detail), and the Borrower shall pay to the Lender from time to time
on demand, as an additional fee payable hereunder, its pro rata share of such
amount as the Lender shall determine in good faith and certify in a notice to
the Borrower to be its pro rata share of an amount that will adequately
compensate the Lender in light of these circumstances for its increased costs of
maintaining such capital.
Section 3.8. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to Section Section 3.6 or 3.7 and a brief explanation
of such amounts which are due, submitted by the Lender to the Borrower, shall be
PRIMA FACIE evidence that such amounts are due and owing.
Section 3.9. INDEMNITY. The Borrower agrees to indemnify the Lender and to
hold the Lender harmless from and against any loss, cost or expense (including
loss of anticipated profits) that the Lender may directly sustain or incur
(including, without limitation, by virtue of acceleration after the occurrence
of any Event of Default) as a consequence of (a) default by the Borrower in
payment of the principal amount of or any interest on any LIBOR Rate Loans as
and when due and payable, including any such loss or expense arising from
interest or fees payable by the Lender to lenders of funds obtained by it in
order to maintain its LIBOR Rate Loans, (b) default by the Borrower in making a
borrowing or conversion after the Borrower has given (or is deemed to have
given) a request for a LIBOR Rate Loan or a Conversion Request, or (c) the
making of any payment of a LIBOR Rate Loan or the making of any conversion of
any such LIBOR Rate Loan to a Prime Rate Loan on a day that is not the last day
of the applicable Interest Period with respect thereto, including interest or
fees payable by the Lender to lenders of funds obtained by it in order to
maintain any such LIBOR Rate Loans. The within indemnification shall not apply,
however, to any loss, cost, or expense which the Lender may incur if a court of
competent jurisdiction finally determines (after all appeals have been exhausted
or waived) that such loss,
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cost, or expense was incurred by virtue of the Lender's gross negligence, bad
faith or willful misconduct.
Section 3.10. INTEREST AFTER DEFAULT. Following the occurrence of an Event
of Default, principal and (to the extent permitted by applicable law) interest
on the Credit Loans and all other amounts payable hereunder or under any of the
other Loan Documents, at the option of the Lender, shall bear interest
(compounded daily) payable on demand at a rate per annum equal to the aggregate
of the Prime Rate plus four percent (4%) per annum.
Section 3.11. LIMITATIONS ON INTEREST PERIODS. Notwithstanding anything to
the contrary herein contained, no more than five (5) Interest Periods for Credit
Loans which are LIBOR Rate Loans may be outstanding at any one time.
4. COLLATERAL SECURITY. The Liabilities shall be secured by a perfected
first priority security interest to be held by the Collateral Agent (subject
only to Permitted Liens) in the Collateral.
5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
the Collateral Agent and the Lender as follows.
Section 5.1. CORPORATE AUTHORITY; ETC.
(1) INCORPORATION; GOOD STANDING. The Borrower (i) is a corporation,
validly existing and in good standing under the laws of the State of New York
(ii) has all requisite power to own its property and conduct its business as now
conducted and as presently contemplated, and (iii) is in good standing as a
foreign corporation and is duly authorized to do business in each jurisdiction
where Collateral is located and in each other jurisdiction where such
qualification is necessary except where a failure to be so qualified in such
other jurisdiction would not have a materially adverse effect on the business,
assets or financial condition of the Borrower.
(2) AUTHORIZATION. The execution, delivery and performance of this
Agreement and the other Loan Documents to which the Borrower is, or is to
become, a party and the transactions contemplated hereby and thereby (i) are
within the authority of the Borrower, (ii) have been, or will be, duly
authorized by all necessary proceedings, (iii) do not and will not conflict with
or result in any breach or contravention of any provision of any material law,
statute, rule, regulation or agreement to which the Borrower is subject or any
judgment, order, writ, injunction, license or permit applicable to the Borrower,
and (iv) do not and will not conflict with any provision of the Borrower's
organization documents or other charter documents or bylaws of, or any material
agreement or other material instrument binding upon, the Borrower.
(3) ENFORCEABILITY. The execution and delivery of this Agreement and the
other Loan Documents to which the Borrower is or is to become a party will
result in valid and legally binding obligations of the Borrower enforceable
against it in accordance with the
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respective terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
Section 5.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Borrower of this Agreement and the other Loan Documents to
which the Borrower is, or is to become, a party and the transactions
contemplated hereby and thereby do not require the approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained and the filing of related financing statements in the appropriate
records office with respect thereto.
Section 5.3. TITLE TO PROPERTIES; LEASES. The Borrower and its Subsidiaries
own all of the assets reflected in the consolidated balance sheet of the
Borrower as at the Balance Sheet Date or acquired since that date (except
property and assets sold or otherwise disposed of in the ordinary course of
business since that date), and such assets are not subject to any mortgages,
leases, conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens.
Section 5.4. FINANCIAL STATEMENTS. The following financial statements have
been furnished to the Lender:
(1) A consolidated balance sheet of the Borrower and its Subsidiaries
as of the Balance Sheet Date, and a consolidated statement of income for
the fiscal year then ended. Such balance sheet and statement of income have
been prepared in accordance with Generally Accepted Accounting Principles
and fairly present the financial condition of the Borrower as at the close
of business on the date thereof and the results of opera tions for the
fiscal year then ended. There are no contingent liabilities of the Borrower
or any of its Subsidiaries as of such date involving material amounts,
known to the officers of the Borrower or any of its Subsidiaries not
disclosed in said balance sheet and the related notes thereto.
(2) A consolidated balance sheet, a consolidated statement of income
and a consolidated statement of cash flow of the Borrower and its
Subsidiaries for each of the fiscal quarters of the Borrower ended since
the Balance Sheet Date certified by Borrower's chief financial officer to
have been prepared in accordance with Generally Accepted Accounting
Principles (except for the absence of footnotes) consistent with those used
in the preparation of the annual audited statements delivered pursuant to
paragraph (a) above and to fairly present the financial condition of the
Borrower and its Subsidiaries as at the close of business on the dates
thereof and the results of operations for the fiscal quarters then ended
(subject to year-end adjustments). There are no contingent liabilities of
the Borrower or any of its Subsidiaries as of such dates involving
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material amounts, known to the officers of the Borrower or any of its
Subsidiaries, not disclosed in such balance sheets and the related notes
thereto.
Section 5.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date, there
has occurred no materially adverse change in the financial condition or business
of the Borrower or its Subsidi aries as shown on or reflected in the
consolidated balance sheet of the Borrower as of the Balance Sheet Date, or the
consolidated statement of income for the fiscal year then ended, other than
changes in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business or
financial condition of the Borrower.
Section 5.6. FRANCHISES, PATENTS, COPYRIGHTS, INFRASTRUCTURE, ETC. (a) The
Borrower and its Subsidiaries possess all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of their business substantially as now
conducted without known conflict with any rights of others.
(b) Borrower has conducted a thorough evaluation and review of its
mainframe information systems, PC/LAN systems, software, facilities, machinery
and equipment (collectively, "Computer Related Systems"), as well as the
Computer Related Systems of its customers, suppliers, and vendors and has
determined the total costs of avoiding a Year 2000 Problem, including costs
related to remediation, replacement, upgrading, conversion and testing of
hardware and other equipment and software. On the basis of this review, Borrower
has concluded that the incremental cost to the Borrower of avoiding a Year 2000
Problem will not have a material adverse effect on the business or financial
condition of the Borrower. The Borrower has adequate plans and processes in
place sufficient for all of its Computer Related Systems to avoid a Year 2000
Problem prior to such time that a failure to be year 2000 compliant might
reasonably be expected to have a material adverse effect on the business or
financial condition of the Borrower.
