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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 21, 1997
MEDIA ARTS GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-24294 77-0354419
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
521 Charcot Avenue, San Jose, California, 95131
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(Address of principal executive offices) (Zip Code)
(408) 324-2020
(Registrant's telephone number, including area code)
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(former name or former address, if changed since last report)
Total Pages 116
Index to Exhibits appears on page 5 herein
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Item 5. Other Events.
On February 21, 1997, the Company and its wholly-owned subsidiaries
Thomas Kinkade Stores, Inc. ("TK Stores") and California Coast Galleries, Inc.
("CCG") entered into a $10,000,000 Financing Agreement with the CIT
Group/Business Credit, Inc. ("CIT"). Under the Financing Agreement, the
Company, TK Stores and CCG may draw down revolving loans in an amount up to
$8,000,000, subject to availability based upon their levels of eligible
accounts receivable and eligible inventory. In addition, CIT will make
available $2,000,000 in support of trade letters of credit issued for the
account of the Company, CCG or TK Stores. The Credit Agreement is secured by a
lien on the assets of the Company. Loans under the Credit Agreement will bear
interest at a rate of prime plus one percent. The arrangement with CIT
replaces the senior financing provided by Comerica Bank.
In conjunction with the Company's new credit arrangements with CIT, on
February 21, 1997, the Company's senior subordinated creditor, Levine Leichtman
Capital Partners, L.P. ("LLCP"), the Company, TK Stores, CCG and the Company's
wholly-owned subsidiaries MAGI Sales, Inc. ("MAGI Sales") and MAGI
Entertainment Products, Inc. ("MAGI EP") entered into a Credit Agreement.
Pursuant to the Credit Agreement, the Company, TK Stores, CCG, MAGI EP and MAGI
Sales issued to LLCP a 13.50% Senior Subordinated Note due December 31, 2001 in
the principal amount of $7,400,000 and made a principal payment of $592,500 to
LLCP relating to previously issued notes in the aggregate principal amount of
$8,000,000 (the "Former Notes"). The Credit Agreement and the $7,400,000
Senior Subordinated Note replace the Former Notes and related agreements. In
addition, on February 21, 1997, LLCP exercised in full its warrant to purchase
400,000 shares of Common Stock of the Company, and converted in full $7,500 in
principal amount of a convertible Former Note; the exercise price for the
aggregate 1,150,000 shares was $.01 per share.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) The following exhibits are filed as part of this Report:
4.01 Financing Agreement dated as of February 21, 1997 by
and among CIT Group/Business Credit, Inc., Media Arts
Group, Inc., Thomas Kinkade Stores, Inc. and
California Coast Galleries, Inc.
4.02 Credit Agreement dated as of February 21, 1997 by and
among Levine Leichtman Capital Partners, L.P., Media
Arts Group, Inc., Thomas Kinkade Stores, Inc., MAGI
Entertainment Products, Inc., California Coast
Galleries, Inc. and MAGI Sales, Inc.
21.01 List of Subsidiaries.
99.01 Press Release of the Company dated February 24, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: February 28, 1997
MEDIA ARTS GROUP, INC.
By: /s/ Raymond A. Peterson
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Name: Raymond A. Peterson
Title: Chief Financial Officer and
Senior Vice President of Finance
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EXHIBIT INDEX
Exhibits. Page
4.01 Financing Agreement dated as of February 21, 1997 by and
among CIT Group/Business Credit, Inc., Media Arts Group,
Inc., Thomas Kinkade Stores, Inc. and California Coast
Galleries, Inc. 6
4.02 Credit Agreement dated as of February 21, 1997 by and among
Levine Leichtman Capital Partners, L.P., Media Arts Group,
Inc., Thomas Kinkade Stores, Inc., MAGI Entertainment
Products, Inc., California Coast Galleries, Inc. and
MAGI Sales, Inc. 61
21.01 List of Subsidiaries. 113
99.01 Press Release of the Company dated February 24, 1997. 114
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Exhibit 4.01
FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
(as Lender)
Media Arts Group, Inc.
Thomas Kinkade Stores, Inc.
And
California Coast Galleries, Inc.
(as Borrowers)
Dated: February 21, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
SECTION 1. Definitions 3
SECTION 2. Conditions Precedent 14
SECTION 3. Revolving Loans 19
SECTION 4. Intentionally Omitted 24
SECTION 5. Letters of Credit 24
SECTION 6. Collateral 27
SECTION 7. Representations, Warranties and Covenants 30
SECTION 8. Interest, Fees and Expenses 39
SECTION 9. Powers 41
SECTION 10. Events of Default and Remedies 42
SECTION 11. Termination 46
SECTION 12. Miscellaneous 46
SIGNATURE PAGE -S1-
</TABLE>
EXHIBITS AND SCHEDULES
Exhibit A - Form of Promissory Note (Revolving Loan)
Schedule 1 - List of Inventory Locations and Chief Executive Office
Schedule 2 - Trade Names
Schedule 3 - Patents, Trademarks and Copyrights
Schedule 4 - Permitted Encumbrances
Schedule 5 - Leased Locations and Monthly Rent
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The CIT Group/Business Credit, Inc., a New York corporation,
(hereinafter sometimes referred to as "CITBC") with offices located at 300
South Grand Avenue, Los Angeles, CA 90071 (CITBC may be sometimes referred to
herein as the "Lender"), is pleased to confirm the terms and conditions under
which CITBC shall make revolving loans, advances and other financial
accommodations to Media Arts Group, Inc. (herein "MAGI"), a Delaware
corporation with a principal place of business at 521 Charcot Avenue, San Jose,
CA 95131, California Coast Galleries, Inc. (herein "CCG"), a California
corporation with a principal place of business at 521 Charcot Avenue, San Jose,
CA 95131, and Thomas Kinkade Stores, Inc. (herein "TKS"), a California
corporation with a principal place of business at 521 Charcot Avenue, San Jose,
CA 95131 (herein individually a "Company" and collectively the "Companies").
SECTION 1. Definitions
Accounts shall mean all of each of the Companies' now existing and future:
(a) accounts as defined in the UCC and any and all other receivables (whether
or not specifically listed on schedules furnished to CITBC), including, without
limitation, all accounts created by or arising from all of the Companies' sales
of goods or rendition of services to their customers (including without
limitation from the lease or rental of goods), all accounts arising from sales
or rendition of services made under any of the Companies' respective trade
names or styles, or through any of the Companies' divisions; (b) any and all
instruments, documents, contract rights and chattel paper, all as defined in
the UCC; (c) unpaid seller's or lessor's rights (including rescission,
replevin, reclamation and stoppage in transit) relating to the foregoing or
arising therefrom; (d) rights to any goods represented by any of the foregoing,
including rights to returned or repossessed goods; (e) reserves and credit
balances arising hereunder; (f) guarantees or collateral for any of the
foregoing; (g) insurance policies or rights relating to any of the foregoing;
(h) general intangibles pertaining to any and all of the foregoing; (i)
proceeds or royalties from any licensing or similar agreements, including
without limitation from "Thomas Kinkade" trademarks and products; and (j) cash
and non-cash proceeds of any and all the foregoing.
Anniversary Date shall mean the date occurring two (2) years from the date
hereof and the same date in every year thereafter.
Availability shall mean at any time the positive difference between: (a) the
Borrowing Base less (b) the sum of, without duplication, (i) the outstanding
aggregate amount of all Obligations (other than the Letters of Credit ) of the
Companies, (ii) the Availability Reserve, and (iii) at CITBC's reasonable
election, all payments of any of the Companies to CITBC coming due within sixty
(60) days from the date of computation.
Availability Reserve shall mean (a) three (3) month reserve for unpaid rental
or similar charges for any facility for which any of the Companies fail to
obtain a landlord's waiver,
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warehouseman's, processors or mortgagee's waiver, as applicable in form and
substance satisfactory to CITBC (described in Section 2(r)), and (b) any
reserve which CITBC may reasonably require from time to time pursuant to the
explicit terms of this Financing Agreement, including without limitation for
Letters of Credit issued pursuant to paragraph 5.1 of Section 5 hereof.
Borrowing Base shall have the meaning and shall be calculated in accordance
with paragraph 3.1 of Section 3 of this Financing Agreement.
Business Day shall mean a day on which CITBC is open for business in New York,
New York, and which is not a Saturday, Sunday or other day on which commercial
banks or lending institutions in New York, New York are authorized or required
by law to close.
Capital Expenditures for any period shall mean the aggregate of all
expenditures of the Companies during such period, that in conformity with GAAP,
are required to be included in or reflected by the property, plant or equipment
or similar fixed asset account reflected in the consolidated balance sheet of
the Companies.
Capital Lease shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease or a
Capital Expenditure on the consolidated balance sheet of the Companies.
Chase Bank Rate shall mean the rate of interest per annum announced by The
Chase Manhattan Bank, N.A. (or any successor thereof) from time to time as its
prime rate in effect at its principal office in the City of New York. (The
prime rate is not intended to be the lowest rate of interest charged by Chase
Manhattan Bank to its borrowers).
Chase Rate Loans shall mean loans made pursuant to this Financing Agreement at
such time as they are made and/or being maintained at a rate of interest based
upon the Chase Bank Rate.
Closing Date shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to CITBC.
Collateral shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, the pledged stock of TKS, CCG, MAGIEP
and MAGIS, and Other Collateral of the Companies and the proceeds of any and
all of the foregoing.
Collateral Management Fee shall mean the sum of $20,000.00 which shall be paid
to CITBC in accordance with paragraph 8.8 of Section 8 hereof to offset the
expenses and costs of CITBC in connection with record keeping, periodic
examinations, analyzing and evaluating the Collateral.
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Consolidated Balance Sheet shall mean a consolidated balance sheet for the
Companies and the consolidated subsidiaries of each, eliminating all
inter-company transactions and prepared in accordance with GAAP.
Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for MAGI, the Companies, and the subsidiaries of
each, showing all eliminations of inter-company transactions and prepared in
accordance with GAAP and including a balance sheet for each of the Companies
exclusively.
Contract Rate shall mean the rates of interest computed as applicable and as
set forth in paragraphs 8.1 and 8.3 of Section 8 of this Financing Agreement.
Customarily Permitted Liens shall mean:
(a) liens of local or state authorities for franchise or other like
taxes provided the aggregate amounts of such liens shall not exceed $100,000.00
in the aggregate for the Companies at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases,
indemnity bonds, surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids contracts (other than
for the repayment or guarantee of borrowed money or purchase money
obligations), statutory obligations and other similar obligations arising as a
result of progress payments under government contracts; and
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, minor defects or
irregularities in title, variation and other restrictions, charges or
encumbrances (whether or not recorded) affecting Real Estate.
Default shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
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Default Rate of Interest shall mean a rate of interest per annum equal to the
lesser of a) the Maximum Legal Rate (as defined in Paragraph 12.3 of Section 12
hereof) and b) the sum of: I)three percent (3%) and ii) the Chase Bank Rate.
Depository Account shall have the meaning specified in Section 3, Paragraph 3.4
hereof.
Documentation Fee shall mean i) the sum of $15,000.00 intended to compensate
CITBC for the use of CITBC's in-house Legal Department and facilities in
documenting, in whole or in part, the initial transaction solely on behalf of
CITBC, exclusive of Out-of-Pocket Expenses, and the whole of which amount shall
be included in the Loan Facility Fee, and ii) subsequent to the Closing Date,
CITBC's standard fees relating to any and all modifications, waivers, releases,
amendments or additional collateral with respect to this Financing Agreement,
the Collateral and/or the Obligations.
Documents of Title shall mean all present and future documents as defined in
the UCC and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.
Early Termination Date shall mean the date on which the Companies terminate
this Financing Agreement or the Line of Credit which date is prior to an
Anniversary Date.
Early Termination Fee shall: a) mean the fee CITBC is entitled to charge the
Companies in the event any of the Companies terminates the Line of Credit or
this Financing Agreement on a date prior to an Anniversary Date; and b) be
determined by calculating the average daily loan balance under the Revolving
Loan plus the average daily balance of Letters of Credit outstanding for the
period from the date of this Financing Agreement to the Early Termination Date
and multiplying that number by one percent (1%) per annum for the number of
days from the Early Termination Date to the next succeeding Anniversary Date,
provided that the Early Termination Fee shall not be due and payable if an
Event of Default occurs, CITBC accelerates in writing the Obligations and the
Companies repay all of the outstanding Obligations and this Financing Agreement
is terminated.
EBITDA shall mean, with respect to any period of the Companies and their
consolidated subsidiaries for which such calculation is required, the sum of
(i) Consolidated Net Income (as defined in accordance with GAAP, before all
extraordinary items and non-recurring items, in accordance with GAAP); (ii)
Interest Expense; (iii) provision for taxes; (iv) charges for depreciation; and
(v) charges for amortization of intangible assets, all as determined in
accordance with GAAP consistently applied. For purposes hereof, "intangible
assets" shall include, but shall not be limited to organization costs,
securities issuance costs, unamortized debt discount and expense, goodwill,
covenants not to compete, patents, trademarks, franchises and capitalized
research and development expense.
