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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MAY 14, 1999
INTERVISUAL BOOKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 1-10916 95-2929217
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(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
2716 OCEAN PARK BLVD., SUITE 2020, SANTA MONICA, CA 90405
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 396-8708
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Agreement and Plan of Merger, as amended (the "Merger
Agreement"), among Intervisual Books, Inc. (the "Company"), FFM Acquisition
Corp., a wholly-owned subsidiary of the Company ("Subsidiary"), Fast Forward
Marketing, Inc. ("Fast Forward"), Steven D. Ades ("Ades") and Steven D. Ades and
Laurie Levit as Trustees of the Steven Ades and Laurie Levit Revocable Family
Trust (the "Trust"), on May 14, 1999 the Company acquired all the issued and
outstanding securities of Fast Forward in exchange for 670,000 shares of the
Company's common stock and certain additional cash rights. Of the 670,000 shares
issued by the Company, 594,940 shares were issued to the Trust and 75,060 shares
were issued to certain employees of Fast Forward in settlement of deferred
compensation arrangements. The additional cash rights consist of (i) a
contingent payment of up to $200,000 payable on or before May 1, 2000, depending
upon the gross margins of Fast Forward during 1999 and (ii) an additional
payment of up to $150,000 plus interest thereon payable on or before May 1,
2001, less the amount of tax withholdings withheld by the Company in accordance
with the settlement of certain compensation plan arrangements of Fast Forward.
The amount of consideration paid in the transaction was determined by
negotiation between the parties.
Fast Forward is an independent sales organization that distributes
video and audio products for major motion picture studios. This transaction
will be accounted for by the Company as a purchase.
In connection with the acquisition, The Hunt Family Trust entered into
an Amended and Restated Voting Agreement (the "Voting Agreement") with Steven
Ades and the trustees of the Trust. Under the Voting Agreement, The Hunt Family
Trust agreed to vote its shares in favor of the election to the Company's Board
of Directors of Steven Ades and a second nominee mutually-acceptable to the
Company and Mr. Ades, as long as Mr. Ades is employed by the Company. In
return, Steven Ades and the Trust agreed to vote their shares in favor of those
persons recommended or nominated for election for director by the Company's
Board of Directors. The Voting Agreement terminates upon the occurrence of
certain events.
Also in connection with the acquisition, the Trust, Steven Ades and
those employees of Fast Forward who received shares of the Company's stock in
connection with the settlement of certain compensation arrangements also
executed a Restricted Stock Agreement which limits the transferability of the
shares which they received. The limitations lapse over time and terminate upon
the occurrence of certain events.
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As an inducement to join the Company, the Company entered into employment
contracts and option agreements with Steven Ades, Steven Selsky and Steven
Wallace, all executives of Fast Forward.
The Merger Agreement, the Voting Agreement and the Restricted Stock
Agreement are attached hereto as exhibits and are incorporated herein.
ITEM 5. OTHER EVENTS
On May 12, 1999, the Company signed an agreement with Santa Monica Bank
that provides for borrowings of up to a maximum of $2,000,000 depending on
availability. This agreement expires on May 1, 2000 and has an interest rate of
2.5% over prime. Also on May 12, 1999, the Company signed a second loan
agreement that provides for a revolving line of credit of up to $2,300,000.
This subordinated facility is for one year and it has an interest rate of 5%
above the Libor rate. At the Company's option, this second facility can be
extended for one additional year under the same terms and conditions. If the
Company decides to extend this line, the agreement provides for the issuance of
warrants to purchase up to 150,000 shares of the Company's common stock. The
warrants shall be exercisable for up to two years after issuance at a price
equal to the average trading price of the Company's common stock for the 20-day
period prior to the Company's notice to extend the loan agreement.
In both credit agreements, the Company makes affirmative and negative
covenants and the agreement with Santa Monica Bank contains financial
covenants. In connection with both agreements, the Company granted to the
lenders a security interest in all of its assets.
ITEM 7. FINANCIAL STATEMENTS, PROFORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Pursuant to Instruction (a)(4) of Item 7 of Form 8-K, the financial
statements required to be filed with this Form 8-K will be filed by
amendment no later than July 28, 1999.
(b) Proforma Financial Information
Pursuant to Instruction (a)(4) of Item 7 of Form 8-K, the proforma
financial information required to be filed with this Form 8-K will be
filed by amendment no later than July 28, 1999.
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(c) Exhibits
2.1 Agreement and Plan of Merger dated March 29, 1999 among Intervisual
Books, Inc., FFM Acquisition Corp., Fast Forward Marketing, Inc.,
Steven D. Ades and Steven Ades and Laurie Levit as Trustees of the
Levit Revocable Family Trust.
2.2 Amendment No. 1 to Agreement and Plan of Merger dated April 29, 1999
among Intervisual Books, Inc., FFM Acquisition Corp., Fast Forward
Marketing, Inc., Steven D. Ades and Steven D. Ades and Laurie Levit
as Trustees of the Levit Revocable Family Trust.
2.3 Amended and Restated Voting Agreement dated May 19, 1999 among
Steven D. Ades, Steven Ades and Laurie Levit, Trustees of the Levit
Revocable Family Trust and Waldo H. Hunt, Trustee of The Hunt Family
Trust.
2.4 Restricted Stock Agreement dated May 13, 1999 among Intervisual
Books, Inc., Steven Ades and Laurie Levit, Trustees of the Levit
Revocable Family Trust, Rhonda Saperstein, Barbara Abella, Steven
Selsky and Steven Wallace.
10.1 Loan and Security Agreement dated May 13, 1999 among Zindart
Limited, Intervisual Books, Inc. and FFM Acquisition Corp.
10.2 Intellectual Property Security Agreement dated May 13, 1999 between
Intervisual Books, Inc. and Zindart Limited.
10.3 Intellectual Property Security Agreement dated May 13, 1999 between
Zindart Limited and FFM Acquisition Corp.
10.4 Subordination Agreement dated as of May 12, 1999 among Santa Monica
Bank, Zindart Limited, Intervisual Books, Inc. and FFM Acquisition
Corp.
10.5 Loan and Security Agreement dated May 13, 1999 among Intervisual
Books, Inc., FFM Acquisition Corp. and Santa Monica Bank.
10.6 Secured Promissory Note dated as of May 12, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 26, 1999 INTERVISUAL BOOKS, INC.
By: /s/ Waldo H. Hunt
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Name: Waldo H. Hunt
Title: Chairman and Chief Executive
Officer
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EXHIBIT INDEX
2.1 Agreement and Plan of Merger dated March 29, 1999 among Intervisual
Books, Inc., FFM Acquisition Corp., Fast Forward Marketing, Inc.,
Steven D. Ades and Steven Ades and Laurie Levit as Trustees of the
Levit Revocable Family Trust.
2.2 Amendment No. 1 to Agreement and Plan of Merger dated April 29, 1999
among Intervisual Books, Inc., FFM Acquisition Corp., Fast Forward
Marketing, Inc., Steven D. Ades and Steven D. Ades and Laurie Levit
as Trustees of the Levit Revocable Family Trust.
2.3 Amended and Restated Voting Agreement dated May 19, 1999 among
Steven D. Ades, Steven Ades and Laurie Levit, Trustees of the Levit
Revocable Family Trust and Waldo H. Hunt, Trustee of The Hunt Family
Trust.
2.4 Restricted Stock Agreement dated May 13, 1999 among Intervisual
Books, Inc., Steven Ades and Laurie Levit, Trustees of the Levit
Revocable Family Trust, Rhonda Saperstein, Barbara Abella, Steven
Selsky and Steven Wallace.
10.1 Loan and Security Agreement dated May 13, 1999 among Zindart
Limited, Intervisual Books, Inc. and FFM Acquisition Corp.
10.2 Intellectual Property Security Agreement dated May 13, 1999 between
Intervisual Books, Inc. and Zindart Limited.
10.3 Intellectual Property Security Agreement dated May 13, 1999 between
Zindart Limited and FFM Acquisition Corp.
10.4 Subordination Agreement dated as of May 12, 1999 among Santa Monica
Bank, Zindart Limited, Intervisual Books, Inc. and FFM Acquisition
Corp.
10.5 Loan and Security Agreement dated May 13, 1999 among Intervisual
Books, Inc., FFM Acquisition Corp. and Santa Monica Bank.
10.6 Secured Promissory Note dated as of May 12, 1999.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTERVISUAL BOOKS, INC.,
FFM ACQUISITION CORP.,
FAST FORWARD MARKETING, INC.,
STEVEN D. ADES
AND
STEVEN D. ADES AND LAURIE LEVIT
AS TRUSTEES OF THE LEVIT
REVOCABLE FAMILY TRUST
DATED AS OF MARCH 29, 1999
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I THE MERGER ............................................... 2
1.1 The Merger ............................................... 2
1.2 Effective Time ........................................... 2
1.3 Effect of the Merger ..................................... 4
1.4 Certificate of Incorporation; Bylaws ..................... 4
1.5 Directors and Officers ................................... 4
1.6 Conversion of Shares; Effect on Capital Stock ............ 4
1.7 Payments ................................................. 5
1.8 Surrender of Certificates ................................ 7
1.9 No Further Ownership Rights in Company Common Stock ...... 7
1.10 Tax and Accounting Consequences .......................... 8
1.11 Taking of Necessary Action; Further Action ............... 8
1.12 Satisfaction of Compensation Plan Arrangements ........... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY, ADES AND
SHAREHOLDER .............................................. 10
2.1 Organization of the Company .............................. 11
2.2 Company Capital Structure ................................ 11
2.3 Subsidiaries ............................................. 11
2.4 Authority ................................................ 11
2.5 Company Financial Statements ............................. 12
2.6 No Undisclosed Liabilities ............................... 13
2.7 No Changes ............................................... 13
2.8 Tax and Other Returns and Reports ........................ 15
2.9 Restrictions on Business Activities ...................... 17
2.10 Title to Properties; Absence of Liens and Encumbrances ... 17
2.11 Intellectual Property .................................... 18
2.12 Agreements, Contracts and Commitments .................... 19
2.13 Interested Party Transactions ............................ 21
2.14 Compliance with Laws ..................................... 21
2.15 Litigation ............................................... 21
2.16 Insurance ................................................ 21
2.17 Minute Books ............................................. 21
2.18 Environmental Matters .................................... 22
2.19 Brokers'and Finders'Fees: Third Party Expenses ........... 23
</TABLE>
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<TABLE>
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2.20 Employee Matters and Benefit Plans ....................... 23
2.21 Customers and Supplies ................................... 24
2.22 Investment Representations ............................... 25
2.23 Representations Complete ................................. 25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB .. 25
3.1 Organization, Standing and Power ......................... 25
3.2 Parent Capital Structure ................................. 26
3.3 Authority ................................................ 26
3.4 Litigation ............................................... 26
3.5 Parent SEC Documents ..................................... 27
3.6 Breaches of Material Contracts ........................... 27
3.7 Compliance of Laws ....................................... 27
3.8 Insurance ................................................ 27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME ...................... 27
4.1 Conduct of Business of the Company ....................... 27
4.2 No Solicitation .......................................... 29
4.3 Conduct of Business of Parent ............................ 30
ARTICLE V ADDITIONAL AGREEMENTS .................................... 30
5.1 Access to Information .................................... 30
5.2 Expenses ................................................. 31
5.3 Public Disclosure ........................................ 31
5.4 Consents ................................................. 31
5.5 Preparation of Proxy Statement ........................... 31
5.6 Reasonable Efforts ....................................... 32
5.7 Notification of Certain Matters .......................... 32
5.8 Employment Matters ....................................... 32
5.9 Restricted Stock Agreement ............................... 32
5.10 Board Nominees ........................................... 32
5.11 Additional Documents and Further Assurances .............. 33
5.12 Assistance With Auditors ................................. 33
5.13 Modification Agreements .................................. 33
5.14 Parent's 401(k) Plan ..................................... 33
</TABLE>
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ARTICLE VI CONDITIONS TO THE MERGER ................................. 33
6.1 Conditions to Obligations of Each Party to Effect
the Merger ............................................... 33
6.2 Additional Conditions to Obligations of the Company ...... 34
6.3 Additional Conditions to the Obligations of Parent
and Merger Sub ........................................... 35
ARTICLE VII INDEMNIFICATION AND ESCROW ............................... 36
7.1 Indemnification .......................................... 36
7.2 Cooperation; Insurance Proceeds .......................... 38
7.3 Threshold ................................................ 38
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................ 38
8.1 Termination .............................................. 38
8.2 Effect of Termination .................................... 39
8.3 Amendment ................................................ 39
8.4 Extension; Waiver ........................................ 40
ARTICLE IX COVENANT NOT TO COMPETE .................................. 40
9.1 General Covenant ......................................... 40
9.2 Confidentiality .......................................... 40
9.3 Agreement Not to Solicit ................................. 41
9.4 Consideration; Reasonable Scope .......................... 41
ARTICLE X GENERAL PROVISIONS ....................................... 41
10.1 Survival of Representations, Warranties and Agreements ... 41
10.2 Notices .................................................. 42
10.3 Interpretation ........................................... 43
10.4 Counterparts ............................................. 43
10.5 Entire Agreement: Assignment ............................. 43
10.6 Severability ............................................. 43
10.7 Other Remedies ........................................... 43
10.8 Governing Law ............................................ 44
10.9 Rules of Construction .................................... 44
</TABLE>
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EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Ades Employment Agreement
Exhibit C Ades Option Agreement
Exhibit D Selsky Employment Agreement
Exhibit E Selsky Option Agreement
Exhibit F Wallace Employment Agreement
Exhibit G Wallace Option Agreement
Exhibit H Restricted Stock Agreement
Exhibit I Opinion of Paul, Hastings, Janofsky & Walker LLP
Exhibit J Voting Agreement
Exhibit K Opinion of Tyre Kamins Katz & Granof
SCHEDULES
Schedule 2.4 Authority
Schedule 2.5 Company Financial Statements
Schedule 2.6 No Undisclosed Liabilities
Schedule 2.7 No Changes
Schedule 2.10(a) Real Property Lease
Schedule 2.10(b) Title to Property
Schedule 2.11 Intellectual Property
Schedule 2.12 Agreements, Contracts and Commitments
Schedule 2.13 Interested Party Transactions
Schedule 2.15 Litigation
Schedule 2.16 Insurance
Schedule 2.19 Brokers' and Finders' Fees; Third Party Expenses
Schedule 2.20 Employee Matters and Benefit Plans
Schedule 2.21 Customers and Supplies
Schedule 3.3 Authority
Schedule 3.4 Parent Litigation
Schedule 3.6 Breaches of Material Contracts
Schedule 6.3(c) Third Party Consents
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of March 29, 1999 among Intervisual Books, Inc., a California
corporation ("Parent"), FFM Acquisition Corp., a California corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), Fast Forward Marketing, Inc.,
a California corporation (the "Company"), Steven D. Ades, the President of the
Company ("Ades"), and Steven D. Ades and Laurie Levit, trustees of the Levit
Revocable Family Trust UTD April 18, 1991 (the "Trust" or the "Shareholder").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of common stock of the Company ("Company Common Stock") shall be converted into
the right to receive shares of voting common stock, no par value, of Parent
("Parent Common Stock") and certain payments and rights as provided for herein.
C. The Company has granted to Steven Selsky ("Selsky"), Steven
Wallace ("Wallace"), Rhonda Sapirstein ("Sapirstein") and Barbara Abella
("Abella") certain rights under the Company's Incentive Compensation Plan dated
February 26, 1993 (the "Compensation Plan"). Selsky, Wallace, Sapirstein and
Abella are collectively referred to herein as the "FFM Employees" and their
rights under the Compensation Plan and related participation agreements, as
modified, are referred to herein as the "Compensation Plan Arrangements." The
Company has provided for the satisfaction in full of the Compensation Plan
Arrangements as provided for in Section 1.12 of this Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporation Law ("California
Law"), the Company shall be merged with and into Merger Sub, the separate
corporate existence of the Company shall cease, and Merger Sub shall continue as
the surviving corporation and as a wholly-owned subsidiary of Parent. Merger Sub
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than April 30, 1999, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of the Parent, unless another place or time is agreed to by Parent and the
Company. Notwithstanding the foregoing, in the event a material controversy
should arise or approval by Parent's shareholders of this Agreement, the Merger
and the transactions contemplated hereby is required by The Nasdaq Stock Market
("Nasdaq") or otherwise, Parent shall have the unilateral right to postpone the
date of the Closing until such controversy is resolved or such approval is
obtained, but in no event to a date later than August 31, 1999. The date upon
which the Closing actually occurs is herein referred to as the "Closing Date."
On the Closing Date, the parties hereto shall cause the Merger to be consummated
by executing and filing an Agreement of Merger substantially in the form of
Exhibit A hereto (the "Merger Agreement"), together with such officers'
certificates certifying approval of the Merger Agreement as required by
California law, with the Secretary of State of the State of California, in
accordance with the relevant provisions of applicable law (the time of
confirmation by the Secretary of State of California of such filing and the
effectiveness of the Merger being referred to herein as the "Effective Time").
(a) Deliveries by Parent.
At the Closing, the Parent shall deliver to the Company
and the Shareholder:
(1) The Merger Agreement duly executed by Parent and
Merger Sub with the required officers' certificate;
(2) The Employment Agreement in the form of Exhibit B
attached hereto (the "Ades Employment Agreement") executed by Parent;
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(3) The Nonstatutory Stock Option Agreement in the form
of Exhibit C attached hereto (the "Ades Option Agreement") executed by Parent;
(4) The Employment Agreement in the form of Exhibit D
attached hereto (the "Selsky Employment Agreement") executed by Parent;
(5) The Nonstatutory Stock Option Agreement in the form
of Exhibit E attached hereto (the "Selsky Option Agreement") executed by Parent;
(6) The Employment Agreement in the form of Exhibit F
attached hereto (the "Wallace Employment Agreement") executed by Parent;
(7) The Nonstatutory Stock Option Agreement in the form
of Exhibit G attached hereto (the "Wallace Option Agreement") executed by
Parent;
(8) The Restricted Stock Agreement in the form of
Exhibit H attached hereto (the "Restricted Stock Agreement") executed by Parent;
(9) The opinion of Paul, Hastings, Janofsky & Walker,
LLP ("PHJW"), counsel to Parent in the form of Exhibit I attached hereto; and
(10) The letter concerning the voting for certain
director nominees in the form of Exhibit J attached hereto (the "Voting
Agreement") executed by The Hunt Family Trust.
(b) Deliveries by the Company, Ades and Shareholder.
At the Closing, the Company, Ades and Shareholder shall
deliver to Parent:
(1) The Merger Agreement duly executed by the Company
with the required officer's certificate;
(2) The Ades Employment Agreement executed by Ades;
(3) The Ades Option Agreement executed by Ades;
(4) The Selsky Employment Agreement executed by Selsky;
(5) The Selsky Option Agreement executed by Selsky;
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(6) The Wallace Employment Agreement executed by
Wallace;
(7) The Wallace Option Agreement executed by Wallace;
(8) The Restricted Stock Agreement duly executed by the
Trust, the FFM Employees and the spouses of FFM Employees;
(9) The legal opinion of Tyre Kamins Katz & Granof,
counsel to the Company and Shareholder in the form of Exhibit K attached hereto;
and
(10) The Voting Agreement duly executed by the Trust and
Ades.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation; provided, however, that
Article I of the Articles of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Fast Forward
Marketing, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
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1.6 Conversion of Shares; Effect on Capital Stock.
(a) Conversion of Shares. At the Effective Time and by virtue
of the Merger, each share of the Company Common Stock issued and outstanding at
the Effective Time will be canceled and extinguished and will be converted
automatically into the right to receive (i) 670 shares of validly issued, fully
paid and nonassessable shares of Parent Common Stock less the number of shares
to be issued to the FFM Employees in satisfaction of the Compensation Plan
Arrangements in accordance with Section 1.12 below (as adjusted to be on a per
share of Company Common Stock basis), (ii) the Contingent Payment (as provided
for in Section 1.7(a) herein) and (iii) the Additional Payment (as provided for
in Section 1.7(b) below). The Contingent Payment and the Additional Payment are
referred to herein as the "Additional Cash Rights". The maximum number of shares
of Parent Common Stock to be issued in the Merger and in satisfaction of the
Compensation Plan Arrangements in Section 1.12 below shall be 670,000 shares.
The shares of Parent Common Stock to be issued in connection with the Merger and
in satisfaction of the Compensation Plan Arrangements will not be registered
under the Securities Act of 1933 (the "Securities Act") and will be subject to
the legend required by the Restricted Stock Agreement and the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
(b) Fractional Shares. No fractional shares of Parent Common
Stock will be issued in the Merger and, in lieu thereof, Parent shall arrange to
pay in cash the fair market value of a fraction of a share of Parent Common
Stock.
1.7 Payments.
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(a) Contingent Payment. Subject to the terms and conditions
contained in this Agreement, the maximum amount of all "Contingent Payments"
payable by Parent shall be $200,000, of which $172,280 (86.14%) shall be payable
on account of the Company Common Stock by virtue of the Merger and $27,720
(13.86%) shall be payable to the FFM Employees in satisfaction of the
Compensation Plan Arrangements. As provided for in this Section 1.7(a), Parent's
obligation to pay any of the Contingent Payments shall be contingent upon
Surviving Corporation meeting both of the following two criteria: (i) Surviving
Corporation shall have sales of "FFM Product" (as defined below) with a Gross
Margin of 14 percent or more (the "Minimum Gross Margin Requirement") for the
twelve (12) period ending December 31, 1999 (the "Applicable Period") and (ii)
Surviving Corporation shall have generated at least $1,998,500 of Gross Margins
from sales of FFM Product for the Applicable Period (which amount is equal to
70% of $2,855,000 ($2,855,000 is defined herein as the ("Gross Margin Level")).
Failure to meet either criterion shall result in the loss of any rights to
receive any portion of the Contingent Payment.
(i) Assuming that the Minimum Gross Margin Requirement
for Surviving Corporation is met for Applicable Period, then payment of the
Contingent Payment shall depend upon the Surviving Corporation having a
sufficient amount of Gross Margins so as to meet 70% or more of the Gross Margin
Level as follows:
a. If Surviving Corporation has Gross Margins
equal to 90% or more of the Gross Margin Level and the Minimum Gross Margin
Requirement is met for the Applicable Period, the entire amount of the
Contingent Payment shall be payable by Parent. For example, if Gross Margins of
Surviving Corporation are $2,569,500 (which equals 95% of the Gross Margin
Level), then the entire amount of the Contingent Payment shall be payable by
Parent;
b. If Surviving Corporation has Gross Margins
of greater than 70% and less than 90% of the Gross Margin Level and the Minimum
Gross Margin Requirement is met for the Applicable Period, then the amount of
the Contingent Payment payable by Parent shall be calculated as follows: (i)
take the percentage of Gross Margin Level obtained and subtract 70 from that
number; (ii) take the result of (i) and divide by 20; and (iii) take the result
of (ii) which shall be expressed as a decimal and multiply by the aggregate
amount of the Contingent Payments. For example, if Gross Margins are $2,141,250
(which is 75% of the Gross Margin Level), then .25 of the Contingent Payment
($50,000) shall be payable [75 - 70 = 5; 5 divided by 20 = .25; .25 x $200,000 =
$50,000]. For a second example, if Gross Margins are $2,284,000 (which is 80% of
the Gross Margin Level), then .50 of the Contingent Payment ($100,000) shall be
payable [80 - 70 = 10; 10 divided by 20 = .50; .50 x $200,000 = $100,000]; and
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c. If Surviving Corporation has Gross Margins
which are less than 70% of the the Gross Margin Level even though the Minimum
Gross Margin Requirement is met for the Applicable Period, then no portion of
the Contingent Payment shall be payable by Parent. For example, if Gross Margins
of Surviving Corporation are $1,855,750 (which equals 65% of the Gross Margin
Level), then no Contingent Payment shall be payable.
(ii) For purposes of determining Surviving Corporation's
Gross Margins, the calculations and determinations made by Parent's independent
accounting firm shall be binding on the parties hereto. Gross Margins shall be
calculated as net sales less cost of goods sold (including but not limited to
purchases, warehouse, handling, royalties and other miscellaneous costs).
(iii) The term "FFM Product" shall mean sales by
Surviving Corporation of goods and products other than those goods and products
produced by Parent or White Heat Ltd.
(iv) In the event any Contingent Payment is payable by
Parent after the calculations above, then such Contingent Payment shall be paid
by Parent on or before May 1, 2000.
(b) Additional Payments. At the Effective Time and by virtue
of the Merger, each share of Company Common Stock issued and outstanding on the
Effective Time shall be converted into the right to receive the result of $150
per share, less the amount of Compensation Tax Withholdings required to be
withheld by Parent and Surviving Corporation in accordance with Section 1.12
below (the "Additional Payment"). The Additional Payment , plus interest thereon
calculated at the rate of six percent (6%) from the Closing Date until paid,
shall be payable by Parent on or before May 1, 2001. The maximum amount of all
Additional Payments (including the amount of Compensation Tax Withholdings) to
be paid by Parent shall be $150,000.
(c) Nature of Rights. The parties acknowledge that the
Additional Cash Rights shall be uncertificated and unsecured obligations of
Parent. The Additional Cash Rights are not transferable or assignable without
the consent of Parent. The Additional Cash Rights shall be subject to
withholdings, reduction and offset as provided for in this Agreement.
1.8 Surrender of Certificates. At the Closing, Shareholder shall
deliver the certificate(s) representing all issued and outstanding shares of
Company Common Stock ("Certificates") for cancellation and conversion in
accordance with the terms of this Agreement. Upon surrender of the Certificates
for cancellation to Parent, at the Effective
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<PAGE> 13
Time Parent shall instruct its transfer agent to issue the shares of Parent
Common Stock as provided in Section 1.6(a) above, plus cash in lieu of
fractional shares in accordance with Section 1.6(b), and the Certificates so
surrendered shall be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes, to evidence the ownership of shares of Parent Common Stock and the
Additional Cash Rights as provided for in this Agreement.
1.9 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.10 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code"). The satisfaction of the Compensation Plan Arrangements as provided for
in this Agreement shall result in a tax withholding obligation the parties
intend to satisfy in accordance with Section 1.12 below.
1.11 Taking of Necessary Action; Further Action. The parties agree to
take all such further actions as necessary to cause the Merger Agreement to be
accepted for filing by the Secretary of State of the State of California and
agree to make such reasonable revisions consistent with the intentions of the
parties in this Agreement which are as necessary. If, at any time after the
Effective Time, any such further action is necessary to carry out the purposes
of this Agreement and to vest the Surviving Corporation with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
1.12 Satisfaction of Compensation Plan Arrangements. In order to
satisfy in full the obligations of the Company to the FFM Employees arising out
of the Compensation Plan Arrangements, the Company hereby irrevocably instructs
Parent to issue to the FFM Employees the shares of the Parent Common Stock and
their respective pro rata percentage interests in the Contingent Payments (if
any) as provided for in this Section 1.12. The FFM Employees shall have no
rights to any portion of the Additional Payments. Ades and
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<PAGE> 14
Shareholder hereby indemnify and agree to hold Parent harmless from and against
any claim or controversy arising from the FFM Employees in connection with the
settlement of their Compensation Plan Arrangements under this Section 1.12.
(a) Tax Withholdings. In order to satisfy the tax withholding
obligations which arise as a result of the satisfaction of the Compensation Plan
Arrangements under this Section 1.12, Parent and Surviving Corporation are
hereby authorized to withhold 40% of all consideration paid or payable to the
FFM Employees in accordance with this Section 1.12 (the "Compensation Tax
Withholdings"). The parties intend that Surviving Corporation and/or Parent
shall issue the FFM Employees a W-2 disclosing as compensation the fair market
value of all consideration they receive as a result of this Section 1.12 and
Surviving Corporation and Parent are directed to pay over to the appropriate
state and federal taxing authorities the amounts withheld.
(b) Contingent Payments. As a result of their respective
Compensation Plan Arrangements, the FFM Employees shall be entitled to receive
such employee's pro rata percentage of the Contingent Payment (to the extent
earned) (less the Compensation Tax Withholdings) as set forth below:
<TABLE>
<CAPTION>
Pro Rata
Percentage of
Contingent
Individual Payments
---------- --------
<S> <C>
Selsky 9.56%
Wallace 2.58%
Sapirstein .86%
Abella .86%
-----
13.86%
</TABLE>
As a result of the payments to be made to the FFM Employees to satisfy the
Compensation Plan Arrangements, Shareholder acknowledges that Shareholder is
only entitled to 86.14% of any Contingent Payment earned.
(c) Modification Agreements. At least five business days prior
to the Closing, the Company shall enter into with each FFM Employee a
modification agreement (the "Modification Agreement") which shall have the
effect of (i) fixing the dollar value of
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<PAGE> 15
the amount of Parent Common Stock issuable to each FFM Employee, (ii) providing
that the FFM Employees shall have no rights to the Additional Payments, (iii)
setting forth the appropriate pro rata percentage of Contingent Payments to
which each FFM Employee is entitled to receive (which percentages shall equal
the percentages referenced in subparagraph (b) above), (iv) providing that
Parent and Surviving Corporation can withhold the Compensation Tax Withholdings
from the shares issuable and amounts payable to the FFM Employees, and (v) such
other terms as Parent and the Company shall agree. Such Modification Agreements
shall specifically state that Parent is entitled to rely upon such agreements.
The form and substance of the Modification Agreements shall be subject to
Parent's approval in its reasonable discretion. Also at least five business days
prior to the Closing, the Company shall present to Parent a spread sheet
detailing all payments and distributions to be made as a result of the
Modification Agreements, which spreadsheet shall be subject to Parent's approval
in its reasonable discretion.
(d) Net Number of Shares Issuable. To satisfy the Compensation
Plan Arrangements, the parties agree to:
1. Take the fixed dollar value of Parent Common Stock
established in the Modification Agreements
applicable to each FFM Employee and subtract from
such dollar value 40% as the required Compensation
Tax Withholding (the result of which is referred to
herein as the "Net Value").
2. The Net Value shall then be divided by the closing
bid price of the Parent Common Stock on The Nasdaq
Stock Market on the trading day which is prior to
the Closing Date (the "Market Value"), and the
resulting number of shares shall be issued to the
respective FFM Employee.
(e) Deduction of Tax Liability. To compensate Parent and
Surviving Corporation for paying the required tax withholding, the Company, Ades
and Shareholder authorize and instruct Parent to withhold all Compensation Tax
Withholdings from the Additional Payments and from any Contingent Payment which
might otherwise be earned. Ades, Shareholder and the Company agree that the
maximum amount of Compensation Tax Withholdings applicable to the shares of
Parent Common Stock issuable to the FFM Employees shall not exceed $100,000.
Ades and Shareholder agree to indemnify Parent for any Compensation Tax
Withholdings which exceed this amount.
