As filed with the Securities and Exchange Commission on January 29, 1998
Registration No. 333-38219
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BIG ENTERTAINMENT, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0385686
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2255 GLADES ROAD, SUITE 237 WEST
BOCA RATON, FLORIDA 33431
(561) 998-8000
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
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MITCHELL RUBENSTEIN
CHIEF EXECUTIVE OFFICER
BIG ENTERTAINMENT, INC.
2255 GLADES ROAD, SUITE 237 WEST
BOCA RATON, FLORIDA 33431
TELEPHONE NO. (561) 998-8000
FACSIMILE NO. (561) 998-2974
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES OF COMMUNICATIONS TO:
DALE S. BERGMAN, P.A.
NINA S. GORDON, P.A.
BROAD AND CASSEL
201 SOUTH BISCAYNE BOULEVARD, SUITE 3000
MIAMI, FLORIDA 33131
TELEPHONE NO. (305) 373-9400
FACSIMILE NO. (305) 373-9443
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Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JANUARY 29, 1998
PROSPECTUS
1,307,502 SHARES
BIG ENTERTAINMENT, INC.
COMMON STOCK
This Prospectus relates to shares (the "Shares") of Common Stock,
par value $.01 per share (the "Common Stock"), of Big Entertainment, Inc., a
Florida corporation ("Big Entertainment" or the "Company"), as follows: (i)
1,000,002 Shares issued in a July 1997 private placement (the "Private
Placement") proposed to be sold from time to time by certain shareholders of the
Company (the "Selling Shareholders"); (ii) 100,000 Shares issuable upon exercise
of warrants (the "Placement Agent's Warrants") issued to the placement agent for
the Private Placement; (iii) Shares issuable upon conversion of the Company's
$650,000 4% Convertible Debenture Due August 31, 1999 (the "Convertible
Debenture"); and (iv) 32,500 Shares issuable upon exercise of warrants (the
"Debenture Warrants") issued to the purchaser of the Convertible Debenture. See
"Selling Shareholders." The Company will not receive any proceeds from the sale
of the Shares by the Selling Shareholders or upon conversion of the Convertible
Debenture, but will receive up to an aggregate of approximately $702,000 upon
the exercise of the Placement Agent's Warrants and the Debenture Warrants.
The Selling Shareholders have advised the Company that they may from
time to time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the Nasdaq SmallCap Market, the
Boston Stock Exchange, the Philadelphia Stock Exchange, or on any other exchange
on which the Common Stock may then be listed, in privately negotiated
transactions or otherwise, or a combination of such methods of sale, at market
prices prevailing at the time of sale or prices related to such prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or purchasers of
the Shares for whom they may act as agent (which compensation may be in excess
of customary commissions). The Selling Shareholders and any participating
broker-dealers may be deemed to be "underwriters" as defined in the Securities
Act of 1933, as amended (the "Securities Act"). Neither the Company nor the
Selling Shareholders can estimate at the present time the amount of commissions
or discounts, if any, that will be paid by the Selling Shareholders on account
of their sales of the Shares from time to time. The Company has agreed to
indemnify the Selling Shareholders against certain liabilities, including
certain liabilities under the Securities Act. See "Plan of Distribution."
The Common Stock is quoted on the Nasdaq SmallCap Market under the
symbol "BIGE" and is listed on the Boston and Philadelphia Stock Exchanges under
the symbol "BIG." On January 12, 1998, the last reported sales price of the
Common Stock on the Nasdaq SmallCap Market was $5.91 per share.
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<PAGE>
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN RISKS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JANUARY __, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied (at prescribed rates) at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the following regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and may also be obtained from the Commission's website
located at http://www.sec.gov. Quotations relating to the Company's Common Stock
appear on the Nasdaq SmallCap Market, and reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. Quotations also appear on the Boston and Philadelphia
Stock Exchanges and the previously mentioned information may be inspected at One
Boston Place, Boston, Massachusetts 02108, and 1900 Market Street, Philadelphia,
Pennsylvania 19103, respectively.
The Company has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act with respect to
the Shares. This Prospectus, which is a part of the Registration Statement, does
not contain all the information set forth in, or annexed as exhibits to, such
Registration Statement, certain portions of which have been omitted pursuant to
rules and regulations of the Commission. For further information with respect to
the Company and the Shares, reference is hereby made to such Registration
Statement, including the exhibits thereto. Copies of the Registration Statement,
including exhibits, may be obtained from the aforementioned public reference
facilities of the Commission upon payment of the fees prescribed by the
Commission, or may be examined without charge at such facilities. Statements
contained herein concerning any document filed as an exhibit are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under
the Exchange Act are incorporated in and made a part of this Prospectus by
reference:
(a) the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996; and
(b) The Company's Quarterly Reports on Form 10-QSB for the fiscal
quarters ended March 31, 1997 and June 30, 1997, and the
Quarterly Report on Form 10-QSB and Amendment No. 1 thereto on
Form 10-QSB/A for the fiscal quarter ended September 30, 1997.
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All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the sale of all of the Shares shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed documents, which also are incorporated or
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superseded.
This Prospectus incorporates documents by reference that are not
presented herein or delivered herewith. The Company hereby undertakes to
provide, without charge, to each person, including any beneficial owner, to whom
a copy of this Prospectus is delivered, on the written or oral request of such
person, a copy of any or all of the information incorporated herein by
reference. Exhibits to any of such documents, however, will not be provided
unless such exhibits are specifically incorporated by reference into such
documents. The requests should be addressed to: Mitchell Rubenstein, Chief
Executive Officer, Big Entertainment, Inc., 2255 Glades Road, Suite 237 West,
Boca Raton, Florida 33431, telephone number (561) 998-8000.
THE COMPANY
GENERAL
Big Entertainment is a diversified entertainment company involved in
the licensing of entertainment properties, the operation of
entertainment-related retail stotes, and the publishing and packaging of books.
The Company, either directly or in some cases through its 50% ownership
interest in NetCo Partners ("NetCo Partners"), owns exclusive rights to certain
original characters and concepts created by best-selling authors and media
celebrities, including, for example, Tom Clancy, Magic Johnson, Leonard Nimoy,
Gene Roddenberry, Mickey Spillane, Arthur C. Clarke, John Jakes, Anne McCaffrey,
Margaret Weis and Isaac Asimov. The Company frequently uses illustrated novels
to introduce and develop new characters and concepts (collectively, its
"intellectual properties") and then seeks to license these properties across all
media, including films and television, and in books, multimedia software, toys
and other merchandise. The Company acquires the rights to its intellectual
properties pursuant to agreements that generally grant it, on an exclusive
basis, all rights in the intellectual property itself (including, but not
limited to, the right to license the intellectual property for films,
television, books, multimedia software, toys and other merchandise) as well as
the right to use the creator's name in the title of the intellectual property.
The Company also develops and operates a chain of retail studio stores and
kiosks that sell entertainment-related merchandise.
The Company's intellectual properties currently include, among others:
LEONARD NIMOY'S PRIMORTALS; GENE RODDENBERRY'S XANDER IN LOST UNIVERSE; ISSAC
ASIMOV'S I/BULLET/BOTS; MICKEY SPILLANE'S MIKE DANGER; JOHN JAKES' MULLKON
EMPIRE; ANNE MCCAFFREY'S ACORNA: THE UNICORN GIRL; MARGARET WEIS' TESTAMENT OF
THE DRAGON; NEIL GAIMAN'S MR. HERO -- THE NEWMATIC MAN; NEIL GAIMAN'S
TEKNOPHAGE; NEIL GAIMAN'S LADY JUSTICE; AND NEIL GAIMAN'S WHEEL
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OF WORLDS. A more detailed summary of these intellectual properties is
set forth in " - Intellectual Properties" below.
The Company, in conjunction with its majority-owned subsidiary, Tekno
Books has also entered into an agreement with June Bug Enterprises, Inc., an
entity controlled by pro basketball star Magic Johnson. Under the agreement,
Magic Johnson will work with the Company to develop textbooks, children's books,
novels and action figure cartoon characters.
The Company is continually negotiating with other best-selling authors
and celebrities to create and develop additional intellectual properties for the
Company and/or NetCo Partners to license for use in various media and
merchandise.
The principal executive offices of the Company are located at 2255
Glades Road, Suite 237 West, Boca Raton, Florida 33431, and its telephone number
is (561) 998-8000.
NETCO PARTNERS
Certain intellectual properties are owned by NetCo Partners, a joint
venture owned 50% by the Company and 50% by C.P. Group, Inc. ("C.P. Group"). Tom
Clancy owns 50% of C.P. Group. NetCo Partners properties currently include TOM
CLANCY'S NETFORCE, ARTHUR C. CLARKE'S CRIOSPHINX, TAD WILLIAMS' MIRROR WORLD,
CATHY CASH SPELLMAN'S MILLENNIUM, NEIL GAIMAN'S LIFERS and ANNE MCCAFFREY'S
SARABAND.
The Company and C.P. Group are each 50% partners in NetCo Partners.
C.P. Group contributed to NetCo Partners all rights to TOM CLANCY'S NETFORCE,
and the Company contributed to NetCo Partners all rights to TAD WILLIAMS' MIRROR
WORLD, ARTHUR C. CLARKE'S CRIOSPHINX, NEIL GAIMAN'S LIFERS, and ANNE MCCAFFREY'S
SARABOND. Although pursuant to the NetCo joint venture agreement (the "NetCo
Agreement") the Company is not obligated to contribute any additional properties
to NetCo Partners, the Company and C.P. Group are working together to obtain
rights from third parties to additional entertainment properties for the NetCo
Partners joint venture. For example, the Company and C.P. Group jointly
negotiated a contract with author Cathy Cash Spellman granting to NetCo Partners
all rights to CATHY CASH SPELLMAN'S MILLENNIUM.
Pursuant to the terms of the NetCo Agreement, the Company is
responsibile for developing, producing, manufacturing, advertising,
promoting,marketing and distributing NetCo Partners' illustrated novels and
related products and for advancing all costs incurred in
<PAGE>
connection therewith. All amounts advanced by the Company to fund NetCo
Partners' operations are treated as capital contributions of the Company and the
Company is entitled to a return of such capital contributions before
distributions of cash flow are split equally between the Company and C.P. Group.
The NetCo Agreement provides for an intital term (the "Development Term") of
five years, during which the partners will jointly develop the contributed
properties. The Development Term may be extended by the mutual consent of the
partners and shall terminate upon 30 days' notice to the Company by C.P. Group
should Mitchell Rubenstein cease to be Chief Executive Officer of the Company
and Laurie S. Silvers cease to be the President of the Company. Upon termination
of the Development Term, any undeveloped properties (excluding TOM CLANCY'S
NETFORCE) are to be returned to their respective contributing partner and any
properties in development or already developed are to be properties of the joint
venture, which shall continue until, among other things, the partners elect to
dissolve the joint venture.
THE COMPANY'S OPERATING DIVISIONS
During 1997, the Company consolidated its operating divisions into two
current divisions: the intellectual property division and the entertainment
retail division. The intellectual property division is currently further
segmented into three subdivisions -- publishing, licensing, and book licensing
and packaging. During 1997, the Company refocused its operations away from comic
book publishing, which will result in that subdivision's eventual phase out. For
the nine months ended September 30, 1997, the percentage of the Company's net
revenues contributed by each of the current operating divisions was as follows:
licensing division, 2.5%; book licensing and packaging division, 22.9%; and
entertainment retail division, 73.7%. Due to the Company's shift in focus
during 1997, the publishing division contributed less than 1% of the Company's
net revenues for the nine months ended September 30, 1997.
The Company's licensing division is the primary means by which the
Company utilizes its intellectual properties by focusing on licensing the
Company's intellectual properties for feature films, television series, books,
toys, multimedia software and other merchandise. A number of the Company's
and/or NetCo Partners' intellectual properties have been licensed for use in
books, feature films, television series and merchandise by various licensees,
including The ABC Television Network, a division of The Walt Disney Company
("ABC"), for development of a television mini-series based on TOM CLANCY'S
NETFORCE; Warner Books (a division of Time-Warner, Inc.) for hardcover and
paperback book publishing rights; Playmates Toys, Inc. for a line of toys;
HarperCollins (a division of Rupert Murdoch's News Corporation) for hardcover
and paperback book publishing rights; Alliance Productions, Ltd., a division of
Alliance Communications Corporation, the largest Canadian entertainment company,
for television rights; Sierra On-Line, a publisher of interactive entertainment,
productivity and educational software, for CD-ROM rights; and Miramax Films (a
division of The Walt Disney Company) for feature film and television rights. The
licensing agreements generally provide for the payment by the licensee of
advances to the Company or NetCo Partners, as the case may be, as well as
royalty payments based on sales after the advance has been earned out. The
Company and NetCo Partners are actively negotiating additional licensing
opportunities for their intellectual properties. The Company also is a book
licensor and packager, wherein it focuses on developing and executing book
projects, typically with best selling authors and media and sports celebrities.
The Company's entertainment retail division concentrates on developing,
operating and franchising Big Entertainment retail studio stores and retail
kiosks, primarily located in shopping malls, which sell apparel, collectibles
and other entertainment merchandise. As of the date of the Prospectus, the
Company operates three Big Entertainment in-line studio stores and 28 Big
Entertainment kiosks. The Company plans to focus its future efforts on
developing additional in-line studio stores, which will average approximately
3,000 square feet in size (as compared to approximately 166 square feet for a
kiosk). In May 1997, the Company signed its first U.S. franchise agreement,
under which one Big Entertainment retail studio store is expected to be
constructed by the franchisee in the Philadelphia area by 1998. This franchise
agreement, with a private investor, also provides for the construction of up to
three more franchised studio stores in the Philadelphia region. The Company is
party to an agreement with ABC, pursuant to which, TV monitors in the Company's
retail outlets carry ABC programming in exchange for promotional and advertising
spots for Big Entertainment retail outlets on ABC affiliate television stations
in most of the markets where the Company has retail stores.
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In December 1997, the Company established a $5 million credit facility
with BankBoston, which the Company is using to finance the cost of inventories
for its entertainment retail division. The primary obligor on the credit
facility is the Company's wholly owned subsidiary that constitutes the Company's
entertainment retail division, and the Company is the guarantor. Availability
under this credit facility is limited to 50%-55% of the cost of retail
inventories and certain other factors. The term of the facility is 48 months.
Interest is payable monthly at the prime rate plus 1% for the first two years
and the prime rate plus 1/2% for the third and fourth years. As of January 27,
1998, the Company's outstanding balance on the line of credit was $703,800 and
the available borrowing base was $930,276. The facility is secured by inventory
and accounts receivable of the entertainment retail division. The loan agreement
provides for various financial performance covenants, including maintaining
specified levels of working capital, inventory, gross margin, and earnings
before interest, taxes, depreciation and amortization, all measured by
comparison to the entertainment retail division's business plan, which is
subject to modification from time to time as may be approved by the lender. The
loan agreement also sets forth certain covenants requiring a minimum level of
vendor trade support and limitations on cash dividends paid by the entertainment
retail subsidiary to the Company (other than for overhead allocations). The
first measurement date for compliance with the financial performance covenants
is January 30, 1998. The Company anticipates that it will be in compliance with
all such covenants and that compliance with such covenants and limitations will
not materially adversely affect the Company.
The Company's management expects to require additional financing for
the expansion of its business, and in particular the growth of the Company's
retail division and to support working capital requirements in future years. The
Company currently is exploring financing alternatives to allow the Company to
finance such expansion, although there can be no assurance that such financing
alternatives will be available to the Company or will be available on terms
favorable to the Company. Such financing may take the form of an investment in
equity securities or convertible debt securities of the Company, and may result
in dilution to the Company's shareholders.
INTELLECTUAL PROPERTIES
The Company's and NetCo Partners' intellectual properties have been
developed pursuant to agreements with best-selling authors and media
celebrities, which agreements generally grant the Company all rights (including
all media rights) to the original intellectual property (which includes one or
more characters). The Company actively seeks to license the intellectual
properties to third parties for use in various media. The Company is generally
obligated to pay the authors or celebrities royalties based on its sales of
illustrated novels utilizing the intellectual properties, and additional fees
based on amounts received by the Company from the licensing to third parties of
the rights to produce other products featuring the intellectual properties. The
Company seeks when possible to license its intellectual properties on terms that
provide to the Company advance payments against royalties to be earned and that
minimize the Company's additional development costs going forward.
The intellectual properties, which are currently owned either directly
by the Company or through NetCo Partners, include some of the following:
/bullet/ LEONARD NIMOY'S PRIMORTALS: Inspired by his research at the
SETI (Search for Extraterrestrial Intelligence) Program, the story by
Leonard Nimoy, actor, director and author (best known for his role as
"Spock" on STAR TREK), is about primordial creatures, some benign and
some deadly, abducted from Earth eons ago by space aliens, who are now
coming home to Earth.
/bullet/ TOM CLANCY'S NETFORCE (a NetCo Partners property): A narrative
set in the year 2010 involving the policing of computer systems and the
establishment of NETFORCE, an elite enforcement division of the FBI
whose specialty is crimes on the world-wide Internet. The property is
being developed for NetCo Partners by Tom Clancy (the best-selling
author of geopolitical thrillers, including POLITIKA, THE HUNT FOR RED
OCTOBER, PATRIOT GAMES, CLEAR AND PRESENT DANGER and EXECUTIVE ORDERS)
in collaboration with Steve Pieczenik, who previously collaborated with
Mr. Clancy in the creation of the best-selling TOM CLANCY'S OP-CENTER
series of novels.
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/bullet/ GENE RODDENBERRY'S XANDER IN LOST UNIVERSE: A space adventure,
based on a concept created by the late creator of STAR TREK, featuring
Xander, a cyborg clone who has been endowed with the secrets of the
Lost Universe. Pursuing him is Lady Sensua, an evil being of immense
power who wants those secrets, even if she must tear Xander apart to
get them.
/bullet/ ISAAC ASIMOV'S I/BULLET/BOTS: A tale of seven android
superheroes, based on a concept created by the late Isaac Asimov
(author of more than 400 science and science fiction books and widely
regarded as the dean of 20th Century science fiction writers).
/bullet/ MICKEY SPILLANE'S MIKE DANGER: When Mike Danger, hard-boiled
private eye of the 1950s, wakes up in the year 2045, the peace-loving
citizens of the future are given a violent history lesson in 20th
Century crime fighting. The story is based on a concept created by
Mickey Spillane, a prolific best-selling mystery writer whose private
eye character "Mike Hammer" has been featured in comic strips, movies
and television series.
/bullet/ JOHN JAKES' MULLKON EMPIRE: A dynastic, Borgia-like family has
built an interstellar financial empire on the galactic garbage
business. The property was developed by the author John Jakes, whose
novels NORTH AND SOUTH, LOVE AND WAR, HEAVEN AND HELL and THE KENT
FAMILY CHRONICLES have all been on The New York Times' best-sellers
lists and have been made into successful television mini-series.
/bullet/ TAD WILLIAMS' MIRROR WORLD (a NetCo Partners property): The
story follows mirror-like windows that appear outside New York, Los
Angeles, London, Tokyo and other major cities around the world, opening
passages to a new and dangerous universe. Mr. Williams is the author of
best-selling novels including the MEMORY, SORROW AND THORN trilogy,
CALIBAN'S HOUR and TAILCHASER'S SONG.
/bullet/ ANNE MCCAFFREY'S ACORNA: THE UNICORN GIRL: This tale unfolds
when a pod is found in deep space. From it emerges Acorna, part human,
part mythical creature, who is traveling the cosmos in search of her
origins. Ms. McCaffrey is the author of New York Times best-selling
fantasy novels, including THE DRAGON RIDERS OF PERN series.
/bullet/ MARGARET WEIS' TESTAMENT OF THE DRAGON: A dragon-possessed,
immortal human, seeks to track and destroy the evil dragon who controls
him. Ms. Weis is a New York Times best-selling author of numerous sword
and sorcery novels and has developed many popular role-playing games.
/bullet/ ARTHUR C. CLARKE'S CRIOSPHINX (a NetCo Partners property):
Developed by Arthur C. Clarke, the author of 2001: A SPACE ODYSSEY,
about the revival of Alexander the Great in the 21st Century.
/bullet/ NEIL GAIMAN'S MR. HERO -- THE NEWMATIC MAN: A whimsical tale
of a steam-powered, Victorian robot reactivated in modern Los Angeles
by a young street pantomime named Jenny. Mr. Gaiman is writer and
co-creator of the SANDMAN comic book series, which has been called the
"best monthly comic book in the world" by The Los Angeles Times
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and which is being developed by Warner Bros. as a feature film. Mr.
Gaiman has also been voted the number one comic writer for the last
three years in COMIC BUYERS GUIDE reader polls.
/bullet/ NEIL GAIMAN'S TEKNOPHAGE: TeknoPhage, a dinosaur-like C.E.O.
lives in a terrifying outerworld and manipulates the lives of others.
/bullet/ NEIL GAIMAN'S LADY JUSTICE: When the scales of justice are
unbalanced, the Lady Justice entity possesses a wronged woman to serve
her cause, infusing the host body with great power. The woman must seek
justice until she finds victory or death.
/bullet/ NEIL GAIMAN'S WHEEL OF WORLDS: Interweaves the stories of
several of Gaiman's characters.
/bullet/ CATHY CASH SPELLMAN'S MILLENNIUM (working title) (a NetCo
Partners property): In the year 2018, the world as we know it has
ceased to exist, leveled by nuclear and environmental disasters. The
United States has splintered, torn into bits by advancing oceans and
earthquakes. In the tattered remnants of the former city of New York,
the survivors of the disasters cope with a strange new world containing
mutants, robots, and extraterrestrials.
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FORWARD-LOOKING STATEMENTS
The Company cautions readers that certain important factors may affect
the Company's actual results and could cause such results to differ materially
from any forward-looking statements that may be deemed to have been made in this
Prospectus or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Prospectus that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate" or "continue" or the
negative variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors which may cause or contribute to such
difference in results include, but are not limited to, those discussed in the
sections captioned "Risk Factors" below as well as those discussed elsewhere in
this Prospectus and from time to time in the Company's filing with the
Commission.
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RISK FACTORS
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. BEFORE INVESTING IN THE COMMON STOCK, PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE MATTERS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION
SET FORTH IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY. The Company began generating revenues and
emerged from the development stage in the fourth quarter of 1994. Accordingly,
the Company has a limited operating history from which an evaluation of the
Company's prospects may be made. The Company's prospects must be considered in
light of the numerous risks, expenses, problems and difficulties typically
encountered in connection with the establishment of a new business, the
development and introduction of new products, and the competitive environment in
which the Company is operating. There can be no assurance that the Company can
successfully implement its current operating plan.
OPERATING LOSSES AND ACCUMULATED DEFICIT. The Company has incurred
significant net losses since its inception, including net losses of $6,655,609
and $8,439,892 for the years ended December 31, 1996 and 1995 and $3,249,323 for
the nine months ended September 30, 1997. The Company had accumulated deficits
of $21,992,633 and $25,407,639 at December 31, 1996 and September 30, 1997,
respectively.
The Company has made several modifications to its initial business plan
in an effort to reverse the losses that have been sustained since its inception.
During 1997, the Company stopped publishing comic books, an activity that
required a substantial amount of resources and had not proven to be profitable.