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Eligible Accounts Receivable shall mean the gross amount of each of the
Company's Accounts that are subject to a valid, exclusive, first priority and
fully perfected security interest in favor of CITBC and which conform to the
warranties contained herein and at all times continue to be acceptable to CITBC
in the exercise of its reasonable business judgment, less, without duplication,
the sum of a) any returns, discounts, claims, credits, rebills and allowances
of any nature (whether issued, owing, granted or outstanding) and b) reserves
for, without duplication: i) sales, services or leases to the United States of
America or to any agency, department or division; ii) foreign sales, services
or leases, other than sales, services or leases x) secured by stand-by letters
of credit (in form and substance satisfactory to CITBC) issued or confirmed
by, and payable at, banks having a place of business in the United States of
America and payable in United States currency, or y) to customers residing in
Canada provided such sales or transactions otherwise comply with all of the
other criteria for eligibility hereunder, are payable in United States currency
and such Eligible Accounts do not exceed $250,000 in the aggregate at any one
time; iii) accounts that remain unpaid more than ninety (90) days from invoice
date, provided that CITBC may in its reasonable discretion deem Accounts
eligible which are payable on extended terms of up to 120 days, in an amount
not to exceed $500,000 (of such Eligible Accounts) in the aggregate at any one
time outstanding; iv) contras; v) sales, services or leases to any of the
Companies, or any of their subsidiaries or affiliates; vi) bill and hold
(deferred shipment) or consignment sales; vii) sales, services or leases to any
customer which is A) insolvent, B) the debtor in any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law, C) negotiating, or has called a meeting of its creditors
for purposes of negotiating, a compromise of its debts or D) financially
unacceptable to CITBC or has a credit rating unacceptable to CITBC in any such
case, in its reasonable business judgment; viii) all sales, services or leases
to any customer if fifty percent (50%) or more of the aggregate dollar amount
of all outstanding invoices, are unpaid more than ninety (90) days from invoice
date; ix) any other reasons deemed necessary by CITBC in its reasonable
business judgment and which are customary either in the commercial finance
industry or in the lending practices of CITBC; x) any Accounts arising from
the sale, lease or rental of goods for which a customer shall have objected to
the quality or quantity of goods or services of the Companies, or where such
customer shall have rejected, returned or refused to accept such goods or
services; xi) pre-billed receivables and receivables arising from progress
billing; xii) sales to or through the QVC cable television shopping network or
similar channels or pursuant to direct marketing, until such time as the
distributed product is resold by QVC or such other channel to its customers
(provided that no reserves shall be taken with respect to products sold to QVC
or such other distributor for which it has no right of return); xiii) sales
by JHL or by any of the Companies or their affiliates of JHL Inventory or John
Hine Studios' Inventory; and xiv) an amount representing, historically,
returns, discounts, claims, credits and allowances (including without
limitation the historic dilution reserve for claims or returns by QVC's
customers).
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Eligible Inventory shall mean, without duplication, the gross amount of each of
the Companies' Inventory that is subject to a valid, exclusive, first priority
and fully perfected security interest in favor of CITBC and which conforms to
the warranties contained herein and which at all times continue to be
acceptable to CITBC in the exercise of its reasonable business judgment, less
any (a) work-in-process, (b) supplies (other than raw materials), (c) goods not
present in the United States of America, (d) goods returned or rejected by the
Companies' customers other than goods that are undamaged and resalable in the
normal course of business, (e) goods to be returned to the Companies'
suppliers, (f) goods in transit to third parties (other than goods in transit
to the Companies' agents or warehouses, provided that with respect to any such
goods, the Companies have title to such Inventory and possession of all
delivery and warehouse receipts, and all insurance, shipping and documentation
relating thereto is reasonably satisfactory to CITBC); (g) "John Hine Studios"
Inventory (whether held by any of the Companies or their affiliates)
including miniature figurines, cottages and houses; and (h) reserves required
by CITBC in its reasonable discretion, including for Slow Moving Inventory (for
purposes hereof, "Slow Moving Inventory" shall be deemed to be any Inventory
held by the Companies for twelve or more months or such lesser period as the
Companies may apply from time to time), special order goods, market value
declines and bill and hold (deferred shipment) or consignment sales, Inventory
sold pursuant to a licensing agreement or otherwise bearing trademarks or
subject to copyrights of a third party licensor (for which CITBC has not
received a [right of sale] licensing agreement in form and substance
satisfactory to CITBC, provided that for purposes hereof, the Kinkade/CITBC
Licensing Agreement is deemed satisfactory), amounts due and owing by any of
the Companies to freight forwarders, for any applicable customs, duties and
taxes, and any royalty payments pursuant to any applicable licensing
agreements. For purposes hereof, as of the Closing Date: (i) Eligible Inventory
consisting of raw materials shall include, without limitation, signed and
unsigned paper lithographs not otherwise included as eligible finished goods
Inventory (in marketable form in the ordinary course of business of the
Companies),and, to the extent not otherwise held for retail sales in the
ordinary course of business of the Companies, (blank) stretched canvas, mat
boards and glass, and (ii) finished goods Eligible Inventory shall include,
without limitation, up to 60% of the aggregate signed and unsigned paper
lithographs (in marketable form in the ordinary course of business of the
Companies), all of which otherwise comply with the terms hereof, provided that
the foregoing advances against lithographs may be increased or decreased from
time to time in CITBC's reasonable discretion (taking into account the
Companies' actual experience).
Equipment shall mean all of the Companies' present and hereafter acquired
equipment as defined in the UCC and any and all machinery, motor vehicles,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all proceeds
of whatever sort.
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ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder
from time to time.
Event(s) of Default shall have the meaning provided for in Section 10 of this
Financing Agreement.
Executive Officers shall mean the Chairman, President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Executive Vice President(s),
Senior Vice President(s), Treasurer, Controller and Secretary of any of the
Companies.
Financial Covenants shall mean those covenants set forth in paragraphs 7.9,
7.11 and 7.12 of Section 7 hereof.
Fixed Charge Coverage Ratio shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (i) cash Interest Expense, (ii)
Capital Expenditures made and paid for in cash, (iii) the amount of principal
repaid on: (a) the Subordinated Debt, (b) Indebtedness secured by Purchase
Money Liens, and (c) the John Hine Debt, and (iv) all cash Federal, state and
local income tax expenses due and payable.
GAAP shall mean generally accepted accounting principles in the United States
of America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided further that in the event the
Companies modify their accounting principles as applied as of the Closing Date,
the Companies shall provide such statements of reconciliation as shall be in
form and substance acceptable to CITBC.
General Intangibles shall have the meaning set forth in the UCC and shall
include, without limitation, all of the Companies' present and future right,
title and interest in and to all tradenames, trademarks (together with the
goodwill associated therewith), copyrights, patents, licenses, customer lists,
distribution agreements, supply agreements and tax refunds (provided that
CITBC's lien on the Federal Tax Refund for the fiscal year ending March 31,
1997 shall be subject to LLCP's first lien thereon, in accordance with the
terms of the Subordination Agreement among CITBC, LLCP and the Companies),
together with all monies and claims for monies now or hereafter due and payable
in connection with any of the foregoing or otherwise, and all cash and non-cash
proceeds thereof, including without limitation the proceeds of any licensing
agreements between the Companies and any licensee of any of the Companies'
General Intangibles or rights thereunder.
Guarantors shall mean MAGIEP and MAGIS.
Indebtedness shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of money
(borrowed or otherwise due or owing to third parties) or for the deferred
purchase price of property, services or assets, other than
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Inventory, or (b) lease obligations which, in accordance with GAAP, have been
or should be capitalized.
Interest Expense shall mean total interest obligations (paid or accrued) of the
Companies, determined in accordance with GAAP on a basis consistent with the
latest audited statements of the Companies.
Inventory shall mean all of the Companies' present and hereafter acquired
inventory as defined in the UCC, and any and all merchandise and goods,
including without limitation paintings, lithographs, canvas, mat boards,
frames, glass, books, videos, figurines, miniature cottages, ornaments and home
decor, and all additions, substitutions and replacements thereof, wherever
located, together with all goods wherever located, and materials used or usable
in manufacturing, processing, packaging or shipping same; in all stages of
production - from raw materials through work-in-process to finished goods - and
all proceeds thereof of whatever sort.
Issuing Bank shall mean the bank issuing Letters of Credit for the Companies.
JHL shall mean John Hine Ltd., a United Kingdom company.
John Hine Debt shall mean the obligation of MAGI to John Hine, an individual,
in the principal amount as of the Closing Date of approximately L.970,756,
(together with all accrued interest thereon as of any time of determination)
arising from the acquisition of JHL from John Hine.
Letter of Credit Guaranty shall mean the guaranty delivered by CITBC to the
Issuing Bank of the respective Companies' reimbursement obligation under the
Issuing Bank's reimbursement agreement, application for Letter of Credit or
other like document.
Letter of Credit Guaranty Fee shall mean the fee CITBC may charge the Companies
under paragraph 8.3 of Section 8 of this Financing Agreement for: i) issuing
the Letter of Credit Guaranty and/or ii) otherwise incurring reimbursement
obligations on behalf of the Companies in obtaining Letters of Credit pursuant
to Section 5 hereof.
Letters of Credit shall mean all Letters of Credit issued by the Issuing Bank
for or on behalf of any of the Companies with either a CITBC Letter of Credit
Guaranty or for which CITBC otherwise incurs reimbursement obligations on
behalf of the Companies.
Line of Credit shall mean the aggregate commitment of CITBC to make loans and
advances to the Companies and issue Letter of Credit Guaranties for the benefit
of the Companies pursuant to Sections 3 and 5 of this Financing Agreement in
the aggregate amount of $10,000,000.00.
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Line of Credit Fee shall mean the fee due CITBC at the end of each month for
the Line of Credit and shall be calculated by: multiplying (a) the difference
between (I) the Revolving Line of Credit and (ii) the sum of (A) the average
daily Revolving Loans of the Companies for said month plus (B) the average
daily balance of outstanding Letters of Credit of the Companies for said
month; by (b) one-half of one percent ( 1/2 of 1%) per annum for the number of
days in said month based on a 360 day year.
LLCP shall mean Levine Leichtman Capital Partners, L.P., a California limited
partnership.
Loan Documents shall mean this Financing Agreement, the Promissory Notes, the
mortgages and/or deeds of trust, any other documents and the ancillary loan and
security agreements executed from time to time in connection with this
Financing Agreement, as the same may be renewed, amended, extended, increased
or supplemented from time to time.
Loan Facility Fee shall mean the fee payable to CITBC in accordance with, and
pursuant to, the provisions of paragraph 8.7 of Section 8 of this Financing
Agreement.
MAGIEP shall mean MAGI Entertainment Products, Inc., a California corporation.
MAGIS shall mean MAGI Sales, Inc., a California corporation.
Net Worth means with respect to any person, at any date of determination, an
amount equal to, (a) the total assets of such person as of such date minus (b)
the total liabilities of such person as of such date, in each case determined
in accordance with GAAP, on a consistent basis with the latest audited
statements.
Obligations shall mean any and all current and future loans and advances made
by CITBC to the Companies, or any one of them, or to others for any of the
Companies' account including, without limitation, all Revolving Loans, Letters
of Credit and advances pursuant to this Financing Agreement or any of the Loan
Documents; any and all indebtedness and obligations which may at any time be
owing by the Companies, or any one of them, to CITBC howsoever arising, whether
now in existence or incurred by any of the Companies from time to time
hereafter; whether secured by pledge, lien upon or security interest in any of
the Companies' assets or property or the assets or property of any other
person, firm, entity or corporation; whether such indebtedness is absolute or
contingent, joint or several, matured or unmatured, direct or indirect and
whether the Companies, or any one of them, are liable to CITBC for such
indebtedness as principal, surety, endorser, guarantor or otherwise.
Obligations shall also include indebtedness owing to CITBC by any of the
Companies under this Financing Agreement, any other Loan Documents or under any
other agreement or arrangement now or hereafter entered into between any of the
Companies and CITBC; indebtedness or obligations incurred by, or imposed on,
CITBC as a result of environmental claims (other than as a result
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of the physical actions comprising gross negligence of CITBC on the Real
Estate) arising out of any of the Companies' operations, premises or waste
disposal practices or sites; any of the Companies' liability to CITBC as maker
or endorser on any promissory note or other instrument for the payment of
money; any of the Companies' liability to CITBC under any instrument of
guaranty or indemnity, or arising under any guaranty, endorsement or
undertaking which CITBC may make or issue to others for the Companies' account,
including any accommodation extended with respect to applications for Letters
of Credit, CITBC's acceptance of drafts or CITBC's endorsement of notes or
other instruments for the Companies' account and benefit.
Operating Leases shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases.
Other Collateral shall mean all now owned and hereafter acquired deposit
accounts maintained with any bank or financial institutions; all cash and other
monies and property in the possession or control of CITBC; all books, records,
ledger cards, disks and related data processing software at any time evidencing
or containing information relating to any of the Collateral described herein or
otherwise necessary or helpful in the collection thereof or realization
thereon; and all cash and non-cash proceeds of the foregoing.
Out-of-Pocket Expenses shall mean all of CITBC's present and future reasonable
out-of-pocket expenses incurred relative to this Financing Agreement or any
other Loan Documents, whether incurred heretofore or hereafter, which expenses
shall include, without being limited to, the cost of record searches, all costs
and expenses incurred by CITBC in opening bank accounts, depositing checks,
receiving and transferring funds, and any charges imposed on CITBC due to
"insufficient funds" of deposited checks and CITBC's standard fee relating
thereto, any amounts paid by CITBC to, or incurred by or charged to CITBC by,
the Issuing Bank under the Letter of Credit Guaranty or the Companies'
reimbursement agreement, application for Letter of Credit or other like
document which pertain either directly or indirectly to such Letters of Credit,
and CITBC's standard fees relating to the Letters of Credit and any drafts
thereunder, any applicable reasonable counsel fees and disbursements, title
insurance premiums, real estate survey costs, fees and taxes relative to the
filing of financing statements, costs of preparing and recording
mortgages/deeds of trust against Real Estate and all expenses, costs and fees
set forth in paragraph 10.3 of Section 10 of this Financing Agreement.
Perfection Certificate shall mean the Perfection Certificate signed by the
Companies and delivered to CITBC, in form and substance satisfactory to CITBC
in connection with this Financing Agreement.
Permitted Encumbrances shall mean: i) liens expressly permitted, or consented
to in writing, by CITBC ; ii) Purchase Money Liens; iii) Customarily Permitted
Liens; iv) liens granted CITBC by the Companies; v) liens of judgment creditors
provided such liens do not exceed, in
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the aggregate for the Companies, at any time, $100,000.00 (other than liens
which have been discharged, bonded or insured to the reasonable satisfaction of
CITBC); vi) liens of LLCP (subject to the Subordination Agreement dated on or
about the Closing Date between LLCP and CITBC); vii) liens for taxes not yet
due and payable or which are being diligently contested in good faith by the
Companies by appropriate proceedings and which liens are not x) other than with
respect to Real Estate, senior to the liens of CITBC or y) for taxes due the
United States of America or any state thereof having similar priority statutes;
and viii) liens held by licensees of the Companies' General intangibles.