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<PAGE> 16
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY, ADES AND SHAREHOLDER
The Company, Ades and Shareholder hereby jointly and severally represent
and warrant to Parent and Merger Sub, subject to such exceptions as are
disclosed in the disclosure letter supplied by the Company to Parent (the
"Company Schedules") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have, or would
reasonably be expected to have, a material adverse effect on the business,
assets (including intangible assets), financial condition, results of
operations, liabilities or prospects of the Company (hereinafter referred to as
a "Material Adverse Effect"). The Company has delivered a true and correct copy
of its Articles of Incorporation and Bylaws, each as amended and in effect as of
the Effective Time, to Parent.
2.2 Company Capital Structure. The authorized capital stock of the
Company consists of 75,000 shares of authorized Common Stock, of which 1,000
shares are issued and outstanding. There are no other shares of capital stock of
the Company authorized or issued. All issued and outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company or any agreement to which the Company is
a party or by which it is bound. All of the issued and outstanding shares of
Company Common Stock are currently, have always been, and shall as of the
Effective Time be, held of record and beneficially by the Shareholder, free and
clear of any and all Liens (as defined below). There are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, purchase or redeem any shares of the capital stock of the
Company or obligating the Company to grant or enter into any option, warrant,
call, right, commitment or agreement. As a result of the Merger, Parent will be
the record and sole beneficial owner of all capital stock of the Company and
rights to acquire or receive such capital stock.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any
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<PAGE> 17
shares of capital stock or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other business
entity.
2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby and the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. Ades and each
trustee of the Trust is of legal age and has full legal capacity to enter into
this Agreement and the other documents contemplated hereby. The trustees on
behalf of the Trust have all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby and the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
actions on the part of the Trust. The Company's Board of Directors and all
outstanding shares of Company Common Stock have unanimously approved the Merger
and this Agreement and the other documents contemplated hereby. This Agreement
has been duly executed and delivered by the Company, Ades and Shareholder and
constitutes the valid and binding obligation of the Company, Ades and
Shareholder, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. Except as set forth on Schedule
2.4, the execution and delivery of this Agreement by the Company, Ades and
Shareholder does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Articles of Incorporation or Bylaws of the Company or (ii)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, Ades, Shareholder or
their properties or assets. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other federal, state, country, local or foreign
governmental authority, instrumentality, agency or commission ("Governmental
Entity") or any third party (so as not to trigger any Conflict) is required by
or with respect to the Company, Ades or Shareholder in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for the filing of the Merger Agreement with the
California Secretary of State.
2.5 Company Financial Statements. Prior to the Closing, the Company
shall deliver to Parent as part of Schedule 2.5 the Company's balance sheets as
of December 31, 1997 and 1998 and the related audited statements of income and
retained earnings as of and
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<PAGE> 18
for the twelve-month periods ended December 31, 1997 and 1998 (all such
financial statements are collectively referred to herein as the "Audited
Financials"). The Audited Financials are true and correct in all material
respects and will have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other. Upon the signing of this
Agreement, Schedule 2.5 shall set forth the Company's balance sheet ("the
Balance Sheet") and related unaudited statements of income and retained earnings
as of and for the two-month period ended February 28, 1999 (the "Balance Sheet
Date") (such financial statements are collectively referred to herein as the
"Stub Period Financials"). The Stub Period Financials are true and correct and
have been prepared on the same basis as the Audited Financials and include all
recurring adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of the
operations for the Company for the interim period presented. (The Audited
Financials and the Stub Period Financials are collectively referred to herein as
the "Company Financials"). The Company Financials present accurately and fairly
the financial condition and operating results of the Company as of the dates and
during the periods indicated therein. At least five days before the Closing, the
Company will deliver to Parent the Company's preliminary balance sheet and
related unaudited statements of income and retained earnings as of and for the
three-month period ended March 31, 1999 and all such financial statements are
collectively referred to herein as the "March Financials." The March Financials
will be true and correct in all material respects and will be prepared on the
same basis as the Audited Financials and will include all recurring adjustments
(consisting only of normal recurring adjustments) necessary for the fair
presentation of the financial position and results of operation for the interim
period presented.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
other than the obligations of the Company under all executory contracts and
agreements to which it is a party and liabilities incurred in the ordinary
course of business since the Balance Sheet Date, the Company does not have any
liability, indebtedness, obligations, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, matured, or to its
knowledge, contingent, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP), which has not been
reflected in the Balance Sheet. Except as set forth on Schedule 2.6, the
accounts receivable balance, net of reserves, as recorded on the Balance Sheet
is correct in all respects and to the knowledge of the Company, Ades and the
Shareholder, there are no reasons why the accounts receivable recorded on the
Balance Sheet will not be collected within twelve (12) months except for minor
disputes of immaterial amounts which arise in the ordinary course of the
Company's business.
2.7 No Changes. Except as set forth in Schedule 2.7, since the
Balance Sheet Date, there has not been, occurred or arisen any:
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<PAGE> 19
(a) material transaction by the Company;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
or business of the Company (whether or not by covered by insurance) or
revaluation by the Company of any of its assets;
(e) claim of wrongful discharge or other claim of unlawful
labor practice or action;
(f) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(g) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
(h) loan by the Company to any person or entity, incurring by
the Company of any indebtedness for borrowed money, guaranteeing by the Company
or any indebtedness, issuance of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the ordinary course of business, consistent
with past practices;
(i) waiver or release of any right or claim of the Company,
including any material write-off or other compromise of any account receivable
of the Company;
(j) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(k) notice of any claim of ownership by a third party of
Company Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's intellectual property rights;
(l) issuance or sale by the Company of any of its shares of
capital stock, or securities convertible or exercisable therefor, or
declaration, setting aside of payment of
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<PAGE> 20
a dividend or other distribution with respect to the capital stock of the
Company, or redemption or other acquisition by the Company of any Company stock;
(m) change in pricing set or charged by the Company to its
customers (except for customary and reasonable changes in the usual and ordinary
course) or in pricing or royalties set or charged by persons who have licensed
Company Intellectual Property Rights to the Company;
(n) any event or condition of any character that has or to the
knowledge of the Company, Ades or Shareholder could be reasonably expected to
have a Material Adverse Effect on the Company; or
(o) agreement by Shareholder, Ades, the Company or any officer
or employees thereof to do any of the things described in the preceding clauses
(a) through (n).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes" means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, exercise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. As of the Effective Time, the
Company will have prepared and filed all required federal, state, local and
foreign returns, estimates, information statements and reports ("Returns")
relating to any and all Taxes concerning or attributable to the Company or its
operations and, to the knowledge of the Company, Ades and Shareholder such
Returns are true and correct and have been completed in accordance with
applicable law. The Company as of the Effective Time: (A) will have paid or
accrued all Taxes it is required to pay or accrue and, with regard to periods
covered by filed Returns, it has paid all taxes required to be paid as shown on
such Returns, (B) will have withheld with respect to its employees all Taxes
required to be withheld. With regard to the Company's 1998 tax year, the Company
has timely and properly filed an extension in which to file its federal and
state Returns and Ades and the Shareholder will properly complete such Returns
and the Company will not be obligated to pay any taxes when such Returns are
filed which have not already been paid. Ades and the Shareholder agree not to
take any position adverse to the Company, the Surviving Corporation or the
Parent on the 1998 Returns and
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<PAGE> 21
shall be responsible for any tax liability relating to the 1998 Returns for the
Company. The Company has not been delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, proposed or assessed against the Company,
nor has the Company executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax. No audit or
other examination of any Return of the Company is currently in progress, nor has
the Company been notified of any request for such an audit or other examination.
The Company does not have any liabilities for unpaid Taxes which have not been
accrued or reserved against in accordance with GAAP on the Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and the Company has no
knowledge of any reasonable basis of the assertion of any such liability
attributable to the Company, its assets or operations.
(c) Copies of Returns. The Company has provided to Parent
copies of its three most recent federal and state income and state sales and use
Tax Returns.
(d) No Liens. There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of the
Company relating to or attributable to Taxes and the Company has no knowledge of
any reasonable basis for the assertion of any claim relating or attributable to
Taxes which, if adversely determined, would result in any Lien on the assets of
the Company. None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(e) 280G Payments. As of the Effective Time, there will not be
any contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code. In addition, the satisfaction of the Compensation Plan Arrangements as
provided for in this Agreement will not give rise to any payment that would not
be deductible pursuant to Section 280G or 162 of the Code.
(f) Consents; Tax Allocations. The Company has not filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company. The Company is
not a party to a tax sharing or allocation agreement nor does the Company owe
any amount under any such agreement. The Company has not, and has not been at
any time, a "United States real property holding corporation" within the meaning
of Section 897(c)(2) of the Code. The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
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<PAGE> 22
(g) S Corporation Status. The Company has made an election
under Section 1362(a) of the Code to be an "S" corporation, as defined therein,
and all persons who were shareholders of the Company on the day on which such
election was made validly consented to such election. An accurate copy of the
election by the Company has been made available to Parent. Such election was
effective on the election date and has remained in effect continuously from such
election date to and including the Effective Time, and such election has not
been terminated, whether by revocation, disqualification or any other reason, at
any time during the period beginning on the election date and ending as of the
Effective Time. No actions have been taken and no omissions have occurred which
would cause such election to terminate or to be revoked at any time. At all
times, the shareholders of the Company have been eligible shareholders under
Section 1361 of the Code. The Company's shareholders have filed all required
Returns for each of the tax years ended since the election date or have obtained
timely extensions thereof, and shall file their Returns for the tax years which
include the year ending at the Effective Time, in each case consistent with the
election of the Company under Section 1362(a) of the Code to be an S
corporation. No Return of a shareholder is being audited by any taxing authority
and to the knowledge of the Company, Ades and Shareholder, no tax authority
intends to audit such Company, Ades or Shareholder's Return. No agreement or
waiver extending, or having the effect of extending, the period for auditing
Shareholder's or Ades' Returns which include any items of income, gain, loss or
deduction of the Company has been filed, which extension or waiver is still in
effect. Without the consent of Parent, Shareholder and Ades agree that they will
not file a return or amend an existing return, which includes any items of
income, gain, loss or deduction of the Company and which treats any such item in
a manner inconsistent with the manner in which such item is treated by the
Company in its Return for the applicable period. Shareholder agrees that the
Return of the Company for the tax year beginning January 1, 1999 and ending at
the Effective Time shall be prepared and filed by Parent in accordance with GAAP
and that Shareholder will be responsible for any and all taxes accrued or owing
in the tax year ending at the Effective Time.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which either the Company, Ades or Shareholder is a party or otherwise binding
upon the Company, Ades or Shareholder which has or reasonably could be expected
to have the effect of prohibiting or impairing any business practice of the
Company, the Surviving Corporation, or Parent, any acquisition of property
(tangible or intangible) by the Company, the Surviving Corporation, or Parent or
the conduct of business by the Company, the Surviving Corporation, or Parent.
There is no agreement, commitment, judgment, injunction, order or decree which
restricts the ability of either the Company or Ades to distribute any products
produced by Parent or White Heat. Neither the Company, Ades nor the Shareholder
has entered into any agreement restricting their ability to sell, license or
otherwise distribute any products to any class of customers in any geographical
area except for certain vendor agreements applicable to sales of videos by
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<PAGE> 23
the Company which contain certain restrictions dealing with the class of
customers and pricing restrictions.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Real Property Lease. The Company owns no real property,
nor has it ever owned any real property. Schedule 2.10(a) contains a true and
correct copy of the lease and describes the Company's currently leased premises
(the "Leased Premises") and such current lease is in full force and effect, is
valid and effective in accordance with its terms, and there is not, under such
lease, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default) on behalf of the Company
with regard to such Leased Premises and, to the knowledge of the Company, Ades
and Shareholder, there is no existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) by the
landlord relating to the Company's Leased Premises. The release for the Leased
Premises has not been modified, canceled or amended and the Company is in
compliance with all of its obligations under the lease. Schedule 2.10(a) also
contains a true and correct copy of the sublease pertaining to a portion of the
Company's Leased Premises and such sublease has not been modified, canceled or
amended and the Company is in compliance with all of its obligations under the
sublease. To the knowledge of Ades, the Company and Shareholder, there is no
existing default or vendor default (or event with notice or lapse of time, or
both, would constitute a default) by the subtenant relating to the sublease and
the Company is not in default under the sublease. The consummation of the Merger
will not result in a breach of the sublease. Except as set forth in Schedule
2.10(a), the consummation of the Merger will not result in the breach of the
lease for the Leased Premises, or otherwise require the consent of the landlord
of the lease for the Leased Premises. The structures at the Leased Premises are
in reasonably good condition and repair and to the knowledge of the Company and
Shareholder, such structures are free from design, construction, physical or
mechanical defects and other damage.
(b) Title to Property. The Company has good and valid title
to, or, in the case of leased properties and assets, valid leasehold interests
in, all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens except as reflected in
the Company Financials or in Schedule 2.10(b) and except for liens for taxes not
yet due and payable and such imperfections of title and encumbrances, if any,
which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
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<PAGE> 24
22.11 Intellectual Property.
(a) Intellectual Property Rights. The Company owns, or
licenses or otherwise possesses the right to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications in both source code and object code form ("Software"), and tangible
or intangible proprietary information or material that are used in the business
of the Company as currently conducted or as proposed to be conducted by the
Company (collectively, the "Company Intellectual Property Rights"). Schedule
2.11 sets forth a complete list of all patents, registered and material
unregistered trademarks, registered copyrights, trade names and service marks,
and any applications therefor, included in the Company Intellectual Property
Rights. Schedule 2.11 also sets forth a complete list of all licenses,
sublicenses or other agreements pursuant to which the Company utilizes any
Software or other Company Intellectual Property Rights. The Company has complied
with all the material terms of such license, sublicense or agreement and the
execution and delivery of this Agreement by the Company, and the consummation of
the transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement.
(b) Adverse Claims. No claims with respect to the Company
Intellectual Property Rights have been asserted or are, to the Company's
knowledge, threatened by any person, nor to the Company's knowledge are there
any valid grounds for any bona fide claims, (i) to the effect that the
manufacture, sale, licensing or use of any of the products of the Company
infringes on any copyright, patent, trade mark, service mark, trade secret or
other proprietary right, (ii) against the use by the Company of any trademarks,
service marks, trade names, trade secrets, copyrights, maskworks, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or as proposed to be conducted by the
Company, or (iii) challenging the ownership by the Company, validity or
effectiveness of any of the Company Intellectual Property Rights. To the
Company's knowledge, the Company has not infringed, and the business of the
Company as currently conducted or as proposed to be conducted does not infringe,
any copyright, patent, trademark, service mark, trade secret or other
proprietary right of any third party. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restriction in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially consistent with the Company's standard forms.
(c) Year 2000 Compliance. The Company has taken commercially
reasonable steps and efforts to ensure that all Software, computer hardware and
firmware
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used by the Company is Year 2000 compliant, is designed to be used prior to,
during and after the calendar year 2000 A.D. To the knowledge of the Company,
Ades and Shareholder, all such Software, computer hardware and firmware used
during each such time period will accurately receive, provide and process
date/time data (including, but not limited to, calculating, comparing and
sequencing) from, in to and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations and will not
malfunction, cease to function, or provide invalid or incorrect results as
result of the date/time data, to extent that all other information technology,
used in combination with the Company's Software, properly exchanges date/time
data with it.
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12, the Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations or any bonus,
deferred compensation, pension, profit sharing or retirement plans, stock option
plan, phantom stock plan, stock appreciation rights plan or stock purchase plan
or performance awards, fringe benefits, or any other employee benefit plans or
arrangements;
(iii) any employment or consulting agreement, contract or
commitment (other than an oral offer of employment as an employee at will) with
an employee or individual consultant or salesperson or any consulting or sales
agreement, contract or commitment under which any firm or other organization
provides services to the Company.
(iv) any fidelity or surety bond or completion bond;
(v) any agreement of indemnification or guaranty;
(vi) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(vii) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating to
the borrowing of money or extension of credit;
(viii) any distribution, joint marketing or development
agreement; or
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(ix) any other agreement, lease, contract, purchase
order or commitment that involves future obligations of or payments to the
Company of $25,000 or more.
To the knowledge of the Company, Ades and Shareholder, the Company has
not breached, violated or defaulted under any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.12 or
Schedule 2.11 (any such agreement, contract or commitment, a "Contract"). True
and correct copies of all Contracts have been furnished to Parent. The Company
has not received notice that it has breached, violated or defaulted under any of
the terms or conditions of any Contract. Each Contract is in full force and
effect and is not subject to any material default thereunder of which the
Company, Ades or Shareholder has knowledge by any party obligated to the Company
pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or shareholder of the Company (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the Company
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) a beneficial interest in any Contract.
2.14 Compliance with Laws. The Company has not received any notices of
violation with respect to, and to the knowledge of the Company, Ades and
Shareholder the Company has complied in all material respects with, and is not
in material violation of, any foreign, federal, state or local statute, law or
regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to its knowledge threatened
against the Company, its properties or any of its shareholders, officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, there is no investigation pending or to the knowledge of the
Company, Ades or Shareholder threatened against the Company, its properties or
any of its officers or directors by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
2.16 Insurance. The Company maintains valid and enforceable insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, which
are identified in Schedule 2.16, and there is no claim by the Company pending
under any of such policies or bonds as to which
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<PAGE> 27
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Company is otherwise in material compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not operated any
underground storage tanks, and the Company, Ades and Shareholder have no
knowledge of the existence, at any time, of any underground storage tank (or
related piping or pumps), at any property that the Company has at any time
owned, operated, occupied or leased. The Company has not released any amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBS, asbestos, oil and petroleum products, urea-formaldehyde and all substances
listed as a "hazardous substance," "hazardous waste," "hazardous material" or
"toxic substance" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act of
1976, as amended; the Federal Water Pollution Control Act, as amended; the Clean
Air Act, as amended, or the regulations promulgated pursuant to said laws (a
"Hazardous Material"). No Hazardous Materials are present as a result of the
actions or omissions of the Company, or, to the Company's, Ades' and
Shareholder's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased. To the knowledge to the Company,
Shareholder and Ades, the subtenant under the sublease pertaining to the Leased
Premises has not released any amount of any Hazardous Material.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Effective Time, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or
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control Hazardous Materials or any Hazardous Material Activity. The Company is
in compliance with all environmental laws applicable to the Company and the
Company's business does not require that the Company obtain any environmental
approval, license, permit, clearance or consent. No action, proceeding,
injunction or claim is pending, or to the Company's, Ades or Shareholder's
knowledge, threatened against the Company regarding any environmental law or
regulation. The Company is not aware of any reasonable basis by which it would
be involved in any environmental litigation or any fact which would impose upon
the Company any environmental liability. Neither the Company, Ades nor
Shareholder has any knowledge that the subtenant under the Company's sublease
has transported, stored, used, manufactured, disposed of, leased or exposed its
employees or others to Hazardous Materials nor engaged in any Hazardous
Materials Activities.
2.19 Brokers' and Finders' Fees: Third Party Expenses. Neither the
Company, Ades nor Shareholder has not incurred, nor will they incur any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Schedule 2.19 sets forth the Company's current reasonable estimate of
all Third Party Expenses (as defined in Section 5.4) expected to be incurred by
the Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Employees To the best of the Company's, Ades' and
Shareholder's knowledge, (i) no employees of the Company are in violation of any
term of any employment contract, patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee to be employed by the Company because of the nature
of the business conducted or presently proposed to be conducted by the Company
or to the use of trade secrets or proprietary information of others and (ii) no
officer or key employee has given notice to the Company, nor is the Company
otherwise aware, that any employee intends to terminate his or her employment
with the Company.
(b) Agreements and Plans. Schedule 2.12 contains an accurate
complete list of any employee welfare plan, agreement, arrangements, benefit
plan, profit sharing plan, phantom stock plan, option plan, bonus plan or
commitment by the Company pertaining to the Company's employees (collectively
"Benefit Plans") and all liabilities thereunder have been properly reflected on
the Balance Sheet to the extent required by GAAP. The Company has never been
subject to any "multi-employer pension plan" as defined in Section 3(37) of
ERISA. The Company has made available to Parent true, complete and correct
copies of all Benefit Plans, agreements, plans, or commitments pertaining to the
Company's employees together with the most recent summary plan description or
similar document with respect to
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<PAGE> 29
each applicable Benefit Plan. Each Benefit Plan has been administered in all
material respects in accordance with its terms. Except as disclosed in Schedule
2.20, to the knowledge of the Company, Ades and Shareholder, the Company and all
Benefit Plans are in compliance in all material respects with the applicable
provisions of ERISA and other applicable laws. Except as set forth in Schedule
2.20, there are no investigations by any governmental agency, termination
proceedings or other claims or lawsuits against or involving any Benefit Plan.
Except as set forth in Schedule 2.20, all contributions to the Benefit Plans
required to be made by the Company in accordance with the terms of the Benefit
Plans have been timely made. To the extent each Benefit Plan is intended to be a
tax qualified plan, each such plan or related trust is qualified and exempt from
federal income taxes and there has not occurred any event or circumstances which
would adversely affect the tax qualification of such plan. To the knowledge of
the Company, Ades and Shareholder, no trustee, administrator or other fiduciary
of any Benefit Plan has engaged in transactions which would subject the Company
to any liability for breach of fiduciary duty under ERISA or other applicable
law. Except for the Compensation Plan Arrangements which are to be satisfied in
full pursuant to Section 1.12 above, the Company will terminate all Benefit
Plans as of the Effective Time and such termination will not give rise to any
ongoing liability by Parent or the Surviving Corporation. When executed by the
respective parties thereto, the Modification Agreements shall be valid and
binding obligations of their respective parties and satisfaction of the
Compensation Plan Arrangements as provided in Section 1.12 above shall
constitute payment in full of all obligations thereunder.
(c) No Post-Employment Obligations. The Company has no
liability to provide life insurance, medical or other benefits to any employee
upon his or her retirement or termination of employment for any reason, except
as may be required by statute, and the Company has never represented, promised
or contracted (whether in oral or written form) to any employee that such
employee would be provided with life insurance, medical or other benefits upon
their retirement or termination of employment, except to the extent required by
statute.
(d) Compliance with Laws. The Company (i) to its knowledge and
to the knowledge of Ades and Shareholder is in compliance in all material
respects with all applicable laws and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to Employees; (iii) is not liable
for any arrears of wages or any Taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for employees.
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(e) Labor. No work stoppage or labor strike against the
Company is pending or threatened and the Company is not involved in or
threatened with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any employee. The Company has not
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act and the Company is not bound by any collective bargaining
agreement or union contract and no collective bargaining agreement is being
negotiated by the Company.
2.21 Customers and Supplies. Schedule 2.21 contains a true and
complete list of the name and address of each customer that has purchased in
excess of five percent (5%) of the Company's sales during the twelve months
ended February 28, 1999, and except as set forth on Schedule 2.21 no such
customer has terminated its relationship with or adversely curtailed its
purchases from the Company or indicated to the Company its intention to so
terminate its relationship or curtailed purchases. Schedule 2.21 also contains a
true and complete list of top 25 companies that produce videos and other
products sold by the Company, and no such company has terminated its
relationship with or adversely modified its relationship with the Company or
indicated to the Company its intention to so terminate its relationship or
otherwise adversely change its relationship with the Company.
2.22 Investment Representations. Shareholder is acquiring the Parent
Common Stock and other rights in the Merger for his own account, not as a
nominee or agent, for investment and not with a view to, or for resale in
connection with any distribution or public offering thereof within the meaning
of the Securities Act. Shareholder understands that the Parent Common Stock has
not been registered under the Securities Act by reason of a specific exemption
therefrom and may not be transferred or resold except pursuant to an exemption
for the registration and prospectus delivery requirements of the Securities Act.
Shareholder has been furnished with such materials and has been given access to
such information relating to Parent as requested and has been afforded the
opportunity to ask questions regarding Parent as Shareholder has found necessary
to make an informed investment decision. Shareholder has the knowledge and
experience in financial and business matters and investments in general that
Shareholder is capable of evaluating the merits and risks of the transactions
contemplated by this Agreement.
2.23 Representations Complete. To the best of the Company's, Ades' and
the Shareholder's knowledge, none of the representations or warranties made by
the Company, Ades or the Shareholder (as modified by the Company Schedules), nor
any statement made in any schedule or certificate furnished by the Company
pursuant to this Agreement, contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and its
stockholders as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the failure
to be so qualified would have a material adverse effect on Parent and Merger Sub
as a whole.
3.2 Parent Capital Structure. The authorized capital stock of Parent
consists of 10,000,000 shares of common stock of which 5,164,531 shares were
issued and outstanding as of December 31, 1998. All issued and outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid
and nonassessable. As of December 31, 1998, options to purchase 1,266,500 shares
of Parent Common Stock were issued and outstanding.
3.3 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. The execution and delivery of this Agreement
by Parent does not, and, as of the Effective time, the consummation of the
transactions contemplated hereby will not result in a Conflict with (i) any
provision of the Articles of Incorporation or Bylaws of Parent or (ii) any
mortgage, indenture, lease, contract, or other agreement or instrument to which
Parent is a party, or any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity or any third party (so as not to trigger any Conflict) is required by
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<PAGE> 32
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the Delaware
Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 3.3.
3.4 Litigation. Except as set forth in Schedule 3.4, there is no
material action, suit or proceeding of any nature pending or threatened against
Parent, its properties or any of its officers or directors, in their respective
capacities as such. Except as set forth in Schedule 3.4, there is no
investigation pending or to its knowledge threatened against Parent, its
properties or any of its officers or directors by or before any governmental
entity. Schedule 3.4 sets forth, with respect to any pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto, the
subject matter thereof and the amount of damages claims or other remedy
requested. No governmental entity has at any time challenged or questioned the
legal right of Parent to manufacture, offer or sell any of its products in the
present manner or style thereof.
3.5 Parent SEC Documents. The reports and proxy statements filed by
Parent with the Securities and Exchange Commission since January 1, 1997 (the
"Parent SEC Documents") complied in all material respects with the requirements
of the Securities Exchange Act of 1934 and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Documents. None of the Parent SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading as of the date they were filed, except to the
extent that information contained in any Parent SEC Document has been revised or
superseded by a later-filed Parent SEC Document or otherwise disclosed to the
Company.
3.6 Breaches of Material Contracts. Except to the extent set forth on
Schedule 3.6, to the knowledge of Parent, Parent is not in breach, violation or
default under any of the material terms or conditions of any material agreement
or contract applicable to Parent, and Parent has not received notice that it has
breached, violated or defaulted under any of the material terms or conditions of
any such agreement or contract.
3.7 Compliance of Laws. To the knowledge of Parent, Parent has not
received any notices of violations with respect to, and Parent has complied in
all material respects with, and is not in material violation of, any material
federal, state or local statute, law or regulation.
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3.8 Insurance. Parent maintains valid and enforceable insurance
policies covering Parent's business, assets, properties, employees, officers and
directors to the extent Parent deems it prudent and necessary.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement and the Effective Time, the Company agrees (except to the extent
that Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time. The Company shall promptly notify
Parent of any event or occurrence or emergency not in the ordinary course of its
business, and any material event involving or adversely affecting the Company or
its business. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent (which such consent shall
not be unreasonably withheld by Parent):
(a) Enter into any commitment, activity or transaction not in
the ordinary course of business or enter into or amend any agreements pursuant
to which any other party is granted manufacturing, marketing, distribution or
similar rights of any type or scope with respect to any products of the Company;
(b) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(c) Commence any litigation or any dispute resolution process;
(d) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company stock, or split, combine or reclassify any stock or issue, grant or
authorize the issuance of any securities, subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, or
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<PAGE> 34
repurchase, redeem or otherwise acquire, directly or indirectly, any shares of
stock (or options, warrants or other rights exercisable therefor);
(e) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(f) Acquire or agree to acquire by any manner any business or
corporation, partnership, association or other business organization or division
thereof, or any assets which are material, individually or in the aggregate, to
the business of the Company;
(g) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(h) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(i) Grant any severance or termination pay to any director,
officer, employee or consultant or adopt or amend any employee benefit plan,
program, policy or arrangement, or enter into any employment contract, extend
any employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the salaries
or wage rates of its employees;
(j) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable;
(k) Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment in the ordinary course of business of liabilities
reflected or reserved against in the Company Financial Statements or liabilities
incurred in the ordinary course of business consistent with past practices after
the date of the Company Financial Statements;
(l) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(m) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement;
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<PAGE> 35
(n) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except such as are being contested in good faith;
(o) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
(p) Take, or agree in writing or otherwise to take, any of the
actions described above, or any other action that would prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, stockholders, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, initiate, entertain, or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with, any person relating to any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, (b) provide information with respect to it to any person,
other than Parent, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their capital
stock or assets or any equity interest in the Company or any of its
subsidiaries, (c) enter into an agreement with any person, other than Parent,
providing for the acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise), any material portion of its
or their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries by any
person, other than by Parent. If the Company receives prior to the Effective
Time or the termination of this Agreement any offer or proposal relating to any
of the above, the Company shall immediately notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
4.3 Conduct of Business of Parent. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the
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Effective Time, Parent agrees (except to the extent that the Company shall
otherwise consent to in writing) to carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay its debts and taxes when due, to pay or perform other obligations when due,
and, to the extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors and others having business dealings with it, all the
goal of preserving the goodwill and business of Parent at the Effective Time.
The Parent shall promptly notify the Company of any event or occurrence or
emergency not in the ordinary course of its business, and any material event
involving or adversely affecting Parent and its business.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information. Each party shall afford the others and
their accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of its properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request.
Each of the parties hereto hereby agrees to keep such information or knowledge
obtained in any investigation pursuant to this Section 5.1, or pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential; provided, however, that the
foregoing shall not apply to information or knowledge which (a) a party can
demonstrate was already lawfully in its possession prior to the disclosure
thereof by the other party, (b) is generally known to the public and did not
become so known through any violation of law, (c) became known to the public
through no fault of such party, (d) is later lawfully acquired by such party
from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
5.2 Expenses. All fees and expenses incurred in connection with the
Agreement including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby shall be the obligation of the respective party incurring
such fees and expenses; provided, however, that within thirty (30) days after
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the Effective Time, Parent shall pay the reasonable and customary Third Party
Expenses of the Company.
5.3 Public Disclosure. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of The Nasdaq Stock Market Inc., prior to the Effective
Time, no public disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld. The parties agree that Parent will publicly
disclose the signing of this Agreement and will file a copy of the Agreement as
an exhibit with a filing with the Securities and Exchange Commission.
5.4 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of and benefits to the
Company thereunder.
5.5 Preparation of Proxy Statement. In the event that approval of
Parent's shareholders is required in order to consummate the Merger and the
transactions contemplated hereby, the Company agrees to help prepare such
information about the Company and its employees and shareholders which may be
required to be in Parent's proxy statement to be distributed to Parent's
shareholders. All such information provided to Parent by the Company for
purposes of being included in Parent's proxy statement shall not contain any
untrue statements of material fact or fail to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
5.6 Reasonable Efforts. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable efforts
to ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement. Without limiting the foregoing, the Company shall obtain the
agreements required by Schedule 6.3(c).