Essentially all of the overhead associated with comic book publishing has been
eliminated effective with the second quarter of 1997. At the same time, the
Company decided to expand its retail operations and has initiated this expansion
with the development of three prototype in-line retail stores. Substantial
resources were devoted to the development of three protoptype in-line stores
which opened in the fourth quarter of 1997, including professional fees and
expenses incurred to design the new stores, the hiring of additional field and
administrative personnel, the selection and acquisition of new hardware and
software for a new retail accounting and merchandising system to be implemented,
and the capital expenditures for the new stores. In addition, the Company
continues to acquire and develop its base of intellectual properties, and to
negotiate additional licensing agreements thereon, which while not capital
intensive, requires a substantial amount of time from its senior executives.
While the Company believes that these measures will ultimately reverse its
operating losses, there can be no assurances that the revenues generated by the
intellectual property and retail divisions will be sufficient to offset the
associated expenses incurred.
AVAILABILITY OF CASH AND WORKING CAPITAL. The Company's cash and cash
equivalents at December 31, 1996 and September 30, 1997 totaled $1,675,852 and
$1,569,375, respectively. The Company had working capital of $1,285,093 and
$1,852,786 at December 31, 1996 and September 30, 1997, respectively. During the
year ended December 31, 1996, the Company used $6,133,454 of cash to fund its
operating activities and incurred a net loss of $6,655,609 during such period.
During the nine months ended September 30, 1997, the Company used $4,616,337 of
cash to fund its operating activities and incurred a net loss of $3,249,323
during such period. The long-term financial success of the Company is dependent
upon the Company's ability to generate adequate revenue to offset operating
expenses. During 1997, the Company received net proceeds of approximately
$4,000,000 in the July 1997 Private Placement and the offering of the
Convertible Debenture. In addition, in December 1997, the Company established a
$5 million credit facility with BankBoston. Availability under the credit
facility is limited to 50%-55% of the Company's cost of retail inventories and
certain other factors. As of January 27, 1998, the Company's outstanding balance
on the line of credit was $703,800 and the available borrowing base was
$930,276. (See "The Company--The Company's Operating Divisions.") The Company
currently plans to continue to seek additional financing to fund its growth plan
and for working capital. Any such additional financing may result in dilution to
the Company's shareholders. Based on currently proposed plans and assumptions
relating to its operations, absent the Company's plans to expand its in-line
studio stores (see"--Retail Operations," below), the Company believes that
anticipated cash flow from operations and its other current sources of capital
will be sufficient to satisfy the Company's working capital requirements for
approximately the next 12 months. If the Company's plans change or its
assumptions prove to be inaccurate, the Company may be required to seek further
financing or to curtail its operations. There can be no assurance that any
additional financing, if required, will be available to the Company, or that if
available, such financing will be on terms favorable to the Company.
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<PAGE>
RETAIL OPERATIONS. The success of the Company's entertainment retail
division depends upon the Company's ability to open and operate Big
Entertainment studio stores and kiosks on a timely and profitable basis. The
Company has increased the number of its retail kiosks at a moderate pace, adding
10 new units in 1995, 10 new units in 1996 and five new units in 1997. These new
units coupled with the addition of three new in-line studio stores have
necessitated that the Company incur additional operating and administrative
expenses in conjunction with its retail operations. The Company intends to
expand its retail operations through the opening of additional Company-owned
studio stores and kiosks and the implementation of a franchising program. In May
1997, the Company entered into its first U.S. franchise agreement. The
successful realization of the Company's expansion plans depends on, among other
things, the ability of the Company and its franchisees to secure suitable sites,
to hire, train and retain qualified personnel; to obtain leases on favorable
terms; to secure any required financing; and the general business and economic
conditions in the localities of its retail outlets. The Company plans to
evaluate the results of its retail store expansion (particularly the new in-line
store concept) and to make modifications and/or curtail operating and
administrative costs where appropriate. There can be no assurance that the
Company will be successful in expanding or operating its retail outlets or
continuing the implementation of its franchise program.
COMPETITION. Competition is generally intense in the entertainment
industries in which the Company operates. In the licensing market, the Company
competes with a wide range of other corporations as well as individuals, many of
which have more financial resources than the Company. The Company's
entertainment retail division competes for sales with specialty stores and other
retail outlets which offer entertainment merchandise. There can be no assurance
that the Company will be able to compete successfully in any of these market
segments.
TRADEMARKS AND PROPRIETARY RIGHTS. The Company's intellectual
properties are the principal assets of the Company's licensing and publishing
divisions. The Company has filed applications for federal trademark registration
of its existing trademarks and files applications for trademark and copyright
protection for each of its intellectual properties. Although to date the Company
has approximately 20 U.S. registered trademarks, there can be no assurance that
any such additional applications, when filed, will be approved, or that the
Company will have the financial and other resources necessary to enforce its
proprietary rights against infringement by others. The inability of the Company
to obtain adequate protection of or to enforce its proprietary rights could have
a material adverse effect on the Company.
DEPENDENCE ON MANAGEMENT. Mitchell Rubenstein, the Company's Chairman
of the Board and Chief Executive Officer, and Laurie S. Silvers, the Company's
Vice Chairman and President, have been primarily responsible for the
organization of the Company and the development of its business. Each of them
has entered into an employment agreement with the Company that expires in July
1998. Such employment agreements generally provide, among other things, that the
Company's termination of either of such agreements without "cause" will also
constitute a termination of the other agreement without "cause" (as defined in
such agreements), and that an executive whose employment agreement is terminated
without cause shall continue to receive his or her salary until the expiration
of the term of the agreement. The Company is the beneficiary of $1,000,000 in
key man insurance on the lives of each of these executives of which $500,000 per
policy has been pledged to one of the Company's senior creditors.. The loss of
the services of either of these individuals would have a material adverse effect
on the Company. The Company's future success will also be dependent upon its
ability to attract and retain qualified and creative management, administrative
and other personnel.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDERS. As of the date of this
Prospectus, the Company's executive officers and directors beneficially owned in
the aggregate approximately
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<PAGE>
29.9% of the outstanding shares of Common Stock. As a result, such persons have
the ability to significantly influence the outcome of any matters submitted to a
vote of the Company's shareholders.
DIVIDENDS. The Company has not paid any cash dividends on its Common
Stock since its inception. Dividends on the Company's Series A Preferred Stock
and Series B Preferred Stock are payable solely in shares of Common Stock. The
Company's outstanding Series C Preferred Stock accrues cash dividends at the
annual rate of 4%. The Company intends to retain earnings remaining after
payment of such cash dividends to finance the development and expansion of its
business.
TRADING MARKET FOR COMMON STOCK. The Company's Common Stock is quoted
on The Nasdaq SmallCap Market and the Boston and Philadelphia Stock Exchanges.
There currently is a relatively limited trading market for the Common Stock.
Furthermore, there can be no assurance that a more active trading market for the
Common Stock will develop or, if developed, that it would be sustained.
POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Common
Stock could be subject to significant fluctuation in response to the Company's
operating results and other factors, including general price fluctuations in
securities markets. From time to time the stock markets have experienced extreme
price and volume fluctuations. This volatility has had significant effects on
the market prices of securities issued by many companies, especially smaller
public companies, often for reasons unrelated to their operating performance.
SHARES ELIGIBLE FOR FUTURE SALE. As of the date of this Prospectus,
approximately 4,247,171 shares of Common Stock held by existing shareholders
(including the 1,000,002 Shares issued in the Private Placement registered
hereby) constitute "restricted shares" as defined in Rule 144 under the
Securities Act ("Rule 144"), and may only be sold if such shares are registered
under the Securities Act or sold in accordance with Rule 144 or another
exemption from registration under the Securities Act. Sales under Rule 144 are
subject to the satisfaction of certain holding periods, volume limitations,
manner of sale requirements, and the availability of current public information
about the Company. Substantially all of the Company's restricted shares of
Common Stock are either eligible for sale pursuant to Rule 144 or have been
registered under the Securities Act for resale by the holders thereof (including
the 1,000,002 Shares issued in the Private Placement registered hereby), which
will permit the sale of such registered shares of Common Stock in the open
market or in privately negotiated transactions without compliance with the
requirements of Rule 144. The Company is unable to estimate the amount, timing
or nature of future sales of outstanding Common Stock. Sales of substantial
amounts of the Common Stock in the public market may have an adverse effect on
the market price thereof.
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. As
of the date of this Prospectus, the Company has outstanding options granted
under the Company's stock option plans to purchase an aggregate of 949,063
shares of Common Stock, warrants to purchase an aggregate of 759,996 shares of
Common Stock,
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<PAGE>
20,000 shares of Series C Preferred Stock convertible into 316,205 shares of
Common Stock and the Convertible Debenture convertible into 136,698 shares of
Common Stock based on the conversion price that would be applicable if converted
on January 14, 1998. As long as such options, warrants and convertible
securities remain unexercised or are not converted, as the case may be, the
terms under which the Company could obtain additional capital may be adversely
affected. Moreover, the holders of the options, warrants and convertible
securities may be expected to exercise or convert them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by such
securities.
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation
authorize the issuance of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Company's
Board of Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue shares of preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could also be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company, although the Company has no intention as of the date of
this Prospectus to issue any additional series of its preferred stock.
The Company has adopted a Shareholders' Rights Plan and in September
1996 declared a dividend of one right ("a Right") for each outstanding share of
Common Stock. Each Right entitles the holder thereof to purchase from the
Company one share of Common Stock at a price of $25.00 per share upon the
occurrence of specific events. See "Description of Capital Stock --Shareholders'
Rights Plan." Such Rights may cause substantial dilution to a person or group
that attempts to acquire the Company in a manner or on terms not approved by the
Board of Directors. The Shareholders' Rights Plan is intended to encourage a
person interested in acquiring the Company to negotiate with, and to obtain the
approval of, the Board of Directors in connection with such a transaction. The
Shareholders' Rights Plan, however, may discourage a future acquisition of the
Company, including an acquisition in which shareholders might otherwise receive
a premium for their shares. As a result, shareholders who might desire to
participate in such a transaction may not have the opportunity to do so.
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<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the sale of any of or all of
the Shares of Common Stock being offered by the Selling Shareholders hereunder
or upon conversion of the Convertible Debentures, but may receive an aggregate
of approximately $702,000 upon exercise of all of the Warrants and the Placement
Agent's Warrants. Such proceeds, if any, will be used for working capital and
other corporate purposes.
Expenses expected to be incurred by the Company in connection with the
registration of the Shares are estimated at approximately $20,250.
-14-
<PAGE>
SELLING SHAREHOLDERS
The Company has been advised by the Selling Shareholders that none of
the Selling Shareholders has or had a position, office or other material
relationship with the Company or any of its affiliates within the past three
years. Unless otherwise indicated, the following table sets forth certain
information with respect to the ownership of the Company's Common Stock by each
Selling Shareholder as of the date of this Prospectus.
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES NUMBER OF OWNERSHIP OF SHARES
NAME AND ADDRESS OF SELLING OF COMMON STOCK SHARES OF COMMON STOCK
SHAREHOLDER PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
- ------------------------------------ ----------------------- -------------- ---------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Leonard Adams....................... 28,571 * 28,571 0 *
3050 Champion Boulevard
Boca Raton, FL 33496
Paul R. Alter....................... 21,429 * 21,429 0 *
1111 Park Avenue
New York, NY 10128
David Babiarz....................... 28,571 * 28,571 0 *
1035 Glencrest
Inverness, IL 60010
Marvin Barish....................... 14,286 * 14,286 0 *
5227 Dumfries
Houston, TX 77096-5104
Baron Associates.................... 14,286 * 14,286 0 *
Barry Levites
341 East 149 Street
Bronx, NY 10451
Barington Capital Group, L.P........ 100,000(2) 1.45% 100,000(2) 0 *
888 Seventh Avenue
New York, NY 10019
James Beldner....................... 14,286 * 14,286 0 *
3091 Riverside Drive
Wantagh, NY 11793
Efraim Bodek........................ 7,143 * 7,143 0 *
1024 Virginia Street
Far Rockaway, NY 11691
CLFS Equities....................... 28,571 * 28,571 0 *
410 17th Street
Suite 1705
Denver, CO 80202
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES NUMBER OF OWNERSHIP OF SHARES
NAME AND ADDRESS OF SELLING OF COMMON STOCK SHARES OF COMMON STOCK
SHAREHOLDER PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
- ------------------------------------ ----------------------- -------------- ---------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
W. Paul Craig & .................... 7,143 * 7,143 0 *
Imogean Craig, Community Property
5901 Camray Circle
Carmichael, CA 95608-1733
D. Stake Mill, Inc.................. 14,286 * 14,286 0 *
Douglas Lundmark - V.P. Finance
P.O. Box 1124
McMinnville, OR 97128
Jay Dalgetty........................ 28,571 * 28,571 0 *
2111 Fairway Green Drive
Kingwood, TX 77339
Dennis J. Drebsky................... 14,286 * 14,286 0 *
7 Glen Hill Court
Dix Hills, NY 11746
Explorer Partners, LLC.............. 130,323(3) 1.89% 130,323(3) 0 *
444 N. Michigan Avenue
Suite 2910
Chicago, IL 60611
David Fried......................... 7,143 * 7,143 0 *
43 Patton Drive
E. Brunswick, NJ 08816
John Friedler....................... 7,143 * 7,143 0 *
P.O. Box 566
Bedford, NY 10506
Richard Gilbert..................... 14,286 * 14,286 0 *
10351 Ardis Road
Roscoe, IL 61073
Doug Gill........................... 14,286 * 14,286 0 *
Lower Rannieshill Farm
Newmakhar Aderdeen
Scotland, AB21 OUF
United Kingdom
Stuart W. Gold...................... 28,571 * 28,571 0 *
335 Greenwich Street
New York, NY 10013
Jimmy Hanks......................... 7,143 * 7,143 0 *
4124 Deer Point Lake Drive
Panama City, FL 32409
Richard H. Hantke................... 14,286 * 14,286 0 *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES NUMBER OF OWNERSHIP OF SHARES
NAME AND ADDRESS OF SELLING OF COMMON STOCK SHARES OF COMMON STOCK
SHAREHOLDER PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
- ------------------------------------ ----------------------- -------------- ---------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
5451 River Park Drive
Libertyville, IL 60048
Terence Leslie Hudson............... 135,714 1.97% 135,714 0 *
330 Sandbanks Road
Evening Hill
Poole Dorset
England, BH14 8HY
Steven Israel....................... 14,286 * 14,286 0 *
35 Henry Drive
Glen Cove, NY 11542
Robert A. Jacobs.................... 14,286 * 14,286 0 *
40 Fifth Avenue
New York, NY 10011
Frank Juranich...................... 7,143 * 7,143 0 *
5790 Broadway
Bronx, NY 10463
Dr. Harvey Kaplan................... 7,143 * 7,143 0 *
14333 Laurel Bowie Road
Suite 205
Laurel, MD 20708
Gilman R. King...................... 7,143 * 7,143 0 *
646 Golf Lane
LK Barrington, IL 60010
David Kohane, D.M.D................ 21,429 * 21,429 0 *
333 West 86th Street
Apt. 902B
New York, NY 10024
Richard S. Koreyva.................. 14,286 * 14,286 0 *
141 Glenview Drive
Lawrenceville, NJ 08648
Leckson Unlimited................... 71,429 1.04% 71,429 0 *
101 High Street Earith
Huntington Cambs
PE173PN, England
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES NUMBER OF OWNERSHIP OF SHARES
NAME AND ADDRESS OF SELLING OF COMMON STOCK SHARES OF COMMON STOCK
SHAREHOLDER PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
- ------------------------------------ ----------------------- -------------- ---------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
John Lilley......................... 7,143 * 7,143 0 *
Heath House
Lynn Road
Hillington
Kings Lynn Norfolk
England PE316B2
Paul Matusow........................ 14,286 * 14,286 0 *
20191 East Country Club Drive
Aventura, FL 33180
Guy Montanari....................... 7,143 * 7,143 0 *
82 Payne Road
Danbury, CT 06810
Steven M. Ostner.................... 28,571 * 28,571 0 *
420 West End Avenue # 7B
New York, NY 10024
Gary and Rebecca Perrine............ 28,571 * 28,571 0 *
2470 Tarpon Road
Naples, FL 34102
Michael Pizitz...................... 14,286 * 14,286 0 *
1901 Hidden Dunes
9815 Hway 98 West
Destin, FL 32541
Malladi and Pravina Reddy........... 42,857 * 42,857 0 *
2012 Haggin Oaks Drive
Bakersfield, CA 93311
Myron H. Reinhart................... 14,286 * 14,286 0 *
8900 Brennan Road
Richmond, VA 23229
Ronold Roth......................... 28,571 * 28,571 0 *
516 West Main Street
Cold Spring Harbor, NY 11724
Alan J. Rubin....................... 28,571 * 28,571 0 *
17231 Coral Cove Way
Boca Raton, FL 33496
Joseph Russoniello.................. 14,286 * 14,286 0 *
14025 Osprey Links Road
Condo # 372
Orlando, FL 32837
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP OF SHARES NUMBER OF OWNERSHIP OF SHARES
NAME AND ADDRESS OF SELLING OF COMMON STOCK SHARES OF COMMON STOCK
SHAREHOLDER PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING(1)
- ------------------------------------ ----------------------- -------------- ---------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Wayne Saker......................... 28,571 * 28,571 0 *
6860 Gulfport Boulevard S.
# 318
St. Petersburg, FL 33701
Michael Schwartzbard................ 7,143 * 7,143 0 *
133 Eileen Drive
Cedar Grove, NJ 07009
Mark Scioscia....................... 7,143 * 7,143 0 *
330 Shields Lane
Sewickley, PA 15143
Stan F. Sech........................ 28,571 * 28,571 0 *
2 Brentside Executive Centre
Great West Road
Brentford
Middlesex
TW8 9DA, England
Floyd M. and Ilyse Smith............ 7,143 * 7,143 0 *
191 Carlough Place
Mahwah, NJ 07430
Robert Damon Spitzer................ 14,286 * 14,286 0 *
264 Village Boulevard
Building # 2
Incline Village, NV 89451
Gershon A. Stern.................... 28,571 * 28,571 0 *
1171 East Landis Avenue
Vineland, NJ 08360
Ramie Tritt......................... 7,143 * 7,143 0 *
5362 Hallford Drive
Dunwoody, GA 30338
W. Ed and Vickie S. Tyler........... 28,571 * 28,571 0 *
631 North Lincoln Street
Hinsdale, IL 60521
Stella and Cynthia Zimmer........... 7,143 * 7,143 0 *
1315 East 102 Street
Brooklyn, NY 11236
</TABLE>
- -------------------------
* Less than 1%.
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<PAGE>
(1) Assumes that all Shares are sold pursuant to this offering and that no
other shares of Common Stock are acquired or disposed of by the Selling
Shareholders prior to the termination of this offering. Because the
Selling Shareholders may sell all, some or none of their Shares or may
acquire or dispose of other shares of Common Stock, no reliable estimate
can be made of the aggregate number of Shares that will be sold pursuant
to this offering or the number or percentage of shares of Common Stock
that each Selling Shareholder will own upon completion of this offering.
(2) Includes the Shares of Common Stock issuable upon exercise of the
Placement Agent's Warrants.
(3) Shares of Common Stock issuable upon conversion of the Convertible
Debenture and the shares of Common Stock issuable upon exercise of the
Debenture Warrants. Additional shares were registered in the Registration
Statement of which this Prospectus forms a part with respect to
additional shares of Common Stock that may be issued upon conversion of
the Convertible Debenture pursuant to the terms thereof.
PLAN OF DISTRIBUTION
The Selling Shareholders have advised the Company that they may from
time to time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the Nasdaq SmallCap Market, the
Boston Stock Exchange, the Philadelphia Stock Exchange, or on any other exchange
on which the Common Stock may then be listed, in privately negotiated
transactions or otherwise, or a combination of such methods of sale, at market
prices prevailing at the time of sale or prices related to such prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or purchasers of
the Shares for whom they may act as agent (which compensation may be in excess
of customary commissions). The Selling Shareholders and any participating
broker-dealers may be deemed to be "underwriters" as defined in the Securities
Act. Neither the Company nor the Selling Shareholders can estimate at the
present time the amount of commissions or discounts, if any, that will be paid
by the Selling Shareholders on account of their sales of the Shares from time to
time. The Company has agreed to indemnify the Selling Shareholders against
certain liabilities, including certain liabilities under the Securities Act.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold therein unless the Shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and is complied with.
The Company will pay certain expenses in connection with this offering,
estimated to be approximately $20,250, but will not pay for any underwriting
commissions and discounts, if any, or counsel fees or other expenses of the
Selling Shareholders. The Company has agreed to
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<PAGE>
indemnify the Selling Shareholders, their directors, officers, agents and
representatives, and any underwriters, against certain liabilities, including
certain liabilities under the Securities Act. The Selling Shareholders have also
agreed to indemnify the Company, its directors, officers, agents and
representatives against certain liabilities, including certain liabilities under
the Securities Act.
The Selling Shareholders and other persons participating in the
distribution of the Shares offered hereby are subject to the applicable
requirements of Rule 10b-6 promulgated under the Exchange Act in connection with
sales of the Shares.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). As of the date of this
Prospectus, 6,896,340 shares of Common Stock and an aggregate of 359,546 shares
of Preferred Stock were outstanding. The transfer agent for the Common Stock is
American Stock Transfer & Trust Company, New York, New York. The following
summary description of the securities of the Company is qualified in its
entirety by the warrant agreement.
COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of the shareholders. The holders of Common Stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors, in its discretion, from funds legally available therefor. Upon
liquidation or dissolution of the Company, the holders of Common Stock are
entitled to share ratably in the assets of the Company, if any, legally
available for distribution to shareholders after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
shares of the Company's Preferred Stock. The Common Stock has no preemptive
rights and no subscription, redemption or conversion privileges. The Common
Stock does not have cumulative voting rights, which means that the holders of a
majority of the outstanding shares of Common Stock voting for the election of
directors will be able to elect all members of the Board of Directors. A
majority vote will also be sufficient for other actions that require the vote or
concurrence of shareholders. All of the outstanding shares of Common Stock are,
and the shares to be sold in this Offering will be, when issued and paid for,
fully paid and nonassessable.
PREFERRED STOCK
GENERAL. The Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers, designations,
preferences and relative participation, optional or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rights and dividend rate, terms of redemption (including sinking fund
provisions), redemption price or
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<PAGE>
prices, conversion rights and liquidation preferences of the shares constituting
any series, without any further vote or action by the shareholders. The issuance
of Preferred Stock by the Board of Directors could affect the rights of the
holders of Common Stock. For example, such issuance could result in a class of
securities outstanding that would have preferences with respect to voting rights
and dividends, and in liquidation, over the Common Stock, and could (upon
conversion or otherwise) enjoy all of the rights appurtenant to Common Stock.