Permitted Indebtedness shall mean: i) current Indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor; ii) Indebtedness
secured by the Purchase Money Liens; iii) Indebtedness of the Companies which
is subordinated to the prior payment and satisfaction of the Companies'
Obligations to CITBC by means of a subordination agreement in form and
substance satisfactory to CITBC; iv) Indebtedness arising under the Letters of
Credit and this Financing Agreement; v) deferred taxes and other expenses
incurred in the ordinary course of business; vi) the Subordinated Debt; vii)
other Indebtedness existing on the date of execution of this Financing
Agreement and listed in the most recent financial statement delivered to CITBC
or otherwise disclosed to CITBC in writing prior to the Closing Date; and viii)
any restructuring or refinancing of the foregoing (excluding Subordinated Debt
or any Indebtedness in excess of $200,000 absent the prior written consent of
CITBC), provided that any such restructuring or refinancing, shall not be on
terms substantially less favorable to the Companies than the terms of such
original Indebtedness and shall not be in excess of the original principal
amount thereof.
Promissory Note shall mean the note in the form of Exhibit A attached hereto,
delivered by the Companies to CITBC to evidence the Revolving Loans pursuant to
Section 3 of this Financing Agreement.
Purchase Money Liens shall mean liens on any item of equipment provided that
i) each such lien shall attach only to the property to be acquired, ii) a
description of the property so acquired is furnished to CITBC, and iii) the
debt incurred in connection with such acquisitions shall not exceed in the
aggregate $1,000,000.00 in any fiscal year.
Real Estate shall mean any of the Companies' fee and/or leasehold interests in
real property, including such property which, subsequent to the Closing Date,
may be encumbered, mortgaged, pledged or assigned to CITBC or its designee.
Revolving Line of Credit shall mean the aggregate commitment of CITBC to make
loans and advances to the Companies pursuant to Section 3 of this Financing
Agreement and issue Letters of Credit Guaranties pursuant to Section 5 hereof,
in the aggregate amount of $10,000,000.
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Revolving Loans shall mean the loans and advances made, from time to time, to
or for the account of any of the Companies by CITBC pursuant to Section 3 of
this Financing Agreement.
Revolving Loans Account shall have the meaning specified in Section 3,
paragraph 3.6 hereof.
Subordinated Debt shall mean the debt due a Subordinating Creditor (and the
notes evidencing such) which has been subordinated, by a Subordination
Agreement, to the prior payment and satisfaction of the Obligations of the
Companies to CITBC in form and substance satisfactory to CITBC.
Subordinating Creditor shall mean each of LLCP and Linda Raasch.
Subordination Agreement shall mean an agreement among the Companies, a
Subordinating Creditor and CITBC pursuant to which the Subordinated Debt held
by the applicable Subordinating Creditor is subordinated to the prior payment
and satisfaction of the Companies' Obligations to CITBC in form and substance
satisfactory to CITBC.
Tax Refund shall mean the anticipated Federal tax refund for fiscal year ending
March 31, 1997 (for the carryback of losses for the prior two fiscal years of
the Companies).
UCC shall mean the Uniform Commercial Code as in effect in the State of
California and as the same maybe amended from time to time.
SECTION 2. Conditions Precedent
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent:
a) Lien Searches - CITBC shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to CITBC for all locations
presently leased or owned by the Companies.
b) UCC Filings - Any documents (including without limitation,
financing statements) required to be filed in order to create, in favor of
CITBC, for the benefit of CITBC a first and exclusive perfected security
interest in the Collateral (with respect to which a security interest may be
perfected by a filing under the Uniform Commercial Code), subject to Permitted
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Encumbrances and subject to the concurrent payment of Comerica's obligations,
shall have been properly filed in each office in each jurisdiction required in
order to create in favor of CITBC a perfected lien on such Collateral. CITBC
shall have received acknowledgment copies of all such filings (or, in lieu
thereof, CITBC shall have received other evidence satisfactory to CITBC that
all such filings have been made); and CITBC shall have received evidence that
all necessary filing fees and all taxes or other expenses related to such
filings have been paid in full.
c) Examination & Verification - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, Equipment, books and records of the Companies.
d) Guaranties - The Guarantors shall have executed and delivered to
CITBC guaranties, in form acceptable to CITBC, guaranteeing all present and
future Obligations of the Companies to CITBC.
e) Opinions - Counsel for the Companies and the Guarantors shall have
delivered to CITBC opinions satisfactory to CITBC opining, inter alia, that,
subject to the i) filing, priority and remedies provisions of the Uniform
Commercial Code, ii) provisions of the Bankruptcy Code, insolvency statutes or
other like laws, iii) the equity powers of a court of law and iv) such other
matters as may be agreed upon with CITBC: a) the Guaranties of the Guarantors
are valid, binding and enforceable according to their terms; and b) the Loan
Documents including without limitation this Financing Agreement and the
Guaranties are x) valid, binding and enforceable according to their terms, y)
are duly authorized, executed and delivered and z) do not violate any terms,
provisions, representations or covenants in the charter or by-laws of the
Companies or the Guarantors or, to the best knowledge of such counsel, of any
loan agreement, mortgage, deed of trust, note, security or pledge agreement or
indenture to which the Companies or the Guarantors are a signatory or by which
the Companies or the Guarantors or their assets are bound.
f) Pledge Agreement - The Companies shall or the Companies shall
cause the appropriate person to a) execute and deliver to CITBC a pledge and
security agreement and stock powers pledging to CITBC as additional collateral
for the Obligations of the Companies not less than 100% of the issued and
outstanding stock of TKS and CCG, and 100% of the stock of any subsidiary of
the Companies, in each case to the extent registered in the name of any Company
or any subsidiary or affiliate thereof (provided further that no such
additional shares shall be issued hereafter to an individual or entity which
has not pledged such shares to CITBC absent CITBC's written consent thereto)
and, b) deliver to CITBC the applicable stock certificates, if any, and stock
powers of the Companies and any of their subsidiaries or take such other
actions as CITBC may reasonably request in connection therewith. This condition
shall survive closing.
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g) Additional Documents - The Companies shall have executed and
delivered to CITBC all loan documents necessary to consummate the lending
arrangement contemplated between the Companies and CITBC.
h) Subordination Agreement - Each of the Subordinating Creditors
shall have executed and delivered to CITBC a Subordination Agreement, in form
and substance satisfactory to CITBC, subordinating the debt due the
Subordinating Creditor by the Companies to the prior payment and satisfaction
of the Obligations of the Companies to CITBC, provided that Linda Raasch shall
execute a Subordination Agreement within 30 days of the Closing Date in form
and substance substantially similar to the agreement with LLCP.
I) Board Resolution - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Companies and the Guarantors (as
the case may be) authorizing the execution, delivery and performance of (i)
this Financing Agreement, (ii) the Guaranties, and (iii) any related
agreements, in each case certified by the Secretary or Assistant Secretary of
the Companies and the Guarantors (as the case may be) as of the date hereof,
together with a certificate of the Secretary or Assistant Secretary of the
Companies and the Guarantors (as the case may be) as to the incumbency and
signature of the officers of the Companies and/or the Guarantors executing such
agreements, this Financing Agreement and any certificate or other documents to
be delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary.
j) Corporate Organization - CITBC shall have received (i) a copy of
the Certificate of Incorporation of the Companies and the Guarantors certified
by the Secretary of State of their incorporation, and (ii) a copy of the
By-Laws (as amended through the date hereof) of the Companies and certified by
the Secretary or Assistant Secretary of the Companies.
k) Officer's Certificate - CITBC shall have received an executed
Officer's Certificate of each of the Companies, satisfactory in form and
substance to CITBC, certifying that (i) the representations and warranties
contained herein are true and correct in all material respects on and as of the
date hereof; (ii) the Companies are in compliance with all of the terms and
provisions set forth herein; and (iii) no Default or Event of Default has
occurred.
l) Absence of Default - No Default or Event of Default of the
Companies shall have occurred.
m) Appraisals - CITBC shall have received appraisals on the
Companies' Inventory which appraisals shall be by an appraiser acceptable to
CITBC and shall be reviewed to its satisfaction.
n) Legal Restraints/Litigation - At the date of execution of this
Financing Agreement, there shall be no x) litigation, investigation or
proceeding (judicial or administrative) pending
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or, to the best knowledge of the Companies after due inquiry threatened against
the Companies or the Guarantors or their assets, by any agency, division or
department of any county, city, state or federal government arising out of this
Financing Agreement, y) injunction, writ or restraining order restraining or
prohibiting the consummation of the financing arrangements contemplated under
this Financing Agreement or z) to the best knowledge of the Companies, suit,
action, investigation or proceeding (judicial or administrative) pending or
threatened against the Companies or the Guarantors or their assets, which, in
the opinion of CITBC, if adversely determined could have a material adverse
effect on the business, operation, assets, financial condition or Collateral of
the Companies and/or the Guarantors (other than the litigation relating to the
claims of Richard Archer Perkins, John Hine and JHL).
o) Disbursement Authorization - The Companies shall have delivered to
CITBC all information necessary for CITBC to issue wire transfer instructions
on behalf of the Companies for the initial and subsequent loans and/or advances
to be made under this Agreement including, but not limited to, disbursement
authorizations in form acceptable to CITBC.
p) Lock Box Agreements - As of the Closing Date, the Companies shall
enter into lock box agreements for each of their collection accounts in form
and substance satisfactory to CITBC.
q) Depository Account - The Depository Account shall be established in
form and substance satisfactory to CITBC.
r) Third Party Waivers - Subject to the succeeding sentence, the
Companies shall use their respective best efforts to provide applicable third
party documents to CITBC within thirty (30) days after the Closing Date so that
CITBC has a first lien, subject to Permitted Encumbrances, on Accounts
Receivable, Inventory, Chattel Paper and any Equipment at locations which any
of the Companies use, lease or occupy , all in form and substance satisfactory
to CITBC in its reasonable business judgement. As to Eligible Inventory
located in any facility which is not owned by the Companies, including at any
leased premises, third party processor or warehouse at which Eligible Inventory
is located and for which CITBC has not received a waiver, in form and substance
satisfactory to CITBC within thirty (30) days after the Closing Date, CITBC may
establish an Availability Reserve for up to three months rent or processing
charges for any such premises. Notwithstanding anything to the contrary
herein, for purposes of Section 3 and 6 hereof, this condition precedent shall
not terminate as of the Closing Date.
s) Minimum Closing Availability - Based upon CITBC's completion of
an updated examination of the Companies' Accounts and Inventory, after giving
effect to any Revolving Loans made by CITBC on the Closing Date, the Companies
shall have a minimum additional aggregate Availability for further Revolving
Loans of at least $1,000,000 as evidenced by the
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borrowing base certificate delivered by the Companies to CITBC on the Closing
Date. It is understood that such requirement contemplates that all of the
Companies' debts and obligations are current and that all payables are being
handled as in the normal course of the Companies' business and consistent with
their past practice (excluding debts and obligations relating to Richard Archer
Perkins, John Hine and JHL).
t) Financial Information - Prior to the Closing Date, the Companies
shall have prepared and delivered to CITBC cash budget projections for the
Companies for the next consecutive twelve month period (commencing on the
Closing Date), which shall be in form and substance satisfactory to CITBC.
u) Insurance - The Companies shall have delivered to CITBC a
certificate from each of their insurance carriers in form and substance
satisfactory to CITBC evidencing that the coverage required by paragraph 7.5 of
Section 7 hereof; and the endorsements thereof, in form and substance
satisfactory to CITBC, listing CITBC, as loss payee or mortgagee, as the case
may be, are in full force and effect, all as set forth in Section 7 of this
Financing Agreement.
v) Fees and Expenses - On the Closing Date, the Companies shall have
reimbursed CITBC for all Out-of-Pocket Expenses for which a request for payment
shall have been made at or prior to the Closing Date and shall have paid the
Collateral Management Fee due at Closing and the Loan Facility Fee.
w) Absence of Material Adverse Change - No material adverse change
shall have occurred in the financial condition, business, prospects,
profitability, assets (including without limitation the Collateral) or
operations of the Companies, or any one of them, and/or the Guarantors or their
subsidiaries.
x) Perfection Certificate - CITBC shall have received a Perfection
Certificate from the Companies in form acceptable to CITBC.
y) Execution and Delivery of Loan Documents - CITBC shall have
received a signed Promissory Note and the other Loan Documents.
z) Intercreditor Agreement - CITBC shall have received an
Intercreditor Agreement with LLCP in form and substance satisfactory to CITBC.
aa) Pay-Out of Existing Lender - The Companies' existing loans with
Comerica Bank shall be repaid in full with the proceeds of the initial
disbursement of funds hereunder and Comerica's liens on any assets or
properties of the Companies shall be terminated on or before the Closing Date.
In connection therewith CITBC shall receive a fully executed Pay-Out Letter, in
form and substance satisfactory to CITBC, and UCC-3 or UCC-2 termination
statements.
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bb) Kinkade Licensing Agreement - CITBC shall enter into a licensing
agreement with Thomas Kinkade and the Companies which shall provide, inter
alia, that CITBC (or its agent or assignee) may sell any Inventory which is
subject to the Companies' Licensing Agreement with Thomas Kinkade, in form and
substance satisfactory to CITBC.
cc) Credit Card Receivables Assignment - The Companies shall deliver a
fully executed Credit Card Receivables Assignment Letter, in form and substance
satisfactory to CITBC, within five (5) business days after the Closing Date.
Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, except as otherwise set forth herein, for purposes of each
subsequent extension of credit hereunder, all of the above conditions precedent
shall have been deemed satisfied or waived.
2.1 Conditions to Each Extension of Credit
Except to the extent expressly set forth in this Financing Agreement,
the agreement of CITBC to make any extension of credit requested to be made by
it to the Companies on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following conditions
precedent:
a) Representations and Warranties - Each of the representations
and warranties made by the Companies in or pursuant to this Financing Agreement
shall be true and correct in all material respects on and as of such date as if
made on and as of such date (except to the extent that such representations and
warranties expressly relate solely to an earlier date).
b) No Default - No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the extension
of credit requested to be made on such date.
c) Borrowing Base - Except as may be otherwise agreed to from
time to time by CITBC and the Companies in writing, after giving effect to the
extension of credit requested to be made by the Companies on such date, the
aggregate outstanding Revolving Loans and Letters of Credit owing by the
Companies will not exceed the lesser of (i) the Revolving Line of Credit or
(ii) the Borrowing Base then applicable to the Companies.