5.7 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-
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occurrence of any event, the occurrence or non-occurrence of which is likely to
cause any representation or warranty of the Company and Parent, respectively,
contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time and (ii) any failure of the Company or Parent, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.9 shall not limit or otherwise affect
any remedies available to the party receiving such notice.
5.8 Employment Matters. The Company shall deliver or cause to be
delivered to Parent at the Closing the Ades Employment Agreement, the Selsky
Employment Agreement and the Wallace Employment Agreement, duly executed by
Ades, Selsky and Wallace, respectively.
5.9 Restricted Stock Agreement. The Company shall deliver or cause to
be delivered to Parent at the Closing the Restricted Stock Agreement executed by
Shareholder, the FFM Employees and their spouses.
5.10 Board Nominees. At the first regularly scheduled meeting of
Parent's Board of Directors held after the Effective Time, Parent agrees to ask
Ades to join Parent's board as a director. In addition, at the first annual
meeting of Parent's shareholders held after the Effective Time, Parent agrees to
nominate Ades and a second outside independent director selected mutually by
Ades and Parent (which such director shall not be Selsky, Wallace, a family
member of Ades, Selsky or Wallace or otherwise related to Ades, Selsky or
Wallace).
5.11 Additional Documents and Further Assurances. Each party hereto,
at the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions and contemplated hereby.
5.12 Assistance With Auditors. The Company will cause its management
to cooperate with Parent's accountants and help facilitate on a timely basis (i)
the preparation of audited Company financial statements (including pro forma
financial statements if required) as required by Parent and Parent's accountants
to comply with applicable SEC regulations, (ii) the review of the Company's
books, records and work papers, including the examination of selected interim
financial statements and data by Parent's accountants, and (iii) the delivery of
such representations from the Company's independent accountants and Company's
management as may be reasonably requested by Parent or its accountants in
connection with the preparation by Parent's accountants of the Company's
financial statements.
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5.13 Modification Agreements. The Company shall deliver or cause to be
delivered to Parent at least five business days prior to the Closing, the
Modification Agreements contemplated by Section 1.12(c).
5.14 Parent's 401(k) Plan. To the extent permitted by all applicable
laws, ERISA, and Parent's 401(k) Plan, it is the intent of Parent to take
commercially reasonable steps so that the normal one-year waiting period for
participation in Parent's 401(k) plan will be waived for the employees of the
Company who become employees of Parent and the Surviving Corporation immediately
after the Merger and that such employees of the Company should be given vesting
credit for purposes of the Parent's 401(k) plan for their years of service with
the Company. The parties acknowledge that Parent is not representing or
warranting that Parent will be able to make these changes to Parent's 401(k)
plan and that Parent's inability to make these changes will not result in a
breach of this covenant by Parent.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Government Approvals. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) Shareholder Approval. To the extent required by applicable
law or Nasdaq listing requirements, the shareholders of Parent shall have
approved this Agreement, the Merger, and the transactions contemplated hereby.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
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(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or compiled in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them or prior to
the Closing and the Closing and the Effective Time, and the Company shall have
received a certificate to such effect signed by a duly authorized officer of
Parent.
(c) Legal Opinion. The Company shall have received a legal
opinion from PHJW, counsel to Parent, in substantially the form attached hereto
as Exhibit E.
(d) Due Diligence. The Company shall have conducted its due
diligence review of Parent and Parent's business and shall be satisfied, in its
discretion, with the results of its review and investigation of the items,
matters, exceptions and affairs set forth in the disclosure schedules prepared
by Parent attached to this Agreement and the disclosures contained in such
schedules. The Company's review of the disclosure schedules of Parent in no way
minimize or diminish any of the representations and warranties made by Parent in
this Agreement.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations, liabilities or prospects of the
Parent since the date of this Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company, Ades and Shareholder contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date, except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Closing Date.
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(b) Agreements and Covenants. The Company, Ades and
Shareholder shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it or him on or prior to the Effective Time, and Parent and Merger Sub
shall have received a certificate to such effect signed by a duly authorized
officer of the Company.
(c) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
modifications, approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion
from Tyre Kamins Katz & Granof legal counsel to the Company, in substantially
the form attached hereto as Exhibit F.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations, liabilities or prospects of the
Company since the Balance Sheet Date.
(f) Due Diligence. Parent shall have concluded its due
diligence review of the Company and the Company's business and Parent shall be
satisfied, in its sole and absolute discretion, with the results of its review
and its investigation of the items, matters, exceptions and affairs set forth in
the Company Schedules to this Agreement and the disclosures contained in such
schedules. Parent's review of the Company Schedules shall in no way minimize or
diminish any of the representations and warranties made by the Company, Ades and
Shareholder in this Agreement. Parent shall have received from Parent's
accounting firm audited balance sheets as of December 31, 1997 and 1998, and
statements of income and statements of cash flows for the Company for the two
years ended December 31, 1998, which such Audited Financials shall meet all
applicable requirements by the Securities and Exchange Commission and Parent
shall be satisfied, in its sole and absolute discretion, with the financial
results of the Company and other financial information contained in the Audited
Financials.
(g) Consent of Bank. Parent shall have received from Parent's
bank the bank's consent to the Merger and the consummation of the transactions
contemplated hereby.
(h) Fairness Opinion. Parent shall have received a "fairness
opinion" from an investment bank or financial adviser of Parent's choice prior
to Effective Time substantially to the effect that the consideration to be paid
by Parent pursuant to this Agreement is fair, from financial point of view, to
the shareholders of Parent and such opinion shall not have been withdrawn at or
prior to the Effective Time.
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(i) Financing. Parent shall have closed such working capital
or other financing as Parent deems necessary or advisable to provide Parent with
sufficient working capital for future operations.
(j) Shareholder Approval. To the extent required by applicable
law or Nasdaq, Parent shall have received the approval of Parent's shareholders
for this Agreement, the merger and the transactions contemplated hereby.
ARTICLE VII
INDEMNIFICATION AND ESCROW
7.1 Indemnification. The parties shall indemnify each other as set
forth below:
(a) Indemnification by Shareholder, Ades and Company.
Shareholder, Ades and the Company hereby agree to indemnify and hold harmless
Parent and Merger Sub and their members, managers, directors, officers,
employees and all persons which directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
Parent and Merger Sub (collectively, "Parent's Indemnified Parties") from, and
to reimburse Parent and Merger Sub and their members, managers, directors,
employees and all persons which directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
Parent and Merger Sub for, any and all losses, damages, liabilities, claims,
fees, costs and expenses of any kind related thereto (including, without
limitation, any and all reasonable legal fees) actually incurred or suffered by
Parent's Indemnified Parties (excluding the benefit of any insurance proceeds
received by or owed to such parties) arising out of, based upon or resulting
from (i) the breach of any representation or warranty of the Company, Ades or
Shareholder contained in this Agreement, or (ii) the breach of or failure to
perform by the Company, Ades or Shareholder any of their covenants or
obligations contained in this Agreement.
(b) Indemnification by Parent and Merger Sub. Parent and
Merger Sub hereby agree to indemnify and hold harmless Shareholder and its
members, manager's, directors, officers, employees and all persons which
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with Shareholder (collectively,
"Shareholder's Indemnified Parties") from, and to reimburse Shareholder and its
members, manages, directors, officers, employees and all persons which directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with Shareholder for, any and all losses, damages,
liabilities claims, fees, costs and expenses of any kind related thereto
(including, without limitation, any and all reasonable legal fees) actually
incurred or suffered by Shareholder's Indemnified Parties (excluding the benefit
of any insurance proceeds received by or owed to such parties) arising
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out of, based upon or resulting from (i) breach of any representation or
warranty of Parent or Shareholder contained in this Agreement, or (ii) the
breach of or failure to perform by Parent or Shareholder and of their covenants
or obligations contained in this Agreement.
(c) Claims. In the event of the occurrence of any event which
one of the parties hereto asserts is an indemnifiable event pursuant to this
Article VII, the party claiming indemnification shall notify the other party
promptly. If such even involves the claim of any third party, the indemnifying
party shall have sole control over, and shall assume all expense with respect
to, the defense of settlement of such claim; provided, however, that:
(i) the indemnified party shall be entitled to
participate in t he defense of such claim and to employ counsel at its own
expense to assist in the handling of such claim;
(ii) the indemnifying party shall obtain the prior
written approval of the indemnified party before entering into any settlement of
such claim or ceasing to defend against such claim, if pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
would be imposed against the indemnified party, and such approval shall not be
unreasonably withheld.
If the indemnifying party does not assume sole control over the
defense or settlement of such claim as provided in this Section 7.1(c), the
indemnified party, following provision of ten (10) days prior written notice to
the indemnifying party, shall have the right to defend and settle the claim in
such manner as it may deem appropriate at the cost and expense of the
indemnifying party, and the indemnifying party shall promptly reimburse the
indemnified party therefor in accordance with this Section 7.1.
7.2 Cooperation; Insurance Proceeds. In any event involving the claim
of any third party, the indemnified party shall cooperate fully with the
indemnifying party in the defense of any such claim. Without limiting the
generality of the foregoing, the indemnified party shall furnish the
indemnifying party with such documentary or other evidence as is then in its
possession as may reasonably be requested by the indemnifying party for the
purpose of defending against any such claim. In determining the amount to be
paid by the indemnifying party hereunder, the amount of insurance proceeds
received by or benefitting the indemnified party in connection with the matter
giving rise to the right of indemnification shall be deducted from the amount to
be paid by the indemnifying party.
7.3 Threshold. Any other provision of this Article VII
notwithstanding, no party hereto shall be entitled to indemnification hereunder
unless the aggregate amount of claims for indemnification by such party exceeds
$10,000 in which event, such party shall be
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entitled to indemnification for the full amount of all such claims. In the event
any of Parent's Indemnified Parties are entitled to indemnification hereunder,
Parent may withhold such amounts from the Contingent Payment and the Additional
Payments.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent and Merger Sub or the Company if: (i) the
Effective Time has not occurred before 5:00 p.m. (Pacific time) on April 30,
1999, except that in the event Parent extends the Closing Date as provided in
Section 1.2, then the date shall be such date as determined by Parent, but in no
event later than August 31, 1999 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent and Merger Sub if there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger, by any Governmental Entity, which would: (i)
prohibit Parent's or the Surviving Corporation's ownership or operation of all
or any portion of the business of the Company or (ii) compel Parent or the
Company to dispose of or hold separate all or a portion of the business or
assets of the Company or Parent as a result of the Merger;
(d) by Parent and Merger Sub if they are not in material
breach of their obligations under this Agreement and (i) if any of the
conditions set forth in Sections 6.1 and 6.3 shall become impossible to fulfill
and shall not have been waived in accordance with the terms of this Agreement or
(ii) the Board of Directors of Parent shall withdraw or modify its approval or
recommendation of this Agreement or the Merger, or (iii) there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Company and (a) such breach has not been
cured within five (5) business days after written notice to the Company
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (b) as a result of such breach
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the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would
not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and (i) if any of the conditions set forth in
Sections 6.1 and 6.2 shall become impossible to fulfill and shall not have been
waived in accordance with the terms of this Agreement or (ii) there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the Parent or Merger Sub and (a) such breach
has not been cured within five (5) business days after written notice to Parent
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (b) as a result of such breach the conditions set
forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied.
When action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officer, directors or stockholders, provided
that each party shall remain liable for any breaches of this Agreement prior to
its termination; and provided further that, that provisions of Sections 5.2 and
5.3, the confidentiality obligation contained in Section 5.1, and Articles VIII
and X (other than Section 10.1) of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time,
Parent and Merger Sub, on the one hand, and the Company, on the other, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed in behalf of such
party.
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ARTICLE IX
COVENANT NOT TO COMPETE
9.1 General Covenant. For a period commencing on the Effective Time
and ending on the later of (a) three (3) years from the cessation of Ades'
employment with Parent in the event such employment terminates for cause or Ades
voluntarily leaves Parent or (b) on the third anniversary of the Effective Time
in the event Ades' employment with Parent ends for any other reason, Ades and
Shareholder agree that they will not directly or indirectly, engage or
participate in the ownership, management, operation or control of, or be
connected as an officer, employee, partner, director, agent, security holder,
creditor, consultant or otherwise aid or assist anyone in the conduct of, any
business which would be similar to or competitive with the business presently
conducted by the Company or the Parent in the United States of America. Ades and
Shareholder agree that the Company is currently conducting its business in such
territory and that covenants contained in this Section 9.1 shall be construed as
a series of separate covenants, one for each geographical location. Except for
geographical coverage, each such separate covenant shall be deemed identical to
the terms contained therein. If a court of competent jurisdiction deems any
term, provision or geographical location of any covenant or provision to be
invalid, illegal or unenforceable for any reason, the court may reduce or
eliminate such term, provision or geographical location to conform to applicable
laws so as to be valid and enforceable, or, if it cannot be so reduced or
eliminated without materially altering the intention of the parties, the
invalidity or unenforceability of such term or provision shall in no way affect
the validity or enforceability of any other term, provision or geographical
location in this section. Nothing contained in this section shall prevent Ades
and Shareholder from holding or acquiring common stock in any company which is
publically traded at any nationally recognized stock exchange or on the national
market system of The Nasdaq Stock Market, provided that such holdings are less
than five percent of the outstanding capital stock of such publically traded
company.
9.2 Confidentiality. Ades and Shareholder shall not, unless
specifically consented to by Parent, use or divulge, disclose or communicate to
any person any confidential information of the Company or Parent, including,
without limited to, the names, specifications, requirements or practices of
customers, marketing methods and related data, prices obtained for products or
services, lists for other records, written records used in the business of the
Company or Parent, compensation paid to employees and other terms of employment,
or other confidential information concerning the business of the Company or
Parent. The parties stipulate that the foregoing are important, material and
confidential trade secrets.
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9.3 Agreement Not to Solicit. To insure the protection of the trade
secrets of Parent and the Company and to preserve the good will of the Company
for the benefit of Parent, Ades and Shareholder agree to not, and will cause
each of their affiliates to not, at any time during Ades' employment with Parent
and for two years after the termination of Ades' employment with Parent:
(a) Attempt in any manner to persuade any customer of the
Company or Parent to cease to do business or to reduce the amount of business
which such customer has customarily done or contemplates doing with Parent or
the Company; or
(b) Solicit for employment or employ any person who is an
employee of Parent or the Company.
9.4 Consideration; Reasonable Scope. Ades and Shareholder agree that
the transactions contemplated by this Agreement constitute good, valid and
binding consideration for obligations and covenants contained in this Article
IX. Ades and Shareholder agree and acknowledge that the agreements and covenants
contained herein are reasonable as to scope and time and necessary to protect
legitimate interests of Parent, including, without limitation, the trade secrets
and good will of the Company and any violations of such provision would result
in irreparable harm to Parent. Accordingly, Ades and Shareholder consent and
agree that in the event of any violation of such covenants by Ades or
Shareholder, Parent shall be entitled to, in addition to such other rights and
remedies that Parent may have at law, injunctive or other relief. Furthermore,
none of Parent's remedies at law or in equity shall be exclusive of any other
remedy available to Parent.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except as otherwise specifically provided
herein) terminate at 5:00 p.m., California time, on the date which is two years
following the Closing Date; except that the representations and warranties
contained in Section 2.8 shall survive until the conclusion of the applicable
statute of limitations and the representations and warranties contained in
Sections 2.1, 2.2, 2.3, 2.4 and 2.18 shall survive the consummation of Merger
without limitation.
10.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with
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acknowledgment of complete transmission) to the parties at the following
addressed (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to:
Intervisual Books, Inc.
2716 Ocean Park Boulevard, Suite 2020
Santa Monica, California 90405
Attention: Executive Vice President
Telephone No: (310) 396-8708
Facsimile No: (310) 396-9849
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive 17th Floor
Costa Mesa, California 92626
Attention: Stephen D. Cooke, Esq.
Telephone: (714) 668-6264
Facsimile: (714) 979-1921
(b) if to Company to:
Fast Forward Marketing, Inc.
4553 Glencoe Avenue, Suite 300
Marina del Rey, California 90290
Attention: President
Telephone: (310) 306-3200
Facsimile: (310) 306-0020
with a copy to:
Tyre Kamins Katz & Granof
1880 Century Park East, Suite 300
Los Angeles, California 90067-1666
Attention: William W. Holcomb, Esq.
Telephone: (310) 553-6822
Facsimile: (310) 552-9024
10.3 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The
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table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement: Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates. Without
limiting the foregoing, this Agreement, the Schedules and Exhibits hereto
supersede and replace the Letter of Intent dated February 2, 1999 between
Parent, the Company and the Shareholder. The parties hereto are executing this
Agreement with the intent that this Agreement shall be binding upon each of
them, notwithstanding the fact that the Ades Employment Agreement, the Ades
Option Agreement, the Selsky Employment Agreement, the Selsky Option Agreement,
the Wallace Employment Agreement, and the Wallace Option Agreement (Exhibits B
through G) (collectively, the "Missing Exhibits") are not being attached to this
Agreement at the time of execution. Within 10 days after the execution of this
Agreement, the parties agree in good faith to attempt to negotiate the form of
each Missing Exhibit. In the event the parties are unable to come to terms
regarding any or all of the Missing Exhibits, this Agreement shall still remain
binding on the parties hereto, such Missing Exhibit shall be deleted from the
Agreement and the obligations of the respective parties to deliver an executed
copy of the Missing Exhibit at the Closing shall be removed.
10.6 Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonable
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
-44-
<PAGE> 50
10.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by any party of any one remedy will not preclude
the exercise of any other remedy.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of California for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
10.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[Remainder of This Page Intentionally Left Blank]
-45-
<PAGE> 51
IN WITNESS WHEREOF, Parent, Merger Sub, Ades, the Company and Shareholder have
caused this Agreement to be signed by their respective duly authorized
representatives, all as of the date first written above.
FAST FORWARD MARKETING, INC., INTERVISUAL BOOKS, INC.,
a California corporation a California corporation
By: /s/ Steven D. Ades By: /s/ Waldo H. Hunt
----------------------------- -------------------------------------
Steven D. Ades, President Waldo H. Hunt, Chairman of the
Board and Chief Executive Officer
By: /s/ Laurie Levit By: /s/ Gail A. Thornhill
----------------------------- -------------------------------------
Name: Laurie Levit Gail A. Thornhill, Secretary
Title: Secretary
ADES FFM ACQUISITION CORP.,
a California corporation
/s/ Steven D. Ades By: /s/ Dan P. Reavis
- --------------------------------- -------------------------------------
Steven D. Ades, an individual Name: Dan P. Reavis
Title: President and Secretary
SHAREHOLDER
/s/ Steven D. Ades
- ---------------------------------
Steven D. Ades, Trustee of the
Levit Revocable Family Trust UTD
April 18, 1991
/s/ Laurie Levit
- ---------------------------------
Laurie Levit, Trustee of the
Levit Revocable Family Trust UTD
April 18, 1991
-46-
<PAGE> 1
EXHIBIT 2.2
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to Agreement and Plan of Merger
("Amendment") is made and entered into as of the 29th day of April, 1999, by and
among Intervisual Books, Inc., a California corporation ("Parent"), FFM
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), Fast Forward Marketing, Inc., a California corporation
(the "Company"), Steven D. Ades, an individual and President of the Company
("Ades"), and Steven D. Ades and Laurie Levit, Trustees of the Steven Ades and
Laurie Levit Revocable Family Trust UTD April 18, 1991 (the "Trust" or the
"Shareholder").
R E C I T A L S
A. Parent, Merger Sub, Company, Ades and the Trust entered into an
Agreement and Plan of Merger dated March 29, 1999 (the "Agreement") which
provides for the merger of the Company into Merger Sub in accordance with the
terms and conditions contained in the Agreement. Unless otherwise defined in
this Amendment, capitalized terms used in this Amendment shall have the same
meanings given to such terms in the Agreement.
B. The parties hereto desire to make certain amendments to the
Agreement with regard to clarifying the name of Shareholder and extending the
period of time for the Closing.
A G R E E M E N T
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Amendment to Name. The parties hereby clarify the
references to the Shareholder to mean the Steven Ades and Laurie Levit Revocable
Family Trust UTD April 18, 1991.
2. Amendment to Section 1.2. The reference to "April 30,
1999" found in the first sentence of Section 1.2 on page 2 of the Agreement is
hereby amended to be "May 21, 1999".
3. Amendment to Section 8.1(b). The date "April 30, 1999"
found in the first sentence of Section 8.1(b) on page 38 of the Agreement is
hereby amended to be "May 21, 1999".
<PAGE> 2
4. Amendment to Section 1.12(d). The reference to "closing
bid price contained in subparagraph 2 of Section 1.12(d) is hereby amended to be
"last sale price". Ades and Shareholder hereby indemnify and agree to hold
Parent harmless from and against any claim or controversy arising from the FFM
Employees as a result of this Amendment.
5. Modifications and Conflicts. Except as expressly amended,
modified or supplemented herein, all of the terms and conditions of the Purchase
Agreement remain in full force and effect; provided, however, that in the event
of any conflict between the provisions of the Purchase Agreement and the
provisions of this Amendment, the provisions of this Amendment shall control.
6. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, but all such
counterparts taken together will constitute one and the same instrument.
7. Governing Law. This Amendment shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
California.
[Signature Page Attached]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment on
the date first above written.
FAST FORWARD MARKETING, INC., INTERVISUAL BOOKS, INC.,
a California corporation a California corporation
By: /s/ Steven D. Ades By: /s/ Waldo H. Hunt
----------------------------- -------------------------------------
Steven D. Ades, President Waldo H. Hunt, Chairman of the
Board and Chief Executive Officer
By: /s/ Laurie Levit By: /s/ Gail A. Thornhill
----------------------------- -------------------------------------
Name: Laurie Levit Gail A. Thornhill, Secretary
Title: Secretary
ADES FFM ACQUISITION CORP.,
a California corporation
/s/ Steven D. Ades By: /s/ Dan P. Reavis
- --------------------------------- -------------------------------------
Steven D. Ades, an individual Name: Dan P. Reavis
Title: President and Secretary
SHAREHOLDER
/s/ Steven D. Ades
- ---------------------------------
Steven D. Ades, Trustee of the
Steven Ades and Laurie Levit
Revocable Family Trust UTD
April 18, 1991
/s/ Laurie Levit
- ---------------------------------
Laurie Levit, Trustee of the
Steven Ades and Laurie Levit
Revocable Family Trust UTD
April 18, 1991
<PAGE> 1
EXHIBIT 2.3
AMENDED AND RESTATED VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT (this "Agreement") is
entered into as of May 19, 1999, by and between Steven D. Ades ("Steven Ades"),
Steven D. Ades and Laurie Levit, Trustees of the Steven Ades and Laurie Levit
Revocable Family Trust UTD April 18, 1991 (the "Trust"; Steven Ades and the
Trust hereinafter sometimes are referred to collectively as "Ades") and Waldo H.
Hunt, Trustee of the Hunt Family Trust UTA May 30, 1980 ("Shareholder").
RECITALS
A. The parties hereto previously entered into a Voting Agreement
dated as of May 13, 1999 (the "Original Agreement") setting forth certain
obligations regarding the voting of their respective shares.
B. In order to clarify certain obligations of the parties relating
to the election of certain directors to the Board of Intervisual Books, Inc.
(the "Company"), the parties hereto desire to amend and restate the Original
Agreement as set forth in this Agreement. The parties acknowledge that each of
the parties has received good and valuable consideration for the purposes of
entering into this Agreement and that this Agreement shall be binding and
enforceable upon each of them.
AGREEMENT
1. Voting of Shares by Shareholder. Subject to Ades voting Ades'
shares of Company common stock in accordance with paragraph 2 below and the
other agreements contained in paragraph 2 below, Shareholder agrees that at the
annual meeting of shareholders of the Company immediately following the
Effective Time of the Merger and at each successive annual meeting thereafter,
provided that Steven Ades is employed by Company at such time, Shareholder shall
cause a sufficient number of outstanding shares of Company's common stock that
are owned by Shareholder as of the record date fixed for such meeting to be
voted in such a manner as to elect Steven Ades and a "qualified person" to the
Company's Board of Directors. For purposes of this paragraph, a "qualified
person" shall mean an individual initially designated by Steven Ades and who (i)
posses the skills and business acumen reasonably necessary to be an outside
independent director of a public company, (ii) is mutually acceptable to Steven
Ades and the Company's Board of Directors and which such nominee shall not be
Steven Ades, Steven Selsky, Steven Wallace, a family member of Steven Ades,
Steven Selsky or Steven Wallace or otherwise related to Steven Ades, Selsky or
Wallace, and (iii) has not been involved in any legal proceedings requiring
disclosure under Item 401(f) of Regulation S-K or Instruction 4 of Item 103 of
Regulation S-K. Prior to selection as a "qualified person," each such nominee
shall agree in writing to resign from the Company's Board of Directors if so
requested mutually by Steven Ades and the other members of the Company's Board
of Directors.
2. Voting of Shares by Ades. Ades agrees that at the annual meeting
of shareholders of the Company immediately following the Effective Time of the
Merger, and at each successive annual meeting thereafter, provided that Steven
Ades is employed by Company at such time, Ades shall vote all outstanding shares
of Company's common stock that are owned by Ades as of the
<PAGE> 2
record date fixed for such meeting in favor of those persons recommended or
nominated for election by the Company's Board of Directors. In the event
cumulative voting for the election of directors occurs, Ades shall, as so
requested by Shareholder, either distribute all of Ades' votes equally between
Ades and the qualified person selected in accordance with paragraph 1 above or
equally among each nominee for director supported by the Company's Board of
Directors. As long as Steven Ades is a director, employee or consultant of the
Company, Ades agrees not to vote for or otherwise support in any manner any
nominees for the Company's Board of Directors other than those nominees selected
by the Company's Board of Directors.
3. Further Assurances. Shareholder and Ades shall perform such
further acts and execute such further documents and instruments as reasonably
may be required to carry out and give effect to the provisions of this
Agreement.
4. Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a written agreement of all the parties to this
Agreement.
5. Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of California.
6. Invalidity of a Single Provision. The unenforceability or
invalidity of any provision of this Agreement shall not affect the validity or
enforceability of the remainder of this Agreement, nor shall the
unenforceability of a provision under the laws of any particular jurisdiction
affect its enforceability under the laws of other jurisdictions.
7. Headings and Execution in Counterparts. The headings and captions
contained in this Agreement are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agreement. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which together shall constitute a single
agreement.
8. Termination. The parties hereto agree that this Agreement shall
terminate upon the earlier of: (a) Steven Ades' cessation of employment from the
Company, (b) the closing a "liquidity event" as defined in Section 2 of that
Restricted Stock Agreement dated as of May 13, 1999 by and among the parties
hereto, the Company, Barbara Abella, Rhonda Sapirstein, Steven Selsky and Steven
Wallace, excluding a sale of all or substantially all of the assets of the
Company or liquidation, dissolution or winding up of the Company, (c) Ades'
beneficial ownership (calculated according to Rule 13d-3) of voting securities
of the Company falls below five percent (5%) of the Company's issued and
outstanding securities, or (d) Ades' beneficial ownership of voting securities
(excluding unexercised options) of the Company increases to the number that Ades
would be entitled to elect two directors to the Company's Board of Directors.
9. Amendment and Restatement. The parties hereto agree that the
Original Agreement is superseded and replaced in its entirety by this Agreement
and Original Agreement shall no longer have any force or effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
Shareholder:
/s/ Waldo H. Hunt
----------------------------------------
Waldo H. Hunt, Trustee of the Hunt
Family Trust UTA May 30, 1980
/s/ Steven D. Ades
----------------------------------------
Steven D. Ades
/s/ Steven D. Ades
----------------------------------------
Steven D. Ades, as Trustee of the Steven
Ades and Laurie Levit Revocable Family
Trust UTD April 18, 1991
/s/ Laurie Levit
----------------------------------------
Laurie Levit, as Trustee of the Steven
Ades and Laurie Levit Revocable Family
Trust UTD April 18, 1991
-3-
<PAGE> 1
EXHIBIT 2.4
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (this "Agreement") is made and entered
into as of May 13, 1999, by and among INTERVISUAL BOOKS, INC. (the "Company"),
and Steven D. Ades and Laurie Levit, as Co-Trustees of the Steven Ades and
Laurie Levit Revocable Family Trust UTD April 18, 1991 ("Trust"), Rhonda
Sapirstein, an individual ("Sapirstein"), Barbara Abella, an individual
("Abella"), Steven Selsky, an individual ("Selsky") and Steven Wallace, an
individual ("Wallace"; Sapirstein, Abella, Trust, Selsky and Wallace sometimes
hereinafter are referred to collectively as "Shareholders" and individually as
"Shareholder").
RECITALS
A. In connection with the merger of Fast Forward Marketing, Inc. ("FFM")
with and into a subsidiary of the Company pursuant to the Agreement and Plan of
Merger dated March 29, 1999 (the "Merger Agreement") among Company, Steven D.
Ades, FFM, FFM Acquisition Corp. and Trust, Company shall, among other things,
issue to the Shareholders an aggregate of 670,000 shares (the "Original Shares")
of the Company's common stock, no par value per share. All capitalized terms
used but not defined herein shall have the meaning ascribed to such terms in the
Merger Agreement.
B. A portion of the Original Shares are being issued to Selsky, Wallace,
Sapirstein and Abella pursuant to Section 1.12 of the Merger Agreement and the
remainder are being issued to the Trust as a result of the Merger. After such
issuances, the Original Shares will be held as follows:
Trust 594,940 shares (the "Trust Shares")
Sapirstein 4,662 shares (the "Sapirstein Shares")
Abella 4,662 shares (the "Abella Shares")
Selsky 51,749 shares (the "Selsky Shares")
Wallace 13,987 shares (the "Wallace Shares")
The definitions of Trust Shares, Sapirstein Shares, Abella Shares, Selsky Shares
and Wallace Shares shall include any common stock of Company received by the
applicable Shareholder as stock dividends, in connection with stock splits or
recombinations or otherwise due solely to such Shareholder's ownership of the
Trust Shares, Sapirstein Shares, Abella Shares, Selsky Shares and Wallace
Shares, respectively. The Trust Shares, Sapirstein Shares, Abella Shares, Selsky
Shares and Wallace Shares shall collectively be referred to as the "Shares".
C. As a condition to the closing of the transactions contemplated by the
Merger Agreement, Shareholders have agreed to execute and deliver this
Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, the parties hereto agree as follows:
1. General Restrictions on Transfer.
A. During the term of this Agreement, no Shareholder will directly
or indirectly sell, pledge, mortgage, give, transfer, create a security interest
or lien, place in a trust, assign or in any other way encumber or dispose of (in
each case, a "Transfer") any Shares or any interest in such Shares or the stock
certificate or certificates representing any Shares, except in accordance with
the terms and conditions of Section 1(C) below and applicable federal and state
securities laws.
B. Any Transfer of any interest in the Shares purported to have been
effected by any Shareholder shall require the prior written consent of the
Company which the Company shall withhold, and shall not register upon its
records, unless such Transfer is made in accordance with the terms and
provisions of this Agreement and applicable federal and state securities laws.