Section 5.7. LITIGATION. Except as set forth in SCHEDULE 5.7, there are no
actions, suits, proceedings or investigations of any kind pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries before any court, tribunal or administrative agency or board that,
if adversely determined, might, either in any case or in the aggregate, would
affect the properties, assets, financial condition or business of the Borrower
in an amount in excess of $25,000.00, or materially impair the right of the
Borrower and its Subsidiaries to carry on business substantially as now
conducted by it, or result in any substantial liability not adequately covered
by insurance, or for which adequate reserves are not maintained on the balance
sheet of the Borrower, or which question the validity of this Agreement or any
of the other Loan Documents, or any action taken or to be taken pursuant hereto
or thereto.
Section 5.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower. Neither the Borrower nor any of
its Subsidiaries is a party to any contract or agreement that has or is
expected, in the
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judgment of the Borrower's officers, to have any materially adverse effect on
the business of the Borrower or its Subsidiaries.
Section 5.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the
Borrower nor any of its Subsidiaries is in violation of any provision of its
charter or other organization documents, by-laws, or any material agreement or
material instrument to which it may be subject or by which it or any of its
properties may be bound or any decree, order, judgment, statute, license, rule
or regulation, in any of the foregoing cases in a manner that could result in
the imposition of substantial penalties or materially and adversely affect the
financial condition, properties or business of the Borrower and its
Subsidiaries.
Section 5.10. TAX STATUS. The Borrower (a) has made or filed all federal
and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (b) has paid all taxes and other
governmental assessments and charges shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and by appropriate proceedings and (c) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Borrower know of no basis for any such
claim.
Section 5.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
Section 5.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the
Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor is
it an "investment company", or an "affiliated company" or a "principal
underwriter" of an "investment company", as such terms are defined in the
Investment Company Act of 1940.
Section 5.13. ABSENCE OF UCC FINANCING STATEMENTS, ETC. Except with respect
to Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any Collateral or rights thereunder.
Section 5.14. SETOFF, ETC. The Collateral and the rights of the Collateral
Agent and the Lender with respect to the Collateral are not subject to any
setoff, claims, withholdings or other defenses. The Borrower is the owner of the
Collateral free from any lien, security interest, encumbrance and, to the
knowledge of the Borrower, any other claim or demand, except for Permitted
Liens.
Section 5.15. CERTAIN TRANSACTIONS. Except as set forth in the Guarantor's
Form 10K Report filed with the Securities and Exchange Commission dated as of
March 31, 1998 and the
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Guarantor's Form 10Q Report filed with the Securities and Exchange Commission
dated as of September 30, 1998, none of the officers, trustees, directors, or
employees of the Borrower or any of its Subsidiaries is presently a party to any
transaction with the Borrower or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, trustee, director or such employee or
any corporation, partnership, trust or other entity in which any officer,
trustee, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 5.16. EMPLOYEE BENEFIT PLANS; MULTIEMPLOYER PLANS; GUARANTEED
PENSION PLANS. Neither the Borrower nor any ERISA Affiliate maintains or
contributes to any Employee Benefit Plan, Multiemployer Plan or Guaranteed
Pension Plan other than as set forth in SCHEDULE 5.16 hereof.
Section 5.17. REGULATIONS T, U, AND X. No portion of any Loan is to be used
for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations T., U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
Section 5.18. ENVIRONMENTAL COMPLIANCE. Except as disclosed on SCHEDULE
5.18,
(1) the operations of the Borrower and each of the Subsidiaries comply with
all applicable Environmental Laws in all material respects;
(2) none of the operations of the Borrower or any of the Subsidiaries is
the subject of any judicial or administrative proceeding alleging the violation
of any Environmental Laws;
(3) none of the operations of the Borrower or any of the Subsidiaries is
the subject of any federal or state investigation evaluating whether the
Borrower or any of the Subsidiaries disposed of any hazardous or toxic waste,
substance or constituent at any site that may require remedial action, or any
federal or state investigation evaluating whether any remedial action is needed
to respond to a release of any hazardous or toxic waste, substance or
constituent into the environment;
(4) neither the Borrower nor any of the Subsidiaries has filed any notice
under any federal or state law indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a hazardous or
toxic waste, substance or constituent into the environment;
(5) neither the Borrower nor any of the Subsidiaries has any contingent
liability of which the Borrower has knowledge or reasonably should have
knowledge in connection with any release of any hazardous or toxic waste,
substance or constituent into the
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environment, nor has the Borrower or any of the Subsidiaries received any
written notice, letter or other indication of potential liability arising from
the disposal of any hazardous or toxic waste, substance or constituent into the
environment.
Section 5.19. SUBSIDIARIES. Schedule 5.19 sets forth all of the
Subsidiaries of the Borrower. The Borrower or a Subsidiary is the owner, free
and clear of all liens and encumbrances, of all of the issued and outstanding
capital stock of each Subsidiary. All shares of such stock have been validly
issued and are fully paid and nonassessable and no rights to subscribe to any
additional shares have been granted, and no options, warrants, or similar rights
are outstanding.
Section 5.20. DELIVERY OF LEASES. The Borrower has delivered to the Lender
true, accurate and complete copies of all written leases of any Real Estate to
which the Borrower is a party (either as lessor or lessee).
Section 5.21. LOAN DOCUMENTS. All of the representations and warranties of
the Borrower made in the other Loan Documents or any document or instrument
delivered to the Collateral Agent or the Lender pursuant to or in connection
with any of such Loan Documents are true and correct in all material respects.
6. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees
that, so long as any Liability is Outstanding:
Section 6.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Credit Loans and all
interest, fees and other Liabilities provided for in this Agreement, all in
accordance with the terms of this Agreement and the Note, as well as all other
sums owing pursuant to the Loan Documents.
Section 6.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office in Plainview, New York, or at such other place in the United
States of America as the Borrower shall designate upon not less than forty five
(45) days prior written notice to the Lender.
Section 6.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause
each of its Subsidiaries to keep, true and accurate records and books of account
in which full, true and correct entries will be made in accordance with
Generally Accepted Accounting Principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation and amortization
of its properties and the properties of its Subsidiaries, contingencies, and
other reserves.
Section 6.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrower will deliver to the Lender:
(1) As soon as practicable, but in any event not later than one
hundred twenty (120) days after the end of each fiscal year of the
Borrower, the audited consolidated and consolidating financial statements,
which statements shall have been prepared in
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accordance with Generally Accepted Accounting Principles and shall have
been certified by the Borrower's independent certified public accountants.
Such annual statement shall include, at a minimum (with comparative
information for the then prior fiscal year) a consolidated balance sheet,
consolidated income statement, and consolidated cash flows, (together with
consolidating schedules) and shall be accompanied by a written statement
from such accountants to the effect that they have read a copy of this
Agreement, and that, in making the examination necessary to said
certification, they have obtained no knowledge of any Default or Event of
Default, or, if such accountants shall have obtained knowledge of any then
existing Default or Event of Default they shall disclose in such statement
any such Default or Event of Default.
(2) As soon as practicable, but in any event not later than sixty (60)
days after the end of each of the Borrower's fiscal quarters copies of the
Borrower's financial statements, which statements shall have been prepared
in accordance with Generally Accepted Accounting Principles (except for the
absence of footnotes) and together with a certification by the principal
financial or accounting officer of the Borrower that the information
contained in such financial statements fairly presents the financial
position of the Borrower and its Subsidiaries on the date thereof (subject
to year-end adjustments) and that no Default or Event of Default then
exists (or if a Default or Event of Default then exists, specifying the
nature thereof). Such quarterly statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet,
income statement, and cash flows for such quarter and that portion of the
Borrower's fiscal year then elapsed, prepared on a consolidated and
consolidating basis.
(3) INTENTIONALLY OMITTED
(4) Contemporaneously with the filing or mailing thereof, copies of
all material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Borrower.