Each borrowing by the Companies hereunder shall constitute a representation and
warranty by the Companies as of the date of such loan or advance that each of
the representations,
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warranties and covenants contained in the Financing Agreement have been
satisfied and are true and correct in all material respects, except as the
Companies and CITBC shall otherwise agree herein or in a separate writing.
SECTION 3. Revolving Loans
3.1 CITBC agrees, subject to the terms and conditions of this
Financing Agreement from time to time, and within x) the Availability and y)
the Revolving Line of Credit, but subject to CITBC's right to make
"Overadvances", to make loans and advances to the Companies on a revolving
basis (i.e. subject to the limitations set forth herein, the Companies may
borrow, repay and re-borrow Revolving Loans). Such loans and advances to the
Companies shall be in amounts up to: a) eighty-five percent (85%) of the
outstanding Eligible Accounts Receivable of the Companies, and b) the sum of
(i) fifty percent (50%) of the Companies' finished goods Eligible Inventory,
plus (ii) thirty percent (30%) of the Companies' raw materials Eligible
Inventory, of the Companies as determined at the lower of cost or market,
provided that advances to the Companies against Eligible Inventory shall not
exceed $5,000,000 in the aggregate at any one time (herein the "Borrowing
Base"). All requests for loans and advances must be received by an officer of
CITBC no later than 10:00 a.m. Pacific time of the day on which such loans and
advances are required. Should CITBC for any reason honor requests for advances
in excess of the limitations set forth herein, such advances shall be
considered "Overadvances" and shall be made in CITBC's sole discretion, subject
to any additional terms CITBC deems necessary.
3.2 (a) In furtherance of the continuing assignment and security
interest in the Companies' Accounts, the Companies will, upon the creation of
Accounts, execute and deliver to CITBC in such form and manner as CITBC may
reasonably require, solely for CITBC's convenience in maintaining records of
collateral, such confirmatory schedules of Accounts as CITBC may reasonably
request, and such other appropriate reports designating, identifying and
describing the Accounts as CITBC may reasonably require. In addition, upon
CITBC's request the Companies shall provide CITBC with copies of agreements
with, or purchase orders from, the Companies' customers, and copies of invoices
to customers, proof of shipment or delivery and such other documentation and
information relating to said Accounts and other collateral as CITBC may
reasonably require. Failure to provide CITBC with any of the foregoing shall
in no way affect, diminish, modify or otherwise limit the security interests
granted herein. The Companies hereby authorize CITBC to regard the Companies'
printed name or rubber stamp signature on assignment schedules or invoices as
the equivalent of a manual signature by one of the Companies' authorized
officers or agents.
(b) The obligation of the Companies to repay the principal amount of
the Revolving Loans made pursuant to this Section 3 and pursuant to any Letter
of Credit Guaranty issued pursuant to Section 5 by CITBC and to pay interest
thereon shall be evidenced in part by the
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Promissory Note in the form of Exhibit C attached hereto. The Companies'
outstanding Obligations applicable thereto may be set forth in the balance
column on the grid page attached to said note or on the separate ledgers
maintained by CITBC. All such advances, whether or not so recorded, shall be
due as part of said note. The executed Promissory Note shall be delivered to
CITBC on the Closing Date.
3.3 Each of the Companies hereby represents and warrants that: each
Account is based on an actual and bona fide sale and delivery of goods or
rendition of services to customers, made by the Companies in the ordinary
course of their business; the goods and Inventory being sold and the Accounts
created are the exclusive property of the Companies and are not and shall not
be subject to any lien, consignment arrangement, encumbrance, security interest
or financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Accounts are in the name of a Company; and the
customers of the Companies have accepted the goods or services, owe and are
obligated to pay the full amounts stated in the invoices according to their
terms, without dispute, offset, defense, counterclaim or contra, except for
disputes and other matters arising in the ordinary course of business with
respect to which the Companies have complied with the notification requirements
pursuant to paragraph 3.5 of this Section 3. Each of the Companies confirms to
CITBC that any and all taxes or fees relating to their business, their sales,
the Accounts or goods relating thereto, are their sole responsibility and that
same will be paid by the Companies when due (unless they are being diligently
contested in good faith by appropriate proceeding in accordance with paragraph
7.6 hereof) and that none of said taxes or fees represent a lien on or claim
against the Accounts. Each of the Companies also warrants and represents that
it is a duly and validly existing corporation and is qualified in all states
where the failure to so qualify would have an adverse effect on the business of
the Companies or the ability of the Companies to enforce collection of Accounts
due from customers residing in that state. Each of the Companies agrees to
maintain such books and records regarding Accounts as CITBC may reasonably
require and agrees that the books and records of the Companies will reflect
CITBC's interest in the Accounts. In accordance with paragraph 7.2 hereof, all
of the books and records of the Companies will be available to CITBC at normal
business hours, including any records handled or maintained for the Companies
by any other company or entity.
3.4 The Companies may and will enforce, collect and receive all
amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at
the Companies' expense; such privilege shall terminate automatically upon the
institution by or against the Companies of any proceeding under any bankruptcy
or insolvency law or, at the election of CITBC, upon the occurrence of any
other Event of Default and until such Event of Default is waived in writing by
CITBC or cured to CITBC's satisfaction. The Companies shall direct all of
their account debtors and credit card processors to deposit any and all
proceeds of Collateral into the Depository Account (as defined below), and any
checks, cash, notes, chattel paper or other instruments or property received by
the Companies with respect to any sales of Inventory and/or Accounts shall be
held by the Companies in trust for CITBC for the benefit of CITBC,
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separate from the Companies' own property and funds, and turned over promptly,
to CITBC with proper assignments or endorsements by deposit to the special
depository account in CITBC's name designated by CITBC for such purposes (the
"Depository Account"), provided that with respect to TKS and CCG, commencing
March 3, 1997, any and all such proceeds shall be transfered no less frequently
than weekly or such shorter period as CITBC may advise the Companies from time
to time such that the amount of cash and cash equivalents on hand in any TKS
and CCG premises and deposit accounts does not exceed $100,000 in the aggregate
at any one time and provided further that such retained amounts shall be used
solely for petty cash purposes of TKS's and CCG's retail operations in the
ordinary course of business of such Companies. All amounts received by CITBC
in payment of Accounts will be credited to the Companies' Revolving Loan
Account one Business Day after CITBC's receipt of "collected funds" at CITBC's
bank account in New York, New York if received no later than 1:00 p.m. Eastern
Standard Time or on the next succeeding Business Day if received after 1:00 pm.
No checks, drafts or other instrument received by CITBC shall constitute final
payment to CITBC unless and until such instruments have actually been
collected.
3.5 Each of the Companies agrees to notify CITBC promptly of any
matters materially affecting the value, enforceability or collectibility of any
material Account and of all material customer claims, disputes, offsets,
defenses, counterclaims, returns, rejections and all reclaimed or repossessed
merchandise or goods and, in any event the aggregate amount thereof shall be
set forth, in any applicable daily, weekly and monthly collateral reporting
statements, as in effect from time to time. Each of the Companies agrees to
issue credit memoranda promptly (with duplicates to CITBC upon request after
the occurrence of an Event of Default) upon accepting returns or granting
allowances, and may continue to do so until CITBC has notified the Companies
that an Event of Default has occurred and that all future credits or allowances
are to be made only after CITBC's prior written approval. Upon the occurrence
of an Event of Default and until such time as such Event of Default is waived
or cured to CITBC's satisfaction and on notice from CITBC, the Companies agree
that all returned, reclaimed or repossessed merchandise or goods shall be set
aside by the Companies, marked with CITBC's name (as secured party) and held by
the Companies for CITBC's account.
3.6 (a) CITBC shall maintain an account on its books in the Companies'
names (herein the "Revolving Loan Account") in which the Companies will be
charged with loans and advances made by CITBC to any of the Companies or for
their account, and with any other Obligations, including any and all costs,
expenses and reasonable attorney's fees which CITBC may incur, in accordance
with the terms hereof, in connection with the exercise by or for CITBC of any
of the rights or powers herein conferred upon CITBC, or in the prosecution or
defense of any action or proceeding to enforce or protect any rights of CITBC
in connection with this Financing Agreement, the other Loan Documents or the
Collateral assigned hereunder. The Companies will be credited with all amounts
received by CITBC from the Companies or from others for the Companies' account,
including, as above set forth, all amounts received by CITBC in payment of
assigned Accounts and such amounts will be
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applied to payment of the Obligations. In no event shall prior recourse to any
Accounts or other security granted to or by the Companies be a prerequisite to
CITBC's right to demand payment of any Obligation. Further, it is understood
that CITBC shall have no obligation whatsoever to perform in any respect any of
the Companies' contracts, lease agreements or obligations relating to the
Accounts.
(b) In order to utilize the collective borrowing powers of MAGI, TKS
and CCG, (collectively the "Collective Borrowers") in the most efficient and
economical manner, and in order to facilitate the handling of the accounts of
the Collective Borrowers on CITBC's books, the Collective Borrowers have
requested, and CITBC has agreed to handle accounts of the Collective Borrowers
on CITBC's books on a combined basis, all in accordance with the following
provisions:
(I) In lieu of maintaining separate accounts on CITBC's books in the
name of each of the Collective Borrowers, CITBC shall maintain one account
under the name: Media Arts Group, Inc. (herein the "Collective Account").
Confirmatory assignments of Accounts will continue to be made to CITBC by each
of the Collective Borrowers. Loans and advances made by CITBC to any of the
Collective Borrowers will be charged to the Collective Account indicated above,
along with any charges and expenses under this Financing Agreement. The
Collective Account will be credited, with all amounts received by CITBC from
any of the Collective Borrowers or from others for their account including all
amounts received by CITBC in payment of Accounts assigned to CITBC as provided
in this Financing Agreement;
(ii) Each month CITBC will render to the Collective Borrowers one
extract of the combined Collective Account, which shall be deemed to be an
account stated as to each of the Collective Borrowers and which will be deemed
correct and accepted by all of the Collective Borrowers unless CITBC receives a
written statement of exceptions from them within thirty (30) days after such
extract has been rendered by CITBC. It is expressly understood and agreed by
each of the Collective Borrowers that CITBC shall have no obligation to account
separately to any of the Collective Borrowers;
(iii) Requests for loans and advances may be made by MAGI as agent
for the Collective Borrowers and CITBC is hereby authorized and directed to
accept, honor and rely on such instructions and requests, subject to the
limitations and provisions set forth in this Financing Agreement. It is
expressly understood and agreed by each of the Collective Borrowers that CITBC
shall have no responsibility to inquire into the correctness of the
apportionment, allocation, or disposition of (x) any loans and advances made to
any of the Collective Borrowers or (y) any of CITBC's expenses and charges
relating thereto. All loans and advances are made for the Collective Account;
(iv) The Collective Borrowers jointly and severally unconditionally
guarantee to CITBC the prompt payment in full of (A) all loans and advances
made and to be made by
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CITBC to any of them under this Financing Agreement, as well as (B) all other
Obligations of the Collective Borrowers to CITBC are joint and several;
(v) All Accounts assigned to CITBC by any of the Collective Borrowers
and any other collateral security now or hereafter given to CITBC by any of the
Collective Borrowers (be it Accounts or otherwise), shall secure all loans and
advances made by CITBC to any of the Collective Borrowers, and shall be deemed
to be pledged to CITBC as security for any and all other Obligations of the
Collective Borrowers to CITBC as set forth under this Financing Agreement or
any other agreements between CITBC and any of the Collective Borrowers;
(vi) It is understood that the handling of the accounts of the
Collective Borrowers in a combined fashion, as more fully set forth herein, is
done solely as an accommodation to the Collective Borrowers and at their
request, and that CITBC shall incur no liability to the Collective Borrowers as
a result hereof. To induce CITBC to do so, and in consideration thereof, each
of the Collective Borrowers hereby agrees to indemnify CITBC and hold CITBC
harmless against any and all liability, expense, loss or claim of damage or
injury, made against CITBC by any of the Collective Borrowers or by any third
party whosoever, arising from or incurred solely by reason of (1) the method of
handling the accounts of the Collective Borrowers as herein provided, (2) CITBC
relying on any instructions of any of the Collective Borrowers, or (3) any
other action taken by CITBC in accordance with this subparagraph (b) of
Paragraph 6 of Section 3 of this Financing Agreement; and
(vii) The foregoing request was made because the Collective Borrowers
are engaged in an integrated operation that requires financing on a basis
permitting the availability of credit from time to time to each of the
Collective Borrowers as required for the continued successful operation of each
of the Collective Borrowers and the integrated operation. Each of the
Collective Borrowers expects to derive benefit, directly or indirectly, from
such availability since the successful operation of each of the Collective
Borrowers is dependent on the continued successful performance of the functions
of the integrated group. In addition, the Companies have informed CITBC that:
(a) in order to increase the efficiency and productivity of
each of the other Collective Borrowers, MAGI has centralized in itself a cash
management system which entails, in part, central disbursement and operating
accounts in which it provides the working capital needs of each of the other
Collective Borrowers and manages and timely pays the accounts payable of each
of the other Collective Borrowers;
(b) MAGI is further enhancing the operating efficiencies of
the other Collective Borrowers by purchasing, or causing to be purchased, in
its name for its account all materials, supplies, inventory and services
required by the other Collective Borrower which will result in reducing the
operating costs of the other Collective Borrowers; and
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(c) Since all of the Collective Borrowers are now engaged in
an integrated operation that requires financing on an integrated basis and
since each Collective Borrower expects to benefit from the continued successful
performance of such integrated operations and in order to best utilize the
collective borrowing powers of each Collective Borrower in the most effective
and cost efficient manner and to avoid adverse effects on the operating
efficiencies of each Collective Borrower and the existing back-office practices
of the Collective Borrowers, each Collective Borrower has requested that all
Revolving Loans and advances be disbursed solely upon the request of MAGI and
to bank accounts managed solely by it and that it will manage for the benefit
of each Collective Borrower the expenditure and usage of such funds.