SERIES A PREFERRED STOCK. The Company has designated 217,600 shares of
Preferred Stock as the Company's Series A Preferred Stock, and has issued
217,600 shares of such Series A Preferred Stock as of the date of this
Prospectus. The Series A Preferred Stock has a stated value of $6.25 per share
and accrues non-cash dividends, payable quarterly in shares of Common Stock
based on prevailing market prices for the Common Stock. The dividends accrue on
the stated value of the outstanding shares of Series A Preferred Stock at a
variable rate equal to a specified bank prime rate (8.50% as of the date of this
Prospectus). The Series A Preferred Stock is redeemable at the Company's option
for $7.1875 per share in cash. The holders of the Series A Preferred Stock will
be entitled to vote together with the holders of Common Stock on all matters,
with each share of Series A Preferred Stock having one vote. The Series A
Preferred Stock will have a liquidation preference of $7.1825 per share over the
Common Stock. The Company and certain holders of Common Stock (Mitchell
Rubenstein, Laurie S. Silvers, Asbury Park Press, Inc. and Martin H. Greenberg)
agreed in connection with the sale of the Series A Preferred Stock that the
Company shall appoint one nominee of Tekno Simon, LLC ("Tekno Simon"), the
holder of all outstanding shares of the Series A Preferred Stock, to the
Company's Board of Directors and that such shareholders shall vote their shares
for election of such nominee to the Company's Board of Directors. Such holder's
current nominee on the Board is Deborah J. Simon, who was appointed to the Board
in November 1996.
SERIES B PREFERRED STOCK. The Company has designated 142,223 shares of
Preferred Stock as its Series B Variable Rate Convertible Preferred Stock, par
value $.01 per share (the "Series B Preferred Stock"). On October 16, 1996, the
Company entered into an amendment to the stock purchase agreement dated November
8, 1995, between the Company and Tekno Simon, regarding the sale of the Series A
Preferred Stock, whereby Tekno Simon agreed to purchase shares of Series B
Preferred Stock, instead of additional shares of Series A Preferred Stock as
originally provided by the agreement. The terms of the Series B Preferred Stock
are identical to those of the Series A Preferred Stock, except that the purchase
price per share of the Series B Preferred Stock was subject to adjustment upon
completion of all of the funding under the amended stock purchase agreement,
based on the market prices of the Common Stock at the time of each such funding,
but in no event shall the purchase price be greater than $6.25 per share or less
than $4.50 per share. As of the date hereof, all of the fundings under the
amended stock purchase agreement have been completed, and 122,846 shares of
Series B Preferred Stock have been issued to Tekno Simon, based upon an adjusted
purchase price of $5.21 per share.
-22-
<PAGE>
SERIES C PREFERRED STOCK. The Company has designated 100,000 shares of
the Company's Preferred Stock as 4% $100 Series C Convertible Preferred Stock
(the "Series C Preferred Stock") and 20,000 of such shares were sold in a
December 1996 private placement to a single accredited strategic investor. The
Series C Preferred Stock pays quarterly cash dividends at the annual rate of 4%
and is convertible into shares of Common Stock based on an initial conversion
price of 110% of the market price of the Common Stock on the date of the
transaction (resulting in an initial conversion price of $6.325), subject to
certain adjustments. The Series C Preferred Stock will have a liquidation
preference of $100 per share over the Common Stock. The Series C Preferred Stock
ranks junior to the Series A Preferred Stock and Series B Preferred Stock as to
payment of dividends and liquidation rights. Each share of Series C Preferred
Stock is entitled to one vote per share, together with the holders of shares of
the Company's Common Stock, Series A Preferred Stock and Series B Preferred
Stock, as a single class on all matters presented to a vote of the Company's
shareholders, except as otherwise expressly required by law.
CONVERTIBLE DEBENTURE
The Company has issued the Convertible Debenture to a single investor.
Interest accrues on the Convertible Debenture at the rate of 4% per annum on the
outstanding principal from the date of initial issuance until payment in full of
the principal amount or conversation of the Convertible Debenture. The Company
has the right to redeem the Convertible Debenture for the sum of 125% of the
unpaid principal and any accrued or unpaid interest. The Convertible Debenture
is convertible as follows: (i) up to 25% of the principal amount is convertible
after the effective date (the "Effective Date") of this registration statement;
(ii) up to 50% of the principal amount is convertible after 30 days from the
Effective Date; (iii) up to 75% of the principal amount is convertible after 60
days from the Effective Date; and (iv) up to 100% of the principal amount is
convertible after 90 days from the Effective Date.
CERTAIN ANTI-TAKEOVER EFFECTS
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and the Company's Articles of Incorporation also
authorize the Company to indemnify the Company's directors, officers, employees
and agents. Pursuant to such authorization, the Company has entered into
agreements with each of its directors and certain of its officers providing for
indemnification to the fullest extent permitted by law.
Additionally, the authority possessed by the Board of Directors to
issue Preferred Stock and the Company's Shareholders' Rights Plan described
below could potentially be used to discourage attempts by others to obtain
control of the Company through merger, tender offer, proxy contest or otherwise
by making such attempts more difficult to achieve or more costly. The Board of
Directors may issue Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. Except as
described above,
-23-
<PAGE>
there are no agreements or understandings for the issuance of Preferred Stock
and the Board of Directors has no intention to issue additional series of
Preferred Stock as of the date of this Prospectus.
SHAREHOLDERS' RIGHTS PLAN
The Company has implemented a Shareholders' Rights Plan providing for a
dividend distribution of one Right for each outstanding share of Common Stock.
On August 23, 1996, the Board of Directors declared a dividend of one Right for
each outstanding share of Common Stock, payable on September 4, 1996 to the
shareholders of record on that date. Each Right entitles the holder thereof to
purchase from the Company one share of Common Stock at a price of $25.00 per
share (the "Exercise Price"). The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") between the Company and
American Stock Transfer & Trust Company, as Rights Agent, dated as of August 23,
1996.
The Rights will expire 10 years after issuance, unless earlier redeemed
by the Company as provided in the Rights Agreement at a price of $.01 per Right.
The Rights are not currently exercisable and automatically trade together with
the Common Stock.
The Rights, unless earlier redeemed, will become exercisable upon the
occurrence of certain events as defined in the Rights Agreement, which generally
would result in a change in control of the Company or the acquisition of 15% or
more of the Company's Common Stock in transactions not approved by the Board of
Directors prior to consummation thereof. Unless the Rights are earlier redeemed,
in the event that, after the Rights become exercisable, the Company were to be
acquired in a merger or other business combination (in which outstanding shares
of the Company's Common Stock are changed into or exchanged for other securities
or assets) or more than 50% of the assets or earning power of the Company and
its subsidiaries (taken as a whole) were to be sold or transferred in one or a
series of related transactions, the Rights Agreement provides that proper
provision will be made so that each holder of record of a Right will have the
right to receive, upon payment of the Exercise Price, that number of shares of
common stock of the acquiring company having a market value at the time of such
transaction equal to two times the Exercise Price. In addition, unless the
Rights are earlier redeemed, if a person or group becomes an "acquiring person"
(as defined in the Rights Agreement), the Rights Agreement provides that proper
provision will be made so that each holder of record of a Right, other than such
acquiring person (whose Rights will thereupon become null and void), will
thereafter have the right to receive, upon payment of the Exercise Price, that
number of shares of the Company's Common Stock having a market value at the time
of the transaction equal to two times the Exercise Price.
The number of shares of Common Stock issuable upon exercise of the
Rights and the Exercise Price of the Rights are subject to certain adjustments
as set forth in the Rights Agreement. Until a Right is exercised, the holder, as
such, will have no rights as a shareholder of the Company, including, without
limitation, the right to vote or to receive dividends.
The Rights will have certain anti-takeover effects by causing
substantial dilution to a person or group that attempts to acquire the Company
in a manner or on terms not approved by the Board of Directors. The Rights,
however, should not deter any prospective offeror willing
-24-
<PAGE>
to negotiate in good faith with the Board of Directors, nor should the Rights
interfere with any merger or other business combination approved by the Board of
Directors.
SHARES ELIGIBLE FOR FUTURE SALE
See "Risk Factors -- Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the Shares is being passed upon for the Company by
Broad and Cassel, a partnership including professional associations, 201 South
Biscayne Boulevard, Suite 3000, Miami, Florida 33131.
EXPERTS
The financial statements of the Company incorporated by reference in
this Prospectus from the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996 have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in its report with respect thereto,
and is incorporated herein in reliance upon the authority of said firm as
experts in accounting and auditing.
-25-
<PAGE>
====================================== ======================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with the offering made hereby, and
any information or representation not contained or incorporated herein must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Shares described in the cover page hereof, or an offer
to sell or a solicitation of an offer to buy the Shares offered hereby in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
----------
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION..............................................3
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE.....................................................3
THE COMPANY........................................................4
FORWARD-LOOKING STATEMENTS........................................10
RISK FACTORS......................................................11
USE OF PROCEEDS...................................................15
SELLING SHAREHOLDERS..............................................16
PLAN OF DISTRIBUTION..............................................21
DESCRIPTION OF CAPITAL STOCK......................................22
LEGAL MATTERS.....................................................26
EXPERTS...........................................................26
1,307,502 Shares
BIG ENTERTAINMENT, INC.
Common Stock
---------------------------------
PROSPECTUS
---------------------------------
__________________, 1998
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that its expenses in connection with this
registration statement will be as follows:
Securities and Exchange Commission registration fee........ $ 2,524
Legal fees and expenses.................................... 10,000
Accounting fees and expenses............................... 7,500
Miscellaneous.............................................. 226
----------
Total............................................. $ 20,250
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 607.0850 of the Florida
Business Corporation Act (the "FBCA") to indemnify its directors and officers to
the extent provided for in the FBCA. The Company's Amended and Restated Articles
of Incorporation provide that the Company shall indemnify and may insure its
officers and directors to the fullest extent permitted by law. The Company has
also entered into agreements with each of its directors and executive officers
wherein it has agreed to indemnify each of them to the fullest extent permitted
by law.
The provisions of the FBCA that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (a) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (b) deriving an improper personal
benefit from a transaction, (c) voting for or assenting to an unlawful
distribution, and (d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder. The statute does not affect a director's responsibilities under any
other law, such as the federal securities laws. The effect of the foregoing is
to require the Company to indemnify the officers and directors of the Company
for any claim arising against such persons in their official capacities if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission,
II-1
<PAGE>
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Pursuant to certain registration rights agreements, each of the Company
and the Selling Shareholders has agreed to indemnify the others and their
directors, officers, agents and representatives (and with respect to the
indemnification by the Company, any underwriters) against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
5.1 Opinion of Broad and Cassel.(A)
10.1 Loan and Security Agreement dated as of December 30, 1997 between
BankBoston Retail Finance Inc. and Tekno Comix, Inc.(B)
10.2 Master Note dated December 30, 1997 between Tekno Comix, Inc., as
Borrower, and BankBoston Retail Finance Inc., as Lender.(B)
10.3 Unlimited Guaranty dated December 30, 1997 between Big
Entertainment, Inc. and BankBoston Retail Finance Inc.(B)
23.1 Consent of Broad and Cassel (included in Exhibit 5.1 hereto).(A)
23.2 Consent of Arthur Andersen LLP.(B)
24.1 Power of Attorney (see page II-4 of the Registration Statement).(A)
- ----------
(A) Previously filed.
(B) Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned Registrant hereby
undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
II-2
<PAGE>
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY
REFERENCE. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securites Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boca Raton, State of
Florida, on this 29th day of January, 1998.
BIG ENTERTAINMENT, INC.
By:/S/MITCHELL RUBENSTEIN
----------------------------------
Mitchell Rubenstein
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ MITCHELL RUBENSTEIN Chairman of the Board and Chief January 29, 1998
- ----------------------------------- Executive Officer (Principal
MITCHELL RUBENSTEIN executive officer)
* Vice Chairman of the Board and January 29, 1998
- ----------------------------------- President
LAURIE S. SILVERS
* Chief Financial Officer January 29, 1998
- ----------------------------------- (Principal financial and accounting officer)
MARCI YUNES
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Director January 29, 1998
- -----------------------------------
MARTIN H. GREENBERG
* Director January 29, 1998
- -----------------------------------
HARRY T. HOFFMAN
* Director January 29, 1998
- -----------------------------------
LAWRENCE GOULD
* Director January 29, 1998
- -----------------------------------
JULES L. PLANGERE, JR.
* Director January 29, 1998
- -----------------------------------
E. DONALD LASS
* Director January 29, 1998
- -----------------------------------
DEBORAH J. SIMON
</TABLE>
* By: /s/ MITCHELL RUBENSTEIN
- -----------------------------------
MITCHELL RUBENSTEIN, AS ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.1 Loan and Security Agreement dated as of December 30, 1997 between
BankBoston Retail Finance Inc. and Tekno Comix, Inc.
10.2 Master Note dated December 30, 1997 between Tekno Comix, Inc., as
Borrower, and BankBoston Retail Finance Inc., as Lender.
10.3 Unlimited Guaranty dated December 30, 1997 between Big
Entertainment, Inc. and BankBoston Retail Finance Inc.
23.2 Consent of Arthur Andersen LLP.
EXHIBIT 10.1
===============================================================================
LOAN AND SECURITY AGREEMENT
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
BANKBOSTON RETAIL FINANCE INC.
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
TEKNO COMIX, INC.
As of December 30, 1997
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 - THE REVOLVING CREDIT..................................................................................1
1-1. ESTABLISHMENT OF REVOLVING CREDIT............................................................................1
1-2. ADVANCES IN EXCESS OF MAXIMUM LOAN EXPOSURE..................................................................3
1-3. RISKS OF VALUE OF INVENTORY..................................................................................3
1-4. PROCEDURES UNDER REVOLVING CREDIT............................................................................3
1-5. THE LOAN ACCOUNT.............................................................................................7
1-6. THE MASTER NOTE..............................................................................................8
1-7. PAYMENT OF LOAN ACCOUNT......................................................................................8
1-8. INTEREST.....................................................................................................8
1-9 COMMITMENT AND FACILITY FEES..................................................................................9
1-10. LENDER'S DISCRETION........................................................................................11
1-11. FEES FOR L/C'S.............................................................................................12
1-12. CONCERNING L/C'S...........................................................................................12
1-12. EARLY TERMINATION FEE......................................................................................15
ARTICLE 2 - GRANT OF SECURITY INTEREST...........................................................................15
2-1. GRANT OF SECURITY INTEREST..................................................................................15
2-2. EXTENT AND DURATION OF SECURITY INTEREST...................................................................16
ARTICLE 3 - DEFINITIONS..........................................................................................16
ARTICLE 4 - CONDITIONS PRECEDENT.................................................................................30
4-1. CORPORATE DUE DILIGENCE.....................................................................................30
4-2. OPINION.....................................................................................................30
4-3. ADDITIONAL DOCUMENTS........................................................................................31
i
<PAGE>
4-4. KEY LIFE POLICIES...........................................................................................31
4-5. OFFICERS' CERTIFICATES......................................................................................31
4-6. REPRESENTATIONS AND WARRANTIES..............................................................................31
4-7. MINIMUM EXCESS AVAILABILITY.................................................................................31
4-8. NO EVENT OF DEFAULT.........................................................................................32
4-9. NO ADVERSE CHANGE...........................................................................................32
4-10. LANDLORD LIEN WAIVERS......................................................................................32
4-11. THIRD PARTY EQUIPMENT LENDERS..............................................................................32
4.12 UNLIMITED GUARANTY..........................................................................................32
4-13. TRIPARTY AGREEMENT.........................................................................................32
4-13. WARRANT....................................................................................................33
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS....................................................33
5-1. PAYMENT AND PERFORMANCE OF LIABILITIES......................................................................33
5-2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS...................................................33
5-3. TRADE NAMES.................................................................................................34
5-4. LOCATIONS, LANDLORD'S WAIVERS...............................................................................35
5-5. TITLE TO ASSETS.............................................................................................36
5-6. INDEBTEDNESS................................................................................................36
5-7. INSURANCE POLICIES..........................................................................................37
5-8. LICENSES....................................................................................................38
5-9. LEASES......................................................................................................38
5-10. REQUIREMENTS OF LAW........................................................................................38
5-11. MAINTAIN PROPERTIES........................................................................................39
5-12. PAY TAXES..................................................................................................39
5-13. NO MARGIN STOCK............................................................................................40
5-14. ERISA......................................................................................................41
ii
<PAGE>
5-15. HAZARDOUS MATERIALS........................................................................................41
5-16. LITIGATION.................................................................................................42
5-17. DIVIDENDS OR INVESTMENTS...................................................................................42
5-18. LOANS......................................................................................................43
5-19. PROTECTION OF ASSETS.......................................................................................43
5-20. LINE OF BUSINESS...........................................................................................43
5-21. AFFILIATE TRANSACTIONS.....................................................................................44
5-22. DELETED....................................................................................................44
5-23. ADDITIONAL ASSURANCES......................................................................................44
5-24. ADEQUACY OF DISCLOSURE.....................................................................................45
5-25. OTHER COVENANTS............................................................................................45
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL....................................................................45
6-1. USE OF COLLATERAL...........................................................................................46
6-2. INVENTORY QUALITY...........................................................................................46
6-3. ADJUSTMENTS AND ALLOWANCES..................................................................................46
6-4. VALIDITY OF ACCOUNTS........................................................................................46
6-5. NOTIFICATION TO ACCOUNT DEBTORS.............................................................................47
ARTICLE 7 - CASH MANAGEMENT......................................................................................47
7-1. DEPOSITORY ACCOUNTS.........................................................................................47
7-2. CREDIT CARD RECEIPTS........................................................................................48
7-3. THE CONCENTRATION AND THE FUNDING ACCOUNTS..................................................................48
7-4. PROCEEDS AND COLLECTION OF ACCOUNTS.........................................................................48
7-5. PAYMENT OF LIABILITIES......................................................................................49
7-6. THE FUNDING ACCOUNT.........................................................................................50
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT................................................................50
iii
<PAGE>
8-1. APPOINTMENT AS ATTORNEY-IN-FACT.............................................................................50
8-2. NO OBLIGATION TO ACT........................................................................................51
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS.......................................51
9-1. MAINTAIN RECORDS............................................................................................51
9-2. ACCESS TO RECORDS...........................................................................................52
9-3. IMMEDIATE NOTICE TO LENDER..................................................................................53
9-4. DAILY BORROWING BASE CERTIFICATE............................................................................54
9-5. WEEKLY REPORTS..............................................................................................54
9-6. MONTHLY REPORTS.............................................................................................55
9-7. QUARTERLY REPORTS...........................................................................................56
9-8. ANNUAL REPORTS..............................................................................................56
9-9. OFFICERS' CERTIFICATES......................................................................................57
9-10. INVENTORIES, APPRAISALS, AND AUDITS........................................................................57
9-11. ADDITIONAL FINANCIAL INFORMATION...........................................................................58
9-12. FINANCIAL PERFORMANCE COVENANTS............................................................................59
9-13. BUSINESS PLAN..............................................................................................59
9-14. PUBLIC FILINGS.............................................................................................59
ARTICLE 10 - EVENTS OF DEFAULT...................................................................................60
10-1. FAILURE TO PAY REVOLVING CREDIT............................................................................60
10-2. FAILURE TO MAKE OTHER PAYMENTS.............................................................................60
10-3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).................................................60
10-4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).....................................................61
10-5. MISREPRESENTATION..........................................................................................61
10-6. ACCELERATION OF OTHER DEBT. BREACH OF LEASE................................................................61
10-7. DEFAULT UNDER OTHER AGREEMENTS.............................................................................61
iv
<PAGE>
10-8. CASUALTY LOSS. NON-ORDINARY COURSE SALES..................................................................62
10-9. JUDGMENT. RESTRAINT OF BUSINESS............................................................................62
10-10. BUSINESS FAILURE..........................................................................................62
10-11. BANKRUPTCY................................................................................................63
10-12. DEFAULT BY GUARANTOR OR RELATED ENTITY....................................................................63
10-13. INDICTMENT - FORFEITURE...................................................................................63
10.14. TERMINATION OF GUARANTY...................................................................................63
10-15. CHALLENGE TO LOAN DOCUMENTS.............................................................................63
10-16. EXECUTIVE MANAGEMENT......................................................................................64
10-17. CHANGE IN CONTROL.........................................................................................64
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT....................................................................64
11-1. RIGHTS OF ENFORCEMENT......................................................................................65
11-2. SALE OF COLLATERAL.........................................................................................65
11-3. OCCUPATION OF BUSINESS LOCATION............................................................................66
11-4. GRANT OF NONEXCLUSIVE LICENSE..............................................................................66
11-5. ASSEMBLY OF COLLATERAL.....................................................................................67
11-6. SETOFF.....................................................................................................67
11-7. BOND.......................................................................................................67
11-8. RIGHTS AND REMEDIES........................................................................................68
ARTICLE 12 - NOTICES.............................................................................................68
12-1. NOTICE ADDRESSES...........................................................................................68
12-2. NOTICE GIVEN...............................................................................................69
ARTICLE 13 - TERM................................................................................................70
13-1. TERMINATION OF REVOLVING CREDIT............................................................................70
13-2. EFFECT OF TERMINATION......................................................................................70
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<PAGE>
ARTICLE 14 - GENERAL.............................................................................................71
14-1. PROTECTION OF COLLATERAL...................................................................................71
14-2. SUCCESSORS AND ASSIGNS.....................................................................................71
14-3. SEVERABILITY...............................................................................................71
14-4. AMENDMENTS. COURSE OF DEALING.............................................................................71
14-5. POWER OF ATTORNEY..........................................................................................72
14-6. APPLICATION OF PROCEEDS....................................................................................73
14-7. LENDER'S COSTS AND EXPENSES................................................................................73
14-8. COPIES AND FACSIMILES......................................................................................73
14-9. MASSACHUSETTS LAW..........................................................................................74
14-10. CONSENT TO JURISDICTION...................................................................................74
14-11. INDEMNIFICATION...........................................................................................75
14-12. RULES OF CONSTRUCTION.....................................................................................75
14-13. INTENT....................................................................................................76
14-14. MAXIMUM INTEREST RATE.....................................................................................76
14-15. WAIVERS...................................................................................................77
EXHIBITS
1-6 : Master Note
4-8 : Landlord Lien Waiver
5-2 : Related Entities
5-3 : Trade Names
5-4 : Locations
5-5 : Encumbrances
5-6 : Indebtedness
vi
<PAGE>
5-7 : Insurance Policies
5-9 : Leases
5-12 : Taxes
7-1 : DDA's
7-2 : Credit Card Arrangements
9-4 : Borrowing Base Certificate
9-9 : Covenant Compliance Certificate
9-12 : Financial Performance Covenants
9-13 : Business Plan
</TABLE>
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===============================================================================
LOAN AND SECURITY AGREEMENT BANKBOSTON, N.A.
===============================================================================
December 30, 1997
THIS AGREEMENT is made between
BankBoston Retail Finance Inc. (hereinafter, the "LENDER"), a Delaware
corporation with its principal executive offices at 40 Broad Street, Boston,
Massachusetts, 02109.
and
Tekno Comix, Inc. (hereinafter, the "BORROWER"), a Florida corporation
with its principal executive offices at 2255 Glades Road, Suite 237W, Boca
Raton, FL 33431-7383.
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - THE REVOLVING CREDIT
1-1. ESTABLISHMENT OF REVOLVING CREDIT.
(a) The Lender hereby establishes a revolving line of
credit (hereinafter, the "REVOLVING CREDIT") in the Borrower's favor pursuant to
which the Lender, subject to, and in accordance with, the within Agreement,
shall make advances and loans and otherwise provide financial accommodations to
and for the account of the Borrower as provided herein. The amount of the
Revolving Credit shall be determined by the Lender by reference to Availability,
as determined by Lender from time to time hereafter. All loans made by the
Lender under this Agreement, and all of the Borrower's other Liabilities to the
Lender under or pursuant to this Agreement, are payable as provided herein.