(5) Contemporaneously with the Borrower's receipt thereof, copies of
all accountants' management letters.
(6) As soon as practicable, but in any event not later than fifteen
(15) days prior to the end of each fiscal year, monthly projections of the
financial condition and results of operations of the Borrower and its
Subsidiaries for the following fiscal year, including, but not limited to,
a projected balance sheet, statement of operations, statement of cash flows
and statement of changes in stockholders' equity for such fiscal year,
prepared on a consolidated and consolidating basis.
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(7) As soon as practicable, but in any event within thirty (30) days
after the end of the second quarter in each fiscal year of the Borrower's,
an update of the projections furnished by the Borrower pursuant to Section
6.4(f) hereof for such fiscal year.
(8) From time to time such other financial data and information as the
Lender may reasonably request.
Section 6.5. NOTICES.
(1) DEFAULTS. The Borrower will promptly notify the Lender in writing of
the occurrence of any Default or Event of Default. If any Person shall give any
notice or take any other action in respect of a claimed default (whether or not
constituting an Event of Default) under this Agreement or under any note,
evidence of indebtedness, indenture or other obligation to which or with respect
to which the Borrower or any of its Subsidiaries is a party or obligor, whether
as principal or surety, and such default would permit the holder of such note or
obligation or other evidence of indebtedness to accelerate the maturity thereof,
which acceleration would have a material adverse effect on the Borrower, the
Borrower shall forthwith give written notice thereof to the Lender, describing
the notice or action and the nature of the claimed default.
(2) ENVIRONMENTAL EVENTS. The Borrower will promptly give notice to the
Lender (i) of any material violation of any Environmental Law that the Borrower
or any of its Subsidiaries reports in writing or is reportable by such Person in
writing to any federal, state or local environmental agency and (ii) upon
becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental liability,
or any federal, state or local environmental agency or board, that in either
case involves any Real Estate or has the potential to materially affect the
assets, liabilities, financial condition or operations of the Borrower or the
Collateral Agent's security interests pursuant to the Security Documents.
(3) NOTIFICATION OF CLAIMS AGAINST COLLATERAL. The Borrower will,
immediately upon becoming aware thereof, notify the Lender in writing of any
setoff, claims (including, with respect to any Real Estate, environmental
claims), withholdings or other defenses to which any of the Collateral, or the
rights of the Collateral Agent or the Lender with respect to the Collateral, are
subject.
(4) NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will, and will cause
each of its Subsidiaries to, give notice to the Lender in writing of any
material litigation or proceedings threatened or any pending material litigation
and proceedings affecting the Borrower or any of its Subsidiaries or to which
the Borrower or any of its Subsidiaries is or is to become a party involving an
uninsured claim against the Borrower or any of its Subsidiaries or that could
reasonably be expected to have a materially adverse effect on the Borrower and
stating the nature and status of such litigation or proceedings. The Borrower
will, and will cause each of its Subsidiaries to, give notice to the Lender, in
writing, in form and detail reasonably satisfactory to
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the Lender, of any judgment not covered by insurance, final or otherwise,
against the Borrower or any of its Subsidiaries.
Section 6.6. EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence as a New York corporation. The Borrower will do or cause to
be done all things necessary to preserve and keep in full force all of its
rights and franchises and those of its Subsidiaries. The Borrower (a) will cause
all of its properties and those of its Subsidiaries necessary in the conduct of
its business or the business of its Subsidiaries to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will, and will cause each of its Subsidiaries to, continue to engage primarily
in the businesses now conducted by it and in related businesses, subject to the
reasonable determination of the applicable board of directors.
Section 6.7. INSURANCE. SCHEDULE 6.7 sets forth all presently existing
insurance maintained by the Borrower. The Borrower will maintain insurance on
all Collateral as required by the Loan Documents and will maintain with respect
to its other properties, and will cause each of its Subsidiaries to maintain
with financially sound and reputable insurers, insurance with respect to such
properties and its business against such casualties and contingencies as shall
be in accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms, in
such forms and for such periods as may be reasonable and prudent.
Section 6.8. TAXES. The Borrower will duly pay and discharge, or cause to
be paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it and its real
properties, sales and activities, or any part thereof, or upon the income or
profits therefrom, as well as all claims for labor, materials, or supplies.
Section 6.9. INSPECTION OF PROPERTIES AND BOOKS. (a) The Borrower shall
permit the Collateral Agent and the Lender, through any of the Collateral
Agent's or the Lender's designated representatives (at the Borrower's expense)
to visit and inspect any of the properties of the Borrower or any of its
Subsidiaries to examine the books of account of the Borrower and its
Subsidiaries (and to make copies thereof and extracts therefrom) and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, its officers, all at such reasonable times
and intervals as the Collateral Agent or the Lender may reasonably request.
(b) Without limiting the rights of the Collateral Agent and the Lender
under Section 6.9(a), above, the Borrower shall permit the Collateral Agent or
the Lender, at the Borrower's expense, (i) to undertake periodic commercial
finance examinations; and (ii) to obtain appraisals of the Borrower's assets in
which the Lender has been granted a security interest, in form and substance and
by appraisers reasonably satisfactory to the Collateral Agent and the Lender,
all of
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the foregoing at such times and intervals as the Collateral Agent or the Lender
may reasonably request.
Section 6.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will comply with, and will cause each of its Subsidiaries to comply
with (a) all applicable material laws and regulations now or hereafter in effect
wherever its business is conducted, including all applicable Environmental Laws
in all material respects, (b) the provisions of its corporate charter and other
charter documents and by-laws, (c) all material agreements and material
instruments to which it is a party or by which it or any of its properties may
be bound and (d) all applicable decrees, orders, and judgments except for
violations which, in the aggregate, do not have a material adverse effect on the
business, operations, properties, assets, or financial condition of the Borrower
and its Subsidiaries. If at any time while any Liability is Outstanding, any
material authorization, consent, approval, permit or license from any officer,
agency or instru mentality of any government shall become necessary or required
in order that the Borrower may fulfill any of its obligations hereunder, the
Borrower will promptly take or cause to be taken all reasonable steps within the
power of the Borrower to obtain such authorization, consent, approval, permit or
license and furnish the Lender with evidence thereof.
Section 6.11. USE OF PROCEEDS. The Borrower will use the proceeds of the
Credit Loans solely to finance Acquisitions permitted hereunder and for working
capital purposes, PROVIDED THAT proceeds of the Credit Loans utilized to finance
Acquisitions shall in no event exceed $15,000,000 in the aggregate.
Section 6.12. BANK ACCOUNTS. The Borrower shall, and shall cause each of
its Subsidiaries to, maintain a deposit and investment account with the Lender,
if one is maintained by a Subsidiary.
Section 6.13. FURTHER ASSURANCES. The Borrower will cooperate with, and
will cause each of its Subsidiaries to cooperate with the Collateral Agent and
the Lender and execute such further instruments and documents as the Lender or
the Collateral Agent shall reasonably request to carry out to their reasonable
satisfaction the transactions contemplated by this Agreement and the other Loan
Documents.
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
agrees that, so long as any Liability is Outstanding:
Section 7.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will
not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or other wise, with respect to any Indebtedness
other than:
(1) Indebtedness to the Lender arising under any of the Loan
Documents;
(2) current liabilities of the Borrower or its Subsidiaries incurred
in the ordinary course of business but not incurred through (i) the
borrowing of money, or (ii)
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the obtaining of credit except for credit on an open account basis
customarily extended and in fact extended in connection with normal
purchases of goods and services;
(3) Indebtedness arising on account of short term (less than 90 days)
borrowing from affiliates of the Borrower;
(4) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of Section 6.8;
(5) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower
shall at the time in good faith be prosecuting an appeal or proceedings for
review and in respect of which a stay of execution shall have been obtained
pending such appeal or review;
(6) endorsements for collection, deposit or negotiation and warranties
of products or services, in each case incurred in the ordinary course of
business; and
(7) Indebtedness existing on the date of this Agreement and listed and
described on SCHEDULE 7.1 hereto.