3.7 After the end of each month, CITBC shall promptly send the
Companies a statement showing the accounting for the charges, loans, advances
and other transactions occurring between CITBC and the Companies during that
month. The monthly statements shall be deemed correct and binding upon each of
the Companies and shall constitute an account stated between the Companies and
CITBC unless CITBC receives a written statement of the exceptions within thirty
(30) days of the date of the monthly statement.
3.8 In the event the total balance of Revolving Loans (after giving
effect to all amounts which may be charged to the Companies' Revolving Loan
Account hereunder) plus outstanding Letters of Credit exceed the Borrowing
Base or the Revolving Line of Credit (herein the amount of any such excess
shall be referred to as the "Excess"), such Excess shall be due and payable to
CITBC for the benefit of CITBC immediately upon CITBC's demand therefor.
SECTION 4. Intentionally Omitted
SECTION 5. Letters of Credit
In order to assist the Companies in establishing or opening
documentary and standby Letters of Credit with an Issuing Bank to cover the
purchase of inventory from sources outside of the continental United States,
the Companies have requested CITBC to join in the applications for such Letters
of Credit, and/or guarantee payment or performance of such Letters of Credit
and any drafts or acceptances thereunder through the issuance of the Letters of
Credit Guaranty, thereby lending CITBC's credit to the Companies and CITBC has
agreed to do so. These arrangements shall be handled by CITBC subject to the
terms and conditions set forth below.
5.1 The purpose and extent of the standby Letters of Credit and
changes or modifications to any documentary or standby Letter of Credit by the
Companies and/or the Issuing Bank of the terms and conditions thereof shall in
all respects be subject to the prior approval of CITBC in the exercise of its
reasonable discretion provided however, that: a) in
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no event may the aggregate amount of all such outstanding documentary and
standby Letters of Credit exceed, in the aggregate, at any one time
$2,000,000.00 (the "Letter of Credit Line of Credit"); b) the Letters of Credit
and all documentation in connection therewith shall be in form and substance
satisfactory to the Companies, CITBC and the Issuing Bank; c) the Letters of
Credit Line of Credit shall be deemed to be a subline within the Revolving
Line of Credit and all Letters of Credit shall be (i) within the Revolving
Line of Credit, (ii) within Availability and (iii) reserved dollar for dollar
from Availability as an Availability Reserve; and (d) absent CITBC's consent
to the contrary, such Letters of Credit shall expire on or before any
applicable Anniversary Date.
5.2 CITBC shall have the right, without notice to the Companies, to
charge the Companies' Revolving Loan Account on CITBC's books with the amount
of any and all indebtedness, liability or obligation of any kind incurred by
CITBC under the Letters of Credit Guaranty pursuant to this Financing
Agreement at the earlier of a) payment by CITBC under the Letters of Credit
Guaranty, or b) the occurrence of an Event of Default and acceleration of the
Obligations hereunder (upon such charge, CITBC shall not charge the Companies
the fees due pursuant to paragraph 8.3 hereof). Any payment by CITBC pursuant
to any Letter of Credit Guaranty or any fees, charges or amounts charged to
the Companies' Revolving Loan Account pursuant to this Section 5 or paragraphs
8.3 and 8.4 hereof shall be deemed a Revolving Loan hereunder and shall incur
interest at the rate provided in Section 8, paragraph 8.1 of this Financing
Agreement.
5.3 Each of the Companies jointly and severally unconditionally
indemnifies CITBC and holds CITBC harmless from any and all loss, claim or
liability incurred by CITBC arising from any transactions or occurrences
relating to Letters of Credit established or opened for the Companies'
account, the collateral relating thereto and any drafts or acceptances
thereunder, and all obligations and liabilities thereunder, including any such
loss or claim due to any action taken by any Issuing Bank, other than for any
such loss, claim or liability arising out of the gross negligence or willful
misconduct by CITBC under the Letters of Credit Guaranty. Each of the
Companies further agrees to jointly and severally hold CITBC harmless from any
errors or omission, negligence or misconduct by the Issuing Bank. Each of the
Companies' unconditional obligations to CITBC hereunder shall not be modified
or diminished for any reason or in any manner whatsoever, other than as a
result of CITBC's gross negligence or willful misconduct. Each of the
Companies agrees that any charges incurred by CITBC for the Companies account
by the Issuing Bank shall be conclusive on CITBC and may be charged to the
Companies' Revolving Loan Account. Nothing herein shall be deemed to limit the
Companies' rights with respect to the Issuing Bank.
5.4 CITBC shall not be responsible for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; any difference or variation in
the character, quality, quantity, condition, packing, value or delivery of the
goods from that expressed in the documents; the validity, sufficiency
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or genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in which
shipment is made; partial or incomplete shipment, or failure or omission to
ship any or all of the goods referred to in the Letters of Credit or
documents; any deviation from instructions; delay, default, or fraud by the
shipper and/or anyone else in connection with the goods or the shipping
thereof; or any breach of contract between the shipper or vendors and the
Companies. Furthermore, without being limited by the foregoing, CITBC shall
not be responsible for any act or omission with respect to or in connection
with any such goods, absent its gross negligence or willful misconduct.
5.5 Each of the Companies agrees that any action taken by CITBC, if
taken in good faith, or any action taken by any Issuing Bank, under or in
connection with the Letters of Credit, the guarantees, the drafts or
acceptances, or the related goods, shall be binding on the Companies and shall
not put CITBC in any resulting liability to the Companies, absent CITBC's gross
negligence or willful misconduct. In furtherance thereof, CITBC shall have the
full right and authority to clear and resolve any questions of non-compliance
of documents; to give any instructions as to acceptance or rejection of any
documents or goods; to execute any and all steamship or airways guaranties (and
applications therefor), indemnities or delivery orders; to grant any extensions
of the maturity of, time of payment for, or time of presentation of, any
drafts, acceptances, or documents; and to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or
acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed by
or received solely from CITBC, all without any notice to or any consent from
the Companies.
5.6 Without CITBC's express consent and endorsement in writing, each
of the Companies agrees in respect of Letters of Credit for which Letter of
Credit Guaranties have been issued by CIT hereunder: a) not to execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances or documents; or to agree to
any amendments, renewals, extensions, modifications, changes or cancellations
of any of the terms or conditions of any of the applications, Letters of Credit
, drafts or acceptances; and b) after the occurrence of an Event of Default
which is not cured within any applicable grace period, if any, or waived by
CITBC, not to i) clear and resolve any questions of non-compliance of
documents, or ii) give any instructions as to acceptance or rejection of any
documents or goods.
5.7 Each of the Companies agrees that any necessary import, export
or other licenses or certificates for the import or handling of shipped goods
will have been promptly procured; all foreign and domestic governmental laws
and regulations in regard to the shipment and importation of the shipped goods,
or the financing thereof will have been promptly and fully
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complied with; and any certificates in that regard that CITBC may at any time
request will be promptly furnished. In this connection, each of the Companies
warrants and represents that all shipments made under any such Letters of
Credit are in accordance in all material respects with the laws and
regulations of the countries in which the shipments originate and terminate,
and are not prohibited by any such laws and regulations. Each of the Companies
assumes all risk, liability and responsibility for, and agrees to pay and
discharge, all present and future local, state, federal or foreign taxes,
duties, or levies. Any embargo, restriction, laws, customs or regulations of
any country, state, city, or other political subdivision, where the shipped
goods are or may be located, or wherein payments are to be made, or wherein
drafts may be drawn, negotiated, accepted, or paid, shall be solely the
Companies' risk, liability and responsibility.
5.8 Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Companies to the Issuing
Bank in any application for Letters of Credit , any standing agreement relating
to Letters of Credit or otherwise, all of which shall be deemed to have been
granted to CITBC and apply in all respects to CITBC and shall be in addition to
any rights, remedies, duties or obligations contained herein.
SECTION 6. Collateral
6.1 As security for the prompt payment in full of all loans and
advances made and to be made to the Companies from time to time by CITBC
pursuant hereto, as well as to secure the payment in full of the other
Obligations, subject to Permitted Encumbrances, each of the Companies hereby
pledges and grants to CITBC a first and exclusive continuing general lien upon
and security interest in all of its and their respective:
(a) present and hereafter acquired Inventory;
(b) present and hereafter acquired Equipment;
(c) present and future Accounts;
(d) present and future Documents of Title;
(e) present and future General Intangibles;
(f) now or hereafter issued capital stock of TKS, CCG, MAGIEP and
MAGIS owned of record by the Companies;
(g) Other Collateral;
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(h) any Real Estate pledged as collateral security (subsequent to the
Closing Date); and
(i) the proceeds of any and all of the foregoing.
6.2 The security interests granted hereunder shall extend and attach
to:
(a) All Collateral which is presently in existence and which is owned
by any of the Companies or in which any of the Companies have any interest,
whether held by the Companies or others for their account, and, if any
Collateral is Equipment, whether the applicable Company's interest in such
Equipment is as owner or lessee or conditional vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing, all
dies, jigs, tools, benches, tables, accretions, component parts thereof and
additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Companies from the
Companies' customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Companies, or to the sale, promotion
or shipment thereof.
6.3 Each of the Companies agrees to safeguard, protect and hold all
Inventory for CITBC's account and make no disposition thereof, provided that
the Companies may sell and/or lease their Inventory in the ordinary course of
the business of the Companies or pursuant to otherwise arms length transactions
and on fair and reasonable terms and as further provided herein. Absent the
occurrence of an Event of Default and notice from CITBC to the Companies to the
contrary, as provided for below, any Inventory may be sold and shipped by the
Companies to their customers in the ordinary course of the Companies' business,
on open account and on terms currently being extended by the Companies to their
customers, provided that all proceeds of all sales (including cash, accounts
receivable, checks, notes, instruments for the payment of money and similar
proceeds) are forthwith transferred, endorsed, and turned over and delivered to
CITBC for the benefit of CITBC in accordance with paragraph 3.4 of Section 3 of
this Financing Agreement. CITBC shall have the right to withdraw this
permission upon notice from CITBC to the Companies at any time upon the
occurrence of an Event of Default and until such time as such Event of Default
is waived or cured to CITBC's satisfaction, in which event no further
disposition shall be made of the Inventory by the Companies without CITBC's
prior written approval. Cash sales or sales of Inventory in which a lien upon,
or security interest in, Inventory is retained by such Companies shall be made
by the Companies only with the approval of CITBC, and the proceeds of such
sales or sales of inventory for cash shall not be commingled with the
Companies' other property, but shall be
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segregated, held by the Companies in trust for CITBC as CITBC's exclusive
property, and shall be delivered immediately by the Companies to CITBC in the
identical form received by the Companies by deposit to the Depository Account.
Upon the sale, exchange, or other disposition of Inventory, as herein provided,
the security interest in each of the Companies' Inventory provided for herein
shall, without break in continuity and without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sale, exchange or disposition. As to any such sale, exchange or other
disposition, CITBC shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation. Notwithstanding the
foregoing the Companies may make cash sales of Inventory, provided that (i) the
same arise from retail sales in the ordinary course of business and (ii) the
proceeds of such sales are turned over to CITBC by deposit in the Depository
Account.
6.4 Each of the Companies agrees at their own cost and expense to
keep the Equipment in as good and substantial repair and condition as the same
is now or at the time the lien and security interest granted herein shall
attach thereto, reasonable wear and tear excepted, making any and all repairs
and replacements when and where necessary. Each of the Companies also agrees
to safeguard, protect and hold all Equipment for CITBC's account and make no
disposition thereof unless the Companies first obtain the prior written
approval of CITBC. Any sale, exchange or other disposition of any Equipment
shall only be made by the Companies with the prior written approval of CITBC,
and the proceeds of any such sales shall not be commingled with the Companies'
other property, but shall be segregated, held by the Companies in trust for
CITBC for the benefit of CITBC as CITBC's exclusive property, and shall be
delivered immediately by the Companies to CITBC in the identical form received
by the Companies by deposit to the Depository Account. Upon the sale,
exchange, or other disposition of the Equipment, as herein provided, the
security interest provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and all
other cash and non-cash proceeds of such sales, exchange or disposition. As to
any such sale, exchange or other disposition, CITBC shall have all of the
rights of an unpaid seller, including stoppage in transit, replevin, rescission
and reclamation. Notwithstanding anything hereinabove contained to the
contrary, the Companies may sell, exchange or otherwise dispose of obsolete
Equipment or Equipment no longer needed in the Companies' operations, provided,
however, that (a) the then book value of the Equipment so disposed of does not
exceed $100,000 in the aggregate for the Companies in any fiscal year and (b)
the proceeds of such sales or dispositions are delivered to CITBC in accordance
with the foregoing provisions of this paragraph, except that the Companies may
retain and use such proceeds to purchase forthwith replacement Equipment which
the Companies determine in their reasonable business judgment to have a
collateral value at least equal to the Equipment so disposed of or sold,
provided, however, that the
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aforesaid right shall automatically cease upon the occurrence of an Event of
Default which is not cured within any applicable grace period or waived.
6.5 The rights and security interests granted to CITBC hereunder are
to continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the Revolving Loan Account maintained in
the Companies' name on the books of CITBC may from time to time be temporarily
in a credit position, until the final payment in full to CITBC of all
Obligations and the termination of this Financing Agreement. Any delay, or
omission by CITBC to exercise any right hereunder, shall not be deemed a
waiver thereof, or be deemed a waiver of any other right, unless such waiver
shall be in writing and signed by CITBC. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right or remedy on any future
occasion.
6.6 To the extent that the Obligations are now or hereafter secured
by any assets or property other than the Collateral or by the guarantee,
endorsement, assets or property of any other person, then CITBC shall have the
right in its sole discretion to determine which rights, security, liens,
security interests or remedies CITBC shall at any time pursue, foreclose upon,
relinquish, subordinate, modify or take any other action with respect to,
without in any way modifying or affecting any of them, or any of CITBC's rights
hereunder.
6.7 Any reserves or balances to the credit of the Companies and any
other property or assets of the Companies in the possession of CITBC may be
held by CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest CITBC may have in any
other assets of the Companies, shall secure payment and performance of all now
existing and future Obligations. CITBC may in its discretion charge any or all
of the Obligations to the Revolving Loan Account of the Companies when due.
6.8 The Companies shall use their best efforts to give to CITBC for
the benefit of CITBC from time to time such mortgage, deed of trust or
assignment on Real Estate acquired after the date hereof as CITBC shall require
to obtain a valid first lien thereon subject only to those exceptions of title
as set forth in future title insurance policies that are satisfactory to CITBC
and to the Permitted Encumbrances.