(b) As used herein, the term "AVAILABILITY" refers at any
time to the lesser of
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(i) or (ii), below, where:
(i) Is the result of:
(A) The Loan Ceiling.
MINUS
(B) The then unpaid principal balance of the
Loan Account.
MINUS
(C) The then aggregate of such Availability
Reserves as may have been established by the Lender as provided herein.
MINUS
(D) The then outstanding Stated Amount of
all L/C's.
(ii) Is the result of:
(A) Up to 50% of the Cost of Acceptable
Inventory between December 25th and August 31st and 55% of Acceptable Inventory
between September 1st and December 24th.
MINUS
(B) The then unpaid principal balance of the
Loan Account.
MINUS
(C) The then Aggregate of such Availability
Reserves as may have been established by the Lender as provided herein.
MINUS
(D) The then outstanding Stated Amount of
all L/C's.
(c) Availability shall be based upon Borrowing
Certificates furnished as provided in Section 9-4, below.
(d) The proceeds of borrowings under the Revolving
Credit shall be used solely in accordance with the Business Plan for working
capital purposes of the Borrower and for Capital Expenditures for existing
stores, all solely to the extent permitted by the within Agreement; provided
however, that the Borrower shall not use the proceeds of the borrowings under
the Revolving Credit to fund any costs (other than the requisite inventory to
the extent permitted hereunder) associated with the opening of new stores.
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1-2. ADVANCES IN EXCESS OF MAXIMUM LOAN EXPOSURE.
The Lender does not have any obligation to make any loan or advance, or
otherwise to provide any credit for the benefit of the Borrower such that the
outstanding principal balance of the Loan Account exceeds Maximum Loan Exposure.
The making of loans, advances, and credits and the providing of financial
accommodations by the Lender in excess of Maximum Loan Exposure is for the
benefit of the Borrower and does not affect the obligations of the Borrower
hereunder; such loans, advances, credits, and financial accommodations
constitute Liabilities. The making of any such loans, advances, and credits and
the providing of financial accommodations, on any one occasion such that Maximum
Loan Exposure is exceeded shall not obligate the Lender to make any such loans,
credits, or advances or to provide any financial accommodation on any other
occasion nor to permit such loans, credits, or advances to remain outstanding.
1-3. RISKS OF VALUE OF INVENTORY.
The Lender's reference to a given asset in connection with the Lender's
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit and/or monitoring of compliance with
the provisions hereof shall not be deemed a determination by the Lender relative
to the actual value of an Asset in question. All Collateral secures the prompt,
punctual, and faithful performance of the Liabilities whether or not relied upon
by the Lender in connection with the making of loans, credits, and advances and
the providing of financial accommodations under the Revolving Credit. All risks
concerning saleability of the Borrower's Inventory are and remain upon the
Borrower. All Collateral secures all Liabilities.
1-4. PROCEDURES UNDER REVOLVING CREDIT.
(a) The Borrower may request loans and advances under the
Revolving Credit, each in an amount of not less than Ten Thousand Dollars
($10,000.00). Each such request shall be in such manner as may from time to time
be acceptable to the Lender.
(b) The Lender, subject to the terms and conditions of the
within Agreement, will provide the Borrower with the loan so requested, if such
request is received by 11:30 AM on
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a Business Day (defined below), by the end of business on that Business Day;
otherwise, by the end of the then next Business Day, EXCEPT THAT
(A) The very first loan which is made under
the Revolving Credit shall be made on the Business Day next following that on
which such loan otherwise would have been made under the foregoing timetable.
(B) If a loan request is made at any time
when, during the then immediately preceding Fifteen (15) days, there has been no
unpaid principal balance in the Loan Account on account of loans and advances
under the Revolving Credit, the loan so requested shall be made (subject to all
other provisions of the within Agreement) no later than the Fifth Business Day
after (and not counting) the day on which the loan otherwise would have been
made as provided above, except that, the loan shall be made on the next Business
Day after such loan request in the event the Borrower has maintained all
reporting that is required under the terms of this Agreement.
(i) The Lender may revise the above schedule,
by which loans shall be made, from time to time and will provide Borrower with
ten (10) days notice thereof in the absence of an Event of Default.
(c) Provided that there is sufficient Availability to
support the same, (but subject, however, to Subsection 1-4(i), below (which
deals with the effect of a Suspension Event), a loan or advance under the
Revolving Credit so requested by the Borrower shall be made by the transfer of
the proceeds of such loan or advance to the Funding Account or as otherwise
instructed by the Borrower.
(d) A loan or advance shall be deemed to have been made
under the Revolving Credit upon:
(i) the Lender's initiation of the transfer of the
proceeds of such loan or advance in accordance with the
Borrower's instructions (if such loan or advance is of funds requested by the
Borrower), or
(ii) the charging of the amount of such loan to the
Loan Account (in all other circumstances).
(e) There shall not be any recourse to, nor liability of,
the Lender on account of
(i) any delay in the Lender's making of any loan or
advance requested under the Revolving Credit;
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(ii) any delay in the proceeds of any such loan or advance
constituting collected funds; or
(iii) any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Revolving Credit,
the wire transfer of which was properly initiated by the Lender in
accordance with wire instructions provided to the Lender by the
Borrower.
(f) The Lender may rely on any request for a loan or
advance or financial accommodation which the Lender, in good faith, believes to
have been made by a person duly authorized to act on behalf of the Borrower and
may decline to make any such requested loan or advance or to provide any such
financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(g) A request by the Borrower for any financial
accommodation under the Revolving Credit or of the issuance of an L/C shall be
irrevocable and shall constitute certification by the Borrower that as of the
date of such request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition from the most recent financial
information furnished the Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in
any of the Loan Documents (defined below) is then true and complete as
of and as if made on the date of such request.
(iv) No Suspension Event (defined herein) is then
extant.
(h) The Borrower shall immediately become indebted to the
Lender for the amount of each loan under or pursuant to this Agreement when such
loan is deemed to have been made.
(i) Upon the occurrence from time to time of any
Suspension Event, the Lender may suspend the Revolving Credit immediately and
shall not be obligated, during such suspension, to make any loans or to provide
any financial accommodation hereunder.
(j) (i) The Borrower may request that the Lender cause the
issuance of
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<PAGE>
L/C's for the account of the Borrower. Each such request shall be in such manner
as may from time to time be acceptable to the Lender, and which may include,
without limitation, (A) telephone notice to such person as may be designated by
the Lender or (B) written notice.
(ii) The Lender will endeavor to cause the issuance
of any L/C so requested by the Borrower, provided that if so issued:
(A) The aggregate Stated Amount of all L/C's
then outstanding, does not exceed Two Hundred and Fifty Thousand Dollars
($250,000.00).
(B) The expiry of the L/C is not later than
the earlier of Thirty (30) days prior to the Maturity Date or the following:
(I) Standby's: One (1) year from
initial issuance.
(II) Documentary's: Sixty (60) days from
issuance.
(C) Maximum Loan Exposure is not exceeded.
(D) The L/C is in form satisfactory to the
Lender.
(iii) The Borrower shall execute such documentation
to apply for and support the issuance of an L/C as may be required by
the Issuer (defined below).
(iv) There shall not be any recourse to, nor
liability of, the Lender on account of
(A) any delay or refusal by an Issuer to
issue an L/C;
(B) any action or inaction of an Issuer on
account of or in respect to, any L/C.
(v) The Borrower shall reimburse the Issuer,
immediately upon the drawing under any L/C, for the amount of such drawing. In
the event that the Borrower fails to so reimburse the Issuer, the Borrower
immediately shall reimburse the Lender for the amount of such drawing. To the
extent which the Borrower fails to so reimburse the Issuer or the Lender, the
Lender, without the request of the Borrower, may advance under the Revolving
Credit any amount which the Borrower is so obligated to pay to the Lender or the
Issuer, or for which the Borrower, the Issuer, or the Lender becomes obligated
on account of, or in respect to, any L/C. Such advance shall be made whether or
not a Suspension Event is then extant or such advance would result in
Availability being exceeded. Such action on the part of the Lender shall not
constitute a waiver of the Lender's rights under Section 1-7(b), below.
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<PAGE>
1-5. THE LOAN ACCOUNT.
(a) An account ("LOAN ACCOUNT") shall be opened on the
books of the Lender, in which Loan Account a record may be kept of all loans
made by the Lender to the Borrower under or pursuant to this Agreement and of
all payments thereon.
(b) The Lender may also keep a record (either in the Loan
Account or elsewhere, as the Lender may from time to time elect) of all
interest, fees, service charges, costs, expenses, and other debits owed the
Lender on account of the Liabilities and of all credits against such amounts so
owed.
(c) All credits against the Liabilities shall be
conditional upon final payment to the Lender of the items giving rise to such
credits. The amount of any item credited against the Liabilities which is
charged back against the Lender for any reason or is not so paid shall be a
Liability and shall be added to the Loan Account, whether or not the item so
charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments as having been
advanced under the Revolving Credit whether or not such amounts are then due and
payable.
(e) The Lender, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Lender is entitled from the Borrower pursuant thereto and
may charge the same to the Loan Account notwithstanding that such amount so
advanced may result in Availability's being exceeded. Such action on the part of
the Lender shall not constitute a waiver of the Lender's rights under Section
1-7(b), below. Any amount which is added to the principal balance of the Loan
Account as provided in this Subsection shall bear interest at the interest rate
applicable from time to time to the unpaid principal balance of the Loan
Account.
(f) Any statement rendered by the Lender to the Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written objection thereto within twenty (20) days from
the mailing of such statement, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender's
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<PAGE>
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence and proof of the items described
therein.
1-6. THE MASTER NOTE.
The obligation to repay loans and advances under the Revolving
Credit, with interest as provided herein, shall be evidenced by a note
(hereinafter, the "MASTER NOTE") in the form of EXHIBIT 1-6, annexed hereto,
executed by the Borrower. Neither the original nor a copy of the Master Note
shall be required, however, to establish or prove any Liability. In the event
that the Master Note is ever lost, mutilated, or destroyed, the Borrower shall
execute a replacement thereof and deliver such replacement to the Lender upon
receipt of an original affidavit of loss from the Lender.
1-7. PAYMENT OF LOAN ACCOUNT.
(a) The Borrower may repay all or any portion of the
principal balance of the Loan Account from time to time until the Termination
Date.
(b) The Borrower, without notice or demand from the
Lender, shall pay the Lender that amount, from time to time, which is necessary
so that the principal balance of the Loan Account does not exceed Maximum Loan
Exposure.
(c) The Borrower shall repay the then entire unpaid
balance of the Loan Account on the Termination Date.
1-8. INTEREST.
(a) The unpaid principal balance of the Loan Account shall
bear interest, until repaid (calculated based upon a 360-day year and actual
days elapsed), at the aggregate of Base (defined below) plus one percent (1%)
per annum during the first twenty-four (24) months from the date hereof and one
half of one percent (0.5%) per annum during the next succeeding twenty-four
month period until the Maturity Date.
(b) Following the occurrence of any Event of Default (and
whether or not the Lender exercises the Lender's rights on account of such Event
of Default), all loans and advances made under the Revolving Credit shall bear
interest, through the earlier of the End
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Date or the date on which the Event of Default has been cured (for such defaults
that are cureable), at a rate which is the aggregate of that provided for in
Section 1-8(a), above plus Three Percent (3%) per annum.
(c) Accrued interest shall be payable
(i) Monthly in arrears on the first day of the month
next following that during which such interest accrued.
(ii) On the Termination Date (defined below).
1-9 COMMITMENT AND FACILITY FEES.
(a) As compensation for the Lender's commitment included
herein to make loans and advances to the Borrower and as compensation for the
Lender's maintenance of sufficient funds available for such purpose, the Lender
shall have earned a Commitment Fee (so referred to herein) of One Percent (1%)
of the Loan Ceiling, payable in annual installments of Fifty Thousand Dollars
($50,000.00) each. The first such installment shall be due at the execution of
the within Agreement and shall be paid with an advance under the Revolving
Credit. Subsequent installments shall be due on each December 30th hereafter. In
the event of the early termination of the Revolving Credit for any reason, any
remaining installments of the Commitment Fee shall be immediately due and
payable. Lender acknowledges receipt of Fifteen Thousand Dollars ($15,000.00)
from the Borrower which shall be applied to the first installment of the
Commitment Fee due at closing; the balance of the first installment Commitment
Fee ($35,000.00) shall be due and payable at Closing.
(b) In addition to any other fee or expense paid by the
Borrower on account of the Revolving Credit, a FACILITY FEE (so referred to
herein).
(i) The Facility Fee shall be based upon $2,500.00
per month for the period beginning with the execution of the within Agreement
and ending on the later of the Maturity Date or the End Date.
(ii) The Facility Fee shall be paid as follows:
(A) A proration (of the period beginning
with the date on which the within Agreement is executed and ending on the last
day of the month of such execution) of the monthly amount on which the Facility
Fee is based shall be paid out of the first advance under the Revolving Credit.
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(B) The per month amount on which the
Facility Fee is based shall be paid on the first day of each then succeeding
month until the first day of the month in which the Maturity Date occurs.
(C) Subject to Section 1-9(b)(ii)(D), below,
a proration (for the period beginning with the first day of the month in which
the Maturity Date occurs) shall be paid on the first day of the month in which
the Maturity Date occurs.
(D) In the event of the early termination of
the revolving Credit for any reason, the Borrower shall pay the Lender the above
referenced monthly installment of the Facility Fee (subject to adjustment as
provided in Section 1-9(c), below) on the first day of each month up to and
including the first day of the month during which the End Date occurs.
(c) Upon and following the occurrence of any Suspension
Event, the Lender may alter the amount of the Facility Fee to a reasonable
extent to reflect any increased administration required by reason of changes to
the Borrower's financial and business circumstances evidenced by such
occurrence. Such increased Facility Fee may include reasonable charges on a per
diem, hourly, or other basis to reflect such increased administration.
(d) In addition to any other right to which the Lender is
then entitled on account thereof, the Lender may assess a reasonable additional
fee to the Borrower on account of the Lender's accommodation, from time to time,
of the Borrower's request that the Lender depart or dispense with one or more of
the administrative provisions of the within Agreement and/or the Borrower's
failure to comply with any of such provisions; provided that any additional fee
is disclosed to Borrower prior to the accommodation being granted.
(i) By way of non-exclusive example, the Lender may
assess a fee on account of any of the following:
(A) The Borrower's failure to pay that
amount which is necessary so that the principal balance of the Loan Account does
not exceed Maximum Permitted Exposure (as required under Section 1-7(b), above).
(B) The Lender's providing of a loan or
advance under the Revolving Credit in excess of Availability.
(C) The Lender's providing of a same
Business Day loan requested after the time set forth in Section 1-4(b)(i),
above.
(D) The Borrower's failure to provide a
financial statement or
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report within the applicable time frame provided for such report under Article
9, below.
(ii) The inclusion of the foregoing right on the
part of the Lender to assess a fee does not constitute an obligation, on the
part of the Lender, to waive any provision of the within Agreement under any
circumstances. The assessment of any such fee in any particular circumstance
shall not constitute the Lender's waiver of any breach of the within Agreement
on account of which such fee was assessed nor a course of action on which the
Borrower may rely.
(e) The Borrower shall not be entitled to any credit,
rebate or repayment of any Commitment Fee, Facility Fee, or other fee previously
earned by the Lender pursuant to this Section notwithstanding any termination of
the within Agreement or suspension or termination of the Lender's obligation to
make loans and advances hereunder.
1-10. LENDER'S DISCRETION.
(a) Each reference in the Loan Documents to the Lender's
exercise of discretion or the like shall be to the Lender's exercise of its
judgment, in good faith (which shall be presumed), based upon the Lender's
consideration of such factors as the Lender, taking into account information of
which the Lender then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect
the value of the Collateral; the enforceability of the Lender's collateral
interests therein; or the amount which the Lender would likely realize therefrom
(taking into account delays which may possibly be encountered in the Lender's
realizing upon the Collateral and likely Costs of Collection).
(ii) Indicates that any report or financial
information delivered to the Lender by or on behalf of the Borrower is
incomplete, inaccurate, or misleading in any material manner or was not prepared
in accordance with the requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the
Borrower will become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgment, the Lender may also
take into account any of the following factors:
(i) Those included in, or tested by, the definitions
of "Acceptable Inventory", "Retail", and "Cost".
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(ii) The current financial and business climate of
the industry in which the Borrower competes (having regard for the Borrower's
position in that industry).
(iii) General macroeconomic conditions which have a
material effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the
Borrower's Inventory.
(v) Seasonality with respect to the Borrower's
Inventory and patterns of retail sales.
(vi) Such other factors as the Lender determines as
having a material bearing on credit risks associated with the providing of loans
and financial accommodations to the Borrower.
(c) The burden of establishing the Lender's failure to
have acted in a reasonable manner in the Lender's exercise of discretion shall
be the Borrower's.
1-11. FEES FOR L/C'S.
(a) Prior to the issuance of any L/C, the Borrower shall
pay to the Lender a fee for each L/C equal to the greatest of (i) $1,000.00, or
(ii) Two and Three Quarters Percent (2.75%) of the Stated Amount of that L/C, or
(iii) Two and Three Quarters Percent (2.75%) per annum of (for the period
commencing with issuance and ending with the scheduled expiry of the subject
L/C) the Stated Amount of that L/C.
(b) In addition to the fee to be paid as provided in
Subsection (a), above, the Borrower shall pay to the Lender (or to the Issuer,
if so requested by the Lender), on demand, all issuance, processing,
negotiation, amendment, and administrative fees and other amounts charged by the
Issuer on account of, or in respect to, any L/C.
1-12. CONCERNING L/C'S.
(a) None of the Issuer, the Issuer's correspondents, or
any advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) the performance by any beneficiary under any L/C
of that beneficiary's obligations to the Borrower; or
(ii) the form, sufficiency, correctness, genuineness,
authority of
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any person signing; falsification; or the legal effect of; any
documents called for under any L/C if (with respect to the foregoing)
such documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of
any L/C and of any drawing thereunder, any drafts or other documents otherwise
in order, but signed or issued by an administrator, executor, conservator,
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, liquidator, receiver, or other legal representative of the party
authorized under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular
instance, the Borrower hereby authorizes any Issuer to (i) select an advising
bank, if any; (ii) select a paying bank, if any; and (iii) select a negotiating
bank.
(d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrower. The Issuer shall have
discharged the Issuer's obligations under any L/C which, or the drawing under
which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other
commercially reasonable and comparable method). Neither the Lender nor the
Issuer shall have the responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.
(e) The Lender's and the Issuer's rights, powers,
privileges and immunities specified in or arising under this Agreement are in
addition to any heretofore or at any time hereafter otherwise created or
arising, whether by statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Borrower, the L/C will
be governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce, Publication No. 500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or
regulation, or any directive of any administrative or governmental authority
(whether or not having the force of law), or in the interpretation thereof by
any court or administrative or governmental authority charged with the
administration thereof, shall either:
(i) impose, modify or deem applicable any reserve,
special deposit
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<PAGE>
or similar requirements against letters of credit heretofore or
hereafter issued by any Issuer or with respect to which the Lender or
any Issuer has an obligation to lend to fund drawings under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Subsection (i) or (ii), above, shall
be to increase the cost to any Issuer of issuing or maintaining any L/C (which
increase in cost shall be the result of such Issuer's reasonable allocation
among that Issuer's letter of credit customers of the aggregate of such cost
increases resulting from such events), then, upon demand by the Lender and
delivery by the Lender to the Borrower of a certificate of an officer of the
subject Issuer describing such change in law, executive order, regulation,
directive, or interpretation thereof, its effect on such Issuer, and the basis
for determining such increased costs and their allocation, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate such Issuer for such increased
cost. Any Issuer's determination of costs incurred under Subsection (i) or (ii)
above, and the allocation, if any, of such costs among the Borrower and other
letter of credit customers of such Issuer, if done in good faith and made on an
equitable basis and in accordance with the officer's certificate, shall be
conclusive and binding on the Borrower.
(h) The obligations of the Borrower under the within
Agreement with respect to L/C's are absolute, unconditional, and irrevocable and
shall be performed strictly in accordance with the terms hereof under all
circumstances, whatsoever including, without limitation, the following:
(i) any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of the within
Agreement, any L/C, or any other agreement or instrument relating
thereto.
(ii) any amendment or waiver of, or consent to the
departure from, any L/C.
(iii) the existence of any claim, set-off, defense,
or other right which the Borrower may have at any time against the
beneficiary of any L/C.
(iv) any honoring of a drawing under any L/C, which
drawing possibly could have been dishonored based upon a strict construction of
the terms of the L/C.
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1-12. EARLY TERMINATION FEE.
The Revolving Credit my be terminated and paid by the
Borrower at any time. The following early termination fees shall be paid by the
Borrower to the Lender if the Revolving Credit is terminated for any reason by
the Borrower prior to the Maturity Date: One Percent (1%) of the Loan Ceiling if
the Revolving Credit is terminated on or before 11:00 a.m. (EST) on December 30,
1998; One Half of One Percent (0.5%) of the Loan Ceiling if the Revolving Credit
is terminated after 11:00 a.m. (EST) December 30, 1998 and on or before 11:00
a.m. December 30, 1999; One Quarter of One Percent (0.25%) of the Loan Ceiling
if the Revolving Credit is terminated after 11:00 a.m. (EST) December 30, 1999
and on or before 11:00 a.m. December 30, 2000. There shall be no early terminate
fee due if the Revolving Credit its terminated at any time after 11:00 a.m.
December 30, 2000.
ARTICLE 2 - GRANT OF SECURITY INTEREST
2-1. GRANT OF SECURITY INTEREST.
To secure the Borrower's prompt, punctual and faithful
performance of all and each of the Borrower's Liabilities, the Borrower hereby
grants to the Lender a security interest in and assigns to the Lender a
continuing security interest in and to, and assigns to the Lender the following,
and each item thereof, whether now owned or now due, or in which the Borrower
has an interest, or hereafter acquired, arising, or to become due, or in which
the Borrower obtains an interest, and all products, Proceeds, substitutions, and
accessions of or to any of the following (all of which, together with any other
property in which the Lender may in the future be granted a security interest,
is referred to herein as the "COLLATERAL"):
(a) All Accounts and Accounts Receivable;
(b) All Inventory;
(c) All General Intangibles;
(d) All Goods;
(e) All Chattel Paper;
(f) All books, records, and information relating to the
Collateral and/or to the operation of the borrower's business, and all rights of
access to such books, records, and information, and all property in which such
books, records, and information are stored,
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recorded, and maintained;
(g) All Investment Property, Instruments, Documents of
Title, Documents, policies and certificates of insurance, Securities, deposits,
deposit accounts, impressed accounts, compensating balances, money, cash, or
other property;
(h) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit insurance, whether
any of such proceeds, refunds, and premium rebates arise out of any of the
foregoing (2-1(a) through 2-1(i)), including the right of stoppage in transit.
(i) All loans, guaranties, rights, remedies, and
privileges pertaining to any of the foregoing (2-1(a) through 2-1(i)), including
the right of stoppage in transit.
(j) All Leasehold Interests.
2-2. EXTENT AND DURATION OF SECURITY INTEREST.
The within grant of a security interest is in addition to,
and supplemental of, any security interest previously granted by the Borrower to
the Lender and shall continue in full force and effect applicable to all
Liabilities until all Liabilities have been irrevocably paid and/or satisfied in
full and the security interest granted herein is specifically terminated in
writing by a duty authorized officer of the Lender.