(8) Other Indebtedness not to exceed One Million Dollars
($1,000,000.00) in the aggregate at any time outstanding.
Section 7.2. RESTRICTIONS ON LIENS, ETC. The Borrower will not, and will
not permit any of its Subsidiaries to, (a) create or incur or suffer to be
created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of its property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; PROVIDED that the Borrower and any
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:
(1) liens in favor of the Borrower on all or part of the assets of
Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries of
the Borrower to the Borrower;
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(2) liens on properties to secure taxes, assessments and other
government charges or claims for labor, material or supplies in respect
of obligations not overdue;
(3) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
epnsions or other social security obligations;
(4) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by Section 7.1(e);
(5) liens of carriers, warehousemen, mechanics and materialmen, and
other like liens on properties in existence less than 40 days from the
date of creation thereof in respect of obligations not overdue;
(6) encumbrances on properties consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
liens under leases to which the Borrower or a Subsidiary of the Borrower
is a party, and other minor liens or encumbrances none of which
interferes materially with the use of the property affected in the
ordinary conduct of the business of the Borrower and its Subsidiaries,
which defects do not individually or in the aggregate have a materially
adverse effect on the business of the Borrower individually or of the
Borrower and its Subsidiaries on a consolidated basis.
(7) presently outstanding liens listed on SCHEDULE 7.2 hereto; and
(8) liens in favor of the Collateral Agent and the Lender under the
Loan Documents.
(9) Liens to secure Indebtedness not to exceed One Million Dollars
($1,000,000.00) in the aggregate at any time outstanding.
Section 7.3. RESTRICTIONS ON INVESTMENTS. As long as any Liabilities are
Outstanding, the Borrower will not, and will not permit any of its Subsidiaries
to, make or permit to exist or to remain outstanding any Investment except
Investments which constitute:
(1) marketable direct or guaranteed obligations of the United States
of America that mature within one (1) year from the date of purchase by the
Borrower;
(2) money market funds that mature within one (1) year from the date
of purchase by the Borrower;
(3) demand deposits, certificates of deposit, bankers acceptances and
time deposits of United States banks having total assets in excess of
$1,000,000,000.00;
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(4) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Services, Inc., and not less than "A 1" if rated by Standard and
Poor's; and
(5) Investments existing on the date hereof and listed on SCHEDULE 7.3
hereto.
Section 7.4. MERGER, CONSOLIDATION. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to any merger or
consolidation, or agree to or effect any asset acquisition or disposition or
stock acquisition or disposition (other than the acquisition or disposition of
assets in the ordinary course of business consistent with past practices) except
(i) the merger or consolidation of one or more of the Subsidiaries of the
Borrower with and into the Borrower, or (ii) the merger or consolidation of two
or more Subsidiaries of the Borrower, or (iii) Acquisitions, if (A) after giving
effect to any Credit Loans made to the Borrower to fund any such Acquisition,
Availability shall be at least Two Million Five Hundred Thousand and 00/100
Dollars ($2,500,000.00), and (B) Credit Loans to fund any such Acquisition by
the Borrower shall not in any fiscal year exceed, in the aggregate, the amount
of Fifteen Million Dollars ($15,000,000.00), and (C) the Borrower will notify
the Lender prior to entering into any Acquisition, and at such time as the
aggregate of all Acquisitions during any fiscal year exceed Five Million Dollars
($5,000,000.00), each Acquisition thereafter is otherwise on terms reasonably
satisfactory to the Lender (whose consent shall not be unreasonably withheld).
For purposes of Subsection (c), above, those acquisitions described on SCHEDULE
7.4, below, are on terms satisfactory to the Lender.
Section 7.5. SALE AND LEASEBACK. The Borrower will not, and will not permit
any of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred.
Section 7.6. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and
will not permit any of its Subsidiaries to, do any of the following: (a) use any
of the Real Estate or any portion thereof as a facility for the handling,
processing, storage or disposal of Hazardous Substances except in material
compliance with Environmental Laws, (b) cause or permit to be located on any of
the Real Estate any underground tank or other underground storage receptacle for
Hazardous Substances except in material compliance with Environmental Laws, (c)
generate or dispose of any Hazardous Substances on any of the Real Estate except
in material compliance with Environmental Laws, or (d) conduct any activity at
any Real Estate or use any Real Estate in any manner so as to cause a release.
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Section 7.7. DISTRIBUTIONS. The Borrower will not make any Distributions in
excess of Two Million Dollars ($2,000,000.00) during any fiscal year.
Section 7.8. SUBSIDIARIES. Without limiting the provisions of Section 7.3,
the Borrower shall not acquire, form, or otherwise invest in any Subsidiary,
without the prior written consent of the Lender, which shall not be unreasonably
withheld. Without limiting the foregoing, the Borrower acknowledges that the
Lender's consent may be conditioned upon, among other things, the Lender's
receipt of a guaranty of the Liabilities from such Subsidiary and the Collateral
Agent's receipt of a security interest in the Subsidiary's capital stock and
assets in order to secure the Liabilities.
Section 7.9. FISCAL YEAR. The fiscal year of the Borrower and its
Subsidiaries presently ends on March 31 of each year. The Borrower and its
Subsidiaries shall not change their fiscal year end without furnishing prior
written notice thereof to, and first obtaining the consent of, the Lender, which
consent shall not be unreasonably withheld or delayed.
Section 7.10. LOANS AND ADVANCES. The Borrower will not and will not permit
any of its Subsidiaries to, make any loans or advances to any Person, except for
loans and advances which do not exceed in the aggregate Five Hundred Thousand
Dollars ($500,000.00) at any time outstanding.
8. CLOSING CONDITIONS. The agreement of the Lender to make the Credit Loans
in accordance with the terms hereof shall be subject to satisfaction of the
following conditions precedent:
Section 8.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto and, shall be in
full force and effect and shall be in form and substance satisfactory to the
Lender.
Section 8.2. CERTIFIED COPIES OF ORGANIZATION DOCUMENTS. The Lender shall
have received from the Borrower and from each Guarantor a copy, certified as of
a recent date by the appropriate officer of the State in which such entity is
organized to be true and complete, of the corporate charter and any other
organization documents of such entity as in effect on such date of
certification. The Borrower, each of its Subsidiaries, and each Guarantor shall
furnish evidence satisfactory to the Lender that they are each duly qualified
and in good standing in each jurisdiction in which it owns or leases property or
in which the conduct of its business requires them to so qualify.
Section 8.3. BY-LAWS; RESOLUTIONS. All action on the part of the Borrower
and each Guarantor necessary for the valid execution, delivery and performance
by the Borrower and each Guarantor of this Agreement and the other Loan
Documents to which it is or is to become a party shall have been duly and
effectively taken, and evidence thereof satisfactory to the Lender shall have
been provided to the Lender. The Lender shall have received from the Borrower
and each Guarantor true copies of their respective by-laws and the resolutions
adopted by their respective boards of
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directors authorizing the transactions described herein, each certified by their
respective secretary as of a recent date to be true and complete.
Section 8.4. INCUMBENCY CERTIFICATE; AUTHORIZED SIGNERS. The Lender shall
have received from the Borrower and each Guarantor an incumbency certificate,
dated as of the Closing Date, signed by a duly authorized officer of such entity
and giving the name and bearing a specimen signature of each individual who
shall be authorized: (a) to sign, in the name and on behalf of such entity, each
of the Loan Documents to which the such entity is or is to become a party; (b)
to make requests for Credit Loans and Conversion Requests; and (c) to give
notices and to take other action on behalf of such entity under the Loan
Documents.