6.9 The Companies shall give to CITBC for the benefit of CITBC,
and/or shall cause the appropriate party to give to CITBC, from time to time
such pledge or security agreements with respect to General Intangibles (now or
hereafter acquired) and capital stock (now or hereafter issued to and held by
the Companies) of TKS, CCG, MAGIEP, JHL and MAGIS as CITBC shall require to
obtain valid first liens thereon. In furtherance of the foregoing, the
Companies shall provide timely notice to CITBC of any additional material
United States patents, trademarks, tradenames, service marks, copyrights, brand
names, trade names, logos and other trade designations acquired or applied for
subsequent to the Closing Date pursuant to
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filings under U.S. federal law and the Companies shall execute such
documentation as CITBC may reasonably require to obtain and perfect its lien
thereon. The Companies may enter into licensing agreements with respect to
their General Intangibles in the ordinary course of their business and on fair
and reasonable terms, provided that any such licensing agreements shall not
adversely affect CITBC's security interest therein.
SECTION 7. Representations, Warranties and Covenants
7.1 Each of the Companies hereby warrants and represents and/or
covenants that: i) the fair value of the Companies' assets on a consolidated
basis exceed the book value of the Companies' liabilities; ii) each of the
Companies is generally able to pay its debts as they become due and payable;
and iii) each of the Companies does not have unreasonably small capital to
carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances. Each of the Companies further warrants and
represents that: a) except for the Permitted Encumbrances, the security
interests granted herein constitute and shall at all times constitute the first
and only liens on the Collateral; b) Schedule 1 hereto correctly and completely
sets forth each of the Companies' chief executive office and all of the
Companies' Collateral locations and after filing of financing statements in the
applicable filing clerks office in the states listed on the Perfection
Certificate, this Financing Agreement, to the best of the Companies' knowledge
after due inquiry, creates a valid, perfected, first priority lien on the
Collateral, except for the Permitted Encumbrances; c) except for the Permitted
Encumbrances, each of the Companies is or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with full
right to pledge, sell, consign, transfer and create a security interest
therein, free and clear of any and all claims or liens in favor of others; d)
each of the Companies will at their expense forever warrant and, at CITBC's
reasonable request, defend the same from any and all claims and demands of any
other person other than the Permitted Encumbrances; e) each of the Companies
will not grant, create or permit to exist, any lien upon or security interest
in the Collateral, or any proceeds thereof, in favor of any other person other
than the holders of the Permitted Encumbrances; f) the representations and
warranties in the Perfection Certificate are true and correct; and g) the
Equipment does not comprise a part of the Inventory of any of the Companies and
that the Equipment is and will only be used by any of the Companies in their
business and will not be held for sale or lease, or removed from their
premises, or otherwise disposed of by any of the Companies without the prior
written approval of CITBC except as otherwise permitted in paragraph 6.4 of
Section 6 of this Financing Agreement.
7.2 Each of the Companies agrees to maintain books and records
pertaining to the Collateral in such detail, form and scope as CITBC shall
reasonably require. Each of the Companies agrees that CITBC or its agents may
enter upon the Companies' premises at any time during normal business hours,
and from time to time, for the purpose of inspecting the Collateral, and any
and all records pertaining thereto. Each of the Companies agrees to afford
CITBC thirty (30) days prior written notice of any change in the location of
any Collateral,
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other than in the ordinary course of business and to locations, that as of the
date hereof, are known to CITBC and at which CITBC has filed financing
statements and otherwise fully perfected its liens thereon, subject to
Permitted Encumbrances. Each of the Companies is also to advise CITBC
promptly, in sufficient detail, of any material adverse change relating to the
type, quantity or quality of the Collateral or to the security interests
granted to CITBC therein.
7.3 Each of the Companies agrees to: execute and deliver to CITBC,
from time to time, solely for CITBC's convenience in maintaining a record of
the Collateral, such written statements, and schedules as CITBC may reasonably
require, designating, identifying or describing the Collateral pledged to CITBC
hereunder. Any of the Companies' failure, however, to promptly give CITBC such
statements, or schedules shall not affect, diminish, modify or otherwise limit
CITBC's security interests in the Collateral.
7.4 Each of the Companies agrees to comply with the requirements of
all state and federal laws in order to grant to CITBC valid and perfected first
security interests in the Collateral, subject only to the Permitted
Encumbrances. CITBC is hereby authorized by the Companies to file any
financing statements covering the Collateral whether or not such Companies'
signature appears thereon. Each of the Companies agrees to do whatever CITBC
may reasonably request, from time to time, by way of: searching records, filing
notices of liens, financing statements, amendments, renewals and continuations
thereof; cooperating with CITBC's custodians; keeping stock records;
transferring proceeds of Collateral to CITBC's possession; and performing such
further acts as CITBC may reasonably require in order to effect the purposes of
this Financing Agreement.
7.5 (a) Each of the Companies agrees to maintain insurance on its
Real Estate, Equipment and Inventory (wherever located), if any, under such
policies of insurance, with such insurance companies, in such reasonable
amounts and covering such insurable risks as are at all times reasonably
satisfactory to CITBC. CITBC acknowledges and accepts the insurance coverage
in effect as of the Closing Date as being satisfactory (solely with respect to
the Closing Date). All policies covering the Real Estate, Equipment and
Inventory are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, to be made payable to CITBC, for the benefit of
CITBC in case of loss, under a standard non-contributory "mortgagee", "lender"
or "secured party" clause and are to contain such other provisions as CITBC may
reasonably require to fully protect CITBC's interest in the Real Estate,
Inventory and Equipment and to any payments to be made under such policies.
All original policies or true copies thereof are to be delivered to CITBC,
premium prepaid, with the loss payable endorsement in CITBC's favor, and shall
provide for not less than thirty (30) days prior written notice to CITBC of the
exercise of any right of cancellation. At the Companies' request, or if any of
the Companies fail to maintain such insurance, CITBC may, in its reasonable
business judgement arrange for such insurance, but at the Companies' expense
and without any responsibility by CITBC's part and CITBC for: obtaining the
insurance, the solvency of the insurance companies, the adequacy of the
coverage, or the
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collection of claims. Upon the occurrence of an Event of Default which is not
waived or cured to CITBC's satisfaction, CITBC shall, subject to the rights of
any holders of Permitted Encumbrances holding claims senior to CITBC, have the
sole right, in the name of CITBC or the Companies, to file claims under any
insurance policies, to receive, receipt and give acquittance for any payments
that may be payable thereunder, and to execute any and all endorsements,
receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims
under any such insurance policies.
(b)(i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory of any Company shall first reduce the
Revolving Loan Account, provided that upon the occurrence of an Event of
Default CITBC may apply such proceeds as it may reasonably deem appropriate;
ii) In the event any part of any of the Companies' Real Estate or
Equipment is damaged by fire or other casualty and the insurance proceeds for
such damage or other casualty (the "Proceeds") are less than or equal to
$100,000.00, the Companies may in their discretion either apply such proceeds
to the restoration or replacement thereof or such proceeds shall reduce such
Company's outstanding Obligations and be applied to the Revolving Loan Account.
iii) As long as an Event of Default has not occurred (which is not
cured to CITBC's satisfaction), the Companies have sufficient business
interruption insurance to replace the related lost profits of any of the
Companies' facilities, and the Proceeds are in excess of $100,000.00, such
Companies may elect (by delivering written notice to CITBC) to apply all such
proceeds to replace, repair or restore such Real Estate or Equipment to
substantially the equivalent condition prior to such fire or other casualty as
set forth herein. If the Companies do not, or cannot, elect to use the
Proceeds as set forth above, CITBC may, subject to the rights of any holders of
Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to
the payment of the Obligations in such manner and in such order as CITBC may
reasonably elect. If the Companies elect to so use the Proceeds, proceeds of
insurance on Equipment and Real Estate in excess of $100,000.00 will be applied
to the reduction of the Revolving Loans. Prior to the commencement of any
restoration, repair or replacement of Real Estate, the Companies shall provide
CITBC with a restoration plan and a total budget certified by an independent
third party experienced in construction costing. If there are insufficient
Proceeds to cover the cost of restoration as so determined, the Companies shall
be responsible for the amount of any such insufficiency, and shall demonstrate
evidence of such prior to the commencement of restoration.
7.6 Each of the Companies agrees to pay, when due, all taxes,
assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon any of the Companies or the Collateral and if such taxes remain
unpaid after the date fixed for the payment thereof
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<PAGE> 35
unless: (i) such taxes are being diligently contested in good faith by the
Companies by appropriate proceedings, (ii) the Companies establish such
reserves as may be required by GAAP or, in the alternative or in addition
thereto, CITBC establishes an Availability Reserve in such amount as CITBC may
determined in its reasonable discretion, or (iii) or if any lien shall be
claimed thereunder x) for taxes due the United States of America or any state
thereof having similar tax priority status, or y) which in CITBC's opinion
might create a valid obligation having priority over the rights granted to
CITBC herein, CITBC may, on the Companies' behalf, pay such taxes, and the
amount thereof shall be an Obligation secured hereby and due to CITBC on
demand.
7.7 Each of the Companies: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
any of the Companies' business; provided that the Companies may contest any
acts, rules, regulations, orders and directions of such bodies or officials in
any reasonable manner which will not, in CITBC's reasonable opinion, materially
and adversely affect CITBC's rights or priority in the Collateral; (b) shall
qualify to do business or shall provide CITBC with reasonable evidence that
they are exempt from any such qualifications and/or filing requirement for any
state requiring the filing of a business activity report or similar document in
order for the Companies to file a claim or other judicial remedy with respect
to any of their account debtors in such state, provided that the aggregate
amount of such Accounts in any such state exceed $10,000; (c) agrees to comply
with all environmental statutes, acts, rules, regulations or orders as
presently existing or as adopted or amended in the future applicable to the
ownership and/or use of their real property and operation of their business
which the failure to comply with would have a material and adverse impact on
the Collateral, or any material part thereof, or on the operation of the
business of the Companies. Each of the Companies jointly and severally hereby
indemnifies CITBC, and agrees to defend and hold CITBC harmless from and
against any and all loss, damage, claim, liability, injury or expense which
CITBC may sustain or incur (other than solely as a result of the physical
actions comprising gross negligence of CITBC on the Companies' premises) in
connection with: any claim or expense asserted against CITBC as a result of
any environmental pollution, hazardous material or environmental clean-up of
any of the Companies' Real Estate or any claim or expense which results from
any of the Companies' operations (including, but not limited to, any of the
Companies' off-site disposal practices); any claim or expense relating to any
of the Companies' Inventory and/or Equipment and each of the Companies further
agrees that this indemnification shall survive termination of this Financing
Agreement as well as the payment of all Obligations or amounts payable
hereunder; and (d) shall not be deemed to have breached any provision of
paragraph 7.7 (c) if (i) the failure to comply with the requirements of this
paragraph 7.7 resulted from good faith error or innocent omission, (ii) the
Companies promptly commence and diligently pursue a cure of such breach, (iii)
such failure is cured within fifteen (15) business days following the
Companies' receipt of notice of such failure, and (iv) such failure has not
resulted in a material
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<PAGE> 36
adverse effect on the business, financial condition or operations of any of the
Companies or on the Collateral. Upon receipt by any of the Companies of any
notice of non-compliance with any applicable environmental rules or regulation,
of any required expenditures for compliance, any spill or omission or other
regulated "event", or any claim resulting from any of the Companies' business
or practices or relating to the Collateral, the applicable Companies shall
establish such reserves as may be required by GAAP or, in the alternative or in
addition thereto, CITBC may establish an Availability Reserve in such amount as
CITBC may require in its reasonable discretion (based on projected costs of
remediation as set forth in any applicable environmental audit).
7.8 Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Companies agree that, unless
CITBC shall have otherwise consented in writing, the Companies will furnish to
CITBC: (a) within ninety (90) days after the end of each fiscal year of the
Companies, an audited Consolidated Balance Sheet and (unaudited) Consolidating
Balance Sheet attached thereto (the latter shall be certified by the chief
financial officer of each Company as at the close of such year), and
statements of profit and loss, cash flow and reconciliation of surplus of the
Companies, their affiliates and all subsidiaries of each for such year, audited
by independent public accountants selected by the Companies and reasonably
satisfactory to CITBC, provided that the Companies shall provide CITBC with an
internal draft year end consolidated balance sheet, statement of profit and
loss and cash flow within sixty (60) days of each fiscal year end; (b) within
forty-five (45) days after the end of each fiscal quarter that is not the last
quarter of a fiscal year, a Consolidated Balance Sheet and Consolidating
Balance Sheet as at the end of such period and statements of profit and loss,
cash flow and surplus of the Companies and their subsidiaries of each,
certified by an authorized financial or accounting officer of the Companies;
(c) within forty-five (45) days after the end of each month that is not the
last month of a fiscal year a Consolidated Balance Sheet as at the end of such
period and statements of profit and loss, cash flow and surplus of the
Companies and all subsidiaries for such period, certified by an authorized
financial or accounting officer of the Companies; and (d) from time to time,
such further information regarding the business affairs and financial condition
of the Companies as CITBC may reasonably request, including without limitation
(a) the accountant's management practice letter and (b) annual cash flow
projections in form satisfactory to CITBC. Each financial statement which the
Companies are required to submit hereunder must be accompanied by an officer's
certificate, signed by the President, Vice President, Controller, or Treasurer,
pursuant to which any one such officer must certify that: (i) the financial
statement(s) fairly and accurately represent(s) the Companies' financial
condition at the end of the particular accounting period, as well as the
Companies' operating results during such accounting period, subject to year-end
audit adjustments; (ii) during the particular accounting period (y) there has
been no Default or Event of Default under this Financing Agreement, provided
however that, if any such officer has knowledge that any such Default or Event
of Default has occurred during such period, the existence of and a detailed
description of same shall be set forth in such officer's certificate and (z)
the Companies have not received any
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<PAGE> 37
notice of cancellation with respect to their property insurance policies; and
(iii) the exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in this
Financing Agreement.