ARTICLE 3 - DEFINITIONS
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCEPTABLE INVENTORY": Such of the Borrower's Inventory, and of such
types, character, qualities, and quantities (net of Inventory Reserves) as the
Lender in its sole discretion from time to time determines to be acceptable for
borrowing, as to which Inventory, the Lender has a perfected security interest
which is prior and superior to all security interests, claims, and Encumbrances.
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"ACCOUNTS" and "ACCOUNTS RECEIVABLE": Include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts receivable,
credit card receivables, notes, drafts, acceptances, and other forms of
obligations and receivables and rights to payment for credit extended and for
goods sold or leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the UCC; all Inventory
which gave rise thereto, and all rights associated with such Inventory,
including the right of stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to any Account.
"ACH": Automated clearing house.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) one holds, directly or indirectly, not less than Twenty Five Percent (25%)
of the capital stock, beneficial interests, partnership interests, or other
equity interests of the other; or (b) one has, directly or indirectly, Control
of the other; or (c) not less than Twenty Five Percent (25%) of their respective
ownership is directly or indirectly held by the same third Person.
"AVAILABILITY": Is defined in Section 1-1(b).
"AVAILABILITY RESERVES": Such reserves as the Lender from time to time
determines in the Lender's discretion as being appropriate to reflect the
impediments to the Lender's ability to realize upon the Collateral. Without
limiting the generality of the foregoing, Availability Reserves may include (but
are not limited to) reserves based on the following:
(i) Rent (based upon past due rent and/or whether or
not Landlord's Waiver, acceptable to the Lender, has been received by the
Lender).
(ii) In store customer credits.
(iii) Payables (based upon payables which are past
due normal trade terms).
(iv) Gift Certificates.
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(v) Frequent Shopper Programs.
(vi) Layaways and Customer Deposits.
(vii) Taxes and other governmental charges,
including, ad valorem, personal property, and other taxes which may have
priority over the security interests of the Lender in the Collateral.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE": The Base Rate announced from time to time by the BankBoston,
N.A. (or any successor in interest to BankBoston, N.A.). In the event that said
bank (of any such successor) ceases to announce such a rate, "Base" shall refer
to that rate or index announced or published from time to time as the Lender, in
good faith, designates as the functional equivalent to said Base Rate. Any
change in "Base" shall be effective, for purposes of the calculation of interest
due hereunder, when such change is made effective generally by the bank on whose
rate or index "Base" is being set.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) Saturday, Sunday; (b) day on
which banks in Boston, Massachusetts or Florida, generally are not open to the
general public for the purpose of conducting commercial banking business; or (c)
a day on which the Lender is not open to the general public to conduct business.
"BUSINESS PLAN": The Borrower's business plan annexed hereto as EXHIBIT
9-13, and as amended or supplemented by the Borrower pursuant to Section 9-11 or
otherwise.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
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"COLLATERAL": Is defined in Section 2-1.
"COMMITMENT FEE": Is defined in Section 1-9.
"CONCENTRATION ACCOUNT": Is defined in Section 7-2.
"CONTROL": The direct or indirect power to direct or cause the
direction of the management and policies of another Person, whether through
ownership of voting securities, by contract, or otherwise. Included among such
powers, with respect to a corporation, are power to cause any of following: (a)
the election of a majority of its Board of Directors; (b) the issuance of
additional shares of its common stock; (c) the issuance and designation of
rights and shares of its preferred stock (if any); (d) the distribution and
timing of dividends; (e) the award of performance bonuses to its management; (f)
the termination or severance of officers or key employees; and (g) all or any
similar matters.
"COST": The calculated cost of purchases, as determined from invoices
received by the Borrower, the Borrower's Purchase Journal or Stock Ledger, based
upon the Borrower's accounting practices, known to the Lender, which practices
are in effect on the date on which the within Agreement was executed. "Cost"
does not include inventory capitalization costs, but may include other charges
used in the Borrower's determination of cost of goods sold.
"COST FACTOR": The result of 1 minus the Borrower's then cumulative
markup percent derived from the Borrower's purchase journal on a rolling 12
month basis.
"COSTS OF COLLECTION": Includes without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the Lender's
attorneys, and all reasonable costs incurred by the Lender in the administration
of the Liabilities and/or the Loan Documents including, without limitation,
reasonable costs and expenses associated with travel on behalf of the Lender,
which costs and expenses are related to or in respect of the Lender's:
administration and management of the Liabilities; negotiation, documentation,
and amendment of any Loan Document; or efforts to preserve, protect, collect, or
enforce the Collateral, the
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Liabilities, and/or the Lender's Rights and Remedies and/or any of the Lender's
rights and remedies against any guarantor or other person liable in respect of
the Liabilities (whether or not suit is instituted in connection with such
efforts). The Costs of Collection are Liabilities, and at the Lender's option
may bear interest at the highest post-default rate which the Lender may charge
the Borrower hereunder as if such had been lent, advanced, and credited by the
Lender to, or for the benefit of, the Borrower.
"DDA": Any checking or other depository account maintained by the
Borrower.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EBITDA": The Borrower's earnings from continuing operations, before
interest, taxes, depreciation, and amortization, each as determined in
accordance with GAAP.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) security interest, mortgage, pledge, hypothecation,
lien, attachment, or charge of any kind (including any agreement to give any of
the foregoing); the interest of a lessor under a Capital Lease; conditional sale
or other title retention agreement; sale of accounts receivable or chattel
paper; or other arrangement pursuant to which any Person is entitled to any
preference or priority with respect to the property or assets of another Person
or the income or profits of such other Person or which constitutes an interest
in property to secure an obligation; each of the foregoing whether consensual or
non-consensual and whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
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"END DATE": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of the Lender to make loans and advances and to
provide other financial accommodations to the Borrower hereunder have been
irrevocably terminated.
"ENVIRONMENTAL LAWS": (a) Any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements which regulate or relate to, or imposes any standard of conduct
or liability on account of or in respect to environmental protection matters,
including, without limitation, Hazardous Materials, as is now or hereafter in
effect; and (b) the common law relating to damage to persons or property from
Hazardous Materials.
"EQUIPMENT": includes, without limitation, "equipment" as defined in
the UCC, and also all motor vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies, molds, store fixtures, furniture, and
other goods, property, and assets which are used and/or were purchased for use
in the operation or furtherance of the Borrower's business, and any and all
accessions, additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which would be treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 10.
"EXECUTIVE AGREEMENT": Any agreement or understanding (whether or not
written) to which the Borrower is a party or by which the Borrower may be bound,
which agreement or understanding relates to Executive Pay.
"EXECUTIVE OFFICER": Each of Mitchell Rubenstein, Laurie S. Silvers and
Marci Yumes and any other Person who (without regard to title) is the successor
to any of the foregoing or
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who exercises a substantial portion of the authority being exercised, at the
execution of the within Agreement, by any of the foregoing or a combination of
the such authority of more than one of the foregoing or who otherwise has
Control of the Borrower.
"EXECUTIVE PAY": All salary, bonuses, and other value directly or
indirectly provided by or on behalf of the Borrower to or for the benefit of any
Executive Officer or any Affiliate, spouse, parent, or child of any Executive
Officer.
"FACILITY FEE": Is defined in Section 1-9(b).
"FIXTURES": Has the meaning given that term in the UCC.
"FUNDING ACCOUNT": Is defined in Section 7-3.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in respect of
which reference to GAAP is being made.
"GENERAL INTANGIBLES": includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in favor of
the Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or hedging, including,
without limitation, options, warrants, and futures contracts; records; customer
lists; telephone numbers; goodwill; causes of action; judgments; payments under
any settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of the Borrower to enforce
same; permits, certificates of convenience and necessity, and similar rights
granted by any governmental authority; patents, patent applications, patents
pending, and other intellectual property; internet addresses and domain names;
developmental ideas and concepts; proprietary processes; blueprints, drawings,
designs, diagrams, plans, reports, and charts; catalogs; manuals; technical
data; computer software programs (including the source and object codes
therefor), computer records, computer software, rights of access to
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computer record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade secrets rights,
copyrights, mask work rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials; trade names,
trademarks, service marks, and all good will relating thereto; applications for
registration of the foregoing; and all other general intangible property of the
Borrower in the nature of intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts or ideas, and any
matter related to, or connected with, the design, development, manufacture,
sale, marketing, leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"GROSS MARGIN": With respect to the subject accounting period for which
being calculated the following (determined in accordance with the retail method
of accounting):
SALES (MINUS) COST OF GOODS SOLD
Sales
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any of the
foregoing) are defined or regulated as a hazardous material in or under any
Environmental Law and (b) oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such Person but which is
secured by an Encumbrance on any asset of such Person) whether or not evidenced
by a promissory note, bond, debenture or other written obligation to pay money.
(b) For the payment of the purchase price of goods or
services deferred for
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more than thirty (30) days beyond then current trade terms provided to such
person by the supplier of such goods or services.
(c) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all letters of
credit and acceptances issued for the account of such person or reimbursement on
account of which such Person would be obligated).
(d) In connection with the sale or discount of accounts
receivable or chattel paper of
such Person.
(e) On account of deposits or advances.
(f) As lessee under Capital Leases.
"Indebtedness" of any Person shall also include:
(g) Indebtedness of others secured by an Encumbrance on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person.
(h) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on account of any
obligation of any third party.
(i) The Indebtedness of a partnership or joint venture in
which such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON": Is defined in Section 14-11.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INVENTORY": Includes, without limitation, "inventory" as defined in
the UCC and also all: packaging, advertising, and shipping materials related to
any of the foregoing, and all names or marks affixed or to be affixed thereto
for identifying or selling the same; Goods held for sale or lease or furnished
or to be furnished under a contract or contracts of sale or service by the
Borrower, or used or consumed or to be used or consumed in the Borrower's
business; Goods of said description in transit; returned, repossessed and
rejected Goods of said description; and all documents (whether or not
negotiable) which represent any of the foregoing.
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Lender in the Lender's discretion with respect to the determination
of the saleability, at retail, of
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the Acceptable Inventory or which reflect such other factors as affect the
market value of the Acceptable Inventory. Without limiting the generality of the
foregoing, Inventory Reserves may include (but are not limited to) reserves
based on the following:
(i) Obsolescence (determined based upon inventory on
hand beyond a given number of days).
(ii) Seasonality.
(iii) Shrinkage.
(iv) Imbalance.
(v) Change in Inventory character.
(vi) Change in Inventory composition.
(vii) Change in Inventory mix.
(viii) Markdowns (both permanent and point of sale).
(ix) Retail markons and markups inconsistent with
prior period practice and performance; industry standards; current business
plans; or advertising calendar and planned advertising events.
"ISSUER": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of the Borrower and any acceptance made on account of
such letter of credit.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"LANDLORD LIEN STATE": Any state or other jurisdiction under whose
statutory or common law the rights of a landlord in assets of that landlord's
tenant, for unpaid rent, may be senior to a perfected security interest in such
assets.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use or occupancy
of any space.
"LENDER": Is defined in Preamble.
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"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 11-6.
"LIABILITIES": Includes, without limitation, all and each of the
following, whether now existing or hereafter arising:
(a) Any and all direct and indirect liabilities, debts,
and obligations of the Borrower to the Lender, each of every kind, nature, and
description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or hereafter owing by
the Borrower to the Lender (including all future advances whether or not made
pursuant to a commitment by the Lender), whether or not any of such are
liquidated, unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature, or description, or
by reason of any cause of action which the Lender may hold against the Borrower.
(c) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind, nature, and
description.
(d) All interest, fees, and charges and other amounts
which may be charged by the Lender to the Borrower and/or which may be due from
the Borrower to the Lender from time to time.
(e) All costs and expenses incurred or paid by the Lender
in respect of any agreement between the Borrower and the Lender or instrument
furnished by the Borrower to the Lender (including, without limitation, Costs of
Collection, attorneys' reasonable fees, and all court and litigation costs and
expenses).
(f) Any and all covenants of the Borrower to or with the
Lender and any and all obligations of the Borrower to act or to refrain from
acting in accordance with any agreement between the Borrower and the Lender or
instrument furnished by the Borrower to the Lender.
"LOAN ACCOUNT": Is defined in Section 1-5.
"LOAN CEILING": Five Million Dollars ($5,000,000).
"LOAN DOCUMENTS": The within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 4, below, and each other
instrument or document
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from time to time executed and/or delivered in connection with the arrangements
contemplated hereby, as each may be amended from time to time.
"LOCAL DDA": A depository account maintained by the Borrower, the only
contents of which may be transfers FROM the Funding Account and actually used
solely (i) for petty cash purposes; or (ii) for payroll.
"MASTER NOTE": Is defined in Section 1-6.
"MATURITY DATE": Forty-Eight months from the date of this Agreement.
"MAXIMUM LOAN EXPOSURE": The lesser, on any day, of the following, in
each instance determined NET of the unpaid principal balance of the Loan Account
on that day: (a) the amount determined in accordance with Section 1-1(b)(i) or
(b) the amount determined in accordance with Section 1-1(b)(ii), above.
Notwithstanding anything contained herein to the contrary, the Maximum Loan
Exposure shall not exceed One Million Dollars ($1,000,000.00) until the Lender
is satisfied, in its sole discretion, that the Borrower has installed adequate
systems for monitoring the Collateral.
"ONE TURN STATE": Any state or other jurisdiction under whose statutory
or common law the relative priority of the rights of a landlord in assets of
that landlord's tenant, for unpaid rent, vis a vis the rights of the holder of a
perfected security interest therein is dependent upon whether such security
interest arose prior or subsequent to the subject asset's coming onto the
demised premises.
"PARTICIPANT": Is defined in Section 14-14, below.
"PERCENTAGE POINTS": The number of whole (and, if indicated, fractions
- -or decimal equivalents-of) integers of a percentage referred to in a financial
performance covenant which consists of a ratio. For example, if a projected
ratio were 40% and the actual ratio turned out to be 48.3%, the variance would
be 8.3 Percentage Points.
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"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or entity.
"PROCEEDS": Include, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in Section 2-1, above.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, contract rights, General
Intangibles, Chattel Paper, Instruments, Documents of Title, Documents,
Securities, L/Cs for the benefit of the Borrower, and bankers' acceptances held
by the Borrower, and any rights to payment.
"RELATED ENTITY":
(a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of the Borrower; could have such
enterprise's tax returns or financial statements consolidated with the
Borrower's; could be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue
Code of 1986, as amended from time to time) of which the Borrower is a member;
Controls or is Controlled by the Borrower or by any Affiliate of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders or other
requirements having the force of law and (ii) court orders and injunctions,
arbitrator's decisions, and/or similar rulings, in each instance (i) and (ii) of
or by any federal, state, municipal, and other governmental authority, or court,
tribunal, panel or other body which has jurisdiction over such Person, or any
property of such Person, or of any other person for whose conduct such Person
would be responsible.
(b) That Person's charter, certificate of incorporation,
articles of organization,
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and/or other organizational documents, as applicable; and
(c) that Person's by-laws and/or other instruments which
deal with corporate or similar governance, as applicable.
"RESOURCES": All (if any) Available Reserves and Inventory Reserves.
"RETAIL": The Cost of Inventory divided by the Cost Factor, except
that, for purposes of the determination of "Availability", the Cost of Inventory
shall be the Cost of Acceptable Inventory.
"REVOLVING CREDIT": Is defined in Section 1-1.
"SECURITIES": Has the meaning given that term in the UCC.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event of Default if any
requisite notice were given and/or any requisite period of time were to run and
such occurrence, circumstance, or state of facts were not absolutely cured
within any applicable grace period.
"TANGIBLE NET WORTH": The result, on the day on which compliance with
any financial performance covenant applicable to Tangible Net Worth is being
determined, of (a) the difference between the Borrower's assets and its
liabilities, respectively as would be reflected on a balance sheet prepared in
accordance with the requirements of Section 9-1(b), below, MINUS (b) the
aggregate of those of the Borrower's assets as may be deemed intangible in
accordance with GAAP.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10-11, below; or (c) the Lender's
notice to the Borrower setting the Termination Date on account of the occurrence
of any Event of Default other than as described in Section 10-11, below.
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"UCC": the Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
ARTICLE 4 - CONDITIONS PRECEDENT
Precedent to the effectiveness of this Agreement, the establishment of
the Revolving Credit, and the making of the first loan under the Revolving
Credit, the documents respectively described in Sections 4-1 through and
including 4-5, each in form an substance satisfactory to the Lender shall have
been delivered to the Lender, and the conditions respectively described in
Sections 4-6 through and including 4-13, shall have been satisfied:
4-1. CORPORATE DUE DILIGENCE.
(a) A Certificate of corporate good standing issued by the
Secretary of State of Florida.
(b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature of the
Borrower's business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrower's Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
4-2. OPINION.
An opinion of counsel to the Borrower in form and substance
satisfactory to the Lender.
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4-3. ADDITIONAL DOCUMENTS.
Such additional instruments and documents as the Lender or its
counsel reasonably may require or request.
4-4. KEY LIFE POLICIES.
The Collateral Assignment to the Lender of policies on the
lives of the following persons for the amounts stated:
Mitchell Rubenstein: $500,000.00
Laurie S. Silvers: $500,000.00
Any proceeds of such policies received by Lender shall be
applied by Lender to the Liabilities in accordance with the terms of this
Agreement. In the event that there are no Liabilities to Lender outstanding and
Borrower has obtained and assigned to Lender such key life insurance policy as
is required by Section 10-16 hereof, Lender shall turnover such proceeds to
Borrower.
4-5. OFFICERS' CERTIFICATES.
Certificates executed by the President or a Vice President and
the Treasurer or an Assistant Treasurer of the Borrower and stating that the
representations and warranties made by the Borrower to the Lender in the Loan
Documents are true and complete as of the date of such Certificate, and that no
event has occurred which is or which, solely with the giving of notice or
passage of time (or both) would be an Event of Default.
4-6. REPRESENTATIONS AND WARRANTIES.
Each of the representations made by or on behalf of the
Borrower in this Agreement or in any of the other Loan Documents or in any other
report, statement, document, or paper provided by any or on behalf of the
Borrower shall be true and complete as of the date as of which such
representation or warranty was made.
4-7. MINIMUM EXCESS AVAILABILITY.
Availability, after giving effect to the first loans and
advances to be made under the Revolving Credit; any charges to the Loan Account
made in connection with the
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establishment of the credit facility contemplated hereby; and L/C's to be issued
at, or immediately subsequent to, the establishment of such credit facility, is
not less than Three Hundred Thousand Dollars ($300,000.00).
4-8. NO EVENT OF DEFAULT.
No event shall have occurred, or failed to occur, which
occurrence or which failure constitutes, or which, solely with the passage of
time or the giving of notice (or both) would constitute, an Event of Default.
4-9. NO ADVERSE CHANGE.
No event shall have occurred or failed to occur, which
occurrence or failure is or could have a materially adverse effect upon the
Borrower's financial condition, operating results, or cash flows from the
Borrower's financial condition at September 30. 1997.
4-10. LANDLORD LIEN WAIVERS.
Landlord Lien Waivers, in a form attached hereto as EXHIBIT
4-8, from each of the Borrower's landlords.
4-11. THIRD PARTY EQUIPMENT LENDERS.
Executed Triparty agreements with third party lenders and
lessors of furniture, fixtures, and equipment, Lender, and Borrower permitting
Lender to use the encumbered assets during any liquidation.
4.12 UNLIMITED GUARANTY.
Executed Unlimited Guaranty of Big Entertainment, Inc. in a
form satisfactory to Lender.
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4-13. WARRANT.
Executed Warrant from Big Entertainment, Inc. granting the
Lender the right to acquire Thirty Thousand (30,000) shares of common stock of
Big Entertainment at a per share strike price of One Hundred and Fifty Percent
(150%) of the average trading price for the twenty (20) trading day period prior
to the date of this Agreement, exercisable within five (5) years from the date
of this Agreement .
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts. Under no
circumstances will the within Agreement take effect until executed and accepted
by the Lender at said head office.
ARTICLE 5 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other
Loan Document, makes those representations, warranties, and covenants included
in the within Agreement.
5-1. PAYMENT AND PERFORMANCE OF LIABILITIES.
The Borrower shall pay each Liability when due (or when
demanded if payable on demand) and shall promptly, punctually, and faithfully
perform each other Liability.
5-2. DUE ORGANIZATION - CORPORATE AUTHORIZATION - NO CONFLICTS.
(a) The Borrower is and shall remain in good standing as a
Florida corporation and is and shall remain duly qualified and in good standing
in every other State in which, by reason of the nature or location of the
Borrower's assets or operation of the Borrower's business, such qualification
may be necessary.
(b) Each Related Entity is listed on EXHIBIT 5-2, annexed
hereto. Each
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Related Entity is and shall hereafter remain in good standing in the State in
which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary. The Borrower shall
provide the Lender with prior written notice of any entity's becoming or ceasing
to be a parent company or subsidiary of Borrower.
(c) The Borrower has all requisite corporate power and
authority to execute and deliver to the Lender those Loan Documents to which the
Borrower is a party and has and will retain all requisite corporate power to
perform any and all Liabilities.
(d) The execution and delivery by the borrower of each
Loan Document to which it is a party; the Borrower's consummation of the
transactions contemplated by such Loan Documents (including, without limitation,
the creation of security and mortgage interests by the Borrower as contemplated
hereby); the Borrower's performance under those of the Loan Documents to which
it is a party; the borrowings hereunder; and the use of proceeds thereof:
(i) Have been duly authorized by all necessary
corporate action;
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the Borrower;
and
(iii) Will not result in the creation or
imposition of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower except pursuant to the Loan Documents.
(e) The Loan Documents have been duly executed and
delivered by Borrower and are the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms.
5-3. TRADE NAMES
(a) EXHIBIT 5-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever
conducted its business.
(ii) All entities and/or Persons with whom the
Borrower ever consolidated or merged, or from whom the Borrower ever acquired in
a single transaction or in a series of related transactions substantially all of
such entity's or Person's assets.
(b) Except (i) upon not less than twenty-one (21) days
prior written notice given the Lender, and (ii) in compliance with all other
provisions of the within Agreement, the
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s
Borrower will not undertake or commit to undertake any action such that the
results of that action, if undertaken prior to the date of this Agreement, would
have been reflected on EXHIBIT 5-3.
(c) The conduct by the Borrower of the Borrower's business
does not infringe on the patents, industrial designs, trademarks, trade names,
trade styles, brand names, service marks, logos, copyrights, trade secrets,
know-how, confidential information, or other intellectual or proprietary
property of any third Person.
(d) The Borrower owns and possesses, or has the right to
use all patents, industrial designs, trademarks, trade names, trade styles,
brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, and other intellectual or proprietary property of any
third Person necessary for the Borrower's conduct of the Borrower's business.
5-4. LOCATIONS, LANDLORD'S WAIVERS.
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained solely at the chief
executive offices of the borrower stated in the Preamble of this Agreement, and
at those locations which are listed on EXHIBIT 5-4, annexed hereto, which
EXHIBIT includes all service bureaus with which any such records are maintained
and the names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on
EXHIBIT 5-4.