Section 8.5. VALIDITY OF LIENS. The Security Documents shall be effective
to create in favor of the Collateral Agent for the benefit of the Lender a
legal, valid and enforceable first (except for Permitted Liens entitled to
priority under applicable law) security interest in the Collateral. All filings,
recordings, deliveries of instruments and other actions necessary or desirable
in the opinion of the Lender to protect and preserve such security interests
shall have been duly effected. The Collateral Agent shall have received evidence
thereof in form and substance satisfactory to the Collateral Agent and the
Lender.
Section 8.6. INTENTIONALLY OMITTED
Section 8.7. CORPORATE STRUCTURE. The Lender shall be satisfied in all
respects with the legal structure and capitalization of the Borrower and its
Subsidiaries and each Guarantor and all documentation relating thereto.
Section 8.8. LITIGATION. There shall be no pending or threatened litigation
involving the Borrower or any of its Subsidiaries or any Guarantor which, in the
judgment of the Lender, could have a material adverse effect on the Borrower or
any of its Subsidiaries or any Guarantor or the ability of the Borrower or its
Subsidiaries or any Guarantor to perform their obligations under the Loan
Documents, and no judgment, order, injunction or other similar injunction or
other similar restraint prohibiting any of the transactions contemplated hereby
shall exist.
Section 8.9. EVIDENCE OF INSURANCE. The Collateral Agent shall have
received evidence, in form, scope and substance and with such insurance
carriers, satisfactory to the Collateral Agent, for all insurance policies
required under any of the Loan Documents, naming the Collateral Agent as loss
payee.
Section 8.10. FINANCIAL STATEMENTS. The Lender shall have received such
financial statements and other information and projections as the Lender shall
have reasonably requested, and the information shall be satisfactory to the
Lender.
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Section 8.11. COMPLIANCE WITH LAW. The Lender shall be satisfied that (i)
the Borrower and each Guarantor has obtained all material and appropriate
authorizations and approvals of all governmental authorities required for the
due execution, delivery and performance by such entity of each of the Loan
Documents to which it is or will be a party and for the perfection of or the
exercise by the Collateral Agent and the Lender of their respective rights and
remedies under the Loan Documents and (ii) the Loans as well as all other
transactions contemplated hereby, shall be in material compliance with, and
shall have obtained all material and appropriate approvals pertaining to, all
applicable laws, rules, regulations and orders, including, without limitation,
all governmental, environmental, ERISA retiree health benefits, workers'
compensation and other requirements, regulations and laws and shall not
contravene any charter, by-law, debt instrument or other material agreement of
Borrower and its Subsidiaries and each Guarantor.
Section 8.12. OPINION OF COUNSEL CONCERNING ORGANIZATION AND LOAN
DOCUMENTS. Each of the Lender and the Collateral Agent shall have received a
favorable opinion addressed to the Lender and the Collateral Agent and dated as
of the Closing Date, in form and substance satisfactory to the Lender and the
Collateral Agent from Baer, Marks & Upham LLP.
Section 8.13. PAYMENT OF FEES AND EXPENSES. The Borrower shall have paid to
the Lender the closing fee pursuant to Section 3.1 and all expenses then due to
the Collateral Agent and the Lender under Section 13 hereof.
Section 8.14. GUARANTIES. The Lender shall have received unconditional
joint and several Guaranties of the Liabilities from Toymax International, Inc.
and from Kite, satisfactory in form and substance to the Lender.
Section 8.15. PARTICIPATION AGREEMENT. The Lender shall have entered into a
Participation Agreement with Congress on terms and conditions reasonably
satisfactory to the Lender.
Section 8.16. ADDITIONAL DOCUMENTS. The Borrower shall have provided such
additional instruments and documents to the Collateral Agent and the Lender as
the Lender and the Lender's counsel may have requested.
9. CONDITIONS TO ALL BORROWINGS. The agreement of the Lender to make any
Credit Loan, whether on or after the Closing Date, shall also be subject to the
satisfaction of the following conditions precedent:
Section 9.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of the Borrower and its Subsidiaries contained in
this Agreement, the other Loan Documents or in any document or instrument
delivered pursuant to or in connection with this Agreement shall be true in all
material respects as of the date as of which they were made and shall also be
true in all material respects at and as of the time of the making of such Credit
Loan, with the same effect as if made at and as of that time (except to the
extent of changes resulting from transactions contemplated and permitted by this
Agreement and the other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not
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materially adverse, and except to the extent that such representations and
warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be con tinuing. The Lender shall have received a
certificate of the Borrower signed by an authorized officer of the Borrower to
such effect.
Section 9.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of the Lender would make it illegal for the Lender to make such Credit
Loan.
Section 9.3. GOVERNMENTAL REGULATION. The Lender shall have received such
statements in substance and form reasonably satisfactory to the Lender as the
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
Section 9.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Agreement and the other Loan Documents
shall be reasonably satisfactory in substance and in form to the Lender's and to
the Collateral Agent's counsel, and the Lender, the Collateral Agent and such
counsel shall have received all information and such counterpart originals or
certified or other copies of such documents as the Collateral Agent and the
Lender may reasonably request.
10. EVENTS OF DEFAULT; ACCELERATION; ETC.
Section 10.1. EVENTS OF DEFAULT AND ACCELERATION THE OCCURRENCE OF ANY
EVENT DESCRIBED IN THIS ARTICLE 10 RESPECTIVELY SHALL CONSTITUTE AN "EVENT OF
DEFAULT", OR, IF THE GIVING OF NOTICE OR THE LAPSE OF TIME OR BOTH IS REQUIRED,
THEN, PRIOR TO SUCH NOTICE OR LAPSE OF TIME, SUCH OCCURRENCE SHALL CONSTITUTE A
"DEFAULT". NOTHING CONTAINED IN THIS ARTICLE 10, OR ELSEWHERE IN THIS AGREEMENT,
SHALL AFFECT THE DEMAND NATURE OF THE LIABILITIES. THE OCCURRENCE OF AN EVENT OF
DEFAULT SHALL NOT BE A PREREQUISITE FOR THE LENDER'S MAKING DEMAND OR REQUIRING
PAYMENT OF SUCH LIABILITIES. Without limiting the rights of the Lender to make
such demand for payment, the Lender shall have the right by notice in writing to
the Borrower declare any and all Liabilities to become immediately due and
payable without presentment, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower, upon the occurrence of any such
Event of Default.