7.9 The Companies shall maintain at all times during the periods
below, Net Worth of not less than the following amounts during the following
periods:
a) MAGI shall maintain a Net Worth on a stand alone basis of not
less than $14,000,000 at all times.
b) TKS and CCG shall maintain a combined Net Worth of not less
than $50,000 at all times.
c) The Companies and their consolidated subsidiaries shall
maintain, on a consolidated basis, a Net Worth of not less than the following
amounts at all times during each of the following fiscal quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Net Worth
<S> <C>
(i) Closing Date through March 31, 1997 $2,000,000
(ii) April 1, 1997 through June 30, 1997 $2,100,000
(iii) July 1, 1997 through September 30, 1997 $2,800,000
(iv) October 1, 1997 through December 31, 1997 $4,300,000
(v) January 1, 1998 through March 31, 1998 $4,500,000
(vi) April 1, 1998 through June 30, 1998 $4,700,000
(vii) July 1, 1998 through September 30, 1998 $5,500,000
(viii) October 1, 1998 through December 31, 1998 $6,900,000
(ix) January 1, 1999 and at all times thereafter $7,000,000
</TABLE>
7.10 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, each of the Companies agrees
that, without the prior written consent of CITBC, except as otherwise herein
provided, the Companies or any one of them, will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any
lien, charge, security interest, encumbrance or judgment (whether as a result
of a purchase money or title retention transaction, or other security interest,
or otherwise), to exist on any of the Collateral, any other assets or goods,
capital stock, whether real, personal or mixed, whether now owned or hereafter
acquired, except for the Permitted Encumbrances;
B. Incur or create any Indebtedness other than the Permitted
Indebtedness;
C. Borrow any money on the security of the Companies' Collateral
from sources other than CITBC except for Permitted Indebtedness;
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<PAGE> 38
D. Sell, lease, assign, transfer or otherwise dispose of i)
Collateral, except for the use of cash in the ordinary course of business or as
otherwise specifically permitted by this Financing Agreement or ii) either all
or substantially all of the Companies' assets, which do not constitute
Collateral;
E. Merge, consolidate or otherwise alter or modify their
corporate name, principal place of business, structure, status or existence, or
enter into or engage in any operation or activity materially different from
that presently being conducted by the Companies or acquire all or substantially
all of the stock or assets of any corporation or entity, except that the
Companies may (i) merge with each other and/or (ii) change their corporate name
or address, provided that in any instance under clause (i) and (ii), (x) the
Companies shall give CITBC thirty (30) days prior written notice thereof and
(y) the applicable Companies shall execute and deliver prior to or
simultaneously with any such action any and all documents and agreements
requested by CITBC (including, without limitation, any and all U.C.C. financing
statements) to confirm (A) the assumption by the surviving corporation of all
Obligations to CITBC of the other Company so merged, (B) the continuation and
preservation of all security interests and liens granted to CITBC hereunder,
and (C) that such surviving corporation adopts, ratifies and confirms its
agreement to be bound by and comply with this Financing Agreement;
F. Assume, guarantee, endorse, or otherwise become liable upon
the obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and except for obligations of
other Companies with respect to leased obligations;
G. Except for inter-company loans or distributions set forth in
(H) below, declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding, and MAGI and the Companies
shall not make any cash payments pursuant to any now or hereafter issued
warrants or warrant agreements and any "put" or "call" rights thereunder,
including without limitation any warrant or similar agreements with LLCP,
and/or pursuant to any convertible notes issued to John Hine, JHL or any
affiliate thereof, except that: (a) TKS or CCG may declare and pay dividends
on their capital stock to MAGI and the Companies may redeem the capital stock
owned by its or their retired, deceased or terminated officers or shareholders
which MAGI is contractually obligated to redeem, provided that, in no event
shall the aggregate amount of such dividends under this clause (a) exceed
$100,000.00 in the aggregate in any fiscal year; (b) pay income or franchise
taxes of the Companies due as a result of the filing of a consolidated,
combined or unitary tax return in which the operations of the Companies are
included, provided further that, in any instance under this subparagraph G, i)
the Companies, or any one of them, are not then in breach or violation of this
Financing Agreement, ii) after giving effect to such payment, no Default or
Event of Default has occurred hereunder, and iii) each of the Companies has
sufficient working capital to pay its debts as they come due;
H. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation, provided that the Companies may make (a)
inter-company loans in an amount not to exceed $1,000,000 in the aggregate at
any one time outstanding and (b) loans and advances
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<PAGE> 39
to their employees in the ordinary course of their business in an amount not to
exceed $250,000 in the aggregate at any one time outstanding; or
I. Make any cash payments to John Hine, JHL or any affiliates
thereof.
7.11 Without the prior written consent of CITBC, the Companies will
not: a) enter into any Operating Lease if after giving effect thereto the
aggregate obligations, on a consolidated basis, with respect to Operating
Leases of the Companies during any fiscal year would exceed $3,000,000 or b)
contract for, purchase, make expenditures for, lease pursuant to a Capital
Lease or otherwise incur obligations, on a consolidated basis, with respect to
Capital Expenditures (whether subject to a security interest or otherwise)
during any period below in the aggregate amount in excess of:
a) $300,000.00 for the fiscal quarter ending March 31, 1997;
b) $2,000,000.00 for the fiscal year ending March 31, 1998; and
c) $2,200,000.00 for the fiscal year ending March 31, 1999, and
for each fiscal year ending thereafter.
7.12 The Companies shall maintain a Fixed Charge Coverage Ratio
(calculated at the end of each fiscal quarter indicated below for the
applicable period) of at least:
<TABLE>
<CAPTION>
Period Ratio
<S> <C> <C>
a) For the two (2) fiscal quarters ending
March 31, 1997 1.05 to 1.0
b) For the three (3) fiscal quarters ending
June 30, 1997 1.05 to 1.0
c) For the four (4) fiscal quarters ending
September 30, 1997 1.05 to 1.0
d) and the four (4) fiscal quarters ending
December 31, March 31, June 30,
September 30 and thereafter 1.05 to 1.0
</TABLE>
For purposes hereof the calculation of the Fixed Charge Coverage Ratio shall
not include: (I) the $150,000 fee payment and the $592,500 principal payment to
LLCP made on or about the Closing Date by the Companies; (ii) any amount
received pursuant to the Tax Refund and (iii) the $2,000,000 principal payment
which is anticipated to be made to LLCP in accordance with paragraph 10.1 (h)
hereof.
7.13 Notwithstanding any provision to the contrary contained herein,
in the event that the Companies' aggregate Availability for each day of the
thirty (30) day period immediately preceding any applicable calculation date
for any of the above Financial Covenants is $2,500,000 or more, such Financial
Covenants shall not be effective solely for any such
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<PAGE> 40
calculation date and the Companies shall have no obligation hereunder to comply
with such Financial Covenants with respect to such calculation date. The
foregoing contemplates that the Companies' accounts payable and any other
Indebtedness is current in the ordinary course of business of each Company
(excluding debts and obligations relating to Richard Archer Perkins, John Hine
and JHL).
7.14 The Companies shall maintain life insurance on (a) Thomas
Kinkade in the amount of not less than $5,000,000.00 and (b) Ken Raasch in the
amount of not less than $1,000,000, and assign to CITBC within thirty (30) days
of the Closing Date, all rights under the aforesaid life insurance policies as
additional collateral for the Obligations.
7.15 Each of the Companies agrees to advise CITBC in writing of: a)
all expenditures (actual or anticipated) in excess of $150,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental testing
and the impact of said expenses on such Company's working capital; and b) any
notices any of the Companies receive from any local, state or federal authority
advising the Companies of any environmental liability (real or potential)
stemming from any of the Companies' operations, their premises, their waste
disposal practices, or waste disposal sites used by any of the Companies and to
provide CITBC with copies of all such notices.
7.16 Without the prior written consent of CITBC, each of the
Companies agrees that they will not enter into any transaction, including,
without limitation, any purchase, sale, lease, loan or exchange of property
with any of the Companies or their subsidiaries or affiliates, provided that
the Companies may extend or amend any such transactions in effect as of the
Closing Date and enter into sale and service transactions in the ordinary
course of their business and pursuant to the reasonable requirements of such
Company with such other Company or its subsidiaries or affiliates upon fair and
reasonable terms or less favorable to such Company, subsidiary or affiliate
than could be obtained in a comparable arms-length transaction with an
unrelated third party, provided further that no Default or Event of Default
exists or will occur hereunder prior to and after giving effect to such
transaction.
7.17 CCG shall merge with TKS on or before April 30, 1997 and TKS
shall be the survivor thereof, all in form and substance satisfactory to CITBC.
SECTION 8. Interest, Fees and Expenses
8.1 a) Interest on the Revolving Loans shall be payable monthly as of
the end of each month and with respect to Chase Bank Rate Loans shall be an
amount equal to the lesser of (a) the Maximum Legal Rate or (b) the Chase Bank
Rate plus one percent (1%) per annum on the average of the net balances owing
by the Companies to CITBC in the Companies' Revolving
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<PAGE> 41
Loan Account at the close of each day during such month. In the event of any
change in said Chase Bank Rate, the rate hereunder shall change, as of the
first of the month following any change, so as to remain one percent (1%) above
the Chase Bank Rate. The rate hereunder shall be calculated based on a 360-day
year. CITBC shall be entitled to charge the Companies' Revolving Loan Account
at the rate provided for herein when due until all Obligations have been paid
in full.
b) Subject to compliance with each of the conditions set forth
below, and for periods ending subsequent to September 30, 1997, the Companies
will be entitled to interest rate concessions (each an "Interest Rate
Concession") as outlined below:
(x) if the Companies maintain an EBITDA of more than $8,000,000 for
any consecutive twelve (12) month period tested at the end of each fiscal
quarter, the interest rates set forth in subparagraph (a) above will be reduced
by one-quarter of one percent (1/4 of 1%) as of the effective date indicated
below and only after the CITBC's receipt of the Companies' financial statements
(as more fully provided in Section 7, Paragraph 7.8 hereof) for such twelve
(12) month period, provided that the Companies shall be entitled to only one
(1) 1/4 of 1% Interest Rate Concession under this clause (x), provided
further that in the event that the Companies shall, at any time after the
effective date of any Interest Rate Concession hereunder, fail to maintain the
EBITDA (calculated and tested in accordance with the provisions hereof)
required to achieve any such Interest Rate Concession, the rate in subparagraph
(a) above shall be increased (as of the effective date determined below) by one
quarter of one percent (1/4 of 1%); and
(y) if the Companies maintain an EBITDA of more than $10,000,000 for
any consecutive twelve (12) month period tested at the end of each fiscal
quarter, the interest rates set forth in subparagraph (a) above will be further
reduced by one quarter of one percent (1/4 of 1%) as the effective date
indicated below and only after CITBC's receipt of the Companies' financial
statements (as more fully provided in Section 7, Paragraph 7.8 hereof) for
such twelve (12) month period, provided that the Companies shall be entitled to
only one (1) 1/4 of 1% Interest Rate Concession under this clause (y), provided
further that in the event that the Companies shall, at any time after the
effective date of any Interest Rate Concession hereunder, fail to maintain the
EBITDA (calculated and tested in accordance with the provisions hereof)
required to achieve any such Interest Rate Concession, the rate in subparagraph
(a) above shall be increased (as of the effective date determined below) by one
quarter of one percent (1/4 of 1%);.
In addition to the foregoing requirements, each Interest Rate
Concession is subject to the Companies' compliance with each of the following
conditions:
i) timely receipt of the Companies' financial statements referred
to above;
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ii) the absence of any Default or Event of Default on the date of
receipt of such financial statements and the absence of any Default or Event of
Default on the effective date of any Interest Rate Concession;
iii) as to the spread over the Chase Bank Rate, the Interest Rate
Concession will be effective on the first day of the month occurring after
receipt of such financial statements; and
iv) in no event may the total of all Interest Rate Concessions
exceed one-half of one percent ( 1/2 of 1%).
8.2 Intentionally Omitted
8.3 In consideration of the Letter of Credit Guaranty of CITBC, the
Companies shall pay CITBC the Letter of Credit Guaranty Fee which shall be an
amount equal to (a) one and one half percent (1.5%) per annum, payable
monthly, on the face amount of each standby Letter of Credit less the amount of
any and all amounts previously drawn under such Letter of Credit, and (b) one
and one half percent (1.5%) of the face amount of each documentary Letter of
Credit, payable upon issuance, in each case to the extent CITBC has issued a
Letter of Credit Guaranty in connection therewith.
8.4 Any charges, fees, commissions, costs and expenses charged to
CITBC for the Companies' account by any Issuing Bank in connection with or
arising out of Letters of Credit issued pursuant to this Financing Agreement
or out of transactions relating thereto will be charged to the Companies'
Revolving Loan Account in full when charged to or paid by CITBC and when made
by any such Issuing Bank shall be conclusive on CITBC.
8.5 The Companies shall jointly and severally reimburse or pay CITBC,
as the case may be, for: (i) all Out-of-Pocket Expenses of CITBC and (ii) any
applicable Documentation Fee (other than such portion paid pursuant to Section
8.7).
8.6 Upon the last Business Day of each month, commencing with
February 28, 1997, the Companies shall jointly and severally pay CITBC the Line
of Credit Fee.
8.7 To induce CITBC to enter into this Financing Agreement and to
extend to the Companies the Revolving Loans and Letters of Credit Guaranties,
the Companies shall jointly and severally pay to CITBC a Loan Facility Fee in
the amount of $75,000.00 (which amount includes the Documentation Fee in
subparagraph (i) of the definition thereof) payable upon execution of this
Financing Agreement, provided that the $50,000 Commitment Fee previously paid
by the Companies to CITBC shall be either returned to the Companies or credited
against the foregoing Loan Facility Fee.
8.8 On the Closing Date and each anniversary of the Closing Date
thereafter, the Companies shall jointly and severally pay to CITBC the
Collateral Management Fee.
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8.9 The Companies shall jointly and severally pay CITBC's standard
charges for, and the fees and expenses of, CITBC personnel used by CITBC for
reviewing the books and records of the Companies and for verifying, testing
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral provided, however, that the foregoing shall not be payable until the
occurrence of an Event of Default if the Companies are paying a Collateral
Management Fee.