Any such Transfer which is not made in accordance with the terms and conditions
of this Agreement shall be void and shall not be binding upon the Company.
C. Subject to applicable federal and state securities laws, the
following Transfers may be made without any violation of this Agreement and
without any consent of the Company:
(i) In any subsequent twelve-month period beginning on the date
hereof and on each year anniversary of the date hereof, the Shareholders will
each be permitted to transfer up to ten percent (10%) of the shares they receive
such that the Trust may Transfer up to 59,494 shares of Trust Shares, Sapirstein
may Transfer up to 466 shares of the Sapirstein Shares, Abella may Transfer up
to 466 shares of the Abella Shares, Selsky may Transfer up to 5,174 shares of
the Selsky Shares and Wallace may Transfer up to 1,398 shares of the Wallace
Shares during each twelve-month period;
(ii) Each Shareholder may Transfer his or her respective Shares
to a trust for the benefit of himself or herself or his or her immediate family,
provided the trustee of such trust acknowledges in a written agreement
satisfactory to the Company that such Shares are subject to this Agreement;
(iii) If any Shareholder becomes disabled or mentally unable to
deal with his or her affairs and a guardian is appointed for such Shareholder, a
Transfer of title to the guardian shall not violate this Agreement as long as
the guardian acknowledges that the Shares are held subject to this Agreement;
(iv) Transfers to the Company; and
(v) Transfers to a third party or parties upon the occurrence of
a Liquidity Event (defined below).
D. Notwithstanding anything contained herein to the contrary, the
respective general restrictions on transfer contained in this Section 1 shall
terminate with regard to each of Sapirstein, Abella, Selsky and Wallace upon
their respective termination of employment from the Company or its subsidiaries.
The termination of employment of one of the above individuals shall not
terminate the general restrictions applicable to the other individuals and the
Trust.
-2-
<PAGE> 3
2. Liquidity Event.
"Liquidity Event" shall mean (a) the affirmative vote of the
shareholders holding a majority of the Company's common stock to effect (i) a
merger or consolidation by the Company with or into any other entity, or (ii) a
sale, lease or other disposition of all or substantially all of the Company's
assets and properties in a single transaction or in a series of related
transactions to an unaffiliated third party purchaser or (iii) a voluntary or
involuntary liquidation, dissolution or winding up of the Company, or (b) the
occurrence of a Change of Control (as hereinafter defined). A "Change of
Control" shall occur when any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended), other than the
Company or any "person" who as of the date of this Agreement is a director or
officer of the Company (including any trust of such director or officer), is or
becomes the "beneficial owner" of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities; provided, however, that the following shall not
constitute a "Change of Control":
(a) any acquisition directly from the Company;
(b) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company; or
(c) upon the death of any person who as of the date of this
Agreement is a director or officer of the Company, the transfer (a) by
testamentary disposition or the laws of intestate succession to the estate or
the legal beneficiaries or heirs of such person, or (b) by the provisions of any
trust to the beneficiaries thereof of the securities of the Company beneficially
owned by such director or officer of the Company.
3. Transfers by Court Order or Operation of Law.
Any person who becomes the owner of, or acquires a right to hold any
interest in, any Shares by reason of a judgment against any Shareholder,
including a judgment of divorce or other marital dissolution, shall obtain no
rights to vote any Shares of the stock and shall obtain only an economic
interest in any amounts to be distributed from the Company with respect to the
Shares. The Company shall not recognize any Transfer to such person and shall
have the right, upon written notice to the person acquiring such an interest, to
acquire the Shares at their fair market value.
4. Stock Certificate Legends.
A copy of this Agreement shall be filed with the Secretary of the
Company and kept with the corporate records of the Company. Every certificate
representing Shares owned by Shareholders or issued in exchange for any such
certificate shall, until the expiration of this Agreement, bear upon its face
the following legend in addition to any legend otherwise required by law:
THE SALE OR TRANSFER OF SHARES EVIDENCED BY THIS
CERTIFICATE IS SUBJECT TO CERTAIN RIGHTS AND RESTRICTIONS
CONTAINED IN A RESTRICTED STOCK AGREEMENT DATED AS OF
MAY 13, 1999, AS IT MAY BE AMENDED FROM TIME TO TIME. A COPY
OF THIS AGREEMENT IS ON FILE AT THE OFFICE OF THE COMPANY.
-3-
<PAGE> 4
5. Investment Representations.
Each Shareholder hereby represents that he or she is acquiring his
or her respective Shares for his or her own account, not as a nominee or agent,
for investment and not with a view to, or for resale in connection with any
distribution or public offering thereof within the meaning of the Securities Act
of 1933 (the "Securities Act"). Each Shareholder understands that the Shares
have not been registered under the Securities Act by reason of a specific
exemption therefrom and, notwithstanding any provision contained in this
Agreement, may not be transferred or resold except pursuant to an exemption for
the registration and prospectus delivery requirements of the Securities Act.
Each Shareholder has been furnished with such materials and has been given
access to such information relating to Company as requested and has been
afforded the opportunity to ask questions regarding Company as such Shareholder
has found necessary to make an informed investment decision. Each Shareholder
has the knowledge and experience in financial and business matters and
investments in general that such Shareholder is capable of evaluating the merits
and risks of the transactions contemplated by this Agreement.
6. Termination of Restrictions.
All restrictions in this Agreement shall terminate on the earlier of
(a) May 13, 2002 and (b) the closing of a Liquidity Event.
7. Amendment and Modification.
This Agreement may be amended, modified or supplemented only by a
written agreement of all the parties to this Agreement.
8. Further Assurances.
Every party to this Agreement shall do and perform or cause to be
done and performed all additional or further acts and things and shall execute
and deliver all such other agreements, certificates, instruments or documents as
any other party to this Agreement may reasonably request to carry out this
intent and accomplish the purposes of this Agreement.
9. Incentive Compensation Plan.
Each of Sapirstein, Abella, Selsky and Wallace hereby agree and
acknowledge that the obligations of FFM under the Incentive Compensation Plan
and the Participation Agreements entered into with such persons pursuant
thereto, as modified, shall be satisfied in full in accordance with the
provisions of Section 1.12 of the Merger Agreement. Such persons further
acknowledge that the Company is obligated to withhold certain taxes from the
compensation delivered to such persons and agrees that the Company shall
withhold such taxes.
-4-
<PAGE> 5
10. Legal Representation.
Each Shareholder acknowledges that he or she is aware that the
legal, financial and related matters contained in this Agreement are complex and
that such person is free to seek independent professional guidance or counsel
with respect to this Agreement. Each Shareholder has either sought such guidance
or counsel or determined after reviewing this Agreement carefully that such
person waives such right. Each Shareholder acknowledges that he or she is not
relying upon any representation or advice from the Company (or any attorney for
the Company) about this Agreement, its contents or effect.
11. Governing Law.
This Agreement and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of California, United States of America.
12. Invalidity of a Single Provision.
The unenforceability or invalidity of any provision of this
Agreement shall not affect the validity or enforceability of the remainder of
this Agreement, nor shall the unenforceability under the laws of any particular
jurisdiction of a provision affect its enforceability under the laws of other
provisions.
13. Notices.
All notices and other communications under this Agreement shall be
in writing and unless otherwise provided herein shall be delivered personally or
by facsimile, or mailed by registered or certified mail with a return receipt
request to the parties at the addresses set forth below their signatures to this
Agreement. Notices to the Company shall be sent to the Company at its address on
the signature pages of this Agreement with a copy to Paul, Hastings, Janofsky &
Walker LLP, 17th Floor, 695 Town Center Drive, Costa Mesa, California
92626-1924, Attention: Stephen D. Cooke.
14. Headings and Execution in Counterparts.
The headings and captions contained in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
[SIGNATURES ON FOLLOWING PAGE]
-5-
<PAGE> 6
[SIGNATURE PAGE - RESTRICTED STOCK AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Restricted Stock
Agreement to be executed as of the date first written above
"Company"
INTERVISUAL BOOKS, INC.
a California corporation
By: /s/ Waldo H. Hunt
-----------------------------------------
Name: Waldo H. Hunt
Title:Chairman and Chief Executive Officer
"Trust"
/s/ STEVEN D. ADES
---------------------------------------------------
Steven D. Ades, as Co-Trustee of the Steven Ades
and Laurie Levit Revocable Family Trust UTD
April 18, 1991
/s/ LAURIE LEVIT
---------------------------------------------------
Laurie Levit, as Co-Trustee of the Steven Ades and
Laurie Levit Revocable Family Trust UTD
April 18, 1991
"Sapirstein"
/s/ RHONDA SAPIRSTEIN
---------------------------------------------------
Rhonda Sapirstein
"Abella"
/s/ BARBARA ABELLA
---------------------------------------------------
Barbara Abella
"Selsky"
/s/ STEVEN SELSKY
---------------------------------------------------
Steven Selsky
"Wallace"
/s/ STEVEN WALLACE
---------------------------------------------------
Steven Wallace
-6-
<PAGE> 7
CONSENTS OF SPOUSES
Omitted
-7-
<PAGE> 1
EXHIBIT 10.1
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
THE INDEBTEDNESS EVIDENCED BY AND CREATED PURSUANT TO THIS AGREEMENT IS
SUBORDINATED TO THE "SENIOR DEBT" (AS DEFINED IN THE SUBORDINATION AGREEMENT
HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE
SUBORDINATION AGREEMENT DATED AS OF EVEN DATE HEREWITH BY THE MAKER HEREOF AND
PAYEE NAMED HEREIN AND OTHERS IN FAVOR OF THE "SENIOR LENDER" REFERRED TO IN
SUCH SUBORDINATION AGREEMENT.
INTERVISUAL BOOKS, INC.
LOAN AND SECURITY AGREEMENT
DATED AS OF MAY 13, 1999
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of May 13 1999, by
and between ZINDART LIMITED, a Hong Kong corporation ("LENDER"), on the one
hand, and INTERVISUAL BOOKS, INC. a California corporation ("IBI"), and FFM
ACQUISITION CORP., a California corporation to be known as Fast Forward
Marketing, Inc. ("FFM"), on the other hand. IBI and FFM are sometimes
individually and collectively referred to as "Borrower," and the
representations, warranties, covenants and agreements of "Borrower" contained in
this Agreement, as well as the liability in respect of the Obligations (as
defined below) shall apply to IBI and FFM on a joint and several basis unless
expressly stated otherwise.
RECITALS
Borrower wishes to obtain credit from time to time from Lender, and
Lender desires to extend credit to Borrower. This Agreement sets forth the terms
on which Lender will advance credit to Borrower, and Borrower will repay the
amounts owing to Lender.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"ACCOUNTS" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" means a loan advance under the Committed
Revolving Line.
"AFFILIATE" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"BORROWER'S BOOKS" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
1.
<PAGE> 3
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"CLOSING DATE" means the date on which Lender is obligated to
make the initial Advance pursuant to the conditions precedent set forth in
SECTION 3.1.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the property described on EXHIBIT A attached
hereto.
"COMMITTED REVOLVING LINE" means, at any time, a revolving credit
facility of Two Million Three Hundred Thousand Dollars ($2,300,000) or, if such
amount is reduced pursuant to SECTION 2.1(C), the amount to which so reduced and
in effect at such time.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"COPYRIGHTS" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held; provided, however, that the term
"Copyrights" shall include the foregoing property solely in connection with the
75 titles which have generated the highest contribution to gross revenues of
Borrower during the twelve months immediately preceding the Closing Date and, in
the event that Borrower elects to deliver an Extension Notice, during the twelve
months immediately preceding the date on which the Extension Notice is
delivered.
2.
<PAGE> 4
"EQUIPMENT" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"FAST FORWARD" means Fast Forward Marketing, Inc., a California
corporation.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"INTELLECTUAL PROPERTY COLLATERAL" MEANS
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past,
present and future infringement of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages for said use
or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
3.
<PAGE> 5
(f) All amendments, renewals and extensions of any of
the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"INVESTMENT" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"LENDER EXPENSES" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the administration and enforcement of the Loan Documents; and Lender's
reasonable attorneys' fees and expenses incurred in amending, enforcing or
defending the Loan Documents, (including fees and expenses of appeal or review,
or those incurred in any Insolvency Proceeding) whether or not suit is brought.
"LIBOR RATE" means, for any period, the London Interbank Offered
Rate as set forth in the Money Rate Section of the West Coast Edition of The
Wall Street Journal. When a range of rates is published, the highest of the
rates shall apply. For the period from the Closing Date until the day next
preceding the first Payment Date the LIBOR Rate shall be determined as of the
Closing Date and the rate as so determined shall be deemed to apply throughout
such period. The LIBOR Rate shall be determined at each Payment Date thereafter
and the rate as so determined shall be deemed to apply throughout the period
commencing on such Payment Date and ending on the earlier of (i) the day
immediately prior to the next succeeding Payment Date and (ii) the Maturity
Date.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or
notes executed by Borrower, the Subordination Agreement, the Warrant, and any
other present or
4.
<PAGE> 6
future agreement entered into between Borrower and/or for the benefit of Lender
in connection with this Agreement, all as amended, extended or restated from
time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i)
the business operations, condition (financial or otherwise) or prospects of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"MATURITY DATE" means the first anniversary of the date of this
Agreement or, if such date is extended from time to time pursuant to SECTION
2.6, any later date to which so extended.
"MERGER AGREEMENT" means the Agreement and Plan of Merger, dated
as of March 29, 1999, by and among IBI, FFM, Fast Forward, Steven D. Ades and
Steven D. Ades and Laurie Levit as trustees of the Steven Ades and Laurie Levit
Revocable Family Trust.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"OBLIGATIONS" means all debt, principal, interest, Lender
Expenses and other amounts owed to Lender by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Lender may have obtained by
assignment or otherwise.
"PATENTS" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"PAYMENT DATE" means the last Business Day of each calendar
quarter commencing on the first such date after the Closing Date and ending on
the last such date prior to the Maturity Date.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Lender arising
under this Agreement or any other Loan Document;
(b) Indebtedness of Borrower in favor of Senior Lender
under the Senior Loan Agreement or any other Senior Loan Document;
(c) Indebtedness existing on the Closing Date and
disclosed in the SCHEDULE;
5.
<PAGE> 7
(d) Indebtedness to suppliers incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed
in the SCHEDULE;
(b) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Lender; and
(c) loans and advances to employees and directors in
the ordinary course of business in an outstanding aggregate amount at any time
not to exceed $150,000.
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the SCHEDULE or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Lender's security interests;
(c) Liens in favor of the Senior Lender to secure the
obligations of Borrower to Senior Lender under the Senior Loan Documents;
(d) Liens in Accounts or Inventory securing
Indebtedness of Borrower permitted pursuant to clause (d) of the definition of
"Permitted Indebtedness;"
(e) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) and (d) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and, except for Liens permitted pursuant to clause (d) of this definition,
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase.
6.
<PAGE> 8
"PERSON" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"RESPONSIBLE OFFICER" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Senior Vice President of
Finance of Borrower.
"SCHEDULE" means the schedule of exceptions attached hereto, if
any.
"SENIOR LENDER" means Santa Monica Bank or its successors or
permitted assigns, or a replacement senior lender satisfactory to Lender.
"SENIOR LOAN AGREEMENT" means that Loan and Security Agreement,
dated as of the date of this Agreement, between Santa Monica Bank, on the one
hand, and IBI and FFM, on the other hand, as amended, supplemented or otherwise
modified from time to time, or any replacement loan agreement or loan and
security agreement to which a Senior Lender that is a replacement Senior Lender
is a party, which replacement Senior Loan Agreement shall be on terms and
conditions satisfactory to Lender.
"SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement, any note
or notes executed by Borrower thereunder, the Subordination Agreement, any
security agreement and any other present or future agreement entered into
between Borrower and/or for the benefit of Senior Lender in connection with the
Senior Loan Agreement, all as amended, supplemented or otherwise modified from
time to time, or any of the foregoing agreements or instruments entered into
between Borrower and/or for the benefit of a Senior Lender that is a replacement
Senior Lender.
"SUBORDINATION AGREEMENT" means the Subordination Agreement,
dated as of the date of this Agreement, among Lender, Senior Lender, IBI and
FFM, as amended, supplemented or otherwise modified from time to time, or any
replacement subordination agreement entered into among Lender, any Senior Lender
that is a replacement Senior Lender, IBI and FFM, which replacement
subordination agreement shall be satisfactory to Lender.
"SUBSIDIARY" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"TRADEMARKS" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations
7.
<PAGE> 9
made hereunder shall be made in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. The terms
"including"/"includes" shall always be read as meaning "including (or includes)
without limitation", when used herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT. Borrower promises to pay to the order of
Lender, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Advances made by Lender to Borrower hereunder. Borrower
also shall pay interest on the unpaid principal amount of such Advances at rates
in accordance with the terms hereof.
2.1 COMMITTED REVOLVING LINE. Subject to and upon the terms and
conditions of this Agreement, Lender agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed the Committed Revolving Line. Each
advance shall be in a minimum amount of $100,000 and increments of $100,000 in
excess thereof. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this SECTION 2.1 may be repaid and re-borrowed at any time
during the term of this Agreement.
(a) Whenever Borrower desires an Advance, Borrower will
notify Lender by facsimile transmission or E-Mail transmission (in either case
with confirmation of transmission) no later than 5:00 p.m. Pacific time, not
fewer than ten calendar days prior to the date on which Borrower proposes to
make an Advance. Each such notification shall be confirmed promptly by a
Payment/Advance Form in substantially the form of EXHIBIT B attached hereto and
incorporated herein by this reference. Lender is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Lender's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Lender shall be entitled to rely on any telephonic
notice given by an individual whom Lender reasonably believes to be a
Responsible Officer or a designee thereof, and Borrower shall indemnify and hold
Lender harmless for any damages or loss suffered by Lender as a result of such
reliance. Lender will disburse the amount of Advances made under this SECTION
2.1 by wire transfer of immediately available funds to Borrower's deposit
account designated in the Payment/Advance Form.
(b) The Committed Revolving Line shall terminate on the
Maturity Date, at which time all Advances under this SECTION 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
(c) Borrower, at its option, from time to time may
elect to reduce permanently the amount of the Committed Revolving Line in whole
or in part upon 10 days' written notice; provided, however, that the amount of
any such reduction shall be at least $100,000 and increments of $100,000 in
excess thereof.
8.
<PAGE> 10
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Lender pursuant to SECTION 2.1 of this Agreement
is greater than the Committed Revolving Line Borrower shall immediately pay to
Lender, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in SECTION
2.3(B), any Advances shall bear interest, on the average daily balance thereof,
at a per annum rate equal to the five percent (5.00%) above the LIBOR Rate.
(b) DEFAULT RATE. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to five
percent (5.00%) above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and
payable on each Payment Date and on the Maturity Date. All payments of
principal, interest and fees shall be made by Borrower to Lender in immediately
available funds. Any interest not so paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) COMPUTATION. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Lender after 12:00
noon Pacific time shall be deemed to have been received by Lender as of the
opening of business on the immediately following Business Day. Whenever any
payment to Lender under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment shall
instead be due on the next Business Day, and additional interest shall accrue
and be payable for the period of such extension.
2.5 FACILITY FEE. Borrower shall pay to Lender a non-refundable
facility fee equal to Forty-Seven Thousand Five Hundred Dollars ($47,500), which
fee shall be due on the Closing Date and shall be fully earned and
non-refundable (the "FACILITY FEE"), the proceeds of which shall be used to
offset Lender's financial, accounting and legal fees and costs associated with
documenting and closing this transaction.
2.6 TERM; RIGHT TO EXTEND TERM. Except as otherwise set forth herein,
this Agreement shall become effective upon execution and delivery by each party
hereto and, subject to SECTION 12.7, shall continue in full force and effect for
a term ending on the Maturity Date. Notwithstanding the foregoing, Lender shall
have the right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination of this Agreement,
9.
<PAGE> 11
Lender's lien on the Collateral shall remain in effect for so long as any
Obligations are outstanding.
By delivery of written notice (the "EXTENSION NOTICE") no later than the
thirtieth (30th) Business Day prior to May 13 2000 (the "EXTENSION DATE")
Borrower may request Lender to extend the Maturity Date of the Committed
Revolving Line until May 13, 2001 in the amount of $2,300,000 or such lesser
amount as Borrower shall designate in the Extension Notice; provided, however,
that Borrower's right to so extend the Committed Revolving Line shall not be
exercisable if a Default or Event of Default shall have occurred and be
continuing at the time of delivery of the Extension Notice or a Default or Event
of Default occurs between the time of delivery of the Extension Notice and May
13, 2000. In consideration of Lender's granting Borrower any extension of the
Maturity Date of the Committed Revolving Line requested by Borrower as described
in the previous sentence, and as a condition precedent to the effectiveness of
any such extension, Borrower agrees:
(i) to execute and deliver to Lender on or prior to May 13, 2000 a
warrant to purchase the common stock of Borrower substantially in the form of
Exhibit A (the "WARRANT") initially exercisable for that number of shares of
Borrower's no par value common stock (the "COMMON STOCK") set forth below
opposite the dollar amounts for which Borrower elects to extend the Committed
Revolving Line:
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNT OF COMMITTED REVOLVING LINE
<S> <C>
110,000 < $1,000,000
-
125,000 > $1,000,000 < $1,500,000
-
140,000 > $1,500,000 < $2,000,000
-
150,000 > $2,000,000 < $2,300,000; and
-
</TABLE>
(ii) to provide written information sufficient to fully and accurately
update the disclosure set forth in SECTION 5.15 as of the date on which the
Warrant is delivered to Lender;
(iii) the exercise price or stock purchase price for the Warrant shall
be determined on the Extension Date as follows:
(A) If traded on a securities exchange or through the Nasdaq
National Market, the exercise price or stock purchase price shall be the average
of the closing prices of the securities on such quotation system over the twenty
(20) day period prior to the Extension Date;
(B) If traded over-the-counter, the value shall be deemed to be
the average of the closing bid or sale prices (whichever is applicable) over the
twenty (20) day period prior to the Extension Date; and
(C) If there is no active public market, the value shall be the
fair market value thereof, as determined in good faith by the Board of
Directors.
10.
<PAGE> 12
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Lender
to make the INITIAL Advance is subject to the condition precedent that Lender
shall have received, in form and substance satisfactory to Lender, the
following:
(a) this Agreement (including all Schedules hereto);
(b) a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) an intellectual property security agreement
executed by IBI and an intellectual property security agreement executed by FFM
(including all Schedules to each of them);
(d) the Subordination Agreement, in form and substance
satisfactory to Lender;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
(g) payment of the Facility Fee;
(h) a good standing certificate from Borrower's
jurisdiction of incorporation (together with tax good standing) and certificates
of foreign qualification from all jurisdictions in which the nature of
Borrower's business requires Borrower to be qualified as a foreign corporation;
(i) a written strategic plan including a specification
of the means for implementing such plan, in form and substance satisfactory to
Lender;
(j) a copy of the Senior Loan Agreement and the other
Senior Loan Documents, pursuant to which Senior Lender will make available to
Borrower a credit facility in the minimum amount of $2,000,000 for a period
until May 1, 2000, with each Senior Loan Document in form and substance
satisfactory to Lender (and the closing of the transactions contemplated
thereunder shall have occurred or shall occur concurrently with the closing of
the transactions under this Agreement);
(k) consolidated financial statements for Borrower's
1998 fiscal year;
(l) evidence that all required consents (including
consents from Borrower's board of directors and shareholders and contractual
counterparties), approvals and permits (including qualifications or permits
required from governmental authorities in order to
11.
<PAGE> 13
render inapplicable any usury or other limitation upon the amounts in the nature
of interest to be charged under the Loan Documents);
(m) An executed copy of the Merger Agreement certified
by an officer of IBI and FFM to be a true and correct counterpart of the Merger
Agreement, including all amendments, modifications, exhibits and schedules
thereto;
(n) evidence acceptable to Lender that FFM and Fast
Forward have completed their merger on terms and conditions acceptable to
Lender, in its sole discretion, that FFM is the surviving entity in connection
with such merger, that all consents, approvals and authorizations required in
connection with such merger have been obtained, and that all required filings
and registrations have been completed; and
(o) such other documents, and completion of due
diligence and such other matters, as Lender may deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Lender to
make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Lender of the Payment/Advance
Form as provided in SECTION 2.1; and
(b) the representations and warranties contained in
SECTION 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Advance as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance. The making of
each Advance shall be deemed to be a representation and warranty by Borrower on
the date of such Advance as to the accuracy of the facts referred to in this
SECTION 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Lender
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Other than the security interest
in favor of Senior Lender granted pursuant to the Senior Loan Documents, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Notwithstanding
termination of this Agreement, Lender's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Lender, at the request of Lender, all
Negotiable Collateral (to the extent not prohibited by the Senior Loan Documents
or delivered to Senior Lender), all financing
12.
<PAGE> 14
statements and other documents that Lender may reasonably request, in form
satisfactory to Lender, to perfect and continue perfected Lender's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Lender (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of the
jurisdiction of its incorporation and qualified and licensed to do business in,
and is in good standing in, any jurisdiction in which the conduct of its
business or its ownership of property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate or Articles of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
Intellectual Property Collateral used by Borrower in its business, except for
non-exclusive licenses granted by Borrower to its customers in the ordinary
course of business. Each of the Patents is valid and enforceable, and no part of
the Intellectual Property Collateral has been judged invalid or unenforceable,
in whole or in part, and no claim has been made that any part of the
Intellectual Property Collateral violates the rights of any third party. Except
for and upon the filing with the United States Patent and Trademark Office with
respect to the Patents and Trademarks and the Register of Copyrights with
respect to the Copyrights necessary to perfect the security interests created
hereunder, and except as has been already made or obtained, no authorization,
approval or other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory body is required either (i)
for the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of Loan Documents by Borrower in the United
States or (ii) for the perfection in the United States or the exercise by Lender
of its rights and remedies hereunder.
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5.5 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the SCHEDULE, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Lender do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in SECTION 10 hereof.
5.6 LITIGATION. Except as set forth in the SCHEDULE, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Lender's security interest in the
Collateral.
5.7 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Lender fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Lender on or about the Closing Date.
5.8 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.9 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied in all material respects with all the provisions
of the Federal Fair Labor Standards Act. Borrower has not violated any statutes,
laws, ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
5.10 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in material compliance with applicable
law; to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
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environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received
a summons, citation, notice, or directive from the Environmental Protection
Agency or any other federal, state or other governmental agency concerning any
action or omission by Borrower or any Subsidiary resulting in the release, or
other disposition of hazardous waste or hazardous substances into the
environment.
5.11 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns or extensions thereof required to be filed on a timely
basis, and has paid, or has made adequate provision for the payment of, all
taxes reflected therein.
5.12 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.13 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.14 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Lender
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
5.15 CAPITAL STRUCTURE. As of the Closing Date the authorized capital
stock of Borrower will consist of 10,000,000 shares of Common Stock, of which
5,885,115 shares will be issued and outstanding on a fully diluted basis (taking
into account all outstanding warrants, options and other rights to purchase
Common Stock). Except for the Warrant and except as disclosed in the SCHEDULE,
as of the Closing Date no Person has any rights to subscribe for or to purchase,
or any options or warrants for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any other character relating to the issuance of, any shares of capital stock
of Borrower. Upon any delivery of the Warrant as provided herein, the shares for
which the Warrant is exercisable (i) together with all outstanding shares of
capital stock and shares of capital stock issuable upon exercise of any
outstanding warrants and options of Borrower will not exceed the number of
shares that have been authorized by Borrower's articles or certificate of
incorporation, (ii) will have been duly authorized and reserved for issuance by
all necessary corporate action on the part of Borrower (no consent or approval
of shareholders being required by law, the articles or certificate of
incorporation or bylaws of Borrower or otherwise) and (iii) will have been
reserved for issuance pursuant to the terms of the Warrant.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until the latest of (i) the exercise
in full of the Warrant, (ii) payment in full of all outstanding Obligations and
(iii) for so long as Lender may have any commitment to make an Advance
hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Lender's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Lender: (a) as soon as available, but in any event within thirty (30)
days after the end of each of the first two months of each fiscal quarter and
within forty-five (45) days after the third month of each fiscal quarter, a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, in a form and certified
by an officer of Borrower reasonably acceptable to Lender; (b) as soon as
available, but in any event within ninety (90) days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Lender; (c) within five (5) days of filing, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; (e) prompt notice of any material change in the composition
of the Intellectual Property Collateral, including, but not limited to, any
subsequent ownership right of the Borrower in or to any Copyright, Patent or
Trademark not specified in any intellectual property security agreement between
Borrower and Lender or knowledge of an event that materially adversely effects
the value of the Intellectual Property Collateral; and (f) such budgets, sales
projections, operating plans or other financial information as Lender may
reasonably request from time to time.
6.4 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or
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contributions required of it by law; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes; provided that Borrower or a Subsidiary need not
make any payment if the amount or validity of such payment is (i) contested in
good faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.5 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as are reasonably satisfactory to
Lender. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Lender, showing Lender as a loss
payee thereof and all liability insurance policies shall show the Lender as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Lender before canceling its policy for any reason. At
Lender's request, Borrower shall deliver to Lender certified copies of such
policies of insurance and evidence of the payments of all premiums therefor. All
proceeds payable under any such policy shall, at the option of Lender, be
payable to Lender to be applied on account of the Obligations.
6.6 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Borrower shall file an application to register with
the United States Copyright Office those Copyrights that are not registered with
such office on the date hereof within thirty (30) days of the date of this
Agreement and shall use its best efforts to effect the prompt registration of
such Copyrights. Borrower shall register or cause to be registered with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, those additional intellectual property rights (to the extent such
rights are material to Borrower's business as conducted and as contemplated to
be conducted) developed or acquired by Borrower from time to time in connection
with any product prior to the sale or licensing of such product to any third
party, including without limitation revisions or additions to the intellectual
property rights listed on such Exhibits A, B and C and the Copyrights not
registered on the date hereof.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Lender shall reasonably request
to perfect Lender's security interest in the Intellectual Property Collateral.
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(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights which are
material to Borrower's business as conducted and as contemplated to be
conducted, (ii) use its best efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Lender in writing of material
infringements detected and (iii) not allow any Trademarks, Patents or Copyrights
to be abandoned, forfeited or dedicated to the public without the written
consent of Lender, which shall not be unreasonably withheld, unless Lender
determines that reasonable business practices suggest that abandonment is
appropriate.
(d) Lender shall have the right, but not the
obligation, to take, at Borrower's sole expense, any actions that Borrower is
required under this Section 6.6 to take but which Borrower fails to take, after
fifteen (15) days' notice to Borrower. Borrower shall reimburse and indemnify
Lender for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 6.6.
6.7 RESERVATION OF SHARES. After issuance of the Warrant, Borrower
shall at all times cause there to be reserved that number and class of shares
for which the Warrant is exercisable necessary to give full effect to the
exercise of the Warrant.