(1) the Borrower shall fail to pay any principal of the Credit Loans
when the same shall become due and payable;
(2) the Borrower shall fail to pay any interest on the Credit Loans or
any other sums due hereunder or under any of the other Loan Documents, when
the same shall become due and payable;
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(3) the Borrower shall fail to comply with any of its covenants
contained in Section 6 or Section 7 hereof or any of the covenants
contained in any other Loan Documents for ten (10) days after written
notice of such failure has been given to the Borrower by the Lender;;
(4) the Borrower or any of its Subsidiaries shall fail to perform any
other term, covenant or agreement contained herein (other than those
specified elsewhere in this Section 10) for thirty (30) days after written
notice of such failure has been given to the Borrower by the Lender;
(5) any representation or warranty of the Borrower or any of its
Subsidiaries in this Agreement or any of the other Loan Documents is
determined by the Lender to have been false in any material respect upon
the date when made or deemed to have been made or repeated;
(6) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or credit received or in respect of any capitalized leases,
or fail to observe or perform any term, covenant or agreement contained in
any agreement by which it is bound, evidencing or securing borrowed money
or credit received or in respect of any capitalized leases for such period
of time as would permit (assuming the giving of appropriate notice if
required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof or the Borrower or any of its
Subsidiaries shall fail to observe or perform any term, covenant, or
agreement contained in any material contract to which the Borrower is a
party for such period of time as would permit any party to such material
contract (assuming the giving of appropriate notice if required) to
terminate such material contract, to the extent that any of the foregoing
events has a material adverse effect on the business or financial condition
of the Borrower;
(7) the Borrower or any of its Subsidiaries shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Borrower or any of its Subsidiaries or of any
substantial part of the assets of the Borrower or any of its Subsidiaries
or shall commence any case or other proceeding relating to the Borrower or
any of its Subsidi aries under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law
of any jurisdiction, now or hereafter in effect, or shall take any action
to authorize or in furtherance of any of the foregoing, or if any such
petition or application shall be filed or any such case or other proceeding
shall be commenced against the Borrower or any of its Subsidiaries and the
Borrower or any of its Subsidiaries shall indicate its approval thereof,
consent thereto or acquiescence therein or if not so approved, consented
to, or acquiesced in, fail to obtain the dismissal thereof within thirty
(30) days of filing;
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(8) The filing of any case or other proceeding against the
Borrower or any of the Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or
hereafter in effect; a decree or order is entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating the Borrower
or any of its Subsidiaries bankrupt or insolvent, or approving a
petition in any such case or other proceeding, or a decree or order for
relief is entered in respect of the Borrower or any Subsidiary of the
Borrower, in an involuntary case under federal bankruptcy laws as now or
hereafter constituted;
(9) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days any uninsured final judgment against
the Borrower or any of its Subsidiaries that, with other outstanding
uninsured final judgments, undischarged, against the Borrower or any of
its Subsidiaries exceeds in the aggregate $500,000.00;
(10) if any of the Loan Documents shall be canceled, terminated,
revoked or rescinded or any action at law, suit or in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan Documents
shall be commenced by or on behalf of the Borrower or any of its
Subsidiaries, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a final
determination that, or issue a final judgment, order, decree or ruling
to the effect that, any one or more of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof;
(11) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred for which the notice requirement
has not been waived, and the Lender shall have determined in its
reasonable discretion that such event reasonably could be expected to
result in liability of the Borrower or any of its Subsidiaries to the
PBGC on such Guaranteed Pension Plan in an aggregate amount exceeding
$100,000.00 and (i) such event in the circumstances occurring reasonably
could constitute grounds for the termination of such Guaranteed Pension
Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Guaranteed Pension Plan;
or (ii) a trustee shall have been appointed by the United States
District Court to administer such Plan; or (iii) the PBGC shall have
instituted proceedings to terminate such Guaranteed Pension Plan;
(12) the Borrower or any of its Subsidiaries shall be indicted for
a federal crime, a punishment for which could include the forfeiture of
any assets of the Borrower or such Subsidiaries;
(13) there shall have occurred any material adverse change, as
determined by the Lender in good faith, in or to the assets,
liabilities, financial condition, business operations, or prospects of
the Borrower and its Subsidiaries, taken as a whole; or
(14) Any change in the ownership of the capital stock of the
Borrower.
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(15) the occurrence of any of the events described in this Article
10 with respect to any Guarantor as if such Guarantor were the
"Borrower", as set forth above.
Section 10.2. TERMINATION OF CREDIT LOANS. If any one or more Events of
Default specified in Section 10.1(g) or Section 10.1(h) shall occur, the Lender
shall be relieved of any agreement to make Credit Loans to the Borrower. If any
other Event of Default shall have occurred and be continuing, or if on any
Drawdown Date the conditions precedent to the making of the Credit Loans to be
made on such Drawdown Date are not satisfied, the Lender may by notice to the
Borrower, immediately relieve the Lender of all further agreements to make
Credit Loans. No termination of the credit hereunder shall relieve the Borrower
of any of the Liabilities or any of its existing obligations to the Lender
arising under other agreements or instruments.
Section 10.3. REMEDIES. In case any one or more of the Events of Default
shall have occurred and be continuing, and whether or not the Lender shall have
made DEMAND upon the Borrower for the payment in full of the Liabilities, the
Lender and/or the Collateral Agent may proceed to protect and enforce its rights
and remedies under this Agreement, the Note or any of the other Loan Documents
by suit in equity, action at law or other appropriate proceeding, whether for
the specific performance of any covenant or agreement contained in this
Agreement and the other Loan Documents, including to the full extent permitted
by applicable law the obtaining of the EX PARTE appointment of a receiver, and,
if such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of the Lender
or the Collateral Agent. No remedy herein conferred upon the Lender or the
Collateral Agent is intended to be exclusive of any other remedy and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or any other provision of law. Notwithstanding the terms of Section 10.2 or 10.3
or elsewhere in this Agreement to the contrary, upon the occurrence of any Event
of Default with respect to Kite, provided that no L/Cs are then outstanding
naming Kite as account party, and there are no amounts due by Kite to the Lender
under any L/C Agreements, then the sole remedy of the Lender shall be limited to
the termination of any agreement of the Lender to issue L/Cs for the account of
Kite.
Section 10.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that,
following the occurrence or during the continuance of any Default or Event of
Default, the Collateral Agent or the Lender, as the case may be, receives any
monies in connection with the enforcement of any of the Security Documents, or
otherwise with respect to the realization upon any of the Collateral, such
monies shall be turned over to the Lender for application as follows:
(1) First, to the payment of, or (as the case may be) the
reimbursement of, the Collateral Agent and the Lender for or in respect of
their respective reasonable costs, expenses, disbursements and losses which
shall have been incurred or sustained by the Collateral Agent or the Lender
in connection with the collection of such monies by the Collateral Agent or
the Lender, for the exercise, protection or enforcement by the Collateral
Agent or the Lender of all or any of the rights, remedies, powers and
privileges of the Collateral Agent or the Lender under this Agreement or
any of the other Loan
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Documents or in respect of the Collateral or in support of any provision of
adequate indemnity to the Collateral Agent or the Lender against any taxes
or liens which by law shall have, or may have, priority over the rights of
the Collateral Agent or the Lender to such monies;
(2) Second, to all other Liabilities in such order or preference as
the Lender may determine; PROVIDED, however, that the Lender may in its
discretion make proper allowance to take into account any Liabilities not
then due and payable;
(3) Third, upon payment and satisfaction in full or other provisions
for payment in full satisfactory to the Lender and the Collateral Agent of
all of the Liabilities, to the payment of any obligations required to be
paid pursuant to Section 9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts; and
(4) Fourth, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
11. SETOFF. Regardless of the adequacy of any collateral, during the
continuance of any Default, any deposits (general or specific, time or demand,
provisional or final, regardless of currency, maturity, or the branch of where
such deposits are held) or other sums credited by or due from the Lender or the
Collateral Agent to the Borrower and any securities or other property of the
Borrower in the possession of the Lender or the Collateral Agent may be applied
to or set off against the payment of Liabilities and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to the Lender or the
Collateral Agent. The Collateral Agent and the Lender agree with each other that
(a) if an amount to be set off is to be applied to Indebtedness of the Borrower
to the Collateral Agent or the Lender, other than Indebtedness evidenced by the
Loan Documents, such amount shall be applied ratably to such other Indebtedness
and to the Indebtedness evidenced by all such Loan Documents, and (b) if the
Collateral Agent or the Lender shall receive from the Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Loan Documents by proceedings against
the Borrower at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar proceedings, or otherwise,
and shall retain and apply to the payment of the Liabilities any amount in
excess of its ratable portion of the payments received by the other under the
Loan Documents, such Person will make such disposition and arrangements with the
other with respect to such excess, either by way of distribution, PRO TANTO
assignment of claims, subrogation or otherwise as shall result in each receiving
in respect of the Liabilities its propor tionate payment as contemplated by this
Agreement; PROVIDED that if all or any part of such excess payment is thereafter
recovered from such Person, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.