(b) At the execution of the within Agreement or anytime
hereinafter, the Lender may establish an Availability Reserve for up to Ninety
(90) days rent for each of the Borrower's locations in a Landlord Lien State or
in a One Turn State. Such Availability Reserve shall be reduced or eliminated as
follows:
(i) With respect to locations in One Turn States:
One Hundred Twenty (120) days after the execution of the within Agreement.
(ii) With respect to locations in Landlord Lien
States: Upon the furnishing to the Lender of a waiver or subordination
(reasonably satisfactory to the Lender) by
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the landlord for the subject location.
Without duplication of any Availability Reserve described above, the Lender may
establish an Availability Reserve for unpaid rent.
(c) The Borrower will not, (x) except with the consent of
the Lender after thirty (30) days written notice, which consent will not be
unreasonably withheld or (y) unless contemplated by the Borrower's Business
Plan:
(i) Execute, alter, modify, or amend any Lease.
(ii) Commit to, or open or close any location at
which the Borrower maintains, offers for sale, or stores any of the Collateral.
The Lender may condition its consent to the opening of any location pursuant to
this Subsection 5-4(c)(ii) upon the Borrower obtaining, in the Lender's opinion,
adequate amounts of additional capitalization.
(d) Except as otherwise disclosed pursuant to, or
permitted by, this Section 5-4, no tangible personal property of the Borrower is
in the care or custody of any third party or stored or entrusted with a bailee
or other third party and none shall hereafter be placed under such care,
custody, storage, or entrustment.
5-5. TITLE TO ASSETS.
(a) The Borrower is, and shall hereafter remain, the owner
of the Collateral free and clear of all Encumbrances with the exceptions of the
following:
(i) The security interest created herein,
(ii) Those Encumbrances (if any) listed on EXHIBIT
5-5, annexed hereto.
(b) The Borrower does not and shall not have possession of
any property on consignment to the Borrower.
5-6. INDEBTEDNESS.
The Borrower does not and shall not hereafter have any
indebtedness with the exceptions of:
(a) Any indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 5-6,
annexed hereto.
(c) Any Indebtedness for equipment and buildout financing
contemplated by
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the Borrower's Business Plan.
5-7. INSURANCE POLICIES.
(a) EXHIBIT 5-7, annexed hereto, is a schedule of all
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) The Borrower shall have and maintain insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be satisfactory to the
Lender. The coverage reflected on EXHIBIT 5-7 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances. All
insurance carried by the Borrower shall provide for a minimum of sixty (60)
days' written notice of cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement shall provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance, PROVIDED, HOWEVER, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in
excess of $25,000.00 made by the Borrower under any policy of insurance which
covers the Collateral and will permit the Lender, at the Lender's option in each
instance, with notice to the Borrower, to conduct the adjustment of each such
claim (and of all claims following the occurrence of any Suspension Event). The
Borrower hereby appoints the Lender as the Borrower's attorney in fact to
obtain, adjust, settle, and cancel any insurance which covers the Collateral
described in this section and to endorse in favor of the Lender any and all
drafts and other instruments with respect to such insurance. The within
appointment, being coupled with an interest, is
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irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender. The Lender shall not be liable on
account of any exercise pursuant to said power except for any exercise in actual
willful misconduct and bad faith. The Lender may apply any proceeds of such
insurance against the Liabilities, whether or not such have matured, in such
order of application as the Lender may reasonably determine.
(d) The Borrower shall maintain at all times those
policies of insurance obtained by the Borrower and assigned to the Lender as
required by Section 4-4, above.
5-8. LICENSES.
Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
5-9. LEASES.
EXHIBIT 5-9, annexed hereto, is a schedule of all presently
effective Leases and Capital Leases, each of which is in full force and effect.
No party to any such Lease or Capital Lease is in default or violation of any
such Lease or Capital Lease and the Borrower has not received any notice or
threat of cancellation of any such Lease or Capital Lease. The Borrower hereby
authorizes the Lender at any time and from time to time to contact any of the
Borrower's landlords in order to confirm the Borrower's continued compliance
with the terms and conditions of the Lease(s) between the Borrower and that
landlord and to discuss such issues, concerning the Borrower's occupancy under
such Lease(s), as the Lender may determine.
5-10. REQUIREMENTS OF LAW.
The Borrower is in compliance with, and shall hereafter comply
with and use its assets in compliance with, in all material respects all
Requirements of Law. The Borrower has not received any notice of any material
violation of any Requirement of Law (whether or not such violation is material),
which violation has not been cured or otherwise remedied.
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5-11. MAINTAIN PROPERTIES.
The Borrower shall
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any
policy of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory in compliance with
the within Agreement.
(ii) The turning over to the Lender of all
Receipts as provided herein.
5-12. PAY TAXES.
(a) The federal income tax returns of the Borrower have
been audited by the Internal Revenue Service (or closed by applicable statutes)
for all fiscal years through and including the Borrowers taxable year referenced
on EXHIBIT 5-12, annexed hereto, and all deficiencies, assessments, and other
amounts asserted as a result of such examinations have been fully paid or
settled. No agreement is extant which waives or extends any statute of
limitations applicable to the right of the Internal Revenue Service to assert a
deficiency or make any other claim for or in respect to federal income taxes. No
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
(b) All returns of the Borrower for state and local
income, excise, sales, and other taxes have been audited (or closed by
applicable statutes) for all fiscal years through and including the Borrower's
taxable year referenced on EXHIBIT 5-12, annexed hereto, and all deficiencies,
assessments, and other amounts asserted as a result of such examinations have
been fully paid or settled. No agreement is extant which waives or extends any
statute of limitations applicable to the right of any state taxing authority to
assert a deficiency or make any other claim for or in respect to any such state
taxes. No issue has been raised in any such
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examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 5-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any state taxing authority.
(d) The Borrower has and shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.
(e) At its option, the Lender may, but shall not be
obligated to, pay any taxes, unemployment contributions, and any and all other
charges levied or assessed upon the Borrower or the Collateral by any person or
entity or governmental authority, and make any contributions or other payments
on account of the Borrower's Employee Benefit Plan as the Lender, in the
Lender's discretion, may deem necessary or desirable, to protect, maintain,
preserve, collect, or realize upon any or all of the Collateral or the value
thereof or any right or remedy pertaining thereto, PROVIDED, HOWEVER, the
Lender's making of any such payment shall not constitute a cure or waiver of any
Event of Default occasioned by the Borrower's failure to have made such payment.
5-13. NO MARGIN STOCK.
The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulations G,U,T and X. of the Board of Governors of the Federal
Reserve System of the United States). No part of the proceeds of any borrowing
hereunder will be used at any time to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
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margin stock.
5-14. ERISA.
Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with the
Borrower's Employee Benefit Plan.
(b) Fail timely to file all reports and filings
required by ERISA to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or
"reportable events" (respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or
penalty could be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within
the meaning of ERISA.
(f) Terminate any Employee Benefit Plan such that a
lien could be asserted against any assets of the Borrower on account thereof
pursuant to ERISA.
(g) Be a member of, contribute to, or have any
obligation under any Employee Benefit Plan which is a multiemployer plan within
the meaning of Section 4001(a) of ERISA.
5-15. HAZARDOUS MATERIALS.
(a) The Borrower has never: (i) to the best of the
Borrower's knowledge, been legally responsible for any release or threat of
release of any Hazardous Material or (ii) received notification of any release
or threat of release of any Hazardous Material from any site or vessel occupied
or operated by the Borrower and/or of the incurrence of any expense or loss in
connection with the assessment, containment, or removal of any release or threat
of release of any Hazardous Material from any such site or vessel.
(b) The Borrower shall: (i) dispose of any Hazardous
Material only in compliance with all Environmental Laws and (ii) not store any
site or vessel occupied or operated by the Borrower and not transport or arrange
for the transport of any Hazardous Materials, except if such storage or
transport is in the ordinary course of the Borrower's business and is in
compliance with all Environmental Laws.
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(c) The Borrower shall provide the Lender with written
notice upon the Borrower's obtaining knowledge of any incurrence of any expense
or loss by any governmental authority or other Person in connection with the
assessment, containment, or removal of any Hazardous Material, for which expense
or loss the Borrower may be liable.
5-16. LITIGATION.
There is not presently pending or threatened by or against the
Borrower any suit, action, proceeding, or investigation which, if determined
adversely to the Borrower, would have a material adverse effect upon the
Borrower's financial condition or ability to conduct its business as such
business is presently conducted or is contemplated to be conducted in the
foreseeable future.
5-17. DIVIDENDS OR INVESTMENTS.
The Borrower shall not without the Lender's prior written
consent
(a) Pay any cash dividend or make any other distribution
in respect of any class of the Borrower's capital stock.
(b) Redeem or acquire any of the Borrower's capital stock.
(c) Invest in or purchase any stock or securities or
rights to purchase any such stock or securities, of any corporation or other
entity.
(d) Merge or consolidate with or into any other entity or
consolidate with or into any other corporation or other entity where the
Borrower's credit is impaired.
(e) Consolidate any of the Borrower's operations with
those of any other corporation or other entity.
(f) Organize or create any Related Entity.
(g) Subordinate any debts or obligations owed to the
Borrower by any third party to any other debts owed by such third party to any
other Person.
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5-18. LOANS.
The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, PROVIDED, HOWEVER, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in
the ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
5-19. PROTECTION OF ASSETS.
The Lender, at the Lender's discretion, and from time to
time, may discharge any tax or Encumbrance on any of the Collateral, or take any
other action that the Lender may deem necessary or desirable to repair, insure,
maintain, preserve, collect, or realize upon any of the Collateral. The Lender
shall not have any obligation to undertake any of the foregoing and shall have
no liability on account of any action so undertaken except where there is a
specific finding in a judicial proceeding (in which the Lender has had an
opportunity to be heard), from which finding no further appeal is available,
that Lender had acted in actual bad faith or in a grossly negligent manner. The
Borrower shall pay to the Lender, on demand, or the Lender, in its discretion,
may add to the Loan Account, all amounts paid or incurred by the Lender pursuant
to this section. The obligation of the Borrower to pay such amounts is a
Liability.
5-20. LINE OF BUSINESS.
The Borrower shall not engage in any business other than the
business in which it is currently engaged or a business reasonably related
thereto.
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5-21. AFFILIATE TRANSACTIONS.
The Borrower shall not make any payment, nor give any value to
any Related Entity except for goods and services actually purchased by the
Borrower from, or sold by the Borrower to, such Related Entity for a price which
shall
(a) be competitive and fully deductible as an "ordinary
and necessary business expense" and/or fully depreciable under the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations, each as amended;
and
(b) not differ from that which would have been charged in
an arms length transaction.
5-22. DELETED.
5-23. ADDITIONAL ASSURANCES.
(a) The Borrower is not the owner of, nor has it any
interest in, any property or asset which, immediately upon the satisfaction of
the conditions precedent to the effectiveness of the credit facility
contemplated hereby (Article 4) will not be subject to a perfected security
interest in favor of the Lender (subject only to those Encumbrances (if any)
described on EXHIBIT 5-5, annexed hereto) to secure the Liabilities.
(b) The Borrower will not hereafter acquire any asset or
any interest in property which is not, immediately upon such acquisition,
subject to such perfected security interest in favor of the Lender to secure the
Liabilities (subject only to Encumbrances (if any) permitted pursuant to Section
5-5, above).
(c) The Borrower shall execute and deliver to the Lender
such instruments, documents, and papers, and shall do all such things from time
to time hereafter as the Lender may reasonably request to carry into effect the
provisions and intent of this Agreement; to protect and perfect the Lender's
security interest in the Collateral; and to comply with all applicable statutes
and laws, and facilitate the collection of the Receivables Collateral. The
Borrower shall execute all such instruments as may be reasonably required by the
Lender with respect to the recordation and/or perfection of the security
interests created herein.
(d) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 5-23 shall be
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sufficient for filing to perfect the security interests granted therein.
5-24. ADEQUACY OF DISCLOSURE.
(a) All financial statements furnished to the Lender by
the Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
(b) Except as set forth in Exhibit 5-24, the Borrower does
not have any contingent obligations or obligation under any Lease or capital
lease which is not noted in the Borrower's financial statements furnished to the
Lender prior to the execution of the within Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower or any guarantor of
the Liabilities in connection with the Lender's execution of the within
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements therein not misleading. There is no fact known to the Borrower which
has, or which, in the foreseeable future could have, a material adverse effect
on the financial condition of the Borrower or any such guarantor which has not
been disclosed in writing to the Lender.
5-25. OTHER COVENANTS.
The Borrower shall not indirectly do or cause to be done any
act which, if done directly by the Borrower, would breach any covenant contained
in this Agreement.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
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6-1. USE OF COLLATERAL.
(a) The Borrower shall not engage in any sale of the
Inventory other than for fair consideration in the conduct of the Borrower's
business in the ordinary course and shall not engage in sales or other
dispositions to creditors; sales or other dispositions in bulk, and any use of
any of the Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment,
approval, or under any other circumstances such that, with the exception of the
Borrower's customary return policy applicable to the return of inventory
purchased by the Borrower's retail customers in the ordinary course, such
Inventory may be returned to the Borrower without the consent of the Lender.
6-2. INVENTORY QUALITY.
All Inventory now owned or hereafter acquired by the Borrower
is and will be of good and merchantable quality and free from defects (other
than defects within customary trade tolerances).
6-3. ADJUSTMENTS AND ALLOWANCES.
The Borrower may grant such adjustments to Borrower's Account
Debtors (exclusive of extending the time for payment of any Account or Account
Receivable, which shall not be done without first obtaining the Lender's written
consent in each instance) as the Borrower may reasonably deem to accord with
sound business practice, PROVIDED, HOWEVER, the authority granted the Borrower
pursuant to this Section 6-3 may be limited or terminated by the Lender at any
time in the Lender's discretion.
6-4. VALIDITY OF ACCOUNTS.
(a) The amount of each Account shown on the books,
records, and invoices of the Borrower represented as owing by each Account
Debtor is and will be the correct amount actually owing by such Account Debtor
and shall have been fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or
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collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after Borrower becomes aware of any such impairment.
(c) The Borrower shall not post any bond to secure the
Borrower's performance under any agreement to which the Borrower is a party nor
cause any surety, guarantor, or other third party obligee to become liable to
perform any obligation of the Borrower (other than to the Lender) in the event
of the Borrower's failure so to perform.
6-5. NOTIFICATION TO ACCOUNT DEBTORS.
The Lender shall have the right at any time (whether or not an
Event of Default has occurred) to notify any of the Borrower's Account Debtors
to make payment directly to the Lender and to collect all amounts due on account
of the Collateral.
ARTICLE 7 - CASH MANAGEMENT
7-1. DEPOSITORY ACCOUNTS.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all
present DDA's, which Schedule includes, with respect to each depository (i) the
name and address of that depository; (ii) the account number(s) of the
account(s) maintained with such depository; and (iii) a contact person at such
depository.
(b) The Borrower shall deliver to the Lender, as a
condition to the effectiveness of the within Agreement:
(i) Proof of the mailing, to each depository
institution with which any DDA is maintained (other than the Funding Account or
any Local DDA) of notification (in form satisfactory to the Lender) of the
Lender's interest in such DDA.
(ii) An agreement (in form satisfactory to the
Lender) with any depository institution at which both any DDA (other than the
Funding Account) and the Funding Account is maintained.
(c) The Borrower will not establish any DDA hereafter
(other than a Local DDA) unless the Borrower, contemporaneous with such
establishment, delivers to the Lender an agreement (in form satisfactory to the
Lender) executed on behalf of the depository with
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which such DDA is being established.
7-2. CREDIT CARD RECEIPTS.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which
describes all arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of all credit card charges for sales by
the Borrower.
(b) The Borrower shall deliver to the Lender, as a
condition to the effectiveness of the within Agreement, proof of the mailing to
each of the Borrower's credit card clearinghouses and processors of notice (in
form satisfactory to the Lender), which notice provides that payment of all
credit card charges submitted by the Borrower to that clearinghouse or other
processor and any other amount payable to the Borrower by such clearinghouse or
other processor shall be directed to such account as may be designated by the
Borrower in such notice. The Borrower shall not change such direction or
designation except upon and with the prior written consent of the Lender.
7-3. THE CONCENTRATION AND THE FUNDING ACCOUNTS.
(a) The following checking accounts have been or will be
established (and are so referred o herein):
(i) THE CONCENTRATION ACCOUNT: Established by
the Lender with BankBoston, N.A..
(ii) THE FUNDING ACCOUNT: Established by the
Borrower with Barnett Bank of Florida, N.A.
(b) The contents of the Concentration Account constitutes
Collateral and Proceeds of Collateral.
(c) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by, any bank in which any
account is opened as required hereby (even if such account is opened by the
Lender).
7-4. PROCEEDS AND COLLECTION OF ACCOUNTS.
(a) All Receipts constitute Collateral and proceeds of
Collateral and shall be
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held in trust by the Borrower for the Lender; shall not be commingled with any
of the Borrower's other funds; and shall be deposited and/or transferred only to
the Concentration Account.
(b) The Borrower shall cause the ACH or wire transfer to
the Concentration Account, no less frequently than bi-weekly, except for the
Borrower's stores exceeding 2,500 square feet during the period from December 1
through December 24, in which case such transfer shall be daily (and whether or
not there is then an outstanding balance in the Loan Account) of
(i) the then collected contents of each DDA
(net of such minimum balance, not to exceed $750.00, as may be required to be
maintained in the subject DDA by the bank at which such DDA is maintained),
other than (A) any Local DDA and (B) the Funding Account; and
(ii) the proceeds of all credit card charges not
otherwise provided for pursuant hereto. Telephone advice (confirmed by written
notice) shall be provided to the Lender on each Business Day on which any such
transfer is made.
(c) In the event that, notwithstanding the provisions of
this Section 7-4, the Borrower receives or otherwise has dominion and control of
any Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Lender.
7-5. PAYMENT OF LIABILITIES.
(a) On each Business Day, the Lender shall apply, towards
the Liabilities, the then collected balance of the Concentration Account (net of
fees charged, and of such impressed balances as may be required by the bank at
which the Concentration Account is maintained), PROVIDED, HOWEVER, for purposes
of the calculation of interest on the unpaid principal balance of the Loan
Account, such payment shall be deemed to have been made One (1) Business Day
after such transfer.
(b) The Lender shall transfer to the Funding Account any
surplus in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amounts which are
to be netted out, as provided therein)
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PROVIDED, HOWEVER, in the event that both (i) a Suspension Event has occurred
and (ii) one or more L/C's are then outstanding, the Lender may establish a
funded reserve of up to 110% of the aggregate Stated Amounts of such L/C's.
7-6. THE FUNDING ACCOUNT.
Except as otherwise specifically provided in, or permitted by,
the within Agreement, all checks shall be drawn by the Borrower upon, and other
disbursements made by the Borrower solely from, the Funding Account.
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT.
8-1. APPOINTMENT AS ATTORNEY-IN-FACT.
Upon the occurrence of an Event of Default and only to the
extent of the Borrower's Liabilities hereunder, the Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by the within appointment include but
are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) Sign change of address forms to change the address to
which the Borrower's mail is to be sent to such address as the Lender shall
designate; receive and open the Borrower's mail; remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Borrower or to any trustee in bankruptcy, receiver,
assignee for the benefit of creditors of the Borrower, or other legal
representative of the Borrower whom the Lender determines to be the appropriate
person to whom to so turn over such mail.
(c) Endorse the name of the Borrower in favor of the
Lender upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the Borrower on, and receive as
secured party, any of the Collateral, any invoices,
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schedules of Collateral, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title respectively
relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
the Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors,
and on notices of lien, claims of mechanic's liens, or assignments or releases
of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) Repair, manufacture, assemble, complete, package,
deliver, alter or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General
Intangibles of the Borrower.
(h) Sign and file or record any financing or other
statements in order to perfect or protect the Lender's security interest in the
Collateral.
8-2. NO OBLIGATION TO ACT.
The Lender shall not be obligated to do any of the acts or to
exercise any of the powers authorized by Section 8-1 herein, but if the Lender
elects to do any such act or to exercise any of such powers, it shall not be
accountable for more than it actually receives as a result of such exercise of
power, and shall not be responsible to the Borrower for any act or omission to
act except for any act or omission to act as to which there is a final
determination made in an judicial proceeding (in which proceeding the Lender has
had an opportunity to be heard) which determination includes a specific finding
that the subject act or omission to act had been grossly negligent or in actual
bad faith.
ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS.
9-1. MAINTAIN RECORDS.
The Borrower shall
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(a) At all times, keep proper books of account, in which
full, true, and accurate entries shall be made of all of the Borrower's
transactions, all in accordance with GAAP applied consistently with prior
periods to fairly reflect the financial condition of the Borrower at the close
of, and its results of operations for, the periods in question.
(b) Timely provide the Lender with those financial
reports, statements, and schedules required by this Article 9 or otherwise, each
of which reports, statements and schedules shall be prepared, to the extent
applicable, in accordance with GAAP applied consistently with prior periods to
fairly reflect the financial condition of the Borrower at the close of, and its
results of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct such
accountants to fully cooperate with, and be available to, the Lender to discuss
the Borrower's financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
(e) Not change the Borrower's fiscal year. (f) Not change
the Borrower's taxpayer identification number.
9-2. ACCESS TO RECORDS.
(a) The Borrower shall accord the Lender and the Lender's
representatives with access from time to time as the Lender and such
representatives may reasonably require to all properties owned by or over which
the Borrower has control. The Lender, and the Lender's representatives, shall
have the right, and the Borrower will permit the Lender and such representatives
from time to time as the Lender and such representatives may reasonably request,
to examine, inspect, copy, and make extracts from any and all of the books,
records, electronically stored data, papers, and files of the Borrower and of
each Related Entity. The Borrower shall, and shall cause each Related Entity to,
make all of the Borrower's copying facilities available to the Lender.
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(b) The Borrower hereby authorizes the Lender and the
Lender's representatives to:
(i) Inspect, copy, duplicate, review, cause to be
reduced to hard copy, run off, draw off, and otherwise use any and all computer
or electronically stored information or data which relates to the Borrower, or
to any Related Entity, which information or data is in the possession of the
Borrower or any Related Entity or any service bureau, contractor, accountant, or
other person, and directs any such service bureau, contractor, accountant, or
other person fully to cooperate with the Lender and the Lender's representatives
with respect thereto.
(ii) Verify at any time the Collateral or any
portion thereof, including verification with Account Debtors, and/or with the
Borrower's computer billing companies, collection agencies, and accountants and
to sign the name of the Borrower on any notice to the Borrower's Account Debtors
or verification of the Collateral.
9-3. IMMEDIATE NOTICE TO LENDER.
(a) The Borrower shall provide the Lender with written
notice immediately upon the occurrence of any of the following events, which
written notice shall be with reasonable particularity as to the facts and
circumstances in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers,
officers, directors, or key employees.
(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the certified results thereof).
(iii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (including the ceasing
of the making of such payments on account of a dispute with the subject
creditor).
(iv) Any failure by the Borrower to pay rent at any
of the Borrower's locations, which failure continues for more than three (3)
days following the day on which such rent first came due.
(v) Any material change in the business, operations,
or financial affairs of the Borrower.
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(vi) The occurrence of any Suspension Event.
(vii) Any intention on the part of the Borrower to
discharge the Borrower's present independent accountants or any withdrawal or
resignation by such independent accountants from their acting in such capacity
(as to which, see Subsection 9-1(d)).