6.8 PRESS RELEASES. Borrower acknowledges and agrees that upon
Closing Lender may make a press release regarding the transactions under the
Loan Documents, and Lender's advisor may refer to such transactions in a
standard "tombstone" format in promotional material; provided, however, that
each of Lender and Borrower shall approve any such press releases and tombstone
advertisements prior to their release.
6.9 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Lender to effect the purposes of this
Agreement.
7. NEGATIVE COVENANTS. Borrower covenants and agrees that until the latest
of (i) the exercise in full of the Warrant, (ii) payment in full of all
outstanding Obligations and (iii) for so long as Lender may have any commitment
to make any Advances, Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "TRANSFER"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business; or (iii) of
worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS
LOCATIONS. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than
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the businesses currently engaged in by Borrower and any business substantially
similar or related thereto (or incidental thereto), or permit Waldo H. Hunt or
the Hunt Family Trust collectively to have beneficial ownership of less than 10%
of the issued and outstanding common stock of Borrower containing ordinary
voting rights for the election of directors of Borrower. Borrower will not,
without at least thirty (30) days prior written notification to Lender, relocate
its chief executive office or add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS. (i) Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization other than the merger of any Subsidiary into IBI or FFM, or (ii)
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person if, after giving effect to
such acquisition, the aggregate fair market value of consideration paid by
Borrower and its Subsidiaries in connection with all of such acquisitions
consummated after the Closing Date would exceed $2,500,000.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution
(other than dividends payable solely in Common Stock) or payment on account of
or in redemption, retirement or purchase of any capital stock.
7.7 INVESTMENTS. Except as permitted by Section 7.3, directly or
indirectly acquire or own, or make any Investment in or to any Person, or permit
any of its Subsidiaries so to do, other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Lender has received a pledge of any warehouse receipt
covering such Inventory other than
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with printers and distributers of Borrower in the ordinary course of business.
Except for Inventory sold in the ordinary course of business and except for such
other locations as Lender may approve in writing, Borrower shall keep the
Inventory only at the location set forth in SECTION 10 hereof, other locations
of printers and distributers of Borrower in the ordinary course of business and
such other locations of which Borrower gives Lender prior written notice and as
to which Borrower signs and files a financing statement where needed to perfect
Lender's security interest.
7.11 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply in all material respects with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the priority of
Lender's Lien on the Collateral; or permit any of its Subsidiaries to do any of
the foregoing.
8. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal when due
or interest or any of the other Obligations within 5 Business Days after such
the date when due.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under
SECTIONS 6.3, 6.6, 6.7 or 6.8 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Lender and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advances
will be required to be made during such cure period);
20.
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8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse
change in the business, operations, condition (financial or otherwise) or
prospects of Borrower, or (ii) is a material impairment of the prospect of
repayment of any portion of the Obligations or (iii) is a material impairment of
the value or priority of Lender's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advance will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 45 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($200,000) or that could have a Material Adverse Effect including, without
limitation, a default under any Senior Loan Document;
8.7 JUDGMENTS. If a judgment or judgments for the payment of money
not covered by insurance in an amount, individually or in the aggregate, of at
least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and
shall remain unsatisfied and unstayed for a period of ten (10) days (provided
that no Advances will be made prior to the satisfaction or stay of such
judgment); or
8.8 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Lender by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce
Lender to enter into this Agreement or any other Loan Document.
21.
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9. LENDER'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Lender may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
SECTION 8.5 all Obligations shall become immediately due and payable without any
action by Lender);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Lender;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Lender
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make
such payments and do such acts as Lender considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Lender so requires, and to make the Collateral available to Lender
as Lender may designate. Borrower authorizes Lender to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Lender's determination appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's premises, Borrower hereby grants
Lender a license to enter such premises and to occupy the same, without charge
in order to exercise any of Lender's rights or remedies provided herein, at law,
in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Lender, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Lender;
(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Lender is hereby granted a non-exclusive,
royalty-free license or other right, solely pursuant to the provisions of this
SECTION 9.1, to use, without charge, Borrower's labels, patents, copyrights,
mask works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Lender's exercise of
its rights under this SECTION 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit;
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(g) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Lender determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(h) Lender may credit bid and purchase at any public
sale, or at any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(j) Lender shall have a non-exclusive, royalty-free
license to use the Intellectual Property Collateral to the extent reasonably
necessary to permit Lender to exercise its rights and remedies upon the
occurrence of an Event of Default.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Lender (and any of Lender's designated officers, or employees) as Borrower's
true and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Lender's security interest in the Accounts; (b)
endorse Borrower's name on any checks or other forms of payment or security that
may come into Lender's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Lender determines to be reasonable; (f) to modify,
in its sole discretion, any intellectual property security agreement entered
into between Borrower and Lender without first obtaining Borrower's approval of
or signature to such modification by amending Exhibit A, Exhibit B, Exhibit C,
and Exhibit D, thereof, as appropriate, to include reference to any right, title
or interest in any Copyrights, Patents and Trademarks acquired by Borrower after
the execution hereof or to delete any reference to any right, title or interest
in any Copyrights, Patents or Trademarks in which Borrower no longer has or
claims any right, title or interest; (g) to file, in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Borrower where permitted by law;
and (h) to transfer the Intellectual Property Collateral into the name of Lender
or a third party to the extent permitted under the California Uniform Commercial
Code provided Lender may exercise such power of attorney to sign the name of
Borrower on any of the documents described in SECTION 4.2 regardless of whether
an Event of Default has occurred. The appointment of Lender as Borrower's
attorney in fact, and each and every one of Lender's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Lender's obligation to provide advances hereunder
is terminated.
9.3 LENDER EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement,
23.
<PAGE> 25
then Lender may do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves under the Committed Revolving Line as
Lender deems necessary to protect Lender from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type discussed in
SECTION 6.5 of this Agreement, and take any action with respect to such policies
as Lender deems prudent. Any amounts so paid or deposited by Lender shall
constitute Lender Expenses, shall be immediately due and payable, and shall bear
interest at the then applicable rate hereinabove provided, and shall be secured
by the Collateral. Any payments made by Lender shall not constitute an agreement
by Lender to make similar payments in the future or a waiver by Lender of any
Event of Default under this Agreement.
9.4 LENDER'S LIABILITY FOR COLLATERAL. So long as Lender complies
with commercially reasonable practices, Lender shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss
or damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.5 REMEDIES CUMULATIVE. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not expressly set forth herein
as provided under the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Lender shall constitute a waiver, election, or acquiescence by it. No
waiver by Lender shall be effective unless made in a written document signed on
behalf of Lender and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.6 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Lender on which Borrower may in any way be
liable.
10. NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by facsimile to Borrower or to Lender, as the case may be, at its
addresses set forth below:
If to Borrower: 2716 Ocean Park Boulevard, Suite 2020
Santa Monica, CA 90405
24.
<PAGE> 26
Attn: Dan Reavis
FAX: (310) 396-9849
If to Lender: Zindart Limited
Flat C&D, 25/F., Block 1
Taiping Industrial Centre
57 Ting Kok Road
Tai Po, N.T.
Hong Kong
Attn: Feather S. Y. Fok
E-Mail: [email protected]
FAX: 011-852-2664-7066
With a copy to: ChinaVest
160 Sansome Street, 18th Floor
San Francisco, California 94105
FAX: (415) 276-8885
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE. The Loan Documents shall be governed by, and
construed in accordance with, the internal laws of the State of California,
without regard to principles of conflicts of law. Each of Borrower and Lender
hereby submits to the exclusive jurisdiction of the state and Federal courts
located in the County of Los Angeles, State of California. BORROWER AND LENDER
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that
25.
<PAGE> 27
neither this Agreement nor any rights hereunder may be assigned by Borrower
without Lender's prior written consent, which consent may be granted or withheld
in Lender's sole discretion. Lender shall have the right, with the consent of
Borrower, not to be unreasonably withheld (provided that during such time as a
Default or Event of Default shall have occurred and be continuing no such
consent shall be required), to sell, transfer, negotiate, or grant participation
in all or any part of, or any interest in, Lender's obligations, rights and
benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify ,defend, protect and
hold harmless Lender and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Lender Expenses in any way suffered, incurred, or paid by
Lender as a result of or in any way arising out of, following, or consequential
to transactions between Lender and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Lender's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Lender. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Lender
with respect to the expenses, damages, losses, costs and liabilities described
in SECTION 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Lender have run.
13. SURETY WAIVERS. In the event IBI or FFM or both are deemed to be
guarantors of all or a portion of the Obligations, then IBI and FFM each agrees
as follows:
26.
<PAGE> 28
13.1 LENDER'S DIRECT RIGHTS.
(a) GUARANTY OF PAYMENT. Borrower guarantees payment
and performance of any such Obligations, not merely collection. In the event
that payment or performance of any of the Obligations is not made in a timely
manner, Lender may enforce its rights, without first seeking to obtain payment
or performance from or without resorting to (i) Borrower for the Obligations
(meaning that Lender may delay, in Lender's sole and complete discretion, in the
exercise of rights against Borrower); (ii) any other guarantor; (iii) any
collateral Lender may hold as security for the Obligations; or (iv) any other
remedy or right that Lender may have.
(b) WAIVER OF PRIORITY OF COLLECTION. Borrower waives
any rights it may have to require Lender to proceed against any other party or
to pursue any other remedy in Lender's power which Borrower could not pursue
which would lighten Borrower's burden, as guarantor. In addition, Borrower
waives any right it may have to benefit from every security which now or
hereafter exists for the performance of the Obligations or for the performance
of any other guarantor's obligations owing to Lender. If Lender decides to
proceed first to exercise any other remedy or right, or to proceed against
another person or any collateral, Lender retains any and all of its rights
created under this Section.
13.2 CONTINUING GUARANTY AND REVOCATION. If Borrower is deemed a
guarantor of all or any portion of the Obligations, then such guaranty shall
apply to all such Obligations, including existing Obligations as well as all
future Obligations. Borrower shall also guarantee all future liability under
successive transactions which either continue such Obligations or from time to
time renew some or all of them after having been satisfied and, to that extent,
the guaranty of Borrower shall be continuing in nature. Borrower may not
terminate or revoke such guaranty. Borrower irrevocably waives any right it has,
including any rights under California Civil Code Section 2815, to terminate or
revoke the continuing nature of its guaranty and its application to any
Obligations arising after any attempt to terminate such guaranty.
13.3 NO NOTICE REQUIRED. Borrower, as guarantor, will not be released
or exonerated from its obligations as guarantor if Borrower, as guarantor, is
not notified by Lender of these events: (i) the failure of Lender to receive
timely payment of any amount owed under any of the Loan Documents or to receive
payment or performance of any of the other Obligations; (ii) any failure of any
third party to perform any other Obligation under any of the Loan Documents;
(iii) any adverse change in the financial condition or business of any party
obligated in connection with any of the Obligations; and (iv) all other notices
to which Borrower, as guarantor, might be entitled.
13.4 WAIVERS. Borrower, as guarantor, waives any right it may have to
require any of the following acts: demand; presentment; diligence; protest;
notice of dishonor; and any other notice to which it may be entitled. Without
limiting the generality of any waiver set forth in this Section 13, until such
time as the Obligations have been fully and finally repaid and satisfied,
27.
<PAGE> 29
Borrower expressly waives the benefit of California Civil Code Sections 2809,
2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and 1432.
13.5 NO RELEASE. Lender may do or suffer any of the following, by
action or inaction, without releasing or exonerating Borrower, as guarantor,
from its responsibility to pay or perform any of the Obligations (and Lender
need not notify Borrower, as guarantor of any of the following): (i) renew,
extend, rearrange, alter, impair, suspend or otherwise modify any of the
Obligations or any of the rights or remedies of Lender under the Loan Documents;
(ii) release Borrower or any other guarantor from any of the Obligations; (iii)
sell, release, subordinate, impair, suspend, waive or otherwise fail to obtain,
perfect or realize upon (or continue the perfection of) a security interest in
any collateral for any of the Obligations or any other guaranty of the
Obligations; (iv) exercise Lender's rights in any Collateral for any of the
Obligations or any other collateral for any other guaranty of the Obligations in
any order that Lender may elect in its sole discretion; (v) advance additional
funds to or for the benefit of Borrower, as borrower; (vi) foreclose on any
Collateral for the Obligations, or any portion thereof (including the collateral
provided under a deed of trust) or a guaranty of the Obligations, or any portion
thereof in a manner that diminishes, impairs or precludes the right of Borrower,
as guarantor, to enjoy any rights of subrogation against any other guarantor or
third person, or to obtain reimbursement, performance, or indemnification for
payment or performance under this Agreement (in this connection, Borrower, as
guarantor, waives any rights and defenses arising out of an election of remedies
by Lender, even though that election of remedies, such as nonjudicial
foreclosure with respect to security for the Obligations or any other guaranty,
has destroyed Borrower's rights, as guarantor, of subrogation and reimbursement
against any other guarantor or third person by operation of law and, in
addition, Borrower, as guarantor, waives any defenses arising under Uniform
Commercial Code Sections 1103 and 9501 et seq.); (vii) permit or suffer the
impairment of any of the Obligations in a case under the Bankruptcy Code by or
against Borrower; (viii) permit or suffer the creation of secured or unsecured
credit or debt under Bankruptcy Code Section 364 in a case involving any of the
Obligations; (ix) permit or suffer the disallowance, avoidance or subordination
of any of the Obligations or Collateral; (x) fail to exercise any right or
remedy Lender may have with respect to the payment or performance of, any of the
Loan Documents or any of the Obligations; or (xi) fail to obtain a guaranty,
other assurance of payment, or credit enhancement from any other person.
13.6 WAIVER OF SUBROGATION, REIMBURSEMENT, PERFORMANCE AND
INDEMNIFICATION. Borrower, as guarantor, permanently waives and shall not seek
to exercise any of the following rights that it may have against any other
guarantor, third person or any collateral provided by any other guarantor or
third person for any amounts paid by Borrower, as guarantor, or acts performed
by Borrower, as guarantor, of any of the Obligations: (i) all rights that
Borrower, as guarantor, may have upon satisfying the Obligations, or any portion
thereof, to enforce any remedies which Lender then has against any other
guarantor or third person to contribute to the amount paid by Borrower, as
guarantor; (ii) all rights that Borrower, as guarantor, may have to the benefit
of any security for the performance of the Obligations or the performance by any
other guarantor or third person of the Obligations; (iii) all rights of
reimbursement for the
28.
<PAGE> 30
amounts paid by Borrower, as guarantor, in connection with the Obligations
(including costs and expenses); (iv) any right to compel any guarantor or other
third person to perform the Obligations when due; or (v) all rights of
indemnification from any other guarantor or any other third party.
29.
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWERS INTERVISUAL BOOKS, INC.,
a California corporation
By: /s/ Waldo H. Hunt
---------------------------------------
Name: Waldo H. Hunt
---------------------------------------
Title: Chairman and CEO
---------------------------------------
FFM ACQUISITION CORP.,
a California corporation to be known as
Fast Forward Marketing, Inc.
By: /s/ Dan P. Reavis
---------------------------------------
Name: Dan P. Reavis
---------------------------------------
Title: President
---------------------------------------
LENDER ZINDART LIMITED,
a Hong Kong corporation
By: /s/
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
<PAGE> 32
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment
property, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrower's Books relating to the
foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
1.
<PAGE> 33
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
2.
<PAGE> 34
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
Date: ______________________
To: Zindart Limited
RE: LOAN AND SECURITY AGREEMENT DATED AS OF MAY 13, 1999, BY AND BETWEEN
ZINDART LIMITED, AS LENDER, AND INTERVISUAL BOOKS, INC., AS BORROWER
The undersigned refers to the Loan Agreement, the terms defined therein used
herein as defined, and hereby gives you notice, pursuant to Section 2.1(a) of
the Loan Agreement, of a requested Advance specified herein:
Amount of proposed Advance: $______________
The Business Day of the proposed Advance is: ______________
Funds to be disbursed by wire transfer to Borrower's account number: ___________
Borrower hereby certifies that the following statements are true on the date
hereof, and will be true on the date of the proposed Advance, before and after
giving effect thereto and to the application of the proceeds thereof:
(a) All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the date
of this Advance Request; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date;
(b) no Default or Event of Default has occurred and is continuing, or
would result from such proposed Advance; and
(c) the proposed Advance will not cause the aggregate principal
amount of all outstanding Advances to exceed the Committed Revolving Line.
BORROWER: INTERVISUAL BOOKS, INC.,
a California corporation
By: _______________________________________
Printed Name: _____________________________
1.
<PAGE> 35
Title: ____________________________________
FFM ACQUISITION CORP.,
a California corporation to be known as Fast Forward
Marketing, Inc.
By: _______________________________________
Printed Name: _____________________________
Title: ____________________________________
2.
<PAGE> 1
EXHIBIT 10.2
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of May
13, 1999 by and between ZINDART LIMITED, a Hong Kong corporation ("LENDER") and
INTERVISUAL BOOKS, INC., a California corporation ("GRANTOR").
RECITALS
A. Lender has agreed to make certain advances of money and to extend
certain financial accommodations to Grantor (the "LOANS") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between
Lender and Grantor dated of even date herewith (as the same may be amended,
modified or supplemented from time to time, the "LOAN AGREEMENT"; capitalized
terms used herein are used as defined in the Loan Agreement). Lender is willing
to make the Loans to Grantor, but only upon the condition, among others, that
Grantor shall grant to Lender a security interest in certain Copyrights,
Trademarks and Patents to secure the obligations of Grantor under the Loan
Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted
to Lender a security interest in all of Grantor's right, title and interest,
whether presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Lender a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including,
without limitation, those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including, without limitation, all proceeds thereof
(such as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Lender under the Loan Agreement. The rights and remedies of
Lender with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Lender as a matter of law or equity.
Each right, power and remedy of Lender provided for herein or in the Loan
Agreement or any of the Loan Documents, or now or hereafter existing at law or
in equity shall be cumulative and concurrent and shall be in addition to every
right, power or remedy provided for herein, and the exercise by Lender of any
one or more of the rights, powers or remedies provided for in this Intellectual
Property Security Agreement, the Loan Agreement or any of the other Loan
Documents, or now or hereafter existing at law or in equity, shall not preclude
the simultaneous or later exercise by any person, including Lender, of any or
all other rights, powers or remedies.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have cause this Intellectual
Property Security Agreement to be duly executed by its officers thereunto duly
authorized as of the first date written above.
Address of Grantor: GRANTOR:
2716 Ocean Park Boulevard., Suite 2020 INTERVISUAL BOOKS, INC.
Santa Monica, California 90405
By: /s/ Waldo H. Hunt
---------------------------
Name: Chairman & CEO
-------------------------
Title: Waldo H. Hunt
------------------------
Address of Lender: LENDER:
c/o ChinaVest ZINDART LIMITED
160 Sansome Street, 18th Floor
San Francisco, California 94105
By: /s/
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 3
EXHIBIT A
COPYRIGHTS
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<PAGE> 4
EXHIBIT B
PATENTS
<TABLE>
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<PAGE> 5
EXHIBIT C
TRADEMARKS
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<PAGE> 1
EXHIBIT 10.3
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of May
13, 1999 by and between ZINDART LIMITED, a Hong Kong corporation ("LENDER") and
FFM ACQUISITION CORP., a California corporation to be known as Fast Forward
Marketing, Inc. ("GRANTOR").
RECITALS
A. Lender has agreed to make certain advances of money and to extend
certain financial accommodations to Grantor (the "LOANS") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between
Lender and Grantor dated of even date herewith (as the same may be amended,
modified or supplemented from time to time, the "LOAN AGREEMENT"; capitalized
terms used herein are used as defined in the Loan Agreement). Lender is willing
to make the Loans to Grantor, but only upon the condition, among others, that
Grantor shall grant to Lender a security interest in certain Copyrights,
Trademarks and Patents to secure the obligations of Grantor under the Loan
Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted
to Lender a security interest in all of Grantor's right, title and interest,
whether presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Lender a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including,
without limitation, those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including, without limitation, all proceeds thereof
(such as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Lender under the Loan Agreement. The rights and remedies of
Lender with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Lender as a matter of law or equity.
Each right, power and remedy of Lender provided for herein or in the Loan
Agreement or any of the Loan Documents, or now or hereafter existing at law or
in equity shall be cumulative and concurrent and shall be in addition to every
right, power or remedy provided for herein, and the exercise by Lender of any
one or more of the rights, powers or remedies provided for in this Intellectual
Property Security Agreement, the Loan Agreement or any of the other Loan
Documents, or now or hereafter existing at law or in equity, shall not preclude
the simultaneous or later exercise by any person, including Lender, of any or
all other rights, powers or remedies.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have cause this Intellectual
Property Security Agreement to be duly executed by its officers thereunto duly
authorized as of the first date written above.
Address of Grantor: GRANTOR:
2716 Ocean Park Boulevard., Suite 2020 FFM ACQUISITION CORP.
Santa Monica, California 90405
By: /s/ Dan Reavis
---------------------------
Name: Dan Reavis
---------------------------
Title: President
---------------------------
Address of Lender: LENDER:
c/o ChinaVest ZINDART LIMITED
160 Sansome Street, 18th Floor
San Francisco, California 94105
By: /s/
---------------------------
Name:
---------------------------
Title:
---------------------------
<PAGE> 3
EXHIBIT A
COPYRIGHTS
<TABLE>
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NUMBER
<S> <C> <C>
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<PAGE> 4
EXHIBIT B
PATENTS
<TABLE>
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DESCRIPTION REGISTRATION/APPLICATION REGISTRATION/APPLICATION DATE
NUMBER
<S> <C> <C>
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</TABLE>
<PAGE> 5
EXHIBIT C
TRADEMARKS
<TABLE>
<CAPTION>
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DESCRIPTION REGISTRATION/APPLICATION REGISTRATION/APPLICATION DATE
NUMBER
<S> <C> <C>
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</TABLE>
<PAGE> 1
EXHIBIT 10.4
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("AGREEMENT") dated as of May 13, 1999, is
entered into by and among SANTA MONICA BANK, a California banking corporation
("SENIOR LENDER"), as LENDER under the Senior Loan Agreement (defined below),
ZINDART LIMITED a Hong Kong corporation ("SUBORDINATED LENDER"), as lender under
the Junior Loan Agreement (defined below), and INTERVISUAL BOOKS, INC., a
California corporation ("IBI") and FFM ACQUISITION CORP., a California
corporation to be known as Fast Forward Marketing, Inc. ("FFM"). IBI and FFM are
sometimes individually and collectively referred to herein as "BORROWER," and
any representations, warranties, covenants and agreements of "Borrower"
contained in this Agreement shall apply to IBI and FFM on a joint and several
basis.
1. DEFINITIONS. Unless otherwise defined herein, the following terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
"EXTENDED STANDSTILL PERIOD" means a six (6) month period which
shall commence upon written notice, or telephonic notice followed within one (1)
business day by written notice, from Senior Lender to Subordinated Lender and
Borrower during an existing Standstill Period that Senior Lender, concurrently
with or prior to such notice, (i) is accelerating or has accelerated the payment
of all of the Senior Debt, (ii) is terminating or has terminated Senior Lender's
obligation to extend additional financial accommodations to Borrower under the
Senior Loan Agreement and (iii) is commencing or has commenced exercising its
rights under the Senior Loan Agreement; provided, however, that any Extended
Standstill Period shall terminate at such time as when Senior Lender has
discontinued the diligent exercise of its rights under the Senior Loan
Agreement.
"JUNIOR EVENT OF DEFAULT" means an Event of Default (as defined
in the Junior Loan Agreement).
"JUNIOR LOAN AGREEMENT" means that Loan and Security Agreement
dated as of May 13, 1999, between Borrower and Subordinated Lender, any
promissory notes issued pursuant thereto and all documents executed and
delivered in connection therewith, as the same from time to time may be amended,
supplemented, restated or otherwise modified in accordance herewith.
"SENIOR EVENT OF DEFAULT" means an Event of Default (as defined
in the Senior Loan Agreement).
"SENIOR LOAN AGREEMENT" means that Loan Agreement dated as of
May 13, 1999, between Borrower and Senior Lender, any promissory notes issued
pursuant thereto and all documents executed and delivered in connection
therewith, and any loan agreement pursuant to which the Senior Debt is
refinanced, as any of the foregoing from time to time may be amended,
supplemented, restated or otherwise modified in accordance herewith.
"SENIOR DEBT" means (i) the principal amount of all indebtedness
under the Senior Loan Agreement outstanding from time to time; (ii) all amounts
due or to become due relating to the foregoing, including, without limitation,
all interest, facility, commitment, prepayment and other fees, commissions, fees
and costs of enforcement, amounts reimbursable and other liabilities (including
interest, fees, professional fees and costs which would become due but for the
operation of the Bankruptcy Code); (iii) any and all obligations pursuant to any
amendment, refinancing, replacement, extension, renewal or refunding of the
foregoing; and (iv) all loans, advances, liabilities and interest obligations
owing by Borrower to Senior Lender following the commencement of a voluntary or
involuntary bankruptcy
1.
<PAGE> 2
proceeding under the United States Bankruptcy Code, as amended from time to
time, or any replacement legislation (the "BANKRUPTCY CODE"); provided, however,
that to the extent amounts described in clauses (i), (iii) and (iv) of this
definition in the aggregate at any one time exceed the Senior Debt Cap, such
excess amounts shall not be considered to be Senior Debt.
"SENIOR DEBT CAP" means $3,000,000.
"STANDSTILL PERIOD" means a period of time beginning on the
effective date of the Standstill Notice or Default Notice, as applicable, and
terminating on the earliest to occur of:
(a) the one hundred thirty-fifth (135th) day following the
date the Standstill Notice or Default Notice, as applicable, is given;
(b) Senior Lender's written consent to such termination; and
(c) the commencement of an Extended Standstill Period.
"SUBORDINATED DEBT" means (i) all funded indebtedness of Borrower
in favor of Subordinated Creditor (but excluding trade credit and contractual
obligations owed by Borrower to Subordinated Creditor incurred in the ordinary
course of business) including, without limitation, under the Junior Loan
Agreement and any promissory notes issued pursuant thereto, and any increases,
extensions, renewals or refinancings thereof and (ii) all amounts due or to
become due relating to the foregoing, including, without limitation, all
interest, facility, penalty, prepayment and other fees, commissions, fees and
costs of enforcement, amounts reimbursable and other liabilities (including
interest, fees, professional fees and costs which would become due but for the
operation of the Bankruptcy Code).
2. SUBORDINATION.
(a) On the terms and conditions set forth below, the payment
and performance, and Subordinated Lender's right to receipt thereof, of the
Subordinated Debt is hereby subordinated to the full and final payment and
performance, and Senior Lender's right to receipt thereof, of the Senior Debt.
Subject to and except as set forth in SECTIONS 3 and 4 below, Subordinated
Lender will not ask, demand, sue for, take or receive from Borrower, by setoff,
banker's lien or in any other manner, the whole or any part of any monies which
may now or hereafter be owing by Borrower, or any successor or assign of
Borrower, including, without limitation, any receiver or trustee (the term
"BORROWER" hereinafter shall include any such successor or assignee of
Borrower), to Subordinated Lender, or be owing by any other person to
Subordinated Lender under a guaranty or similar instrument, on account of the
Subordinated Debt, nor any collateral security for any of the foregoing, unless
and until (i) all Senior Debt, existing or hereafter arising, shall have been
fully and finally paid in cash or on terms satisfactory to Senior Lender in its
reasonable discretion and (ii) the Senior Loan Agreement shall have terminated.
(b) The security interests and liens in and on the personal
property assets of Borrower in favor of Senior Lender shall in all respects be
first and senior security interests and liens, superior to any security
interests and liens in and on the personal property assets of Borrower in favor
of Subordinated Lender. Subordinated Lender shall have no right to possession of
any such property or to foreclose upon any such property, whether by judicial
action or otherwise, and all security interests in, liens on and other interests
on or in the property of Borrower, any of Borrower's subsidiaries or any
guarantor of any Senior Debt shall be held in trust by Subordinated Lender for
the benefit of Senior Lender, unless and until (i) all of the Senior Debt shall
have been fully and finally paid in cash and (ii) the Senior Loan Agreement
shall have terminated.
2.
<PAGE> 3
(c) Senior Lender acknowledges and agrees that to the extent
the terms and provisions of this Agreement are inconsistent with the terms and
provisions of any of the indebtedness and other obligations constituting Senior
Debt, the terms and provisions of this Agreement shall be controlling.
Subordinated Lender acknowledges and agrees that, to the extent the terms and
provisions of this Agreement are inconsistent with the terms and provisions of
any of the indebtedness and other obligations constituting Subordinated Debt,
the terms and provisions of this Agreement shall be controlling. The provisions
of this SECTION 2 are for the purpose of defining the relative rights of Senior
Lender, on the one hand, and Subordinated Lender, on the other hand, and nothing
herein shall impair, as between Borrower and Subordinated Lender, the obligation
of Borrower, which is unconditional and absolute, to pay to Subordinated Lender
the principal of the Subordinated Debt, and premium, if any, and interest
thereon in accordance with its terms and the provisions of the Junior Loan
Agreement.
3. PERMITTED PAYMENTS; PAYMENT BLOCKAGE.
(a) Notwithstanding anything to the contrary contained in
SECTION 2 above, but subject expressly to SECTION 3(B) below, Borrower shall be
permitted to make, and Subordinated Lender shall be permitted to accept or
receive, all regularly scheduled interest payments, repayments from time to time
of the principal amount advanced from time to time under the Junior Loan
Agreement but only to the extent that such repayments do not reduce the
aggregate principal amount of the advances outstanding under the Junior Loan
Agreement to an amount less than $2,000,000 (provided that such repayments shall
be allowed in any amount during such times as the amount of the Obligations (as
that term is defined in the Senior Loan Agreement) equals zero and if no Senior
Event of Default exists at the time of such repayment or would result
therefrom), closing fees, closing costs and other amounts which shall become due
and owing under the Junior Loan Agreement when and as such amounts shall become
due and payable, on an unaccelerated basis, in accordance with the terms
thereof. The payments permitted to be made by Borrower under this SECTION 3(a)
shall herein be collectively referred to as the "PERMITTED PAYMENTS."
(b) Notwithstanding anything to the contrary contained in this
SECTION 3 or elsewhere in this Agreement, Subordinated Lender shall not, after
delivery to Subordinated Lender and Borrower of written notice from Senior
Lender that (i) a payment default under the Senior Loan Agreement (a "SENIOR
PAYMENT DEFAULT") shall have occurred and be continuing (a "SENIOR PAYMENT
DEFAULT NOTICE") or (ii) a Senior Event of Default other than a Senior Payment
Default has occurred and is continuing (a "BLOCKAGE NOTICE"), accept or receive
any payment of any kind, including any Permitted Payment, of or on account of
the Subordinated Debt, (A) in the case of any event described in clause (i)
above, unless and until (1) such Senior Debt shall have been fully and finally
paid in good funds and (2) the Senior Loan Agreement shall have terminated, such
Senior Payment Default Notice shall have been rescinded by Senior Lender in
writing, or Borrower shall have cured all Senior Events of Default to the
satisfaction of Senior Lender, or (B) in the case of any event described in
clause (ii) above, unless and until the expiration of the Blockage Period. After
expiration of the period described in (A) or (B) in the preceding sentence,
Subordinated Lender shall be entitled to receive all Permitted Payments not
previously paid. Each Blockage Notice shall be effective as of the date of
delivery thereof to Subordinated Lender and Borrower. Only one (1) Blockage
Notice may be delivered within any 360 day period; provided, however, that
Senior Lender may deliver an additional Blockage Notice if a new Senior Event of
Default has occurred and is continuing and the result of such Senior Event of
Default is to materially increase the risk of nonpayment of the Senior Debt. As
used herein, a "BLOCKAGE PERIOD" means a period of time beginning on the
delivery date of a Blockage Notice and terminating on the earliest to occur of:
(i) the one hundred thirty-fifth (135th) day following
such date;
3.