12. THE COLLATERAL AGENT.
Section 12.1. AUTHORIZATION. The Collateral Agent is authorized to take
such action on behalf of
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the Lender and to exercise all such powers as are hereunder and under any of the
other Loan Documents delegated to such Collateral Agent, together with such
powers as are reasonably incident thereto, PROVIDED that no duties or
responsibilities not expressly assumed herein or therein shall be implied to
have been assumed by such Collateral Agent. The relationship between the
Collateral Agent and the Lender is and shall be that of agent and principal
only, and nothing contained in this Agreement or any of the other Loan Documents
shall be construed to constitute the Collateral Agent as a trustees for the
Lender.
Section 12.2. EMPLOYEES AND AGENTS. The Collateral Agent may exercise its
powers and execute its duties by or through employees or agents and shall be
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Agreement and the other Loan
Documents. The Collateral Agent may utilize the services of such Persons as the
Collateral Agent in its sole discretion may reasonably determine, and all
reasonable fees and expenses of any such Persons shall be paid by the Borrower
and if not paid by the Borrower shall be paid by the Lender.
Section 12.3. NO LIABILITY. Neither the Collateral Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting it
in its duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that such Collateral Agent or
such other Person, as the case may be, may be liable for losses due to its
willful misconduct or gross negligence.
Section 12.4. NO REPRESENTATIONS. The Collateral Agent shall not be
responsible for the execution or validity or enforceability of this Agreement,
the Note, any of the other Loan Documents or any instrument at any time
constituting, or intended to constitute, collateral security for the Note, or
for the value of any such collateral security or for the validity,
enforceability or collectibility of any such amounts owing with respect to the
Note, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrower or any of its
Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Note. The Collateral Agent shall not be bound to ascertain
whether any notice, consent, waiver or request delivered to it by the Borrower
or any holder of the Note shall have been duly authorized or is true, accurate
and complete. The Collateral Agent has not made nor does it now make any
representations or warranties, express or implied, nor does it assume any
liability to the Lender, with respect to the creditworthiness or financial
condition of the Borrower or any of its Subsidiaries. The Lender acknowledges
that it has, independently and without reliance upon the Collateral Agent, and
based upon such information and documents as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement.
Section 12.5. PAYMENTS.
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(1) The Collateral Agent agrees promptly to distribute to the Lender all
payments received by the Collateral Agent for the account of the Lender except
as otherwise expressly provided herein or in any of the other Loan Documents.
(2) If in the opinion of the Collateral Agent the distribution of any
amount received by it in such capacity hereunder, under the Note or under any of
the other Loan Documents could reasonably be expected to involve it in
liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent jurisdiction.
If a court of competent jurisdiction shall adjudge that any amount received and
distributed by the Collateral Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to the Collateral
Agent its proportionate share of the amount so adjudged to be repaid or shall
pay over the same in such manner and to such Persons as shall be determined by
such court.
Section 12.6. INDEMNITY. The Lender agrees hereby to indemnify and hold
harmless the Collateral Agent from and against any and all claims, actions and
suits (whether groundless or otherwise), losses, damages, costs, expenses
(including any expenses for which the Collateral Agent has not been reimbursed
by the Borrower as required by Section 13), and liabilities of every nature and
character arising out of or related to this Agreement, the Note, or any of the
other Loan Documents or the transactions contemplated or evidenced hereby or
thereby, or such Collateral Agent's actions taken hereunder or thereunder,
except to the extent that any of the same shall be directly caused by such
Collateral Agent's willful misconduct or gross negligence.
Section 12.7. RESIGNATION. The Collateral Agent may resign at any time by
giving sixty (60) days' prior written notice thereof to the Lender and the
Borrower. Upon any such resignation, the Lender shall have the right to appoint
a successor Collateral Agent. If no successor Collateral Agent shall have been
so appointed by the Lender and shall have accepted such appointment within
thirty (30) days after the retiring Collateral Agent's giving of notice of
resignation, then the retiring Collateral Agent may, on behalf of the Lender,
appoint a successor Collateral Agent. Upon the acceptance of any appointment as
Collateral Agent hereunder by a successor Collateral Agent, such successor
Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent, and the
retiring Collateral Agent shall be discharged from its duties and obligations
hereunder. After any retiring Collateral Agent's resignation, the provisions of
this Agreement and the other Loan Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Collateral Agent.
Section 12.8. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events
of Default have occurred and shall be continuing, and whether or not
acceleration of the Liabilities shall have oc curred, the Collateral Agent
shall, if (a) so requested by the Lender and (b) the Lender has provided to the
Collateral Agent such additional indemnities and assurances against expenses and
liabilities as the Collateral Agent may reasonably request, proceed to enforce
the provisions of
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the Security Documents authorizing the sale or other disposition of all or any
part of the Collateral and exercise all or any such other legal and equitable
and other rights or remedies as it may have in respect of such Collateral. The
Lender may direct the Collateral Agent in writing as to the method and the
extent of any such sale or other disposition, the Lender hereby agreeing to
indemnify and hold the Collateral Agent harmless from all liabilities incurred
in respect of all actions taken or omitted in accordance with such directions,
PROVIDED that the Collateral Agent need not comply with any such direction to
the extent that the Collateral Agent reasonably believes the Collateral Agent's
compliance with such direction to be unlawful or commercially unreasonable in
any applicable jurisdiction.
Section 12.9. COMPENSATION. The Collateral Agent shall not be entitled to
any compensation for serving in such capacity hereunder.
13. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of
producing and reproducing this Agreement and the other Loan Documents, (b) any
taxes (including any interest and penalties in respect thereto) payable by the
Collateral Agent or the Lender (other than taxes based upon the Collateral
Agent's or the Lender's net income), including any recording, mortgage,
documentary or intangibles taxes in connection with the Loan Documents, or other
taxes payable on or with respect to the transactions contemplated by this
Agreement, including any taxes payable by the Collateral Agent or the Lender
after the Closing Date (the Borrower hereby agreeing to indemnify the Collateral
Agent and the Lender with respect thereto), (c) all reasonable appraisal fees
(as set forth in Section 6.9(b), above), and the reasonable fees, expenses and
disbursements of the Collateral Agent's and the Lender's counsel or any local
counsel to the Collateral Agent or the Lender incurred in connection with the
preparation, administration or interpretation of the Loan Documents and
amendments, modifications, approvals, consents or waivers hereto or hereunder,
(d) the reasonable fees, expenses and dis bursements of the Collateral Agent and
the Lender incurred by the Collateral Agent and the Lender in connection with
the preparation, administration or interpretation of the Loan Documents, (e) all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
costs and the reasonable fees and costs of appraisers, investment bankers or
other experts retained by the Lender or the Collateral Agent in connection with
any such enforcement proceedings) incurred by the Lender or the Collateral Agent
in connection with (i) the enforcement of or preservation of rights under any of
the Loan Documents against the Borrower or any of its Subsidiaries or the
administration thereof and (ii) any litigation, proceeding or dispute whether
arising hereunder or otherwise, in any way related to the Lender's or the
Collateral Agent's relationship with the Borrower or any of its Subsidiaries and
(f) all reasonable fees, expenses and disbursements of the Lender or the
Collateral Agent incurred in connection with UCC searches, UCC filings or
mortgage recordings. The covenants of this Section 13 shall survive payment or
satisfaction of payment of amounts owing with respect to the Note.
14. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the
Collateral Agent and the Lender from and against any and all claims, actions and
suits whether groundless or otherwise, and from and against any and all
liabilities, losses, damages and expenses of every nature and character arising
out of this Agreement or any of the other Loan
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Documents or the transactions contemplated hereby including, without limitation,
(a) any actual or proposed use by the Borrower or any of its Subsidiaries of the
proceeds of any of the Credit Loans, (b) any actual or alleged infringement of
any patent, copyright, trademark, service mark or similar right of the Borrower
or any of its Subsidiaries comprised in the Collateral, (c) the Borrower or any
of its Subsidiaries entering into or performing this Agreement or any of the
other Loan Documents or (d) with respect to the Borrower and its Subsidiaries
and their respective properties and assets, the violation of any Environmental
Law, the Release or threatened Release of any Hazardous Substances or any
action, suit, proceeding or investigation brought or threatened with respect to
any Hazardous Substances (including, but not limited to claims with respect to
wrongful death, personal injury or damage to property), in each case including,
without limitation, the reasonable fees and disbursements of counsel and
allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding; provided however that neither the
Lender nor the Collateral Agent shall be entitled to indemnification (including
the fees and expenses of its counsel) if a court of competent jurisdiction
finally determines (all appeals having been exhausted or waived) that the Lender
or the Collateral Agent acted with gross negligence, in bad faith or with
willful misconduct. In litigation, or the preparation therefor, the Lender and
the Collateral Agent shall be entitled to select their own counsel and, in
addition to the foregoing indemnity, the Borrower agrees to pay promptly the
reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrower under this Section 14 are unenforceable for any
reason, the Borrower hereby agrees to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law. The provisions of this Section 14 shall survive the repayment of
the Credit Loans and the termination of the obligations of the Lender hereunder.
15. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations
and warranties made herein, in the Note, in any of the other Loan Documents or
in any documents or other papers delivered by or on behalf of the Borrower or
any of its Subsidiaries (as set forth on Schedule 15, annexed hereto), shall be
deemed to have been relied upon by the Lender and the Collateral Agent,
notwithstanding any investigation heretofore or hereafter made by any of them,
and shall survive the making by the Lender of any of the Credit Loans, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Agreement or the Note or any of the other Loan Documents remains
outstanding. The indemnification obligations of the Borrower provided herein and
the other Loan Documents shall survive the full repayment of amounts due and the
termination of the agreements of the Lender hereunder and thereunder to the
extent provided herein and therein. All statements contained in any certificate
or other paper delivered to the Lender or the Collateral Agent at any time by or
on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower or such Subsidiary hereunder.
16. ASSIGNMENT AND PARTICIPATION.
Section 16.1. PLEDGE BY LENDER. The Lender may freely assign or participate
all or a portion of
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its interests, rights and obligations under this Agreement, PROVIDED THAT, as
long as no Event of Default then exists, the Borrower shall have the right to
approve such assignment (which approval shall not be unreasonably withheld or
delayed).
Section 16.2. PLEDGE TO FEDERAL RESERVE. The Lender may at any time
(without notice to, or consent from, the Borrower) pledge all or any portion of
its interest and rights under this Agree ment (including all or any portion of
its Note) to any of the twelve Federal Reserve Lenders organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the
enforcement thereof shall release the pledgor Lender from its obligations
hereunder or under any of the other Loan Documents.
Section 16.3. NO ASSIGNMENT BY BORROWER. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of the Lender.
Section 16.4. DISCLOSURE. The Borrower agrees that in addition to
disclosures made in accordance with standard banking practices the Lender may
disclose information obtained by the Lender pursuant to this Agreement to
assignees or participants and potential assignees or participants hereunder.
17. NOTICES, ETC. Except as otherwise expressly provided in this Agreement,
all notices and other communications made or required to be given pursuant to
this Agreement, the Note or the other Loan Documents shall be in writing and
shall be delivered in hand, mailed by United States registered or certified
first class mail, postage prepaid, sent by overnight courier, or sent by
telegraph, telecopy, telefax or telex and confirmed by delivery via courier or
postal service, addressed as follows:
(1) if to the Borrower, at 125 East Bethpage Road, Plainview, New York
11803, Attention: Mr. William A. Johnson, Chief Financial Officer
(Telecopier: 516-391- 9149), or at such other address for notice as the
Borrower shall last have furnished in writing to the Person giving the
notice; and
(2) if to the Lender, at 225 Franklin Street, Boston, Massachusetts
02110, Attention: Mr. L. Daniel Lobdell, Vice President (Telecopier:
617-310-5774), or such other address for notice as the Lender shall last
have furnished in writing to the Borrower.
(3) if to the Collateral Agent, at 1133 Sixth Avenue, New York, New
York 10036, Attention: Steven Forleiter, Vice President (Telecopier:
212-545-4540), or such other address for notice as the Collateral Agent
shall last have furnished in writing to the Borrower.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending
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of such facsimile (with confirmation of receipt) and (ii) if sent by registered
or certified first-class mail, postage prepaid, on the third Business Day
following the mailing thereof.
18. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS AGREEMENT AND
EACH OF THE OTHER LOAN DOCUMENTS (EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN) ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF SUCH COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH
OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SECTION
17. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN
AN INCONVENIENT COURT.
19. HEADINGS. The captions in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
20. COUNTERPARTS. This Agreement and any amendment hereof may be executed
in several counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, and all of which
together shall constitute one instrument. In proving this Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
21. ENTIRE AGREEMENT, ETC. The Loan Documents express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except as provided in Section 23.
22. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE BORROWER, THE
LENDER AND THE COLLATERAL AGENT EACH HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, THE BORROWER ,
THE LENDER, AND THE COLLATERAL AGENT EACH HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY
SPECIAL, EXEMPLARY,
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PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENTS OR
ATTORNEY OF THE LENDER OR THE COLLATERAL AGENT HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE LENDER OR THE COLLATERAL AGENT WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT THE
COLLATERAL AGENT AND THE LENDER HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE PARTIES BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
23. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly
provided in this Agreement, any consent or approval required or permitted by
this Agreement may be given, and any term of this Agreement or of any other
instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower of any terms of this Agreement or such
other instrument or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Lender.
Notwithstanding the foregoing, the provisions of Section 12 may not be amended
without the written consent of the Collateral Agent.
No waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent thereon. No course of dealing or delay or omission
on the part of the Collateral Agent or the Lender in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or
demand upon the Borrower shall entitle the Borrower to other or further notice
or demand in similar or other circumstances.
24. SEVERABILITY. The provisions of this Agreement are severable, and if
any one clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any juris diction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction, and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
48
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
"Borrower"
TOYMAX, INC.
By: /s/ William A. Johnson, Jr.
----------------------------------
Name: William A. Johnson, Jr.
Title: Senior Vice President--
Chief Financial Officer
"Collateral Agent"
CONGRESS TALCOTT CORPORATION,
as Collateral Agent
By: /s/ Steven Forleiter
----------------------------------
Name: Steven Forleiter
Title: Vice President
"Lender"
STATE STREET BANK AND TRUST
COMPANY
By: /s/ L. Dan Lobdell
----------------------------------
Name: L. Dan Lobdell
Title: Vice President
The undersigned joins in the execution of this Agreement for the purpose of
agreeing to the terms of Article 2 as they relate to the undersigned.
GO FLY A KITE, INC.
By: /s/ William A. Johnson, Jr.
----------------------------------
Name: William A. Johnson, Jr.
Title: Chief Financial Officer
49
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
TOYMAX INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENT
OF OPERATIONS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 19,072
<SECURITIES> 0
<RECEIVABLES> 4,018
<ALLOWANCES> 141
<INVENTORY> 10,121
<CURRENT-ASSETS> 74,151
<PP&E> 10,100
<DEPRECIATION> 6,547
<TOTAL-ASSETS> 87,704
<CURRENT-LIABILITIES> 42,494
<BONDS> 0
0
0
<COMMON> 106
<OTHER-SE> 45,064
<TOTAL-LIABILITY-AND-EQUITY> 87,704
<SALES> 95,669
<TOTAL-REVENUES> 95,669
<CGS> 55,598
<TOTAL-COSTS> 55,598
<OTHER-EXPENSES> 17
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 14,483
<INCOME-TAX> 4,016
<INCOME-CONTINUING> 10,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,467
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