(viii) Any litigation which, if determined adversely
to the Borrower, might have a material adverse effect on the financial condition
of the Borrower.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with
copies of any materials distributed to the shareholders of the Borrower (qua
such shareholders).
(ii) Add the Lender as an addressee on all mailing
lists maintained by or for the Borrower.
(iii) At the request of the Lender, from time to
time, provide the Lender with copies of all advertising (including copies of all
print advertising and duplicate tapes of all such video and radio advertising).
(iv) Provide the Lender, when received by the
Borrower, with a copy of any management letter or similar communications from
any accountant of the Borrower.
9-4. DAILY BORROWING BASE CERTIFICATE.
The Borrower shall provide the Lender, daily with a Borrowing
Base Certificate (in the form of EXHIBIT 9-4(A) (to be used during period prior
to the Borrower implementing a new inventory control system) or EXHIBIT 9-4(B)
(to be used after the borrower has implemented a new inventory control system)).
annexed hereto, as such form may be revised from time to time by the Lender).
Such Certificate may be sent to the Lender by facsimile transmission, provided
that the original thereof is forwarded to the Lender on the data of such
transmission.
9-5. WEEKLY REPORTS.
Weekly, on the Wednesday of each week (as of the then
immediately preceding Sunday) the Borrower shall provide the Lender with a sales
audit report, and, prior to the Borrower implementing its new collateral
monitoring system, an Inventory roll-forward report,
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and, after the Borrower implements the new inventory control system, a flash
collateral report, (each in such form as may be specified from time to time by
the Lender). Such report may be sent to the Lender by facsimile transmission,
provided that the original thereof is forwarded to the Lender on the date of
such transmission.
9-6. MONTHLY REPORTS.
(a) Monthly, the Borrower shall provide the Lender with
original counterparts of the following, on a non-consolidated basis (each in
such form as the Lender from time to time may specify):
(i) Within Fifteen (15) Business Days of the end of
the previous month:
(A) After the Borrower implements its new
inventory control system, a "Stock Ledger Inventory Report", (by department and
by store) and a Certificate (signed by the Borrower's President or Chief
Financial Officer) concerning the Borrower's Inventory, each in such form as the
Lender may specify from time to time.
(B) Before the Borrower has implemented its
new inventory control system, an Inventory Valuation Report, by department and
the certificate from 9-6(a)(i)(A).
(ii) Within thirty (30) days of the end of the
previous month:
(A) Reconciliations of the above described
Report and inventory Certificate (Section 9-6(a)(i)(A)) to Availability and to
the general ledger as of the end of the subject month.
(B) A schedule of purchases from the
Borrower's ten largest vendors (in terms of year to date purchases), which
schedule shall be in such form as may be satisfactory to the Lender and shall
include month to date and year to date cumulative purchases and an aging of
payables to each.
(C) A Statement of Gross Margin (in such
form as may be specified by the Lender from time to time).
(D) Following the Borrower's implementation
of this new inventory control system, an aging of the Borrower's Inventory.
(E) An aging of the Borrower's accounts
payable.
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(F) An internally prepared financial
statement of the Borrower's financial condition at, and the results of its
operations for, the period ending with the end of the subject month, which
financial statement shall include, at a minimum, a balance sheet, income
statement (on a store specific and on a "consolidated" basis), cash flow and
comparison of same store sales for the corresponding month of the then
immediately previous year, as well as to the Business Plan.
(G) A Store Activity Report.
(b) For purposes of Section 9-6(a)(i), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be January and for purposes of Section 9-6(a)(ii), above, the
first "previous month" in respect of which the items required by that Section
shall be provided shall be January.
9-7. QUARTERLY REPORTS.
Quarterly, within Forty Five (45) days following the end of
each of the Borrower's fiscal quarters, the Borrower shall provide the Lender
with an original counterpart of a management prepared financial statement of the
Borrower for the period from the beginning of the Borrower's then current fiscal
year through the end of the subject quarter, with comparative information for
the same period of the previous fiscal year, which statement shall include, at a
minimum, a balance sheet, income statement (on a store specific and on a
"consolidated" basis), and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Business Plan.
9-8. ANNUAL REPORTS.
(a) Annually, within ninety (90) days following the end of
the fiscal year for Big Entertainment, Inc., the Borrower shall cause Big
Entertainment, Inc. to furnish the Lender with an original signed counterpart of
Big Entertainment, Inc.'s annual financial statement, which statement shall have
been prepared on a "consolidated" and "consolidating" basis by, and bearing the
unqualified opinion of, Big Entertainment Inc.'s independent certified public
accountants (i.e. said statement shall be "certified " by such accountants).
Such annual statement shall include, at a minimum (with comparative information
for the then prior fiscal year) a balance sheet, income statement, and statement
of changes in cash flows.
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(b) Each annual statement shall be accompanied by such
accountant's Certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the passage of
time or the giving of notice (or both) would be, an Event of Default hereunder.
9-9. OFFICERS' CERTIFICATES.
The Borrower shall cause the Borrower's President or a Vice
President and Treasurer or an Assistant Treasurer respectively to provide such
Person's Certificate, in the form attached hereto as EXHIBIT 9-9, with those
monthly, quarterly, and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied, and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
operations and cash flows for, the period(s) covered, subject, however (with the
exception of the Certificate which accompanies such annual statement) to usual
year end adjustments.
(b) Indicate either that (i) no Suspension Event has
occurred or (ii) if such an event has occurred, its nature (in reasonable
detail) and the steps (if any) being taken or contemplated by the Borrower to be
taken on account thereof.
(c) Include calculations concerning the Borrower's
compliance (or failure to comply) at the date of the subject statement with each
of the financial performance covenants included in Section 9-12, below.
9-10. INVENTORIES, APPRAISALS, AND AUDITS.
(a) The Lender, at the expense of the Borrower, may
participate in and/or observe each physical count and/or each Inventory of the
Collateral as consists of Inventory which is undertaken on behalf of the
Borrower.
(b) The Borrower shall obtain physical counts of its
Inventory prior to closing and every sixty (60) days thereafter until it has
installed a system, sufficient in the Lender's discretion, for monitoring
Inventory. Upon the Lender's request from time to time, the Borrower shall
obtain, or shall permit the Lender to obtain (in all events, at the Borrower's
expense) additional physical counts and/or Inventories of the Collateral,
conducted by such Inventory
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takers as are satisfactory to the Lender and following such methodology as may
be required by the Lender, each of which physical counts and/or Inventories
shall be observed by the Borrower's accountants. The Lender contemplates
conducting up to Two (2) such additional counts and/or Inventories during any
Twelve (12) month period during which the within Agreement is in effect, but in
its discretion, may undertake additional such counts or Inventories during such
period.
(c) Upon the Lender's request from time to time, the
Borrower shall permit the Lender to obtain appraisals conducted by such
appraisers as are satisfactory to the Lender. Up to Four (4) such appraisals
that are conducted prior to the occurrence of an Event of Default and all such
appraisals that are conducted after the occurrence of an Event of Default shall
be at the Borrower's expense.
(d) The Lender contemplates conducting Four (4) commercial
finance audits (in each event, at the Borrower's expense) of the Borrower's
books and records during any Twelve (12) month period during which the within
Agreement is in effect, but in its discretion, may undertake additional such
audits during such period.
(e) The Lender from time to time (in all events, at the
Borrower's expense) may undertake "mystery shopping" (so-called) visits to all
or any of the Borrower's business premises. The Lender shall provide the
Borrower with a copy of any non-company confidential results of such mystery
shopping.
9-11. ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information to be provided
pursuant to this Article 9, the Borrower promptly shall provide the Lender (and
any guarantor of the Liabilities), with such other and additional information
concerning the Borrower, the Collateral, the operation of the Borrower's
business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than Ninety
(90) nor later than Thirty (30) days prior to the end of each of the Borrower's
fiscal years, shall furnish the Lender
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with an updated and extended projection which shall go out at least through the
end of the then next fiscal year.
(d) Such updated and extended projections shall be
prepared pursuant to a methodology and shall include such assumptions as are
satisfactory to the Lender.
(e) The Lender, following the receipt of any of such
projections, may but shall not be under any obligation to, provide its written
sign-off on such projections (in which event, such projections shall become the
Business Plan) and if it provides such written sign-off, may, but shall be under
no obligation to, revise the financial performance covenants included on EXHIBIT
9-12, annexed hereto.
9-12. FINANCIAL PERFORMANCE COVENANTS.
The Borrower shall observe and comply with those financial
performance covenants set forth on EXHIBIT 9-12, annexed hereto. Borrower shall
be required to maintain compliance with financial performance convenants at all
times. Compliance with financial performance covenants may be verified by Lender
based upon any of the financial aspects and information provided by the Borrower
to Lender pursuant to this Section 9.
9-13. BUSINESS PLAN.
The Borrower shall observe and comply with the Business Plan,
including but not limited to those financial projections contained therein,
annexed hereto as EXHIBIT 9-13.
9-14. PUBLIC FILINGS.
The Borrower shall deliver to Lender Form 10-Q Quarterly
reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other
filings made by Big Entertainment, Inc. with the Securities and Exchange
Commission, if any, within fifteen (15) days after the same are filed, or any
other information that is provided by Big Entertainment, Inc. to its
shareholders generally.
ARTICLE 10 - EVENTS OF DEFAULT
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The occurrence of any event described in this Article 10 respectively
shall constitute an "Event of Default" herein. Upon the occurrence of any Event
of Default described in Section 10-11, any and all Liabilities shall become due
and payable without any further act on the part of the Lender. Upon the
occurrence of any other Event of Default, any and all Liabilities of the
Borrower to the Lender shall become immediately due and payable, at the option
of the Lender and without notice or demand. The occurrence of any Event of
Default shall also constitute, without notice or demand, a default under all
other agreements between the Lender and the Borrower and instruments and papers
given the Lender by the Borrower, whether such agreements, instruments, or
papers now exist or hereafter arise.
10-1. FAILURE TO PAY REVOLVING CREDIT.
The failure by the Borrower to pay any amount when due under
the Revolving Credit.
10-2. FAILURE TO MAKE OTHER PAYMENTS.
The failure by the Borrower to pay when due (or on demand, if
payable on demand) any payment Liability other than under the Revolving Credit.
10-3. FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).
(a) The failure by the Borrower to promptly, punctually,
faithfully and timely perform, discharge, or comply with any covenant or
Liability not otherwise described in Section 10-1 above, and included in any of
the following provisions hereof:
SECTION RELATES TO:
------- ----------
5-4 Location of Collateral
5-5 Title to Assets
5-6 Indebtedness
5-7 Insurance Policies
5-12 Pay taxes
5-21 Affiliate Transactions
5-23 Additional Assurances
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Article 7 Cash Management
Article 9 Financial Reporting Requirements and
Financial Covenants
10-4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).
The failure by the Borrower, upon Ten (10) days written notice
by the Lender, to cure the Borrower's failure to promptly, punctually and
faithfully perform, discharge, or comply with any covenant or Liability not
described in any of Sections 10-1, 10-2, or 10-3 above.
10-5. MISREPRESENTATION.
The determination by the Lender that any representation or
warranty at any time made by the Borrower to the Lender, was not true or
complete in all material respects when given.
10-6. ACCELERATION OF OTHER DEBT. BREACH OF LEASE.
The acceleration of any Indebtedness of the Borrower to any
creditor other than the Lender and/or, without the consent of the Borrower, the
breach of any Lease which could be terminated for such breach (whether or not
the subject creditor or lessor takes any action on account of such occurrence).
10-7. DEFAULT UNDER OTHER AGREEMENTS.
The occurrence of any breach or default under any agreement
between the Lender and the Borrower or instrument or paper given the Lender by
the Borrower, whether such agreement, instrument, or paper now exists or
hereafter arises (notwithstanding that the Lender may not have exercised its
rights upon default under any such other agreement, instrument or paper).
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10-8. CASUALTY LOSS. NON-ORDINARY COURSE SALES.
The occurrence of any (a) uninsured loss, theft, damage, or
destruction of or to any material portion of the Collateral, or (b) sale (other
than sales in the ordinary course of business) of any material portion of the
Collateral.
10-9. JUDGMENT. RESTRAINT OF BUSINESS.
(a) The service of process upon the Lender seeking to
attach, by trustee, mesne, or other process, any of the Borrower's funds on
deposit with, or assets of the Borrower in the possession of, the Lender.
(b) The entry of any judgment against the Borrower, which
judgment is not satisfied (if a money judgment) or appealed from (with execution
or similar process stayed) within fifteen (15) days of its entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-10. BUSINESS FAILURE.
Any act by, against, or relating to the Borrower, or its
property or assets, which act constitutes the application for, consent to, or
sufferance of the appointment of a receiver, trustee, or other person, pursuant
to court action or otherwise, over all, or any part of the Borrower's property;
the granting of any trust mortgage or execution of an assignment for the benefit
of the creditors of the Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt for the Borrower; or the offering
by or entering into by the Borrower of any composition, extension, or any other
arrangement seeking relief from or extension of the debts of the Borrower, or
the initiation of any other judicial or non-judicial proceeding or agreement by,
against, or including the Borrower which seeks or intends to accomplish a
reorganization or arrangement with creditors.
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10-11. BANKRUPTCY.
The failure by the Borrower to generally pay the debts of the
Borrower as they mature; adjudication of bankruptcy or insolvency relative to
the Borrower; the entry of an order for relief or similar order with respect to
the Borrower in any proceeding pursuant to the Bankruptcy Code or any other
federal bankruptcy law; the filing of any complaint, application, or petition by
or against the Borrower initiating any matter in which the Borrower is or may be
granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure.
10-12. DEFAULT BY GUARANTOR OR RELATED ENTITY.
The occurrence of any of the foregoing Events of Default with
respect to guarantor of the Liabilities, or the occurrence of any of the
foregoing Events or Default with respect to any parent (if the Borrower is a
corporation) or subsidiary, as if such guarantor or parent were the "Borrower"
described therein.
10-13. INDICTMENT - FORFEITURE.
The indictment of, or institution of any legal process or
proceeding against the Borrower, under any federal, state municipal, and other
civil or criminal statute, rule, regulation, order or other requirement having
the force of law where the relief, penalties, or remedies sought or available
include the forfeiture of any property of the Borrower and/or the imposition of
any stay or other order, the effect of which could be to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10.14. TERMINATION OF GUARANTY.
The termination or attempted termination of any guaranty by
any guarantor of the Liabilities.
10-15. CHALLENGE TO LOAN DOCUMENTS.
(a) Any challenge by or on behalf of the Borrower to the
validity of any Loan Document or the applicability or enforceability of any Loan
Document strictly in accordance with
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the subject Loan Document's terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan
Document or any payment made pursuant thereto.
(b) Any determination by any court or any other judicial
or government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
10-16. EXECUTIVE MANAGEMENT.
The failure of Borrower to replace within thirty (30) days
either of Mitchell Rubenstein or Laurie S. Silvers, whether on an interim basis
or otherwise, by a person who is reasonably acceptable to the Lender upon either
of their death, disability or failure at any time to exercise that authority and
discharge those management responsibilities with respect to the Borrower as are
exercised and discharged by such Person at the execution of the within Agreement
and the failure of Borrower to obtain and assign to Lender Five Hundred Thousand
Dollars ($500,000.00) of key man life insurance on such Person.
10-17. CHANGE IN CONTROL.
Any change in the ownership of the capital stock of the
Borrower such that Big Entertainment, Inc. does not Control the Borrower.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Lender's exercise of any of such rights and remedies.
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11-1. RIGHTS OF ENFORCEMENT.
The Lender shall have all of the rights and remedies of a
secured party upon default under the UCC, in addition to which the Lender shall
have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without
the taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the
Collateral.
(c) To sell, lease, or otherwise dispose of any or all of
the Collateral, in its then condition or following such preparation or
processing as the Lender deems advisable and with or without the taking of
possession of any of the Collateral.
(d) To conduct one or more going out of business sales
which include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the proceeds of
the Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies,
powers, privileges, and discretions under all or any of the Loan Documents.
11-2. SALE OF COLLATERAL.
(a) Any sale or other disposition of the Collateral may be
at public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole
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property of the Lender or such agent or contractor and neither the Borrower nor
any Person claiming under or in right of the Borrower shall have any interest
therein.
(c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Lender shall provide the Borrower with such notice as
may be practicable under the circumstances), the Lender shall give the Borrower
at least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the Lender's
exercise of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion
of it at any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of
the Lender's Rights and Remedies under this Article 11 towards the Liabilities
in such manner, and with such frequency, as the Lender determines.
11-3. OCCUPATION OF BUSINESS LOCATION.
In connection with the Lender's exercise of the Lender's
rights under this Article, the Lender may enter upon, occupy, and use any
premises owned or occupied by the Borrower, and may exclude the Borrower from
such premises or portion thereof as may have been so entered upon, occupied, or
used by the Lender. The Lender shall not be required to remove any of the
Collateral from any such premises upon the Lender's taking possession thereof,
and may render any Collateral unusable to the Borrower. In no event shall the
Lender be liable to the Borrower for use or occupancy by the Lender of any
premises pursuant to this Article, nor for any charge (such as wages for the
Borrower's employees and utilities) incurred in connection with the Lender's
exercise of the Lender's Rights and Remedies.
11-4. GRANT OF NONEXCLUSIVE LICENSE.
The Borrower hereby grants to the Lender a royalty free
nonexclusive irrevocable license to use, apply, and affix any trademark,
tradename, logo, or the like in which
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the Borrower now or hereafter has rights, such license being with respect to the
Lender's exercise of the rights under Article 11 of this Agreement, including,
without limitation, in connection with any completion of the manufacture of
Inventory or sale or other disposition of Inventory.
11-5. ASSEMBLY OF COLLATERAL.
The Lender may require the Borrower to assemble the Collateral
and make it available to the Lender at the Borrower's sole risk and expense at a
place or places which are reasonably convenient to both the Lender and Borrower.
11-6. SETOFF.
Any and all deposits or other sums at any time credited by or
due to the Borrower or an endorser or guarantor hereof from the Lender or any of
its parents or banking or lending affiliates, or any bank acting as a
participant under any loan arrangement between the Lender and the Borrower or
any endorser or guarantor hereof, and any cash, securities, instruments or other
property of the Borrower in the possession of the Lender or any of its parents
or banking or lending affiliates, or any bank acting as a participant under any
loan arrangement between the Lender and the Borrower or any endorser or
guarantor hereof, whether for safekeeping or otherwise, or in transit to or from
the Lender or any of its parents or banking or lending affiliates or any such
participant, or in the possession of any third party acting on the Lender's
behalf (regardless of the reason the Lender had received same or whether the
Lender has conditionally released the same) shall at all times constitute
security for all of the Liabilities and obligations of the Borrower and any
endorser and guarantor hereof to the Lender and may be applied or set off
against such Liabilities and obligations of the Borrower or any endorser or
guarantor hereof to the Lender at any time, whether or not such are then due,
whether or not demand has been made and whether or not other collateral is then
available to the Lender.
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11-7. BOND.
In the event Lender seeks to take possession of all or any
portion of the Collateral by judicial process, Borrower irrevocably waives: (a)
the posting of any bond, surety or security with respect thereto which might
otherwise be required, (b) any demand for possession prior to the commencement
of any suit or action to recover the Collateral, and ( c) any requirement that
Lender retain possession and not dispose of any Collateral until after trial or
final judgment.
11-8. RIGHTS AND REMEDIES.
The rights, remedies, powers, privileges, and discretions of
the Lender hereunder (herein, the "LENDER'S RIGHTS AND REMEDIES") shall be
cumulative and not exclusive of any rights or remedies which it would otherwise
have. No delay or omission by the Lender in exercising or enforcing any of the
Lender's Rights and Remedies shall operate as, or constitute, a waiver thereof.
No waiver by the Lender of any Event of Default or of any default under any
other agreement shall operate as a waiver of any other default hereunder or
under any other agreement. No single or partial exercise of any of the Lender's
Rights or Remedies, and no express or implied agreement or transaction of
whatever nature entered into between the Lender and any person, at any time,
shall preclude the other or further exercise of the Lender's Rights and
Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies on
any one occasion shall be deemed a waiver on any subsequent occasion, nor shall
it be deemed a continuing waiver. All of the Lender's Rights and Remedies and
all of the Lender's rights, remedies, powers, privileges, and discretions under
any other agreement or transaction are cumulative, and not alternative or
exclusive, and may be exercised by the Lender at such time or times and in such
order of preference as the Lender in its sole discretion may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES.
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12-1. NOTICE ADDRESSES.
All notices, demands, and other communications made in respect
of this Agreement (other than a request for a loan or advance or other financial
accommodation under the Revolving Credit) shall be made to the following
addresses, each of which may be changed upon seven (7) days written notice to
all others given by certified mail, return receipt requested:
If to the Lender: BankBoston Retail Finance Inc.
40 Broad Street
Boston, Massachusetts 02109
Attention: Mr. Joseph V. Balsamo,
Vice President
Tel: 617-434-4015
Fax: 617-434-4339
With a copy to: Stroock & Stroock & Lavan LLP
100 Federal Street
Boston, Massachusetts 02110
Attention: Peter J. Antoszyk, Esquire
Tel: 617-330-5111
Fax: 617-482-6800
If to the Borrower: Tekno Comix, Inc.
2255 Glades road, Suite 237 West
Boca Raton, Florida 33431
Attention: Mr. Mitchell Rubenstein,
Chief Executive Officer
Tel: 561-998-8000
Fax: 561-998-2974
With a copy to: Broad and Cassel
201 South Biscayne Boulevard, Suite 3000
Miami, Florida 33131
Attention: Nina S. Gordon, P.A.
Tel: 305-373-9400
Fax: 305-373-9493
12-2. NOTICE GIVEN.
(a) Except as otherwise specifically provided herein,
notices shall be deemed made and correspondence received, as follows (all times
being local to the place of delivery or receipt):
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(i) By mail: the sooner of when actually received or
Three (3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the
Business Day following the day when sent.
(iii) By Hand: if delivered on a Business Day after
9:00 AM and no later than Three (3) hours prior to the
close of customary business hours of the recipient, when delivered. Otherwise,
at the opening of the then next Business Day.
(iv) By Facsimile transmission (which must include a
header indicating the party sending such transmission): if sent on a Business
Day after 9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, one (1) hour after being sent.
Otherwise, at the opening of the then next Business Day.
(b) Rejection or refusal to accept delivery and inability
to deliver because of a changed address or Facsimile Number for which no due
notice was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
13-1. TERMINATION OF REVOLVING CREDIT.
The Revolving Credit shall remain in effect until the
Termination Date.
13-2. EFFECT OF TERMINATION.
Upon the termination of Revolving Credit, the Borrower shall
pay the Lender (whether or not then due), in immediately available funds, all
then Liabilities including, without limitation: the entire balance of the Loan
Account; any then remaining installments of the Commitment Fee; any then
remaining balance of the Facility Fee; and all unreimbursed costs and expenses
of the Lender for which the Borrower is responsible, and shall make such
arrangements concerning any L/C's then outstanding reasonably satisfactory to
the Lender. Until such payment, all provisions of this Agreement, other than
those contained in Article 1 which place an obligation on the Lender to make any
loans or advances or to provide financial accommodations under the Revolving
Credit or otherwise, shall remain in full force and effect
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until all Liabilities shall have been paid in full. The release by the Lender of
the security interests granted to the Lender by the Borrower hereunder may be
upon such reasonable conditions and reasonable indemnifications as the Lender
may require.