<PAGE> 4
(ii) Senior Lender's written consent to such
termination; and
(iii) the cure to the reasonable satisfaction of Senior
Lender of each Senior Event of Default which is the basis for the applicable
Blockage Notice (such cure of each of the Senior Events of Default which is the
basis for such Blockage Notice being deemed also to be a cure of any default
under the Junior Loan Agreement arising as a result of the occurrence and
continuance of any such Senior Event of Default).
(c) Each delivery of a Senior Payment Default Notice or
Blockage Notice, in either case in accordance with SECTION 3(b), shall be deemed
to also constitute the delivery of a Standstill Notice.
Nothing contained in this Agreement shall (i) limit or affect the right of
Senior Lender to deliver to Subordinated Lender a Senior Payment Default Notice
subsequent to the delivery of a Blockage Notice if a Senior Payment Default
shall have occurred or (ii) be deemed to preclude Subordinated Lender from
exercising its rights pursuant to SECTION 5, including, without limitation,
Subordinated Lender's right to file claims or proofs of claim and vote on a plan
of reorganization.
4. ENFORCEMENT RIGHTS AND STANDSTILL.
(a) Upon the occurrence and during the continuance of a Junior
Event of Default, Subordinated Lender shall deliver to each of Senior Lender and
Borrower a written notice (a "DEFAULT NOTICE") which shall be deemed effective
as of the date of receipt thereof by Senior Lender and Borrower and shall
identify all Events of Default (as defined in the Junior Loan Agreement) known
to Subordinated Lender as of the date Subordinated Lender delivers such notice.
Upon the occurrence and during the continuance of a Senior Event of Default,
Senior Lender may deliver to each of Subordinated Lender and Borrower a written
notice (a "STANDSTILL NOTICE") which shall be deemed effective as of the date of
receipt thereof by Subordinated Lender and Borrower and shall identify all
Events of Default (as defined in the Senior Loan Agreement) known to Senior
Lender as of the date Senior Lender delivers such notice. Following the
effective date of any Default Notice or Standstill Notice, as applicable,
Subordinated Lender may not accelerate the maturity of any Subordinated Debt or
initiate or pursue any other remedies otherwise available to it, including,
without limitation, suing Borrower on the Subordinated Debt, exercising any
remedies with respect to collateral securing the Subordinated Debt or filing or
participating in the filing of an involuntary bankruptcy petition against
Borrower, until no Standstill Period or Extended Standstill Period shall be in
effect.
(b) Only one (1) Standstill Period shall occur within any 360
day period provided that Senior Lender may deliver an additional Standstill
Notice if a new Senior Event of Default has occurred and is continuing and the
result of such Senior Event of Default is to materially increase the risk of
nonpayment of the Senior Debt, and the delivery of such Standstill Notice shall
result in an additional Standstill Period.
(c) Upon the termination of any Standstill Period or Extended
Standstill Period then in effect, Subordinated Lender, at its sole election, may
exercise any remedies (including, without limitation, acceleration of the
maturity of the Subordinated Debt) available to it at such time under the Junior
Loan Agreement or applicable law.
(d) Each delivery of a Standstill Notice or Default Notice in
accordance with SECTION 4(a) shall be deemed to also constitute the delivery of
a Blockage Notice (if such Standstill Notice was given by Senior Lender due to
(i) Senior Lender's receipt from Subordinated Lender of a Default Notice or (ii)
the occurrence of one or more Senior Events of Default other than a Senior
Payment Default) or a
4.
<PAGE> 5
Senior Payment Default Notice (if such Standstill Notice was given by Senior
Lender due to the occurrence of a Senior Event of Default which is a Senior
Payment Default, as applicable.
5. PRIORITY OF SENIOR DEBT. Except as otherwise expressly agreed to herein,
all of the Senior Debt now or hereafter existing shall be first paid by Borrower
before any payment shall be made by Borrower on the Subordinated Debt. This
priority of payment shall apply at all times until all of the Senior Debt has
been repaid in full. In the event of any assignment by Borrower for the benefit
of Borrower's creditors, any bankruptcy proceedings instituted by or against
Borrower, the appointment of any receiver for Borrower or Borrower's business or
assets, or any dissolution or other winding up of the affairs of Borrower or of
Borrower's business (any of the foregoing being referred to herein as an
"INSOLVENCY EVENT"), then, and in all such cases, subject to the last sentence
of this SECTION 5, Senior Lender shall be entitled to receive full and final
payment in cash of any and all of the Senior Debt before Subordinated Lender
shall be entitled to receive any payment on account of the Subordinated Debt,
and to that end and in furtherance thereof: (a) all payments and distributions
of any kind or character, whether in cash or property or securities (subject to
the last sentence of this SECTION 5) in respect of the Subordinated Debt to
which Subordinated Lender would be entitled if the Subordinated Debt were not
subordinated pursuant to this Agreement, shall be paid to Senior Creditor and
application to payment of the Senior Debt; (b) Subordinated Lender shall
promptly file a claim or claims, on the form required in such proceedings, for
the full outstanding amount of the Subordinated Debt, and shall use its best
efforts to cause said claim or claims to be approved and all payments or other
distributions in respect thereof (subject to the last sentence of SECTION 5) to
be made directly to Senior Lender; (c) Subordinated Lender hereby irrevocably
agrees that Senior Lender may in the name of Subordinated Lender, or otherwise,
prove up any and all claims of Subordinated Lender relating to the Subordinated
Debt; and (d) in the event that, notwithstanding the foregoing, any payment or
distribution of any kind or character, whether in cash, properties or securities
(subject to the last sentence of this SECTION 5), shall be received by
Subordinated Lender on account of the Subordinated Debt before all of the Senior
Debt has been fully and finally paid in cash, then such payment or distribution
shall be received by Subordinated Lender in trust for and shall be promptly paid
over to Senior Lender for application to the payments of amounts due on the
Senior Debt until all amounts due on the Senior Debt shall have been fully and
finally paid in cash. Notwithstanding anything to the contrary herein,
Subordinated Lender may retain securities distributed to it pursuant to (i) a
plan of reorganization under a case dismissed under Chapter 11 of the Bankruptcy
Code and (ii) any arrangement, reorganization, adjustment, relief, composition
or other work-out if the terms of such securities are subordinated and junior to
the Senior Debt at least to the extent that the Subordinated Debt is
subordinated and junior to the Senior Debt.
6. SUBORDINATED LEGEND; DELIVERY OF NOTES; BOOKS AND RECORDS. Subordinated
Lender agrees that if part or all of the Subordinated Debt is evidenced, now or
in the future, by a promissory note or other instrument, Subordinated Lender
shall place or cause to be placed on its face a legend stating that the payment
thereof is subject to the terms of this Agreement and is subordinate to the
payment of all the Senior Debt. Subordinated Lender agrees to deliver to Senior
Lender a certification in form requested by Senior Lender; and, at any time
during the term of this Agreement, at Senior Lender's request, to deliver the
original promissory note or instrument to Senior Lender. Subordinated Lender
agrees to mark all books of account in such manner as to indicate that payment
thereof is subordinated pursuant to the terms of this Agreement. Subordinated
Lender agrees to execute any recordable subordination agreements, financing
statement amendments or other documents reasonably required by Senior Lender to
provide notice to others of this Agreement, and agrees to the recording of any
such documents as Senior Lender may require.
7. DISCRETION OF SENIOR LENDER; WAIVER OF MARSHALING. Subordinated Lender
agrees that Senior Lender shall have absolute power and discretion, without
notice to Subordinated Lender, to deal in any manner with the Senior Debt,
including interest, costs and expenses payable by Borrower to Senior
5.
<PAGE> 6
Lender, and any security and guaranties therefor including, but not limited to,
release, surrender, extension, renewal, acceleration, compromise or
substitution. Subordinated Lender hereby waives and agrees not to assert against
Senior Lender any rights which a guarantor or surety could exercise; but nothing
in this Agreement shall constitute Subordinated Lender a guarantor or surety.
Subordinated Lender hereby waives the right, if any, to require that Senior
Lender marshal, or otherwise proceed to dispose of or foreclose upon, collateral
Senior Lender may have in any manner or order.
8. TERMINATION OF SENIOR LOAN AGREEMENT. If, at any time hereafter, Senior
Lender shall, in its own judgment, determine to discontinue the extension of
credit to or on behalf of Borrower, Senior Lender may do so. This Agreement, the
obligations of Subordinated Lender owing to Senior Lender, and Senior Lender's
rights and privileges hereunder shall continue until payment in full of all of
the Senior Debt by Borrower and termination of the Senior Loan Agreement
notwithstanding any action or non-action by Senior Lender with respect to the
Senior Debt or with respect to any collateral therefor or any guaranties
thereof.
9. SUBORDINATED LENDER'S COMPLIANCE WITH LIMITATIONS ON ENFORCEMENT.
Subordinated Lender further agrees that in case Subordinated Lender should,
contrary to the provisions of this Agreement, take or join in any exercise of
remedies or other legal action contrary to this Agreement, at any time prior to
the payment in full of all of the Senior Debt, Senior Lender shall be entitled
to have the same vacated, dissolved and set aside by such proceedings at law, or
otherwise, as Senior Lender may deem proper, and this Agreement shall be and
constitute full and sufficient grounds therefor and shall entitle Senior Lender
to become a party to any proceedings at law, or otherwise, initiated by Senior
Lender or by any other party, in or by which Senior Lender may deem it proper to
protect its interests hereunder. Subordinated Lender agrees that if Subordinated
Lender violates this Agreement, Subordinated Lender shall be liable to Senior
Lender for all losses and damages sustained by Senior Lender by reason of such
breach.
10. LIMITATIONS ON MODIFICATIONS OF SUBORDINATED DEBT. Subordinated Lender
hereby agrees that until all Senior Debt shall have been fully and finally paid
in full and the Senior Loan Agreement terminated, Subordinated Lender shall not,
without the written consent of Senior Lender: (i) convert or enter into an
agreement to convert all or any portion of the Subordinated Debt into capital
stock of Borrower or other equity interests of Borrower; (ii) enter into any
compromise, forgiveness or composition of the Subordinated Debt; or (iii) modify
the terms of the Subordinated Debt if such modification is materially adverse to
the interests of Borrower.
11. REPRESENTATION, WARRANTIES AND AGREEMENTS OF SUBORDINATED LENDER.
Subordinated Lender represents and warrants that Subordinated Lender has not
previously subordinated the Subordinated Debt for the benefit of any other
party, and agrees that any such subordinations hereafter executed shall be
expressly made subject and subordinate to the terms of this Agreement.
Subordinated Lender further warrants having established with Borrower adequate
means of obtaining, on an ongoing basis, such information as Subordinated Lender
may require which may affect the ultimate satisfaction by Borrower of the
Subordinated Debt. Senior Lender shall have no duty to provide any such
information to Subordinated Lender.
12. SUCCESSORS AND ASSIGNS. Subordinated Lender may assign all or any part
of the Subordinated Debt to the extent permitted by the Junior Loan Agreement;
provided, however, this Agreement shall be binding upon the successors and
assigns of Subordinated Lender, and shall inure to the benefit of Senior
Lender's successors and assigns.
13. GOVERNING LAW. This Agreement and all rights and liabilities of the
parties hereto shall be governed as to validity, interpretation, enforcement and
effect by the laws of the State of California.
6.
<PAGE> 7
14. EXPENSES. In the event of any dispute under this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees end
costs whether or not suit is brought.
15. TERMINATION. This Agreement shall remain in full force and effect and
may not be terminated or otherwise revoked by Subordinated Lender until the date
the Senior Debt shall have been fully paid and all commitments under the Senior
Loan Agreement shall have been terminated.
16. JURY TRIAL WAIVER. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
7.
<PAGE> 8
Dated: May 13, 1999 SENIOR LENDER:
SANTA MONICA BANK,
a California banking corporation
/s/ Sam Kunanski, EVP
----------------------------------------
(Print Name, Title)
Dated: ______________________ SUBORDINATED LENDER:
ZINDART LIMITED, a Hong Kong corporation
/s/
----------------------------------------
(Print Name, Title)
Each of the undersigned, being a Co-Borrower named in the foregoing Agreement,
accepts and consents to such Agreement, and agrees to be bound by all of the
provisions thereof and to recognize all priorities and other rights granted
thereby to SANTA MONICA BANK and to ZINDART LIMITED and to pay the Senior Debt
and the Subordinated Debt only in accordance therewith.
Dated: ______________________ CO-BORROWERS:
INTERVISUAL BOOKS, INC., a California
corporation
/s/ Waldo H. Hunt, Chairman and CEO
----------------------------------------
(Print Name)
FFM ACQUISITION CORP., a
California corporation to be
known as Fast Forward
Marketing, Inc.
/s/ Dan Reavis, President
----------------------------------------
(Print Name)
<PAGE> 1
EXHIBIT 10.5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of May 12, 1999, is entered
into between SANTA MONICA BANK, a California banking corporation ("SMB"), on the
one hand, and INTERVISUAL BOOKS, INC., a California corporation ("IBI"), and FFM
ACQUISITION CORP., a California corporation which is in the process of changing
its name to Fast Forward Marketing, Inc. ("FFM"), on the other hand. IBI and FFM
are sometimes individually and collectively referred to as "Borrower" and
representations, warranties, covenants and agreements of "Borrower" contained in
this Agreement shall apply equally to IBI and FFM unless any such
representation, warranty, covenant or agreement is specifically limited to
either IBI or FFM. The liability of IBI and FFM under this Agreement is joint
and several.
The parties agree as follows:
1. DEFINITIONS. In addition to the defined terms contained in the
first paragraph above, as used herein, the following terms shall have the
following definitions:
1.1 "Accounts" means all presently existing and hereafter
arising accounts (as that term is defined in the Code), contract rights,
instruments, notes, drafts, documents, chattel paper and all other forms of
obligations owing to Borrower, and any and all credit insurance, guaranties and
other security therefor, as well as all merchandise returned to or reclaimed by
Borrower.
1.2 "Agreement" means this Loan and Security Agreement and any
supplements, amendments or modifications to this Loan and Security Agreement.
1.3 "Borrowing Base Certificate" means the certificate,
substantially in the form of Exhibit 1.3, with appropriate insertions, to be
submitted to SMB by Borrower pursuant to this Agreement and certified as true
and correct by the Chief Executive Officer or the Chief Financial Officer of
Borrower.
1.4 "Borrower's Books" means all of Borrower's books and
records including, but not limited to: minute books; ledgers; records
indicating, summarizing or evidencing Borrower's assets, liabilities, and the
Accounts; all information relating to Borrower's business operations; and all
computer programs, disc or tape files, printouts, runs, and other computer
prepared information and the equipment containing such information.
1.5 "Code" means the California Uniform Commercial Code, and
any and all terms used in this Agreement which are defined in the Code and are
not defined herein shall be construed and defined in accordance with the
definition of such terms under the Code.
1.6 "Collateral" means each and all of the following:
A. the Accounts;
<PAGE> 2
B. the Equipment;
C. the Financial Assets;
D. the General Intangibles;
E. the Inventory;
F. the Negotiable Collateral;
G. any money, deposit accounts or other assets of
Borrower in which SMB receives a security interest or which hereafter come into
the possession, custody or control of SMB; and
H. the proceeds of any of the foregoing, including,
but not limited to, proceeds of insurance covering the Collateral, or any
portion thereof, and any and all Accounts, Equipment, Financial Assets,
Inventory, General Intangibles, Negotiable Collateral, money, deposit accounts
or other tangible and intangible property resulting from the sale or other
disposition of the Collateral, or any portion thereof or interest therein, and
the proceeds thereof.
1.7 "Daily Balance" means the amount determined by taking the
amount of the Obligations owed at the beginning of a given day, adding any new
Obligations advanced or incurred on such date, and subtracting any payments or
collections which are deemed to be paid on that date under the provisions of
this Agreement.
1.8 "Debt to Tangible Net Worth Ratio" means on a consolidated
basis the figure derived by dividing Borrower's total liabilities, exclusive of
Subordinated Debt, by Borrower's Tangible Net Worth. Borrower's total
liabilities shall be determined in accordance with GAAP consistently applied.
1.9 "Eligible Accounts" means those Accounts (i) which have
been validly assigned to SMB, (ii) strictly comply with all of Borrower's
warranties and representations to SMB, (iii) contain payment terms of net ninety
(90) days, or less, from the date of invoice, and (iv) unless subject to a
specific written agreement of Borrower and SMB to the contrary, are not past due
more than (1) sixty (60) days from the invoice due date, or (2) one hundred
twenty (120) days following the date of the invoice, which ever is lesser;
provided, however, that Eligible Accounts shall not include the following: (a)
Accounts with respect to which the account debtor is an officer, employee or
agent of Borrower; (b) Accounts with respect to which services or goods are
placed on consignment, guaranteed sale, or other terms by reason of which the
payment by the account debtor may be conditional (other than that portion of the
Accounts which are subject to retention and Accounts as to which the account
debtor has the right to return goods in the ordinary course of business); (c)
Accounts with respect to which the account debtor is not a resident of the
United States, unless payment of such Account is fully supported by a letter of
credit issued by a bank, and containing terms and conditions, acceptable to SMB
or is fully supported by credit insurance issued by an insurer acceptable to SMB
and containing policy terms acceptable to SMB; (d) Accounts with respect to
which the account
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debtor is the United States or any department, agency or instrumentality of the
United States; provided, however, that an Account shall not be deemed ineligible
by reason of this clause (d) if Borrower has completed all of the steps
necessary to comply with the Federal Assignment of Claims Act of 1940 (31 U.S.C.
Section 203) with respect to such Account; (e) Accounts with respect to which
the account debtor is any state of the United States or any city, town,
municipality, county or division thereof; (f) Accounts with respect to which the
account debtor is a subsidiary of, related to, affiliated with, or has common
officers or directors with Borrower; (g) Accounts with respect to which Borrower
is or becomes liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower, but only to the extent of the offset rights
of such account debtor; (h) that portion of the Accounts owed by an account
debtor which exceeds twenty percent (20%) of all Eligible Accounts; (i) all of
the Accounts owed by an account debtor who is the subject of an Insolvency
Proceeding; (j) all of the Accounts owed by an account debtor where twenty
percent (20%) or more of all of the Accounts owed by that account debtor are
past due more than sixty (60) days from the invoice due date; and (k) Accounts
for which the services have not yet been rendered to the account debtor or the
goods sold have not yet been delivered to the account debtor (commonly referred
to as "pre-billed accounts").
1.10 "Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, parts, dies, jigs, goods, and any interest in
any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions and improvements thereto, wherever
located.
1.11 "Event of Default" means the occurrence of any one of the
events set forth in Section 9.
1.12 "Fast Forward" means Fast Forward Marketing, Inc., a
California corporation.
1.13 "Financial Assets" means all of Borrower's present and
future investment property, financial assets, securities, security entitlements,
securities accounts, commodity accounts and commodity contracts.
1.14 "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
1.15 "General Intangibles" means all of Borrower's present and
future general intangibles and all other presently owned or hereafter acquired
intangible personal property of Borrower (including, without limitation, any and
all choses or things in action, goodwill, patents, trade names, trademarks,
copyrights, maskworks, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, infringement claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, tax refunds and tax refund claims) other than goods
and Accounts, as well as Borrower's Books relating to any of the foregoing.
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1.16 "Governing Rate" shall have the meaning set forth in
Section 2.4.
1.17 "Guarantor" means individually, and "Guarantors" means
collectively, the following persons and entities:
A. Waldo Hunt
B. Hunt Family Trust
1.18 "Insolvency Proceeding" means any proceeding commenced by
or against any person or entity under any provision of the federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including,
but not limited to, assignments for the benefit of creditors, formal or informal
moratoriums, compositions or extensions generally with its creditors.
1.19 "Inventory" means and includes all of Borrower's present
and future inventory in which Borrower has any interest, including, but not
limited to, goods held for sale or lease or to be furnished under a contract of
service and all of Borrower's present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever located, and any
documents of title representing any of the above.
1.20 "Judicial Officer or Assignee" means any trustee,
receiver, controller, custodian, assignee for the benefit of creditors or any
other person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian or assignee for the benefit
of creditors.
1.21 "Loan Documents" means collectively this Agreement, the
Note, and any other agreements entered into between Borrower and SMB in
connection with this Agreement.
1.22 "Loan Origination Fee" shall have the meaning set forth in
Section 2.9.
1.23 "Maximum Credit Line" means Two Million and 00/100 Dollars
($2,000,000.00).
1.24 "Merger Agreement" means the Agreement and Plan of Merger,
dated as of March 29, 1999, by and among IBI, FFM, Fast Forward, Steven D. Ades
and Steven D. Ades and Laurie Levit as trustees of the Steven Ades and Laurie
Levit Revocable Family Trust.
1.25 "Negotiable Collateral" means all of Borrower's present
and future letters of credit, advises of credit, notes, drafts, instruments,
documents, leases, and chattel paper, and Borrower's Books relating to any of
the foregoing.
1.26 "Net Worth" means, as of any date and on a consolidated
basis, the total asssets of Borrower minus the total liabilities of Borrower
calculated in conformity with GAAP.
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1.27 "Note" means that certain Secured Promissory Note, of even
date herewith, in the original principal amount of Two Million and 00/100
Dollars ($2,000,000.00) executed by Borrower to the order of SMB, and any
renewals, amendments, restatements or extensions of such Secured Promissory
Note.
1.28 "Obligations" means any and all loans, advances, debts,
liabilities (including, without limitation, any and all amounts charged to
Borrower's account pursuant to any agreement authorizing SMB to charge
Borrower's account), obligations, lease payments, guaranties, covenants and
duties owing by Borrower to SMB of any kind and description (whether advanced
pursuant to or evidenced by this Agreement, any of the other Loan Documents, or
any other instrument, or by any other agreement between SMB and Borrower and
whether or not for the payment of money), whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising, and
including, without limitation, any debt, liability or obligation owing from
Borrower to others which SMB may have obtained by assignment or otherwise, and
further including, without limitation, all interest not paid when due and all
SMB Expenses which Borrower is required to pay or reimburse by this Agreement,
by law, or otherwise.
1.29 "Over Advance" shall have the meaning set forth in Section
2.2.
1.30 "Prime Rate" means the highest variable rate of interest,
per annum, published daily as the "prime rate" in the Money Rates Section of the
Western Edition of the Wall Street Journal. In the event that such a rate is no
longer published, then the "Prime Rate" shall mean the variable rate of
interest, per annum, most recently announced by SMB Bank at its headquarters
office as its "prime rate," with the understanding that SMB Bank's "prime rate"
is one of its base rates and serves as a basis upon which effective rates of
interest are calculated for loans making reference thereto and may not be the
lowest of SMB Bank's base rates.
1.31 "SMB Expenses" means all of the following: (i) costs or
expenses (including, without limitation, taxes and insurance premiums) required
to be paid by Borrower under this Agreement or any of the other Loan Documents
which are paid or advanced by SMB; (ii) filing, recording, publication and
search fees paid or incurred by SMB; and (iii) costs, fees (including reasonable
attorneys' and paralegals' fees) and expenses incurred by or charged to SMB: (a)
to audit Borrower and the Collateral; (b) to correct any default or enforce any
provision of this Agreement, any of the other Loan Documents and any guaranty of
the Obligations, whether or not litigation is commenced; (c) in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; (d) in collecting the Accounts and in collecting the
Obligations, whether from Borrower, any guarantor or both; and (e) in
structuring, drafting, reviewing, amending, defending or concerning this
Agreement or any of the other Loan Documents.
1.32 "Subordinating Creditor" means ZINDART LIMITED, a Hong
Kong corporation.
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1.33 "Subordinated Debt" means all of the indebtedness owed by
Borrower to any third parties, including the Subordinating Creditor, the
repayment of which is subordinated to the repayment of the Obligations pursuant
to the terms of a subordination agreement approved by SMB in its sole and
absolute discretion.
1.34 "Subordination Agreement" means that certain Subordination
Agreement, dated as of May 12, 1999, among Subordinating Creditor, SMB, IBI and
FFM.
1.35 "Tangible Net Worth" means on a consolidated basis an
amount equal to the Net Worth of Borrower increased by Subordinated Debt and
decreased by the following: patents, licenses, leasehold improvements, goodwill,
subscription lists, organization expenses, monies due from affiliates (including
officers, directors and shareholders) and security deposits.
1.36 "Working Capital" means on a consolidated basis the amount
determined by subtracting the aggregate amount of Borrower's current liabilities
from the aggregate amount of Borrower's current assets. Borrower's current
liabilities and current assets shall be determined in accordance with GAAP
consistently applied.
1.37 Other Definitional Provisions. References to "Sections",
"subsections", and "Exhibits" shall be to Sections, subsections, and Exhibits,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in Section 1 may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this
Agreement, words importing any gender include the other genders; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement;
references to any person includes their respective permitted successors and
assigns or people succeeding to the relevant functions of such persons; and all
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations.
2. LOANS AND TERMS OF PAYMENT
2.1 Advances. Upon the request of Borrower, made at any time
and from time to time during the term of this Agreement, and so long as no Event
of Default has occurred, SMB shall consider Borrower's requests for advances of
up to seventy five percent (75%) of the net amount of Borrower's Eligible
Accounts (the "net amount" of Eligible Accounts means the gross amount of said
Eligible Accounts less actual returns, discounts (based upon the shortest or
longest payment terms, as SMB may elect), credits, or allowances of any nature
issued, owing, claimed by account debtors, granted or outstanding) based upon
the most recent Borrowing Base Certificate submitted to SMB under this
Agreement, less the amount of outstanding obligations owing to any third party
with a security interest in any of the Collateral which is senior to the
security interest of SMB in such Collateral; provided, however, that in no event
shall SMB be obligated to consider Borrower's requests for advances to Borrower
under this Section 2.1 whenever the aggregate amount of the then outstanding
advances made pursuant to Sections 2.1
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(regardless of whether such advances were made to IBI or FFM) exceeds, or would
exceed as a result of the requested advance, the Maximum Credit Line. Each
requested advance shall be allocated to IBI and FFM based upon the amount of the
Eligible Accounts each has assigned to SMB as collateral and the allocated
portion of each advance shall be disbursed directly into their respective
deposit accounts maintained with SMB. The Obligations arising pursuant to this
Section 2.1 shall be evidenced by the Note.
2.2 Over Advances. All of the advances made pursuant to
Sections 2.1 shall be added to and deemed part of the Obligations when made. If,
at any time and for any reason, the amount of advances made pursuant to Sections
2.1 exceeds the percentage or dollar limitations set forth in that section, or
if all of Borrower's Obligations, at any time and for any reason, exceed the
Maximum Credit Line (an "Over Advance"), then Borrower, upon SMB's election and
demand, shall immediately pay to SMB, in cash, the amount of such excess.
2.3 Authorizations. SMB is hereby authorized to make the loan
and the extensions of credit provided for in this Agreement based upon
telephonic or other instructions and transaction reports received from any one
of the authorized personnel of Borrower identified on Exhibit 2.3, or, at the
discretion of SMB, if such extensions of credit are necessary to satisfy any
Obligations of Borrower to SMB. Although SMB shall make a reasonable effort to
determine the person's identity, SMB shall not be responsible for determining
the exact identity of the person calling and SMB may act on the instructions of
anyone it perceives to be one of the authorized personnel identified on Exhibit
2.3.
2.4 Interest Rates. All Obligations owed by Borrower to SMB
shall bear interest, on the average Daily Balance owing, at a rate two and
one-half (2.50) percentage points above the Prime Rate (the "Governing Rate").
All Obligations owed by Borrower to SMB shall bear interest, from and after the
occurrence of an Event of Default, and without constituting a waiver of any such
Event of Default, on the average Daily Balance owing, at a rate five (5)
percentage points above the Governing Rate. All interest chargeable under this
Agreement shall be computed on the basis of a three hundred sixty (360) day year
for actual days elapsed.
2.5 Payment of Interest. The Prime Rate as of the date of this
Agreement is seven and three quarters percent (7.75%) per annum. In the event
that the Prime Rate published or announced, as appropriate, is from time to time
hereafter changed, adjustment in the rate of interest payable by Borrower shall
be made as of 12:01 a.m. on the day such change is published or announced. The
minimum interest payable by Borrower under this Agreement shall in no event be
less than Two Hundred Fifty and 00/100 Dollars ($250.00) for each month during
the term of this Agreement. All interest payable by Borrower shall be due and
payable on the first (1st) day of each calendar month during the term of this
Agreement and SMB shall, at its option, charge such interest and any and all SMB
Expenses to either IBI's account number 02-045-257 with SMB or FFM's account
number ___________ with SMB, with the amount charged to each such account to be
determined by SMB in its sole and reasonable discretion. If there are
insufficient funds in such accounts, then SMB reserves the right to charge such
interest and SMB Expenses to Borrower's loan account with SMB, which amounts
shall thereupon constitute Obligations hereunder and shall thereafter accrue
interest at the rate then provided under this Agreement.
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2.6 Assignment of Accounts, Borrowing Base Certificates and
Collection Reports. Borrower shall deliver to SMB the following items as
indicated below:
A. On the date Borrower requests the initial advance
under this Agreement and on the twentieth (20th) day of each month, Borrower
shall execute and deliver to SMB an assignment schedule which shall include an
assignment of all Accounts which arose during the immediately preceding calendar
month, and if requested by SMB, a copy of the sales journal(s) supporting each
Account listed on the assignment schedule.
B. Concurrent with the execution of this Agreement by
Borrower and on the tenth day of each calendar month, Borrower shall deliver to
SMB a fully completed Borrowing Base Certificate certified by the Chief
Executive Officer or Chief Financial Officer of Borrower as being true and
correct as of the last day of the immediately preceding calendar month.
Concurrent with the delivery of the Borrowing Base Certificate, Borrower shall
provide a written report to SMB of all returns and all material disputes and
claims. If Borrower fails to deliver to SMB the Borrowing Base Certificate on
the date when due, then notwithstanding any of the provisions contained in
Section 2.1, or in any other Loan Document to the contrary, SMB shall not make
any advances to Borrower until the Borrowing Base Certificate is delivered to
SMB.
2.7 Collections. Borrower shall collect all payments now or
hereafter owing in connection with the Accounts and shall deposit such payments
in IBI's account and FFM's account with SMB, as appropriate. SMB or SMB's
designee may, at any time following the occurrence of an Event of Default and so
long as such Event of Default has not been cured during any applicable cure
period, if any, notify customers or account debtors of Borrower that the
Accounts have been assigned to SMB and that SMB has a security interest therein,
collect them directly, and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that all payments received by Borrower
in connection with the Accounts and any other Collateral shall be held in trust
for SMB as SMB's trustee. The receipt of any wire transfer of funds, check, or
other item of payment by SMB shall be applied to conditionally reduce Borrower's
Obligations, but shall not be considered a payment on account unless such wire
transfer is of immediately available federal funds and is made to the
appropriate deposit account of SMB or unless and until such check or other item
of payment is honored when presented for payment.
2.8 Monthly Statements. SMB shall render monthly statements of
the Obligations owing by Borrower to SMB, including statements of all principal,
interest, and SMB Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and SMB unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to SMB, by registered or certified mail, at
SMB's address indicated in Section 14, written objection thereto specifying the
error or errors, if any, contained in any such statement.
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2.9 Loan Origination Fee. On the effective date of this
Agreement, Borrower shall pay to SMB a loan origination fee (the "Loan
Origination Fee") equal to three eighths of one percent (0.375%) of the Maximum
Credit Line. Payment of the Loan Origination Fee shall be made as of the due
date by charging Borrower's account with the amount of the Loan Origination Fee.
The Loan Origination Fee shall represent an unconditional payment to SMB in
consideration of SMB's agreement to extend financial accommodations to Borrower
pursuant to this Agreement and shall not reduce or be a deposit on account of
the Obligations.
3. TERM AND PREPAYMENT
3.1 Term.
A. This Agreement shall have a term commencing on the
date hereof and concluding on May 1, 2000.
B. Notwithstanding such term, upon the occurrence of
an Event of Default, SMB may terminate this Agreement without notice. In
addition, should either SMB or Borrower become insolvent or is unable to meet
its debts as they mature, then the other party shall have the right to terminate
this Agreement at any time without notice. On the date of a termination by
Borrower or SMB, all Obligations shall become immediately due and payable
without notice or demand and shall be paid to SMB in cash or by a wire transfer
of immediately available funds.
C. When SMB has received payment and performance in
full of all Obligations (whether pursuant to this Section 3.1 or Section 3.2)
and an acknowledgment from Borrower that it is no longer entitled to request any
advances from SMB under this Agreement, SMB shall execute a termination of all
security interests given by Borrower to SMB, upon the execution and delivery of
mutual general releases by Borrower, any guarantor or surety of Borrower's
Obligations, and SMB.
3.2 Prepayment. Borrower may at any time, on three (3)
business days prior written notice, prepay the Obligations and terminate this
Agreement by paying to SMB in cash or by a wire transfer of immediately
available federal funds, the Obligations. When prepaying the Obligations,
Borrower shall also pay the interest accrued on the principal amount being
prepaid to the date of such prepayment.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants to SMB
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations owed by Borrower to SMB and in order to secure prompt performance by
Borrower of each and all of its covenants and obligations under this Agreement
and otherwise created. SMB's security interest in the Collateral shall attach to
all Collateral without further act on the part of SMB or Borrower. In the event
that any Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral, Borrower shall, immediately upon written request therefor
from SMB, endorse and assign such Negotiable
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Collateral over to SMB and deliver actual physical possession of the Negotiable
Collateral to SMB.
4.2 Right to Audit and Inspect. In order to verify the
validity of any Borrowing Base Certificate, Borrower shall, upon the request of
SMB, promptly furnish SMB with copies of Borrower's purchase orders, sales
journals, invoices, chattel paper, customer's purchase orders, or the
equivalent, and original shipping or delivery receipts for all Inventory
purchased and goods sold, and Borrower shall warrant the genuineness thereof. In
addition, SMB shall be entitled to conduct from time to time during the term of
this Agreement audits of Borrower's Books, business operations and Inventory and
to check and test the same as to quality, quantity, value and condition.
Borrower shall reimburse SMB for all audit fees, expenses and costs incurred by
SMB in connection with the first three (3) audits during each consecutive twelve
(12) month period following the date of this Agreement, as well as in connection
with any audits conducted during a period that an Event of Default exists and is
continuing hereunder, and the amount charged shall be deemed included in the
"Obligations" when incurred. SMB shall be entitled to charge the appropriate
Borrower's account maintained with Bank with the amount of any such fees,
expenses and costs.
4.3 Sale of Inventory. Until the occurrence of an Event of
Default by Borrower under this Agreement, Borrower may, subject to the
provisions hereof and consistent herewith, sell or lease the Inventory, but only
in the ordinary course of Borrower's business. A sale or lease of Inventory in
Borrower's ordinary course of business does not include an exchange or a
transfer in partial or total satisfaction of a debt owing by Borrower, nor does
it include an exchange for less than reasonably equivalent value.
4.4 Continuation of Security Interest. Notwithstanding
termination of this Agreement, until all Obligations, contingent or otherwise,
have been fully repaid and performed, SMB shall retain its security interest in
all presently owned and hereafter arising or acquired Collateral and Borrower
shall continue to immediately deliver to SMB, in kind, all collections received
respecting the Accounts.
4.5 Perfection of Security Interest. Borrower shall execute
and deliver to SMB, concurrent with Borrower's execution of this Agreement, and
at any time or times hereafter at the reasonable request of SMB, all financing
statements, continuation financing statements, security agreements, control
agreements, assignments, endorsements, affidavits, reports, notices, schedules
of accounts, letters of authority and all other documents that SMB may
reasonably request, in form satisfactory to SMB, to perfect and maintain
perfected SMB's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement.
4.6 Access to Borrower's Books. SMB (through any of its
officers, employees or agents) shall have the right, at any time or times
hereafter upon one (1) business days' prior notice, during Borrower's usual
business hours, or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter relating to, the
Collateral and
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Borrower's financial condition. Upon the occurrence of an Event of Default and
during the continuation thereof, no prior notice shall be required for SMB to
conduct any such inspection.
4.7 Power of Attorney. Borrower hereby irrevocably makes,
constitutes and appoints SMB (and any of SMB's officers, employees or agents
designated by SMB) as Borrower's true and lawful attorney with power:
A. Upon Borrower's failure or refusal to comply with
its undertakings contained in Section 4.5, to sign the name of Borrower on any
of the documents described in that section or on any other similar documents
which need to be executed, recorded and/or filed in order to perfect or continue
perfected SMB's security interest in the Collateral;
B. To endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into SMB's possession;
C. To sign Borrower's name on drafts against account
debtors and on schedules and assignments of Accounts;
D. After the occurrence of an Event of Default and
during the continuation thereof, to sign Borrower's name on collection notices
to account debtors;
E. After the occurrence of an Event of Default and
during the continuation thereof, to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by SMB, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward, within two (2) business days of SMB's receipt
thereof, all other mail to Borrower;
F. To send requests for verification of Accounts; and
G. After the occurrence of an Event of Default and
during the continuation thereof, to compromise and settle any and all Accounts
and other obligations owing to Borrower, to enter into settlement agreements and
mutual general releases on Borrower's behalf and to execute any notices, UCC
termination statements, reconveyances or other documentation in connection with
any such settlement.
The appointment of SMB as Borrower's attorney, and each and every
one of SMB's rights and powers, being coupled with an interest, are irrevocable
so long as any Accounts in which SMB has a security interest remain unpaid and
until all of the Obligations have been fully paid and performed. Neither SMB nor
its employees, officers or agents shall be liable for any acts or omissions or
for any error in judgment or mistake of fact or law made in good faith except
for gross negligence or willful misconduct.
5. CONDITIONS PRECEDENT AND SUBSEQUENT.
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5.1 As conditions precedent to any advances by SMB hereunder
or any other Loan Documents, Borrower shall execute and deliver, or cause to be
executed and delivered, to SMB, in form and substance satisfactory to SMB and
its counsel, the following:
A. The Loan Documents.
B. Financing statements (form UCC-1) and fixture
filings in form satisfactory for filing and recording with the appropriate
governmental authorities.
C. Certified extracts from the minutes of the meetings
of Borrower's board of directors authorizing the borrowings and the granting of
the security interest provided for herein and authorizing specific officers to
execute and deliver the agreements provided for herein.
D. A certified copy of Borrower's Articles of
Incorporation and any amendments thereto, a certificate of good standing showing
that Borrower is in good standing under the laws of the State of its
incorporation and certificates indicating that Borrower has qualified to
transact business and is in good standing in any other state in which the
conduct of its business or its ownership of property requires that it be so
qualified.
E. UCC searches, tax lien and litigation searches,
fictitious business statement filings, insurance certificates, notices or other
similar documents which SMB may require and in such form as SMB may require, in
order to reflect, perfect or protect the priority of SMB's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement.
F. A fully completed Borrowing Base Certificate, dated
as of the date of this Agreement, and certified as being true and correct by the
Chief Executive Officer or Chief Financial Officer.
G. Evidence satisfactory to SMB that Borrower has
obtained insurance policies or binders, with such insurers and in such amounts
as may be acceptable to SMB, respecting the Inventory, Equipment and any other
tangible personal property comprising the Collateral and naming SMB as a loss
payee on a lender's loss payee endorsement acceptable to SMB in its sole
discretion.
H. A subordination agreement, in a form acceptable to
SMB in its sole discretion, duly executed and delivered by the Subordinating
Creditor to SMB.
I. Evidence satisfactory to SMB, in its sole
discretion, that Borrower has recorded fictitious business name statements in
the appropriate governmental offices regarding all of the trade names used by
Borrower in its business.
J. An executed counterpart of the Merger Agreement
certified by an officer of IBI and FFM to be a true and correct counterpart of
the Merger Agreement, including all amendments, modifications, exhibits and
schedules thereto.
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K. Evidence acceptable to SMB that IBI, FFM and Fast
Forward have filed with the office of the California Secretary of State all of
the documents and have paid all of the required fees which are necessary to
complete the merger of FFM and Fast Forward, with FFM being the surviving
entity, on terms and conditions acceptable to SMB, in its sole discretion.
L. An opinion of counsel for IBI and FFM addressed to
SMB stating that the merger of FFM and Fast Forward pursuant to the Merger
Agreement was in compliance with applicable law and has been consummated, IBI
and FFM each has full corporate power and authority to enter into and perform
the Loan Documents; each of the officers of IBI and FFM who executes and/or
delivers any of the Loan Documents has been duly authorized to do so and each of
them has the full corporate power and authority to perform such acts and to bind
IBI and FFM (as appropriate) thereby; IBI's and FFM's execution and delivery of
the Loan Documents will not result in a breach of any material agreement known
to such counsel to which either IBI or FFM, or both, is a party; each of the
Loan Documents is binding and enforceable against IBI and FFM in accordance with
its terms, subject only to bankruptcy, insolvency, or other laws affecting the
rights of creditors generally; provided, however, that such laws do not and will
not materially impair, affect, or limit the rights and benefits granted to SMB
under such documents; IBI and FFM each conducts its business in conformity with
all applicable federal, state and local laws and regulations; all permits,
notices, consents, and other actions necessary to complete the transactions
contemplated by the Loan Documents have been obtained and taken; and such other
and further matters which are customarily opined to by counsel for borrowers in
connection with similar transactions.
M. A separate continuing guaranty of the Obligations
of Borrower to SMB, in a form acceptable to SMB in its sole discretion, duly
executed and delivered by each of the Guarantors, respectively. The guaranties
shall not constitute an obligation of Guarantors owing to SMB unless and until
Guarantors no longer beneficially own at least thirty percent (30%) of the
issued and outstanding common stock of IBI as determined in accordance with the
terms of the guaranties.
N. Evidence satisfactory to SMB, in its sole
discretion, that the amount of the Subordinated Debt is not less than Two
Million Dollars ($2,000,000).
O. A disbursement letter from Borrower authorizing and
directing SMB to make the initial advances hereunder.
5.2 Condition Subsequent. Notwithstanding any other provisions
of this Agreement or any of the other Loan Documents to the contrary, and
without affecting in any manner the rights of SMB under the other Sections of
this Agreement, SMB shall not continue to make advances under Section 2.1 and
SMB shall be entitled to immediately declare an Event of Default under this
Agreement, if Borrower fails to deliver to SMB or fails to cause to be delivered
to SMB the following items on or prior to the date corresponding to such items:
A. Within thirty (30) days following the date of this
Agreement, evidence acceptable to SMB that FFM and Fast Forward have completed
their merger, that FFM
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is the surviving entity in connection with such merger, that all consents,
approvals and authorizations required in connection with such merger have been
obtained, and that all required filings and registrations have been completed.
B. Within thirty (30) days following the written
request of SMB, Borrower shall use its best efforts to obtain a separate waiver
and consent by real property owner, containing terms and conditions acceptable
to SMB in its sole discretion, for each facility where Collateral is located,
executed by the owner of such facility and notarized for recording in the real
estate records of the county where such facility is located. Failure to obtain
any requested waiver and consent of real property owner despite the best efforts
of Borrower shall not constitute an Event of Default.
6. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower makes the
following representations and warranties which shall be deemed to be continuing
representations and warranties until the Obligations have been repaid in full
and this Agreement has been terminated:
6.1 Existence and Rights.
A. The chief executive office of Borrower is at the
address indicated in Section 14;
B. Borrower is a corporation duly organized and
existing under the laws of the State of California and is qualified and licensed
to do business and is in good standing in any state in which the conduct of its
business or its ownership of property requires that it be so qualified;
C. Borrower has the right and power to enter into this
Agreement and each of the other Loan Documents;
D. Borrower has the power, authority, rights and
franchises to own its property and to carry on its business as now conducted;
E. Other than IBI's investment in FFM, Borrower has no
investment in any other business entity.
6.2 Agreement Authorized. The execution, delivery and
performance by Borrower of this Agreement and each of the other Loan Documents:
(a) have been duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; and (b) shall not constitute a
breach of any provision contained in Borrower's Articles of Incorporation or
Bylaws.
6.3 Binding Agreement. This Agreement is the valid, binding
and legally enforceable obligation of Borrower in accordance with its terms.
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<PAGE> 15
6.4 No Conflict. The execution, delivery and performance by
Borrower of this Agreement and each of the other Loan Documents: (a) shall not
constitute an event of default under any agreement, indenture or undertakings to
which Borrower is a party or by which it or any of its property may be bound or
affected; (b) are not in contravention of or in conflict with any law or
regulation; and (c) do not cause any lien, charge or other encumbrance to be
created or imposed upon any such property by reason thereof other than the
security interests granted to SMB in the Collateral.
6.5 Litigation. Except as set forth on Exhibit 6.5, there are
no actions or proceedings pending by or against Borrower or any guarantor of
Borrower before any court or administrative agency, and Borrower has no
knowledge or belief of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except for ongoing collection
matters in which Borrower is the plaintiff and except as heretofore disclosed,
in writing, to SMB. Borrower is not in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental or regulatory
authority.
6.6 Financial Condition. All financial statements and
information relating to Borrower which have been delivered by Borrower to SMB
have been prepared in accordance with GAAP consistently applied, unless
otherwise stated therein, and fairly and reasonably present Borrower's financial
condition. There has been no material adverse change in the financial condition
of Borrower since the date of the most recent of such financial statements
submitted to SMB. Borrower has no knowledge of any liabilities, contingent or
otherwise, which are not reflected in such financial statements and information,
and Borrower has not entered into any special commitments or contracts which are
not reflected in such financial statements or information which may have a
materially adverse effect upon Borrower's financial condition, operations or
business as now conducted.
6.7 Tax Status. Borrower has no liability for any delinquent
state, local or federal taxes.
6.8 Title to Assets. Borrower has good title to its assets and
the same are not subject to any liens or encumbrances other than those permitted
by Section 6.11A.
6.9 Trademarks and Patents. Borrower, as of the date hereof,
possesses all necessary trademarks, trade names, copyrights, patents, patent
rights and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and license
rights of others.
6.10 Environmental Quality. Borrower has in the past and is
currently in compliance with any and all federal, state and local statutes, laws
and regulations concerning the preservation of the environment and the use and
disposal of hazardous and toxic materials and substances. Borrower is not aware
that it is under investigation by any state or federal agency designed to
enforce any of such laws or regulations.
6.11 Accounts and General Intangibles.
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<PAGE> 16
A. Borrower has good and marketable title to the
Accounts and General Intangibles, free and clear of liens, claims, security
interests, or encumbrances (except as held by SMB and Subordinating Creditor,
and except as may be specifically consented to, in advance and in writing, by
SMB); at the time of their assignment to SMB the Accounts will be bona fide
existing obligations created by the sale or lease of goods or the rendition of
services to account debtors in the ordinary and usual course of business and
will be owed to Borrower without any known defenses, disputes, offsets or
counterclaims, or any rights of return or cancellation; Borrower shall have
received no notice of actual or imminent bankruptcy or insolvency of any account
debtor at the time the Account due from such account debtor is created; and in
accordance with prudent credit policies, the account debtor shall be able to
timely discharge all of its indebtedness to Borrower;
B. Borrower shall deliver to SMB, as SMB may from time
to time reasonably require, original delivery receipts, customer's purchase
orders, shipping instructions, bills of lading and other documentation
respecting shipment arrangements. Absent such a request by SMB, copies of all
such documentation shall be held by Borrower as custodian for SMB;
C. At the time each Eligible Account is assigned to
SMB, such Eligible Account will be due and payable in accordance with the terms
set forth in Section 1.9, or on such other terms approved, in writing, by SMB in
advance of the creation of such Account, and such terms shall be expressly set
forth on the face of the invoice for such Account. No Eligible Account will be
past due at the time it is assigned to SMB.
6.12 Inventory and Equipment.
A. The Inventory and Equipment are currently located
only at the locations identified on Exhibit 6.12;
B. All Inventory is now and at all times hereafter
shall be of good and merchantable quality, free from material defects;
C. Except as set forth on Exhibit 6.12, the Inventory
and Equipment are and shall remain free from all liens, claims, encumbrances,
and security interests (except as held by SMB, and except as may be specifically
consented, in advance and in writing, by SMB and Subordinating Creditor);
D. Except as set forth on Exhibit 6.12, the Inventory
is not now stored with a bailee, warehouseman or similar party; and
E. Borrower currently keeps correct and accurate
records itemizing and describing the kind, type, quality and quantity of the
Inventory, and its cost therefor.
6.13 Year 2000 Compliance. Borrower has taken commercially
reasonable steps and efforts to ensure that all computer software, computer
hardware and firmware used by the Borrower is Year 2000 compliant, is designed
to be used prior to, during and after the
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calendar year 2000 A.D. All such computer software, computer hardware and
firmware used during each such time period will accurately receive, provide and
process date/time data (including, but not limited to, calculating, comparing
and sequencing) from, into and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations and will not
malfunction, cease to function, or provide invalid or incorrect results as
result of the date/time data, to the extent that all other information
technology used in combination with the Borrower's computer software, properly
exchanges date/time data with it.
6.14 Sales for Resale. Borrower's sales for ultimate use, as
opposed to sales for resale, as of the date of this Agreement and for the twelve
(12) months preceding said date, did not equal or exceed twenty-five percent
(25%) in dollar volume of Borrower's total sales. During each month of the term
of this Agreement, Borrower's sales for ultimate use shall not equal or exceed
twenty-five percent (25%) in dollar volume of Borrower's total sales in said
month.
7. BORROWER'S AFFIRMATIVE COVENANTS. Borrower covenants and agrees
that until the Obligations have been repaid in full and this Agreement has been
terminated, unless SMB shall otherwise consent in writing, Borrower shall do all
of the following:
7.1 Assignment Schedules and Invoices. On the twentieth (20th)
day of each month during the term of this Agreement, Borrower shall deliver to
SMB an assignment schedule of all Accounts created by Borrower since the
delivery of the immediately preceding assignment schedule required hereunder. In
addition, upon the request of SMB, Borrower shall deliver to SMB copies of
invoices evidencing sales by Borrower and shipping evidence and proofs of
delivery relating thereto.
7.2 Rights and Facilities. Borrower shall maintain and
preserve all rights, franchises and other authority adequate for the conduct of
its business. Borrower shall also maintain its properties, equipment and
facilities in good order and repair and conduct its business in an orderly
manner without voluntary interruption and maintain and preserve its existence,
other than as permitted hereunder.
7.3 Location of Inventory and Equipment. The Inventory and
Equipment shall be located only at locations listed on Exhibit 6.12 or such
other locations as shall have been approved by SMB, which approval shall not be
unreasonably withheld.
7.4 Inventory Records. Borrower shall keep correct and
accurate records itemizing and describing the kind, type, quality and quantity
of the Inventory, and its cost therefor, and, upon the reasonable request of
SMB, shall be available to any of SMB's officers, agents and employees for
inspection and copying during Borrower's normal business hours or the normal
business hours of any third party maintaining custody of such Inventory and
records.
7.5 Insurance. Borrower, at its expense, shall keep and
maintain its Inventory and Equipment insured against loss or damage by fire,
theft, explosion, sprinklers and all other hazards and risks ordinarily insured
against by other owners who use such properties in similar businesses for the
full insurable value thereof. Borrower shall deliver to SMB certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. Borrower
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shall also keep and maintain business interruption, public liability, and
property damage insurance relating to Borrower's ownership and use of the
Inventory, Equipment and its other assets. All such policies of insurance shall
be in such form, with such companies, and in such amounts as may be satisfactory
to SMB. All such policies of insurance (except those of public liability and
property damage) shall contain an endorsement in a form satisfactory to SMB
showing SMB as a loss payee thereof, and all proceeds payable thereunder shall
be payable to SMB and, upon receipt by SMB, shall be applied on account of the
Obligations owing to SMB. To secure the payment of the Obligations, Borrower
grants SMB a security interest in and to all such policies of insurance (except
those of public liability and property damage) and the proceeds thereof, and
Borrower shall direct all insurers under such policies of insurance to pay all
proceeds thereof directly to SMB.
7.6 Notice of Litigation. If at any time during the term of
this Agreement any litigation, governmental investigations or claims,
complaints, actions or prosecutions involving Borrower or, to Borrower's
knowledge, any guarantor of Borrower shall be commenced or threatened which
involve claims against Borrower or the guarantor for an amount, either
individually or when added to other pending claims, in excess of $25,000,
Borrower shall promptly notify SMB in writing of such event.
7.7 Submission of Records and Reports.
A. Borrower shall execute and deliver to SMB by the
fifteenth (15th) day of each month during the term of this Agreement, each
certified by the Chief Executive Officer or Chief Operating Officer of Borrower
as being true and correct, a current detailed aging, by total and by customer,
of Borrower's Accounts;
B. Borrower shall promptly supply SMB with such other
information concerning its affairs as SMB may reasonably request from time to
time hereafter, and shall promptly notify SMB of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of, or an event which constitutes an Event of Default under, this
Agreement.
7.8 Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against Borrower
or any of its property shall be paid in full, before delinquency or before the
expiration of any extension period unless the same is being contested in good
faith and Borrower has established adequate reserves, in accordance with GAAP,
for such contested taxes. Borrower shall make due and timely payment or deposit
of all federal, state and local taxes, assessments or contributions required of
it by law, unless the same is being contested in good faith and Borrower has
established adequate reserves, in accordance with GAAP, for such contested
items, and will execute and deliver to SMB, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, unless the same is being contested in good faith and Borrower
has established adequate reserves, in accordance with GAAP, for such contested
items, and will, upon request, furnish SMB with proof satisfactory to SMB
indicating that Borrower has made such payments or deposits.
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7.9 Financial Statements.
A. Borrower shall maintain a standard and modern
system of accounting in accordance with GAAP consistently applied with ledger
and account cards and/or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as may from time to time
be reasonably requested by SMB. Borrower shall not modify or change its method
of accounting or enter into, modify or terminate any agreement presently
existing, or at any time hereafter entered into with any third party accounting
firm and/or service bureau for the preparation and/or storage of Borrower's
accounting records without said accounting firm and/or service bureau agreeing
to provide to SMB information regarding the Collateral and Borrower's financial
condition. Borrower agrees to permit SMB and any of its employees, officers or
agents, upon demand, during Borrower's usual business hours, or the usual
business hours of third persons having control thereof, to have access to and
examine all of Borrower's Books relating to the Collateral, the Obligations,
Borrower's financial condition and the results of Borrower's operations, and, in
connection therewith, permit SMB or any of its agents, employees or officers to
copy and make extracts therefrom.
B. For each of Borrower's fiscal years during the term
of this Agreement, Borrower shall deliver to SMB:
(i) within thirty (30) days after the end of
each month, other than the end of a fiscal quarter and in that case within forty
five (45) days, a company prepared statement of the financial condition of
Borrower for such monthly period, including, but not limited to, a balance
sheet, a profit and loss statement, and a cash flow statement, and any other
report requested by SMB relating to the Collateral and the financial condition
of Borrower, and a certificate signed by the Chief Executive Officer or Chief
Operating Officer of Borrower, to the effect that all statements and reports
delivered or caused to be delivered to SMB under this subsection, fairly and
thoroughly present the financial condition of Borrower;
(ii) within sixty (60) days after the end of the
first three (3) fiscal quarters of each of Borrower's fiscal years, a company
prepared statement of the financial condition of Borrower for each such
quarterly period, on a consolidated and consolidating basis, including, but not
limited to, a balance sheet, a profit and loss statement, and a cash flow
statement, a copy of the 10Q statement filed with the Securities and Exchange
Commission, and any other report requested by SMB relating to the Collateral and
the financial condition of Borrower, and a certificate signed by the Chief
Executive Officer or Chief Operating Officer of Borrower, to the effect that all
reports, statements, computer disc or tape files, printouts, runs, or other
computer prepared information of any kind or nature relating to the foregoing or
documents delivered or caused to be delivered to SMB under this subsection,
fairly and thoroughly present the financial condition of Borrower.
(iii) within ninety (90) days after the end of
each of Borrower's fiscal years, an audited statement of the financial condition
of Borrower for such fiscal year, on a consolidated and consolidating basis,
prepared by independent certified public accountants acceptable to SMB,
including, but not limited to, a balance sheet, a profit and loss statement, and
a cash flow statement, a copy of the 10K statement filed with the Securities and
Exchange
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Commission for such period and any other report requested by SMB relating to the
Collateral and the financial condition of Borrower, and a certificate signed by
the Chief Executive Officer or Chief Operating Officer of Borrower, to the
effect that all reports, statements, computer disc or tape files, printouts,
runs, or other computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be delivered to SMB under this
subsection, fairly and thoroughly present the financial condition of Borrower.
7.10 Financial Covenants. Borrower shall be in compliance with
the following financial covenants which shall be measured on a quarterly basis:
A. A Debt to Tangible Effective Net Worth Ratio of not
more than the following:
<TABLE>
<CAPTION>
Time Period Maximum Ratio
----------- -------------
<S> <C> <C>
As of June 30, 1999 1.85 to 1.0
As of September 30, 1999 2.35 to 1.0
As of December 31, 1999 1.80 to 1.0
As of March 31, 2000 1.80 to 1.0
</TABLE>
B. Working Capital of not less than the following:
<TABLE>
<CAPTION>
Time Period Minimum Amount
----------- --------------
<S> <C> <C>
As of June 30, 1999 $ 500,000
As of September 30, 1999 $1,300,000
As of December 31, 1999 $1,500,000
As of March 31, 2000 $ 500,000
</TABLE>
C. Tangible Net Worth of not less than the following:
<TABLE>
<CAPTION>
Time Period Minimum Amount
----------- --------------
<S> <C> <C>
As of June 30, 1999 $4,400,000
As of September 30, 1999 $4,700,000
</TABLE>
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<TABLE>
<S> <C> <C>
As of December 31, 1999 $5,100,000
As of March 31, 2000 $4,500,000
</TABLE>
7.11 Payment of Debts. Borrower shall be at all times hereafter
solvent and able to pay its debts (including trade debts) as they mature.
7.12 Compliance with Environmental Laws. Borrower shall comply
in all material respects with any and all federal, state and local statutes,
laws and regulations concerning the preservation of the environment and the use
and disposal of hazardous and toxic materials and substances.
7.13 Reimbursement for SMB Expenses. Upon the demand of SMB,
Borrower shall immediately reimburse SMB for all sums expended by SMB which
constitute SMB Expenses, and Borrower hereby authorizes and approves all
advances and payments by SMB for items constituting SMB Expenses.
8. BORROWER'S NEGATIVE COVENANTS. Borrower covenants and agrees that
until the Obligations have been repaid in full and this Agreement has been
terminated, unless SMB shall otherwise consent in writing, Borrower shall not do
any of the following:
8.1 Relocate of Chief Executive Office. Borrower will not,
without thirty (30) days prior written notification to SMB, relocate its chief
executive office.
8.2 Agreements with Account Debtors. After an Event of Default
and during the continuation thereof, no discount, credit or allowance shall be
granted by Borrower to any account debtor and no return of merchandise shall be
accepted by Borrower without SMB's consent. SMB may, after an Event of Default
and during the continuation thereof, settle or adjust disputes and claims
directly with account debtors for amounts and upon terms which SMB considers
advisable, and in such cases, SMB will credit Borrower's account with only the
net amounts received by SMB in payment of such disputed Accounts, after
deducting all SMB Expenses incurred or expended in connection therewith.
8.3 Storage of Inventory. The Inventory shall not at any time
or times hereafter be stored with a bailee, warehouseman or similar party
without SMB's prior written consent, and, in such event, Borrower will,
concurrent therewith, cause any such bailee, warehouseman or similar party to
issue and deliver to SMB, in a form acceptable to SMB, warehouse receipts in
SMB's name evidencing the storage of the Inventory.
8.4 Business Structure and Operations. Borrower shall not,
without SMB's prior written consent:
A. Sell, lease, or otherwise dispose of, move,
relocate (except in connection with a relocation of Borrower's business
facility) or transfer, whether by sale or otherwise, any of Borrower's assets,
except sales of Inventory in the ordinary and usual course of Borrower's
business as presently conducted or disposition of obsolete equipment;
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B. Change Borrower's name or form of entity, or add
any new fictitious name;
C. Acquire, merge or consolidate with or into any
other business organization other than a merger of FFM and IBI;
D. Enter into any transaction not in the ordinary and
usual course of Borrower's business;
E. Guarantee or otherwise become in any way liable
with respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the general account of Borrower
or which are transmitted or turned over to SMB;
F. Make any change in the Borrower's financial
structure or in any of its business objectives, purposes or operations which
could adversely affect the ability of Borrower to repay the Obligations;
G. Other than the Subordinated Debt, incur any debts
outside the ordinary and usual course of Borrower's business;
H. Make any advance or loan to any person or entity
during the term of this Agreement other than to an employee, director or officer
of Borrower, or a related party, which individually does not exceed Twenty Five
Thousand Dollars ($25,000) or in the aggregate with all other outstanding
advances or loans does not exceed One Hundred Fifty Thousand Dollars ($150,000);
I. Prepay any existing indebtedness owing to any third
party except as permitted under the Subordination Agreement;
J. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem or retire any
of its capital stock, of any class, whether now or hereafter outstanding;
K. Make any plant or fixed SMB expenditure, or any
commitment therefor, in any fiscal year, in an aggregate amount in excess of
Three Hundred Thousand Dollars ($300,000);
L. Cause the Subordinated Debt to be less than Two
Million and 00/100 Dollars ($2,000,000.00); provided, however, that so long as
there are no outstanding Obligations and no existing Event of Default, the
Subordinated Debt may be reduced to less than Two Million and 00/100 Dollars
($2,000,000.00);
M. Suspend or go out of business.
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8.5 ERISA.