ARTICLE 14 - GENERAL.
14-1. PROTECTION OF COLLATERAL.
The Lender shall have no duty as to the collection or
protection of the Collateral beyond the safe custody of such of the Collateral
as may come into the possession of the Lender and shall have no duty as to the
preservation of rights against prior parties or any other rights pertaining
thereto. The Lender may include reference to the Borrower (and may utilize any
logo or other distinctive symbol associated with the Borrower) in connection
with any advertising, promotion, or marketing undertaken by the Lender.
14-2. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Borrower and the
Borrower's representatives, successors, and assigns and shall enure to the
benefit of the Lender and the Lender's successors and assigns, provided,
however, no trustee or other fiduciary appointed with respect to the Borrower
shall have any rights hereunder. In the event that the Lender assigns or
transfer its rights under this Agreement, the assignee shall thereupon succeed
to and become vested with all rights, powers, privileges, and duties of the
Lender hereunder and the Lender shall thereupon be discharged and relieved from
its duties and obligations hereunder.
14-3. SEVERABILITY.
Any determination that any provision of this Agreement or any
application thereof is invalid, illegal, or unenforceable in any respect in any
instance shall not affect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality, or enforceability of
any other provision of this Agreement.
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14-4. AMENDMENTS. COURSE OF DEALING.
(a) This Agreement and the other Loan Documents
incorporate all discussions and negotiations between the Borrower and the
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions and negotiations, nor any custom, usage, or
course of dealings shall limit, modify, or otherwise affect the provisions
thereof. No failure by the Lender to give notice to the Borrower of the
Borrower's having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document. No change made by the
Lender in the manner by which Availability is determined (any of which changes
may be made by the Lender in its discretion) shall obligate the Lender to
continue to determine Availability in that manner.
(b) The Borrower may undertake any action otherwise
prohibited hereby, and may omit to take any action otherwise required hereby,
with the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded by the Lender in the event that any of such representations or
warranties was not true and complete in all material respects when given.
14-5. POWER OF ATTORNEY.
In connection with all powers of attorney included in this
Agreement, the Borrower hereby grants unto the Lender full power to do any and
all things necessary or appropriate in connection with the exercise of such
powers as fully and effectually as the Borrower might or could do, hereby
ratifying all that said attorney shall do or cause to be done by virtue of this
Agreement. No power of attorney set forth in this Agreement shall be affected by
any disability or incapacity suffered by the Borrower and each shall survive the
same. All powers conferred upon the Lender by this Agreement, being coupled with
an interest, shall be
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irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender.
14-6. APPLICATION OF PROCEEDS.
The proceeds of any disposition of the Collateral and of any
other payments received on account of the Liabilities shall be applied toward
the Liabilities in such order and manner as the Lender determines in its
discretion. The Borrower shall remain liable for any deficiency remaining
following such application.
14-7. LENDER'S COSTS AND EXPENSES.
The Borrower shall pay on demand all Costs of Collection and
all reasonable expenses of the Lender in connection with the preparation,
execution, and delivery of this Agreement and of any other Loan Documents,
whether now existing or hereafter arising, and all other reasonable expenses
which may be incurred by the Lender in preparing or amending this Agreement and
all other agreements, instruments, and documents related thereto, or otherwise
incurred with respect to the Liabilities. The Borrower specifically authorizes
the Lender to pay all such fees and expenses and in the Lender's discretion, to
add such fees and expenses to the Loan Agreement.
14-8. COPIES AND FACSIMILES.
This Agreement and all documents which relate thereto, which
have been or may be hereinafter furnished the Lender may be reproduced by the
Lender by any photographic, microfilm, xerographic, digital imaging, or other
process, and the Lender may destroy any document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business). Any facsimile which bears proof of transmission shall be binding on
the party which or on whose behalf such transmission was initiated and likewise
shall be so admissible in evidence as if the original of such facsimile had been
delivered to the party which or on whose behalf such transmission was received.
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14-9. MASSACHUSETTS LAW.
This Agreement and all rights and obligations hereunder,
including matters of construction, validity, and performance, shall be governed
by the laws of The Commonwealth of Massachusetts.
14-10. CONSENT TO JURISDICTION.
(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior court of Suffolk County Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Borrower at the
Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(c) The Borrower WAIVES, at the option of Lender, any
objection based on FORUM NON CONVENIENS and any objection to venue of any action
or proceeding instituted under any of the Loan Documents and consents to the
granting of such legal or equitable remedy as is deemed appropriate by the
Court.
(d) Nothing herein shall affect the right of the Lender to
bring legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim or counterclaim arising under or in connection with
this Agreement or any other Loan Document shall be brought solely in the
Superior Court of Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston, Massachusetts, and that
such Courts shall have exclusive jurisdiction with respect to any such action.
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14-11. INDEMNIFICATION.
The Borrower shall indemnify, defend, and hold the Lender and
any employee, officer, or agent of the Lender (each, an "INDEMNIFIED PERSON")
harmless of and from any claim brought or threatened against any Indemnified
Person by the Borrower, any guarantor or endorser of the Liabilities, or any
other Person (as well as from attorneys' reasonable fees and expenses in
connection therewith) on account of the Lender's relationship with the Borrower
or any other guarantor or endorser of the Liabilities (each of which may be
defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender's selection, but at the expense of the Borrower) other
than any claim as to which a final determination is made in a judicial
proceeding (in which the Lender and any other Indemnified Person has had an
opportunity to be heard), which determination includes a specific finding that
the Indemnified Person seeking indemnification had acted in a grossly negligent
manner or in actual bad faith. The within indemnification shall survive payment
of the Liabilities and/or any termination, release, or discharge executed by the
Lender in favor of the Borrower.
14-12. RULES OF CONSTRUCTION.
The following rules of construction shall be applied in the
interpretation, construction, and enforcement of this Agreement and of the other
Loan Documents:
(a) Words in the singular include the plural and words in
the plural include the singular.
(b) Headings (indicated by being UNDERLINED) and the Table
of Contents are solely for convenience of reference and do not constitute a part
of the instrument in which included and do not affect such instrument's meaning,
construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) The words "may not" are prohibitive and not
permissive.
(e) The word "or" is not exclusive.
(f) Terms which are defined in one section of an
instrument are used with such definition throughout the instrument in which so
defined.
(g) The symbol "$" refers to United States Dollars.
(h) References to "herein", "hereof", and "within" are to
this entire Loan
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Agreement and not merely the provision in which such reference is included.
(i) Except as otherwise specifically provided, all
references to time are to Boston time.
(j) In the determination of any notice, grace, or other
period of time prescribed or allowed hereunder, unless otherwise provided (A)
the day of the act, event, or default from which the designated period of time
begins to run shall not be included and the last day of the period so computed
shall be included unless such last day is not a Business Day, in which event the
last day of the relevant period shall be the then next Business Day and (B) the
period so computed shall end at 5:00 PM on the relevant Business Day.
(k) The Loan Documents shall be construed and interpreted
in a harmonious manner and in keeping with the intentions set forth in Section
14-13, below, provided, however, in the event of any inconsistency between the
provisions of the within Agreement and any other Loan Documents, the provisions
of the within Agreement shall govern and control.
14-13. INTENT.
It is intended that:
(a) This Agreement takes effect as a sealed instrument.
(b) The scope of the security interests created by this
Agreement be broadly construed in favor of the Lender.
(c) The security interests created by this Agreement
secure all Liabilities of the Borrower to the Lender, whether now existing or
hereafter arising.
(d) All reasonable costs and expenses incurred by the
Lender in connection with the Lender's relationship(s) with the Borrower as
provided herein shall be borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the
Lender's consent to any action of the Borrower which is prohibited unless such
consent is given may be given or refused by the Lender in its sole discretion
and without reference to Section 1-10, above.
14-14. MAXIMUM INTEREST RATE.
Regardless of any provision of any Loan Document, the Lender
shall never be entitled to contract for, charge, receive, collect, or apply as
interest on any Liability, any amount
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in excess of the maximum rate imposed by applicable law. Any payment which is
made which, if treated as interest on a Liability would result in such
interest's exceeding such maximum rate shall be held, to the extent of such
excess, as additional collateral for the Liabilities as if such excess were
"Collateral."
14-15. WAIVERS.
(a) The Borrower (and all guarantors, endorsers, and
sureties of the Liabilities) make each of the waivers included in Subsection
14-15(b), below, knowingly, voluntarily, and intentionally, and understands that
the Lender, in entering into the financial arrangements contemplated hereby and
in providing loans and other financial accommodations to or for the account of
the Borrower as provided herein, whether now or in the future, is relying on
such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required
hereby, notice of non-payment, demand, presentment,
protest and all forms of demand and notice, both with respect to the Liabilities
and the Collateral.
(ii) Except as otherwise specifically required
hereby, the right to notice and/or hearing prior to the
Lender's exercising of the Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN
WHICH THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE
BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE
RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including,
without limitation, any automatic stay which otherwise might be imposed pursuant
to Section 362 of the Bankruptcy Code) with respect to any action which the
Lender may or may become entitled to take hereunder.
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(v) Any defense, counterclaim, set-off,
recoupment, or other basis on which the amount of any Liability, as stated on
the books and records of the Lender, could be reduced or claimed to be paid
otherwise than in accordance with the tenor of and written terms of such
Liability.
(vi) Any claim to consequential, special, or punitive
damages.
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Signed under seal as of the date first written above.
TEKNO COMIX, INC.
("BORROWER")
By: /s/ MARCI YUNES
----------------------------
Print Name: Marci Yunes
Title: Chief Financial Officer
BANKBOSTON RETAIL FINANCE INC.
("LENDER")
By: /s/ JOSEPH V. BALSAMO
----------------------------
Print Name: Joseph V. Balsamo
Title: Vice President
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EXHIBIT 10.2
- --------------------------------------------------------------------------------
MASTER NOTE BANKBOSTON RETAIL FINANCE INC.
- --------------------------------------------------------------------------------
Boston, Massachusetts Date: December 30, 1997
FOR VALUE RECEIVED, the undersigned Tekno Comix, Inc. (the "Borrower"),
promises to pay to the order of BANKBOSTON RETAIL FINANCE INC. a Delaware
corporation at its principal office at 40 Broad Street, Boston, Massachusetts
(hereinafter, with any subsequent holder, the "Lender") the aggregate unpaid
principal balance of loans and advances made by the Lender to the Borrower
pursuant to the Revolving Credit established pursuant to the Loan and Security
Agreement (as such may be amended hereafter, the "Loan Agreement") between the
Lender and the Borrower, with interest, at the rate and payable in the manner,
stated therein.
This is the "Master Note" to which reference is made in the Loan
Agreement, and is subject to all terms and provisions thereof. The principal of,
and interest on, this Note shall be payable as provided in the Loan Agreement
and shall be subject to acceleration as provided therein.
The Lender's books and records concerning the Lender's loans and
advances pursuant to the Revolving Credit, the accrual of interest thereon, and
the repayment of such loans and advances, shall be prima facie evidence of the
indebtedness to the Lender hereunder.
No delay or omission by the Lender in exercising or enforcing any of
the Lender's powers, rights, privileges, remedies, or discretions hereunder
shall operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver, unless stated therein.
<PAGE>
The Borrower, and each endorser and guarantor of this Note,
respectively waives presentment, demand, notice, and protest, and also waives
any delay on the part of the holder hereof. Each assents to any extension or
other indulgence (including, without limitation, the release or substitution of
collateral) permitted by the Lender with respect to this Note and/or any
collateral given to secure this Note or any extension or other indulgence with
respect to any other liability or any collateral given to secure any other
liability of the Borrower or any other person obligated on account of this Note.
This Note shall be binding upon the Borrower, and each endorser and
guarantor hereof, and upon their respective heirs, successors, assigns, and
representatives, and shall inure to the benefit of the Lender and its
successors, endorsees, and assigns.
The liabilities of the Borrower, and of any endorser or guarantor of
this Note, are joint and several; provided, however, the release by the Lender
or any one or more such person, endorser or guarantor shall not release any
other person obligated on account of this Note. Each reference in this Note to
the Borrower, any endorser, and any guarantor, is to such person individually
and also to all such persons jointly. No person obligated on account of this
Note may seek contribution from any other person also obligated unless and until
all liabilities, obligations and indebtedness to the Lender of the person from
whom contribution is sought have been satisfied in full.
The Borrower and each endorser and guarantor hereof each authorizes the
Lender to complete this Note if delivered incomplete in any respect.
This Note is delivered to the Lender at the principal offices of the
Lender in Boston, Massachusetts, shall be governed by the laws of The
Commonwealth of Massachusetts, and shall take effect as a sealed instrument.
<PAGE>
The Borrower makes the following waiver knowingly, voluntarily, and
intentionally, and understands that the Lender, in the establishment and
maintenance of the Lender's relationship with the Borrower contemplated by the
within Note, is relying thereon., THE BORROWER, TO THE EXTENT ENTITLED THERETO,
WAIVES ANY PRESENT OR FUTURE RIGHT OF THE BORROWER, OR OF ANY GUARANTOR OR
ENDORSER OF THE BORROWER OR OF ANY OTHER PERSON LIABLE TO THE LENDER ON ACCOUNT
OF OR IN RESPECT TO THE LIABILITIES, TO A TRIAL BY JURY IN ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF, OR IS IN
RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER, ANY SUCH PERSON,
AND THE LENDER.
Tekno Comix, Inc. ("Borrower")
By: /s/ Marci Yunes
-----------------------------------
Marci Yunes, Chief Financial
Officer, duly authorized
EXHIBIT 10.3
U N L I M I T E D G U A R A N T Y
TO: BankBoston Retail Finance Inc. (the "Bank")
40 Broad Street
Boston, Massachusetts 02109
RE: Tekno Comix, Inc. ("Borrower")
To induce you to make or continue to make loans, advances, or grant
other financial accommodations to Borrower, in consideration thereof and for
loans, advances or financial accommodations heretofore or hereafter granted by
you to or for the account of the Borrower, the undersigned (the "Guarantor ")
guaranties the payment to you of all sums which may be presently due and owing
and of all sums which shall in the future become due and owing to you from
Borrower, and also guaranties the due performance by the Borrower of all its
obligations under all other present and future contracts and agreements with
you.
Guarantor also agrees:
(1) to indemnify and hold you and your directors, officers,
employees, agents and attorneys harmless against all
obligations, demands and liabilities, by whomsoever
asserted, and against all losses in any way suffered,
incurred or paid as a result of or in any way arising out
of or following or related to transactions with the
Borrower, except for any claim arising out of the gross
negligence or willful misconduct of the Bank;
(2) that this Guaranty shall not be impaired by any
modification, supplement, extension or amendment of any
contract or agreement to which the parties thereto may
hereafter agree, nor by any modification, release or other
alteration of any of the obligations hereby guarantied
(except as otherwise may be expressly set forth in such
modification or release) or of any security therefor, nor
by any agreements or arrangements whatsoever with the
Borrower or anyone else;
(3) that the liability of Guarantor hereunder is direct and
unconditional and may be enforced without requiring you
first to resort to any other right, remedy or security;
(4) that Guarantor shall have no right of subrogation,
reimbursement or indemnity whatsoever, nor any right of
recourse to security for the debts and obligations of the
Borrower to you;
(5) the liability of the Guarantor shall be joint and
several with the liabilities of any other guarantors;
(6) that if the Borrower or Guarantor or any other guarantor
should at any time become insolvent or make a general
assignment, or if a petition in bankruptcy or any
insolvency or reorganization proceedings shall be filed or
commenced by, against or in respect of the Borrower or
Guarantor, or any other guarantor of the obligations
guaranteed
<PAGE>
hereby, any and all obligations of Guarantor shall, at
your option, forthwith become due and payable without
notice;
(7) that your books and records showing the account between you
and the Borrower shall be admissible in any action or
proceeding, shall be binding upon Guarantor for the purpose
of establishing the items therein set forth and shall
constitute conclusive proof thereof;
(8) that this Guaranty is, as to Guarantor, a continuing
Guaranty that shall remain effective until expressly
terminated as hereinafter provided;
(9) that this Guaranty may be terminated as to Guarantor only
by giving you sixty (60) days' prior written notice by
registered or certified mail, and thereupon this Guaranty
shall terminate with respect to Guarantor only at the
expiration of said sixty (60) day period, which shall then
be the effective date of termination, and that such
termination shall be applicable only to transactions having
their inception after the effective date of termination and
shall not affect rights and obligations arising out of
transactions having their inception prior to such date;
(10) that the death of Guarantor, if an individual, or the
termination or dissolution of Guarantor, if a trust,
partnership or corporation, shall not effect the
termination of this Guaranty as to Guarantor;
(11) that termination of any guaranty of the obligations
guaranteed hereby by any other guarantor shall not affect
the continuing liability hereunder of Guarantor;
(12) that nothing shall discharge or satisfy the liability of
Guarantor hereunder except the full payment and performance
of all of the Borrower's debts and obligations to you with
interest and costs of collection;
(13) that this Guaranty shall not be affected by any fraudulent,
illegal or improper act by the Borrower, by the legal
incapacity of the Borrower, Guarantor or any other person
obligated to you consequential to transactions with the
Borrower, nor by the invalidation, by operation of law or
otherwise, of all or any part of the obligations guaranteed
hereby, including but not limited to any interest accruable
on the obligations guaranteed hereby during the pendency of
any bankruptcy or receivership proceeding of the Borrower;
(14) that any and all present and future debts and obligations
of the Borrower to Guarantor, including the payment of any
dividends by Borrower to Guarantor (other than payments by
Borrower to Guarantor on account of corporate overhead),
are hereby waived and postponed in favor of and
subordinated to the full payment and performance of all
present and future debts and obligations of the Borrower to
you;
(15) that all sums at any time to the credit of Guarantor and
any of the property of Guarantor at any time in your
possession or in possession of any of your banking or
lending affiliates, or in possession of any bank acting as
a participant under any loan agreement between you and
Borrower, may be held by you as security for any and all
obligations of such Guarantor to you, no matter how or when
arising, whether absolute or contingent, whether due or to
become due and whether under this Guaranty or otherwise;
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<PAGE>
(16) that if at any time payment of all or any part of the
obligations guarantied hereunder is rescinded or otherwise
must be restored by you to the Borrower or to the creditors
of the Borrower or any representative of the Borrower or
representative of the Borrower's creditors as a voidable
preference or fraudulent conveyance upon the insolvency,
bankruptcy or reorganization of the Borrower or Guarantor,
or to the creditors of Guarantor or any representative of
Guarantor or representative of the creditors of Guarantor
upon the insolvency, bankruptcy or reorganization of
Guarantor or otherwise, this Guaranty shall continue to be
effective or be reinstated, as the case may be, as though
such payments had not been made, and shall survive as an
obligation of the Guarantor, and shall not be discharged or
satisfied by said payment or payments, notwithstanding the
return of the original of this Guaranty to Guarantor or to
the Borrower, or any other apparent termination of
Guarantor's obligations hereunder;
(17) that any rights and remedies available to you under this
Guaranty are cumulative, and not exclusive of any rights
and remedies otherwise available to you;
(18) that your delay or omission in exercising any of your
rights and remedies shall not constitute a waiver of these
rights and remedies, nor shall your waiver of any right or
remedy operate as a waiver of any other right or remedy
available to you. Your waiver of any right or remedy on any
one occasion shall not be considered a waiver of same on
any subsequent occasion, nor shall this be considered to be
a continuing waiver, unless stated therein;
(19) that this Guaranty incorporates all discussions and
negotiations between you and Guarantor concerning the
guaranty and indemnification provided by the undersigned
hereby, and that no such discussions or negotiations shall
limit, modify, or otherwise affect the provisions hereof,
and that no provision hereof may be altered, amended,
waived, canceled or modified, except by a written
instrument executed, sealed and acknowledged by your duly
authorized officer;
(20) that this Guaranty and all documents which have been or may
be hereinafter furnished by Guarantor to you may be
reproduced by you by any photographic, photostatic,
microfilm, xerographic or similar process, and that any
such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative
proceeding (whether or not the original is in existence and
whether or not such reproduction was made in the regular
course of business);
(21) that Guarantor shall deliver to Lender Form 10-Q Quarterly
reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Guarantor with the
Securities and Exchange Commission, if any, within fifteen
(15) days after the same are filed, or any other
information that is provided by Guarantor to its
shareholders generally; and
(22) that annually, within ninety (90) days following the end of
Guarantor's fiscal year, the Guarantor shall furnish the
Lender with an original signed counterpart of Guarantor's
annual financial statement, which statement shall have been
prepared on a "consolidated" and "consolidating" basis by,
and bearing the unqualified opinion of, Guarantor's
independent certified public accountants (i.e. said
statement shall be "certified " by such accountants). Such
annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a
balance sheet, income statement, and statement of changes
in cash flows. Each annual statement shall be accompanied
by such accountant's Certificate indicating that to the
best knowledge of such accountant, no event has occurred
which is or which, solely with the passage of
3
<PAGE>
time or the giving of notice (or both) would be, an Event
of Default under the terms of that certain Loan and
Security Agreement by and between Tekno Comix, Inc. and
Lender dated as of December 30, 1997.
Guarantor waives: notice of acceptance hereof, presentment and protest
of any instrument and notice thereof, notice of default and all other notices to
which Guarantor might otherwise be entitled; and any and all defenses including
without limitation any and all defenses which the Borrower or any other party
may have to the fullest extent permitted by law.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the Commonwealth of Massachusetts, shall be binding
upon the heirs, executors, administrators, successors and assigns of Guarantor
and shall inure to the benefit of your successors and assigns.
If any provision of this Guaranty is found to be invalid, illegal or
unenforceable, the validity of the remainder of the Guaranty shall not be
affected.
Guarantor irrevocably submits to the nonexclusive jurisdiction of any
federal or state court sitting in Massachusetts, over any suit, action or
proceeding arising out of or relating to this Guaranty. Guarantor irrevocably
waives, to the fullest extent it may effectively do so under applicable law, any
objection it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any claim that the same
has been brought in an inconvenient forum. Guarantor irrevocably appoints the
Secretary of State of Florida as its authorized agent to accept and acknowledge
on its behalf any and all process which may be served in any such suit, action
or proceeding, consents to such process being served (i) by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to Guarantor's address shown below or as notified to the Bank and
(ii) by serving the same upon such agent, and agrees that such service shall in
every respect be deemed effective service upon Guarantor.
GUARANTOR AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH
THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ALL MATTERS CONTEMPLATED
HEREBY AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH. GUARANTOR CERTIFIES THAT
NEITHER THE BANK NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT IN THE EVENT OF ANY
SUCH PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.
INTENTIONALLY LEFT BLANK
4
<PAGE>
Executed under seal and dated as of December 30, 1997.
Witness Guarantor:
Big Entertainment, Inc.
/s/ [ILLEGIBLE] By: /s/ Marci Yunes
- ------------------------- ------------------------------------
Marci Yunes, Chief Financial Officer
Address: 2255 Galdes Road, Suite 237W
Boca Raton, Florida 33431
5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this Form S-3/A registration statement of our
report dated February 28, 1997 included in Big Entertainment, Inc.'s Form 10-KSB
for the year ended December 31, 1996 and to all references to our Firm included
in this registration statement.
/s/ ARTHUR ANDERSEN LLP
- ------------------------
Arthur Andersen LLP
Miami, Florida,
January 27, 1998.