A. Borrower shall not withdraw from participation in,
permit the termination or partial termination of, or permit the occurrence of
any other event with respect to any deferred compensation plan maintained for
the benefit of Borrower's employees under circumstances that could result in
liability to the Pension Benefit Guaranty Corporation, or any of its successors
or assigns, or to any entity which provides funds for such deferred compensation
plan.
B. Borrower shall not withdraw from any multi-employer
plan described in Section 4001(a)(3) of ERISA which covers Borrower's employees.
9. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
9.1 Failure to Pay Obligations. If Borrower fails to pay when
due and payable or when declared due and payable all or any portion of the
Obligations owing to SMB (whether of principal, taxes, reimbursement of SMB
Expenses, or otherwise);
9.2 Failure to Perform. If Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, agreement,
warranty or representation contained in this Agreement, in any of the other Loan
Documents, or in any other present or future agreement between Borrower and SMB
and such failure has a materially adverse effect on the Collateral or the
business operations of Borrower;
9.3 Inaccurate Information. If any representation, statement,
report, or certificate made or delivered by Borrower, or any of its officers,
employees or agents, to SMB is not true and correct in any material respect,
including, but not limited to, any Borrowing Base Certificate delivered to SMB
pursuant to this Agreement;
9.4 Third Party Claim. If all or a material portion of
Borrower's assets are attached, seized, subjected to a writ or distress warrant,
or are levied upon, or come into the possession of any Judicial Officer or
Assignee;
9.5 Impairment. If there is a material impairment of the
prospect of repayment of all or any portion of the Obligations owing to SMB or a
material impairment of the value or priority of SMB's security interests in the
Collateral;
9.6 Voluntary Insolvency Proceeding. If an Insolvency
Proceeding is commenced by Borrower;
9.7 Involuntary Insolvency Proceeding. If an Insolvency
Proceeding is commenced against Borrower;
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9.8 Interruption of Business. If Borrower is enjoined,
restrained or in any way prevented by court order from continuing to conduct all
or any material part of its business affairs;
9.9 Governmental Lien. If a notice of lien, levy or assessment
is filed of record with respect to all or a material portion of Borrower's
assets by the United States Government, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, or if any tax or debt owing at any time hereafter to any
one or more of such entities becomes a lien, whether choate or otherwise, upon
all or a material portion of the Borrower's assets and the same is not paid on
the payment date thereof unless such is being contested in good faith and
Borrower has established adequate reserves for such item in accordance with
GAAP;
9.10 Liens. If a judgment or other claim becomes a lien or
encumbrance upon all or a material portion of Borrower's assets;
9.11 Default in Agreement with Third Party. If there is a
default in any loan agreement, mortgage, indenture or other agreement to which
Borrower is a party with third parties and SMB determines that such default
shall have a materially adverse effect on Borrower's business or the prospects
for repayment of the Obligations;
9.12 Payment on Subordinated Debt. If Borrower makes any
payment on the Subordinated Debt in violation of the applicable Subordination
Agreement;
9.13 Misrepresentation. If any misrepresentation exists now or
hereafter in any warranty or representation made to SMB by Borrower or any
officer or director of Borrower, or if any material warranty or representation
is withdrawn by Borrower or by any officer or director of Borrower;
9.14 Reportable Event Under ERISA. If any reportable event,
which SMB determines will have a material adverse effect on the financial
condition of Borrower or which SMB determines constitutes grounds for the
termination of any deferred compensation plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to administer any such plan, shall have occurred and be
continuing thirty (30) days after written notice of such determination shall
have been given to Borrower by SMB, or any such Plan shall be terminated within
the meaning of Title IV of ERISA, or a trustee shall be appointed by the
appropriate United States District Court to administer any such plan, or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate
any plan and in case of any event described in this Section 9.14, the aggregate
amount of the Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of
Borrower's Tangible Net Worth; or
9.15 Withdrawal from Multi-Employer Plan. Borrower shall have
withdrawn from a multi-employer plan described in Section 4001(a)(3) of ERISA
and incurs withdrawal liability as a result thereof.
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9.16 Cure Periods. Notwithstanding anything contained in this
Section 9 to the contrary, SMB shall refrain from exercising its rights and
remedies and an Event of Default shall not be deemed to have occurred by reason
of the occurrence of: (i) an event set forth in Section 9.7 if, within ninety
(90) calendar days from the date thereof, the same is discharged or dismissed,
or (ii) any of the events set forth in Sections 9.4 or 9.10 if, within ten (10)
calendar days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, SMB shall not be
obligated to make advances to Borrower during such cure period.
10. SMB'S RIGHTS AND REMEDIES
10.1 Remedies. Upon the occurrence of an Event of Default by
Borrower under this Agreement, SMB may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
A. Declare all Obligations, whether arising pursuant
to this Agreement or otherwise, immediately due and payable;
B. Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and SMB;
C. Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of SMB, but without affecting
SMB's rights and security interest in the Collateral and without affecting the
Obligations owing by Borrower to SMB;
D. SMB or SMB's designee may notify customers, account
debtors or lessees of Borrower that the Accounts have been assigned to SMB and
that SMB has a security interest therein, collect them directly, and charge the
collection costs and expenses to Borrower's loan account;
E. Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as SMB considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if SMB so requires, and to make the Collateral
available to SMB as SMB may designate. Borrower authorizes SMB to enter the
premises where the Collateral is located, take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of SMB appears to be prior or
superior to its security interest and to pay all expenses incurred in connection
therewith;
F. SMB is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral and Borrower's
rights under all licenses, and all franchise agreements shall inure to SMB's
benefit;
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G. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the manner provided
for herein) the Collateral;
H. Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms. It is not necessary that the Collateral be present at any such sale;
I. In connection with any such sale, the standard of
commercial reasonableness will be deemed satisfied if SMB does the following:
(i) Location of Sale(s). The sale(s) may be
conducted at Borrower's premises, SMB's premises, the premises of any third
party located in or adjacent to any county in which any of the Collateral is
located, or any other location which SMB believes is reasonably convenient to
potential purchasers. The selection of any such location(s) shall be in the sole
and absolute discretion of SMB.
(ii) Notice of Sale. SMB shall give notice of the
disposition of the Collateral as follows:
(a) SMB shall give Borrower and each
holder of a security interest in the Collateral who has filed with SMB a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, the time on or after which the private
sale or other disposition is to be made;
(b) The notice shall be personally
delivered or mailed, postage prepaid, to Borrower as provided in Section 14, at
least ten (10) calendar days before the date fixed for the sale, or at least ten
(10) calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to SMB;
(c) If the sale is to be a public sale,
SMB shall also give notice of the time and place by publishing a notice one time
at least ten (10) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
J. SMB may credit bid and purchase at any public sale;
K. Borrower shall pay all SMB Expenses incurred in
connection with SMB's enforcement and exercise of any of its rights and remedies
as herein provided, whether or not suit is commenced by SMB;
L. Any deficiency which exists after disposition of
the Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
parties, to Borrower by SMB.
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10.2 Cumulative Rights. SMB's rights and remedies under this
Agreement and all other agreements shall be cumulative. SMB shall have all other
rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity. No exercise by SMB of one right or remedy shall be deemed an
election, and no waiver by SMB of any default on Borrower's part shall be deemed
a continuing waiver. No delay by SMB shall constitute a waiver, election or
acquiescence by it.
11. TAXES AND EXPENSES REGARDING THE COLLATERAL. If Borrower fails to
pay any monies (whether taxes, assessments, insurance premiums, or otherwise)
due to third persons or entities, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then SMB may, to the extent that it determines in its sole discretion
that such failure by Borrower could have a material adverse change on SMB's
interests in the Collateral, in its discretion and with prior notice to Borrower
(unless SMB has determined, in its sole and good faith determination that the
delay caused by giving notice to Borrower could have a materially adverse effect
on the rights of SMB, in which case, no notice to Borrower shall be required),
(i) make payment of the same or any part thereof; (ii) set up such reserves in
Borrower's loan account as SMB deems necessary to protect SMB from the exposure
created by such failure; or (iii) both. Any amounts paid or deposited by SMB
shall constitute SMB Expenses, shall be immediately charged to Borrower's loan
account and become additional Obligations owing to SMB, shall bear interest at
the applicable rate set forth in Section 2.4, and shall be secured by the
Collateral. Any payments made by SMB shall not constitute: (i) an agreement by
SMB to make similar payments in the future, or (ii) a waiver by SMB of any Event
of Default under this Agreement. SMB need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance or lien, and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
12. WAIVERS
12.1 Application of Payments. Borrower waives the right to
direct the application of any and all payments at any time or times hereafter
received by SMB on account of any Obligations owed by Borrower to SMB, and
Borrower agrees that SMB shall have the continuing exclusive right to apply and
reapply such payments in any manner as SMB may deem advisable, notwithstanding
any entry by SMB upon its books.
12.2 Demand, Protest, Default, Etc. Except as otherwise
provided herein, Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guarantees at any time held by SMB on which Borrower may in any way be liable.
12.3 Maintenance of Collateral. So long as SMB complies with
its obligations, if any, under Section 9207 of the Code, SMB shall not in any
way or manner be liable or responsible for: (a) the safekeeping of the Inventory
and/or Equipment; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency
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or other person whomsoever. All risk or loss, damage or destruction of the
Inventory and Equipment shall be borne by Borrower.
12.4 Confidential Relationship. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
and/or service bureau in connection with any information requested by SMB
pursuant to or in accordance with this Agreement, and agrees that SMB may
contact directly any such accounting firm and/or service bureau in order to
obtain such information.
13. SURETY WAIVERS. In the event IBI or FFM or both are deemed to be
guarantors of all or a portion of the Obligations, then IBI and FFM each agrees
as follows:
13.1 SMB's Direct Rights.
A. Guaranty of Payment. Borrower guaranties payment
and performance of any such Obligations, not merely collection. In the event
that payment or performance of any of the Obligations is not made in a timely
manner, SMB may enforce its rights, without first seeking to obtain payment or
performance from or without resorting to (i) Borrower for the Obligations
(meaning that SMB may delay, in SMB's sole and complete discretion, in the
exercise of rights against Borrower); (ii) any other guarantor; (iii) any
collateral SMB may hold as security for the Obligations; or (iv) any other
remedy or right that SMB may have.
B. Waiver of Priority of Collection. Borrower waives
any rights it may have to require SMB to proceed against any other party or to
pursue any other remedy in SMB's power which Borrower could not pursue which
would lighten Borrower's burden, as guarantor. In addition, Borrower waives any
right it may have to benefit from every security which now or hereafter exists
for the performance of the Obligations or for the performance of any other
guarantor's obligations owing to SMB. If SMB decides to proceed first to
exercise any other remedy or right, or to proceed against another person or any
collateral, SMB retains any and all of it's rights created under this Section.
13.2 Continuing Guaranty and Revocation. If Borrower is deemed
a guarantor of all or any portion of the Obligations, then such guaranty shall
apply to all such Obligations, including existing Obligations as well as all
future Obligations. Borrower shall also guaranty all future liability under
successive transactions which either continue such Obligations or from time to
time renew some or all of them after having been satisfied and, to that extent,
the guaranty of Borrower shall be continuing in nature. Borrower may not
terminate or revoke such guaranty. Borrower irrevocably waives any right it has,
including any rights under California Civil Code Section 2815, to terminate or
revoke the continuing nature of its guaranty and its application to any
Obligations arising after any attempt to terminate such guaranty.
13.3 No Notice Required. Borrower, as guarantor, will not be
released or exonerated from it's obligations as guarantor if Borrower, as
guarantor, is not notified by SMB of these events: (i) the failure of SMB to
receive timely payment of any amount owed under any of the Loan Documents or to
receive payment or performance of any of the other Obligations; (ii)
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<PAGE> 29
any failure of any third party to perform any other Obligation under any of the
Loan Documents; (iii) any adverse change in the financial condition or business
of any party obligated in connection with any of the Obligations; and (iv) all
other notices to which Borrower, as guarantor, might be entitled.
13.4 Additional Waivers. Borrower, as guarantor, waives any
right it may have to require any of the following acts: demand; presentment;
diligence; protest; notice of dishonor; and any other notice to which it may be
entitled.
13.5 No Release. SMB may do or suffer any of the following, by
action or inaction, without releasing or exonerating Borrower, as guarantor,
from its responsibility to pay or perform any of the Obligations (and SMB need
not notify Borrower, as guarantor of any of the following): (i) renew, extend,
rearrange, alter, impair, suspend or otherwise modify any of the Obligations or
any of the rights or remedies of SMB under the Loan Documents; (ii) release
Borrower or any other guarantor from any of the Obligations; (iii) sell,
release, subordinate, impair, suspend, waive or otherwise fail to obtain,
perfect or realize upon (or continue the perfection of) a security interest in
any collateral for any of the Obligations or any other guaranty of the
Obligations; (iv) exercise SMB's rights in any Collateral for any of the
Obligations or any other collateral for any other guaranty of the Obligations in
any order that SMB may elect in its sole discretion; (v) advance additional
funds to or for the benefit of Borrower, as borrower; (vi) foreclose on any
Collateral for the Obligations, or any portion thereof (including the collateral
provided under a deed of trust) or a guaranty of the Obligations, or any portion
thereof in a manner that diminishes, impairs or precludes the right of Borrower,
as guarantor, to enjoy any rights of subrogation against any other guarantor or
third person, or to obtain reimbursement, performance, or indemnification for
payment or performance under this Agreement (in this connection, Borrower, as
guarantor, waives any rights and defenses arising out of an election of remedies
by SMB, even though that election of remedies, such as nonjudicial foreclosure
with respect to security for the Obligations or any other guaranty, has
destroyed Borrower's rights, as guarantor, of subrogation and reimbursement
against any other guarantor or third person by operation of law and, in
addition, Borrower, as guarantor, waives any defenses arising under Uniform
Commercial Code Sections 1103 and 9501 et seq.); (vii) permit or suffer the
impairment of any of the Obligations in a case under the Bankruptcy Code by or
against Borrower; (viii) permit or suffer the creation of secured or unsecured
credit or debt under Bankruptcy Code Section 364 in a case involving any of the
Obligations; (ix) permit or suffer the disallowance, avoidance or subordination
of any of the Obligations or Collateral; (x) fail to exercise any right or
remedy SMB may have with respect to the payment or performance of, any of the
Loan Documents or any of the Obligations; or (xi) fail to obtain a guaranty,
other assurance of payment, or credit enhancement from any other person.
13.6 Waiver of Subrogation, Reimbursement, Performance and
Indemnification. Borrower, as guarantor, permanently waives and shall not seek
to exercise any of the following rights that it may have against any other
guarantor, third person or any collateral provided by any other guarantor or
third person for any amounts paid by Borrower, as guarantor, or acts performed
by Borrower, as guarantor, of any of the Obligations: (i) all rights that
Borrower, as guarantor, may have upon satisfying the Obligations, or any portion
thereof, to enforce any remedies which SMB then has against any other guarantor
or third person to
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contribute to the amount paid by Borrower, as guarantor; (ii) all rights that
Borrower, as guarantor, may have to the benefit of any security for the
performance of the Obligations or the performance by any other guarantor or
third person of the Obligations; (iii) all rights of reimbursement for the
amounts paid by Borrower, as guarantor, in connection with the Obligations
(including costs and expenses); (iv) any right to compel any guarantor or other
third person to perform the Obligations when due; or (v) all rights of
indemnification from any other guarantor or any other third party.
13.7 No Marshaling. SMB has no obligation to marshal any assets
in favor of Borrower, as guarantor, or against or in payment of: (i) any of the
Obligations, or (ii) any other obligation owed to SMB by any other guarantor or
any third party.
14. NOTICES. Unless otherwise specifically provided herein, all
notices and service of any process shall be in writing addressed to the
respective party as set forth below and may be personally served, telecopied or
sent by overnight courier service or United States mail and shall be deemed to
have been given: (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if confirmed and if transmitted on a
Business Day before 4:00 p.m. (Los Angeles time) or, if not, on the next
succeeding Business Day; (c) if delivered by overnight courier, two days after
delivery to such courier properly addressed; or (d) if by U.S. Mail, four
Business Days after depositing in the United States mail, with postage prepaid
and properly addressed.
If to Borrower: Intervisual Books, Inc. and/or
FFM Acquisition Corp.
2716 Ocean Park Boulevard, Suite 2020
Santa Monica, California 90405
Attn: Dan Reavis, Executive Vice President
Telecopier Number (310) 396-9849
If to SMB: Santa Moncia Bank
1324 Fifth Street
P.O. Box 1075
Santa Monica, California 90406-1075
Attn: Sam Kunianski, Executive Vice President
Telecopier Number (310) 917-6534
The parties hereto may change the address at which they are to
receive notices and the telecopier number at which they are to receive
telecopies hereunder, by notice in writing in the foregoing manner given to the
other.
15. DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules,
invoices or other papers delivered to SMB may be destroyed or otherwise disposed
of by SMB four (4) months after they are delivered to or received by SMB, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
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16. CHOICE OF LAW. The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by, and construed
in accordance with the laws of the State of California. The parties agree that
all actions or proceedings arising in connection with this Agreement shall be
tried and litigated only in the state and federal courts located in the County
of Los Angeles, State of California. Borrower waives any right it may have to
assert the doctrine of forum non conveniens or to object to such venue and
hereby consents to any court ordered relief.
17. GENERAL PROVISIONS
17.1 Representations and Warranties Repeated. Each
representation, warranty and agreement contained in this Agreement shall be
automatically deemed repeated with each advance and shall be conclusively
presumed to have been relied on by SMB regardless of any investigation made or
information possessed by SMB. The warranties, representations and agreements set
forth herein shall be cumulative and in addition to any and all other
warranties, representations and agreements which Borrower shall give, or cause
to be given, to SMB, either now or hereafter.
17.2 Binding Agreement. This Agreement shall be binding and
deemed effective when executed by Borrower and accepted and executed by SMB.
17.3 Right to Grant Participations. This Agreement shall bind
and inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights hereunder without SMB's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by SMB shall
release Borrower from its Obligations to SMB. SMB may assign this Agreement and
its rights and duties hereunder. SMB reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, SMB's rights and benefits hereunder. In connection therewith, SMB
may disclose all documents and information which SMB now or hereafter may have
relating to Borrower or Borrower's business.
17.4 Indemnification. In consideration of the execution and
delivery of this Agreement and the extension of financial accommodations by SMB
to Borrower pursuant to this Agreement, Borrower agrees to indemnify, save,
exonerate, and hold SMB, and each of the officers, directors, employees and
agents of SMB (herein collectively called the "Indemnitees" and individually
called an "Indemnitee") free and harmless from and against any and all actions,
claims, causes of action, suits, losses, liabilities, damages, and expenses,
including, without limitation, reasonable attorneys' fees (including allocated
costs for in-house legal services provided and attorneys' fees in all bankruptcy
proceedings) and disbursements (herein collectively called the "Indemnified
Liabilities"), which may be incurred by or asserted against the Indemnitees or
any Indemnitee as a result of, or arising out of, or relating to, or in
connection with, any investigation, litigation, or proceeding related to any use
made or proposed to be made by Borrower of the proceeds of any advance or loan
made hereunder, or the consummation of the transactions contemplated hereby,
whether or not any such Indemnitee is a party thereto, and, if and to the extent
that the foregoing undertaking may be unenforceable for any reason, Borrower
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hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities as is permissible under applicable law.
If any action, suit, or proceeding arising from any of the
foregoing is brought against SMB, or any Indemnitee or affiliate of an
Indemnitee indemnified or intended to be indemnified pursuant to this Section
17.4, Borrower, to the extent and in the manner directed by the Indemnitee or
intended Indemnitee, shall resist and defend such action, suit, or proceeding or
cause the same to be resisted and defended by counsel designated by Borrower
(which counsel shall be reasonably satisfactory to the Indemnitee or intended
Indemnitee). Each Indemnitee shall use its best efforts to cooperate in the
defense of any such action, writ, or proceeding. Borrower shall have no
obligation to any Indemnitee under this Section 17.4 to the extent that the
Indemnified Liabilities resulted from the gross negligence or willful misconduct
on the part of any Indemnitee. The Obligations of Borrower under this Section
17.4 shall survive the termination of this Agreement and the discharge of the
Borrower's other Obligations hereunder.
17.5 Section Headings. Section headings and section numbers
have been set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section applies equally
to this entire Agreement.
17.6 Interpretation. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against SMB or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
17.7 Severability. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
17.8 Modification and Merger. This Agreement cannot be changed
or terminated orally. All prior agreements, understandings, representations,
warranties and negotiations, if any, are merged into this Agreement.
17.9 Supersedure and Release. This Agreement supercedes and
replaces any and all prior written and oral agreements providing for the
extension of credit by SMB to Borrower. Any such prior agreements shall be of no
further force or effect. In this connection, Borrower, for itself and its
agents, servants, employees, shareholders, subsidiaries, officers, directors,
heirs, executors, administrators, agents, successors and assigns forever
releases and discharges SMB and its respective agents, servants, employees,
accountants, attorneys, shareholders, subsidiaries, officers, directors, heirs,
executors, administrators, successors and assigns from any and all claims,
demands, liabilities, accounts, obligations, costs, expenses, liens, actions,
causes of action, rights to indemnity (legal or equitable), rights to
subrogation, rights to contribution and remedies of any nature whatsoever, known
or unknown, which Borrower had, now has, or has acquired, individually or
jointly, at any time prior to the date of the execution of this Agreement.
Borrower acknowledges that there is a risk that subsequent to the execution of
this Agreement it may incur or suffer losses, damages or injuries which are in
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some way caused by the transactions which occurred prior to the date of this
Agreement, but which are unknown and unanticipated at the time this Agreement is
executed. Borrower hereby assumes the above mentioned risks and agree that this
Agreement shall apply to all unknown or unanticipated results of the
transactions and occurrences described herein, as well as those known and
anticipated, and upon advice of counsel, Borrower hereby knowingly waive any and
all rights and protections under California Civil Code Section 1542 which
section has been duly explained and reads as follows: "A general release does
not extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." Borrower has executed this
Agreement with full knowledge of its significance, and with the express
intention of effecting the legal consequences provided by Section 1541 of the
California Civil Code, namely, the extinguishment of obligations except for the
executory provisions of this Agreement.
17.10 Good Faith Requirement. The parties intend and agree that
their respective rights, duties, powers, liabilities, obligations and
discretions shall be performed, carried out, discharged and exercised reasonably
and in good faith.
17.11 JURY TRIAL. BORROWER AND SMB HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION WITH THIS
AGREEMENT OR ANY DEALINGS BETWEEN BORROWER AND SMB RELATING TO THIS AGREEMENT,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AND SMB EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH OF BORROWER AND SMB HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH OF BORROWER AND SMB WILL CONTINUE TO
RELY ON THIS WAIVER IN ANY RELATED FUTURE DEALINGS BETWEEN BORROWER AND SMB.
BORROWER AND SMB FURTHER WARRANT AND REPRESENT THAT THEY EACH KNOWINGLY AND
VOLUNTARILY WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH
LEGAL COUNSEL.
IN WITNESS WHEREOF, Borrower has executed this Agreement.
INTERVISUAL BOOKS, INC.,
a California corporation
By: /s/ Waldo H. Hunt
-----------------------------------
Title: Chairman & CEO
By /s/Nathan N. Sheinman
-----------------------------------
Title: President
--------------------------------
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FFM ACQUISITION CORP.,
a California corporation
By: /s/ Dan P. Reavis
-----------------------------------
Title: President
--------------------------------
By
-----------------------------------
Title:
--------------------------------
SANTA MONICA BANK,
a California banking corporation
By: /s/ Sam Kunianski
-----------------------------------
Title: Executive Vice President
--------------------------------
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<PAGE> 1
EXHIBIT 10.6
SECURED PROMISSORY NOTE
$2,000,000.00 Dated as of
May 12, 1999
1. INDEBTEDNESS. FOR VALUE RECEIVED, the undersigned, INTERVISUAL
BOOKS, INC., a California corporation ("IBI"), and FFM ACQUISITION CORP., a
California corporation ("FFM") (hereinafter IBI and FFM are collectively
referred to as "Maker"), jointly and severally promise to pay to SANTA MONICA
BANK, a California banking corporation (hereinafter referred to as "Bank"), or
order, at 1324 Fifth Street, Santa Monica, California 90406-1075 or at such
other place as may be designated in writing by the holder of this Secured
Promissory Note (hereinafter referred to as this "Note"), the principal sum of
Two Million and 00/100 Dollars ($2,000,000.00), or such lesser amount as may be
outstanding from time to time, together with interest accrued thereon. This Note
evidences revolving advances made by Bank to Maker pursuant to Sections 2.1 of
that certain Loan and Security Agreement, of even date herewith, between Bank
and Maker, as amended from time to time (the "Loan Agreement").
2. INTEREST. Commencing on the date hereof, the unpaid principal
balance of this Note shall bear interest at a rate two and one half (2.50)
percentage points in excess of the prime rate of interest (the highest variable
rate of interest, per annum, published daily as the "prime rate" in the Money
Rates Section of the Western Edition of the Wall Street Journal -- hereinafter
referred to as the "Prime Rate"). In the event that such a rate is no longer
published, then the "Prime Rate" shall mean the variable rate of interest, per
annum, most recently announced by Bank at its office in Santa Monica, as its
"prime rate", with the understanding that Bank's "prime rate" is one of its base
rates and serves as a basis upon which effective rates of interest are
calculated for loans making reference thereto and may not be the lowest of
Bank's base rates). In the event that any installment required pursuant to
Section 3 of this Note is not paid when due, or any other default occurs under
the terms of this Note, and without affecting any of Bank's rights and remedies
provided herein, the unpaid principal balance of this Note shall thereafter bear
interest at a rate seven and one half (7.50) percentage points above the Prime
Rate. In the event that the Prime Rate is, from time to time hereafter, changed,
adjustments in the rate of interest payable hereunder shall be made as of 12:01
A.M. on the effective date of the change in the Prime Rate. Interest chargeable
hereunder shall be calculated on the basis of a three hundred sixty (360) day
year for actual days elapsed.
3. PAYMENT. Principal and interest shall be due and payable on the
dates and in the manner as follows:
a. Commencing on the first (1st) day of June, 1999, and
continuing on the same day of each and every calendar month thereafter, Maker
shall make monthly payments of interest accrued on the unpaid principal balance
hereof;
b. On the first (1st) day of May, 2000, Maker shall make
payment in full of the unpaid principal balance hereof remaining unpaid on such
date, together with any and all accrued and unpaid interest hereunder.
<PAGE> 2
4. PREPAYMENT. Maker may prepay all or part of the principal balance
due under this Note, without premium or penalty. With each prepayment Maker
shall also pay the interest accrued on the principal amount being prepaid to the
date of such prepayment. So long as not event of default shall have occurred
under the Loan Agreement, Maker may request advances from Bank following the
prepayment of any amounts hereunder.
5. COMPOUND INTEREST. Interest not paid when due may be added to the
unpaid principal balance hereof and shall thereafter bear interest at the same
rate as principal. All payments hereunder are to be applied first to the payment
of accrued interest and the balance remaining applied to the payment of
principal. All principal and interest due hereunder is payable in lawful money
of the United States of America.
6. LATE CHARGE. If a payment of principal or interest is ten (10)
days or more late, Maker will be charged five percent (5.00%) of the amount of
such payment. The late charge payable by Maker hereunder is in addition to, and
not in lieu of, all other rights and remedies of Bank.
7. WAIVERS. Maker, for itself, its legal representatives, successors
and assigns, expressly waives presentment, protest, demand, notice of dishonor,
notice of nonpayment, notice of maturity, notice of protest, presentment for the
purpose of accelerating maturity, and diligence in collection, and consents that
Bank may extend the time for payment or otherwise modify the terms of payment of
any part or the whole of the debt evidenced hereby. To the fullest extent
permitted by law, Maker waives the statute of limitations in any action brought
by Bank in connection with this Note.
8. ACCELERATION. IT IS EXPRESSLY AGREED THAT UPON THE OCCURRENCE OF
ANY EVENT OF DEFAULT UNDER THE TERMS OR CONDITIONS OF THE LOAN AGREEMENT, THEN
THE UNPAID PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH INTEREST ACCRUED
THEREON, SHALL THEREUPON BE IMMEDIATELY DUE AND PAYABLE AT THE OPTION OF THE
HOLDER HEREOF, WITHOUT PRESENTMENT, DEMAND, PROTEST OR NOTICE OF PROTEST OF ANY
KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED.
9. ATTORNEYS' FEES AND CHOICE OF LAW. In the event it should become
necessary to employ counsel to collect this Note, Maker agrees to pay the
reasonable attorneys' fees and paralegals' fees (including allocated costs for
in-house legal services provided and attorneys' and paralegals' fees in all
bankruptcy proceedings) and costs of the holder hereof, whether or not suit is
brought. This Note and all transactions hereunder and/or evidenced hereby shall
be governed by, construed under and enforced in accordance with the laws of the
State of California.
10. PARTICIPATION. Bank reserves the right to sell, assign, transfer,
negotiate, or grant participation interests in all or any part of, or any
interest in Bank's rights and benefits hereunder. In connection therewith, Bank
may disclose all documents and information which Bank now or hereafter may have
relating to Maker.
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11. MODIFICATION. This Note may not be changed, modified, amended or
terminated orally.
12. WAIVER OF JURY TRIAL. MAKER AND BANK HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION
WITH THIS AGREEMENT OR ANY DEALINGS BETWEEN MAKER AND BANK RELATING TO THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. MAKER AND BANK EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH OF MAKER AND BANK HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH OF MAKER AND BANK WILL CONTINUE TO
RELY ON THIS WAIVER IN ANY RELATED FUTURE DEALINGS BETWEEN MAKER AND BANK. MAKER
AND BANK FURTHER WARRANT AND REPRESENT THAT THEY EACH KNOWINGLY AND VOLUNTARILY
WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
INTERVISUAL BOOKS, INC.,
a California corporation
By /s/ Waldo H. Hunt
---------------------------------
Title: Chairman & CEO
-----------------------------
FFM ACQUISITION CORP.,
a California corporation
By /s/ Dan Reavis
---------------------------------
Title: President
-----------------------------
SANTA MONICA BANK hereby accepts this Note and agrees to the provisions
contained in Section 12 of the Note.
SANTA MONICA BANK,
a California banking corporation
By /s/ Sam Kunanski
---------------------------------
Title: EVP
-----------------------------
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