8.10 Each of the Companies hereby (i) confirms that it is jointly
and severally liable for any and all Obligations hereunder, and (ii) authorizes
CITBC to charge the Companies' Revolving Loan Account or other such other
account maintained with CITBC with the amount of any and all Obligations and/or
payments due hereunder as such payments become due; all irrespective of whether
any such amount is due from such Company. The Companies confirm that any
charges which CITBC may so make to the Companies' Revolving Loan Account as
herein provided will be made as an accommodation to the Companies and solely at
CITBC's discretion.
SECTION 9. Powers
Each of the Companies hereby constitutes CITBC or any person or agent
CITBC may designate as their attorney-in-fact, at the Companies' cost and
expense, to exercise all of the following powers, which being coupled with an
interest, shall be irrevocable until all of the Companies' Obligations to CITBC
have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the
name of CITBC or any of the Companies, any and all checks, notes, drafts, and
other documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to any of the
Companies and to notify postal authorities to change the address for delivery
thereof to such address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in
the name of CITBC or any of the Companies or that of CITBC's designee,
information concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make payment
directly to CITBC for the Companies' account; and
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(e) To take or bring, in the name of CITBC or any of the Companies,
all steps, actions, suits or proceedings deemed by CITBC necessary or desirable
to enforce or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of Default
is waived in writing by CITBC or cured to CITBC's satisfaction. In addition,
absent the occurrence of a Default or Event of Default, the powers set forth in
(c) above will only be exercised in the name of the Companies or a certified
public accountant designated by CITBC.
SECTION 10. Events of Default and Remedies
10.1 Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any of
the following (herein "Events of Default"):
a) cessation of the business of the Companies, or any one of them
or the calling by the Companies of a meeting of the creditors of the Companies,
or any one of them for purposes of compromising its or their debts and
obligations, excluding the Companies negotiation of their Indebtedness
allegedly due to John Hine, Richard Archer Perkins and/or shareholders or
creditors of JHL;
b) the failure of the Companies, or any one of them, to generally
meet its or their debts as they mature (excluding debts relating to JHL and
John Hine);
c) (i) the commencement by any of the Companies or the Guarantors
of any bankruptcy, insolvency, arrangement (including a general assignment for
the benefit of creditors), reorganization, receivership or similar proceedings
under any federal or state law; and (ii) the commencement against any of the
Companies or the Guarantors of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any federal or state
law by creditors of the Companies or any one of them, as applicable, which
proceeding shall not have been controverted within ten (10) days or shall not
have been dismissed and vacated within thirty (30) days of commencement, or any
of the actions sought in any such proceeding shall occur or the Companies (or
Company, as applicable) shall take action to authorize or effect any of the
actions in any such proceeding;
d) breach by the Companies, or any one of them, in any material
respect of any warranty, representation or covenant contained herein (other
than those referred to in sub-paragraph e below), the Loan Documents or in any
other written agreement between the Companies and CITBC, provided that such
breach by such Companies of any of the warranties, representations or covenants
referred in this clause (d) shall not be deemed to be
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an Event of Default unless and until such breach shall remain unremedied to
CITBC's satisfaction for a period of thirty (30) days from the date of notice
of such breach;
e) breach by the Companies, or any one of them, of any warranty,
representation or covenant of Section 3, the first two sentences of Paragraph
3.3, and Paragraph 3.4; Section 6, Paragraphs 6.3 and 6.4 (other than the
first sentence of paragraph 6.4); Section 7, Paragraphs 7.1, 7.5, 7.6, and 7.9
through 7.12;
f) failure of any of the Companies to pay any of the Obligations
within five (5) Business Days of the due date thereof, provided that nothing
contained herein shall prohibit CITBC from charging such amounts to the
Companies' Revolving Loan Account on the due date thereof;
g) the Companies, or any one of them, shall I) engage in any
"prohibited transaction" as defined in ERISA, ii) have any "accumulated funding
deficiency" as defined in ERISA, iii) have any Reportable Event as defined in
ERISA, iv) terminate any Plan, as defined in ERISA or v) be engaged in any
proceeding in which the Pension Benefit Guaranty Corporation shall seek
appointment, or is appointed, as trustee or administrator of any Plan, as
defined in ERISA, and with respect to this sub-paragraph (g) such event or
condition x) remains uncured for a period of thirty (30) days from date of
occurrence and y) could, in the reasonable opinion of CITBC, subject the
Companies to any tax, penalty or other liability material to the business,
operations or financial condition of any of the Companies;
h) without the prior written consent of CITBC, the Companies
shall x) amend or modify the Subordinated Debt, y) make any payment on account
of the Subordinated Debt, except for regularly scheduled payments of principal
and interest (absent prepayment or acceleration), as expressly permitted in the
Subordination Agreement, provided that the Companies may pay (i) a $11,500 fee
and a principal payment of approximately $592,000 on or about the Closing Date,
provided that the Companies' availability is in an amount of $1,000,000 or
more after giving effect to any such payments (the foregoing contemplates that
the Companies' payables are current in the ordinary course of their business),
and (ii) a payment of up to $2,000,000 A) after receipt of the Tax Refund,
provided that such payment does not exceed the amount of the Tax Refund, or B)
on or about December 15, 1997, provided that, after giving effect to the
foregoing payment the Companies' aggregate Availability is in an amount of
$4,000,000 or more (the foregoing contemplates that each of the Companies'
accounts payable and other Indebtedness is current in the ordinary course of
business (excluding debts and obligations relating to Richard Archer Perkins,
John Hine and JHL)), or z) fail to deliver or cause to be delivered any now or
hereafter issued capital stock of TKS, CCG, MAGIEP and MAGIS;
i) upon the occurrence of an event of default which would permit
the Indebtedness due thereunder to be accelerated pursuant to (i) any of the
Subordinated Debt, or (ii) any document or agreement of the Companies, or any
one of them, evidencing Indebtedness of any of the Companies in excess of the
amount of $100,000;
j) (I) Ken Raasch ceases for any reason whatsoever (other than as
a result of death or disability) to be actively engaged in the management of
the Companies, (ii) Thomas Kinkade ceases for any reason whatsoever (other than
as a result of death or disability) to be
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actively engaged as a director of and art director to the Companies, or (iii)
upon the occurrence of a "change of control" (as set forth in the Senior
Secured Subordinated Note and agreements between LLCP and the Companies);
k) upon the occurrence of any material breach pursuant to the
Companies' worldwide licensing agreement with Thomas Kinkade or upon (i)
termination thereof, or (ii) any modification or amendment thereof in any
material adverse manner to the Companies; or
l) the Companies failure to file applicable federal tax returns
on or before July 10, 1997 with respect to the Tax Refund.
10.2 Upon the occurrence of a Default and/or an Event of Default,
CITBC may, at its option, declare that, all loans, advances and extensions of
credit provided for in paragraph 3.1 of Section 3, 4 and 5 of this Financing
Agreement shall be thereafter in CITBC's sole discretion and the obligation of
CITBC to make Revolving Loans and/or open Letters of Credit shall cease unless
such Default or Event of Default is waived in writing by CITBC or cured to
CITBC's satisfaction, and upon the occurrence of an Event of Default CITBC may,
at its option, declare that: i) all Obligations shall become immediately due
and payable; ii) CITBC may charge the Companies the Default Rate of Interest on
all then outstanding or thereafter incurred Obligations in lieu of the interest
provided for in Section 8 of this Financing Agreement provided that in respect
to clause "(ii)" above a) CITBC has given the Companies written notice of the
Event of Default, provided, however, that no notice is required if the Event of
Default is the Event listed in paragraphs 10.1(a), (b) or (c) of this Section
10 and b) the Companies have failed to cure the Event of Default within ten
(10) days after x) CITBC deposited such notice in the United States mail or y)
immediately upon the occurrence of the Event of Default listed in paragraph
10.1(a), (b) or (c) of this Section 10; and iii) CITBC may immediately
terminate this Financing Agreement upon notice to the Companies, provided,
however, that no notice of termination is required if the Event of Default is
the Event listed in paragraph 10.1(a), (b) or (c) of this Section 10. The
exercise of any option is not exclusive of any other option which may be
exercised at any time by CITBC.
10.3 Immediately upon the occurrence of any Event of Default, CITBC
may, at its option, and to the extent permitted by law and subject to the
rights of any holders of Permitted Encumbrances holding claims senior to CITBC:
(a) remove from any premises where same may be located any and all documents,
instruments, files and records, and any receptacles or cabinets containing
same, relating to the Accounts, or CITBC may use, at the Companies' expense,
such of the Companies' personnel, supplies or space at the Companies' places of
business or otherwise, as may be necessary to properly administer and control
the Accounts or the handling of collections and realizations thereon; (b) bring
suit, in the name of the Companies or CITBC, and generally shall have all other
rights respecting said Accounts, including without limitation the right to:
accelerate or extend the time of payment, settle, compromise, release in whole
or in part any amounts owing on any Accounts and issue credits in the name of
any of the Companies or CITBC; (c) sell, assign and deliver the Collateral and
any returned, reclaimed or repossessed merchandise, with or without
advertisement, at public
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<PAGE> 47
or private sale, for cash, on credit or otherwise, at CITBC's sole option and
discretion, and CITBC may bid or become a purchaser at any such sale, free from
any right of redemption, which right is hereby expressly waived by each of the
Companies; (d) foreclose the security interests created herein by any available
judicial procedure, or to take possession of any or all of the Inventory and
Equipment and/or Other Collateral without judicial process, and to enter any
premises where any Inventory and Equipment and/or Other Collateral may be
located for the purpose of taking possession of or removing the same and (e)
exercise any other rights and remedies provided in law, in equity, by contract
or otherwise. CITBC shall have the right, without notice or advertisement, to
sell, lease, or otherwise dispose of all or any part of the Collateral whether
in its then condition or after further preparation or processing, in the name
of any of the Companies or CITBC, or in the name of such other party as CITBC
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as CITBC in their
sole discretion may deem advisable, and CITBC shall have the right to purchase
at any such sale. If any Inventory and Equipment shall require rebuilding,
repairing, maintenance or preparation, CITBC shall have the right, at its
option and in its reasonable business judgement, to do such of the aforesaid as
is necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as CITBC shall deem appropriate. Each of the Companies agrees,
at the request of CITBC, to assemble the Inventory and Equipment and to make it
available to CITBC at premises of any of the Companies or elsewhere and to make
available to CITBC the premises and facilities of the Companies for the purpose
of CITBC's taking possession of, removing or putting the Inventory and
Equipment in saleable form. However, if notice of intended disposition of any
Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The net
cash proceeds resulting from CITBC's exercise of any of the foregoing rights,
(after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by CITBC to the payment of the Companies'
Obligations, whether due or to become due, in such order as CITBC may elect,
and the Companies shall remain liable to CITBC for any deficiencies, and CITBC
in turn agrees to remit to the Companies or their successors or assigns, any
surplus resulting therefrom. The enumeration of the foregoing rights is not
intended to be exhaustive and the exercise of any right shall not preclude the
exercise of any other rights, all of which shall be cumulative. The mortgage,
deed of trust or assignment on Real Estate shall govern the rights and remedies
of CITBC with respect thereto.
SECTION 11. Termination
Except as otherwise permitted herein, the Companies and CITBC may
terminate this Financing Agreement and the Line of Credit only as of the
initial or any subsequent Anniversary Date and then only by giving the other at
least sixty (60) days prior written notice of termination. Notwithstanding the
foregoing CITBC may terminate the Financing
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<PAGE> 48
Agreement immediately upon the occurrence of an Event of Default, provided,
however, that if the Event of Default is an event listed in paragraph 10.1(a)
(b) (c) of Section 10 of this Financing Agreement, CITBC may regard the
Financing Agreement as terminated and notice to that effect is not required.
This Financing Agreement, unless terminated as herein provided, shall
automatically continue from Anniversary Date to Anniversary Date.
Notwithstanding the foregoing, the Companies may terminate this Financing
Agreement and the Line of Credit prior to any applicable Anniversary Date upon
sixty (60) days' prior written notice to CITBC and payment of the Early
Termination Fee. All Obligations shall become due and payable as of any
termination hereunder or under Section 10 hereof and, pending a final
accounting, CITBC may withhold any balances in the Companies' Revolving Loan
Account (unless supplied with an indemnity satisfactory to CITBC) to cover all
of the Companies' Obligations, whether absolute or contingent. All of CITBC's,
liens and security interests shall continue after any termination until all
Obligations have been paid and satisfied in full.
SECTION 12. Miscellaneous
12.1 Each of the Companies hereby waives diligence, demand,
presentment and protest and any notices thereof as well as notice of
nonpayment. No delay or omission of CITBC or the Companies to exercise any
right or remedy hereunder, whether before or after the happening of any Event
of Default, shall impair any such right or shall operate as a waiver thereof or
as a waiver of any such Event of Default. No single or partial exercise by
CITBC of any right or remedy precludes any other or further exercise thereof,
or precludes any other right or remedy.
12.2 THIS WRITTEN AGREEMENT, THE LOAN DOCUMENTS AND THE OTHER
DOCUMENTS REFERENCED HEREIN OR CONTEMPLATED HEREBY REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES, SUPERSEDES ANY PRIOR AGREEMENTS AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO, MAY ONLY BE MODIFIED IN WRITING SIGNED BY THE
PARTIES HERETO, AND SHALL BIND THE RESPECTIVE PARTIES HERETO AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
AMONG THE PARTIES.
12.3 In no event shall the Companies, or any one of them, upon demand
by CITBC for payment of any indebtedness relating hereto, by acceleration of
the maturity thereof, or otherwise, be obligated to pay interest and fees in
excess of the amount permitted by law. Regardless of any provision herein or
in any agreement made in connection herewith, CITBC shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto, any
amount in excess of the maximum amount of interest permissible under applicable
53
<PAGE> 49
law (herein "Maximum Legal Amount"). It is the intent of the Companies and
CITBC to conform strictly to all applicable state and federal usury laws. All
agreements between the Companies and CITBC whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of the
maturity hereof or otherwise, shall the amount contracted for, charged or
received by CITBC for the use, forbearance, or detention of the money loaned
hereunder or otherwise, or for the payment or performance of any covenants or
obligations contained herein or in any other document evidencing, securing or
pertaining to the Obligations evidenced hereby which may be legally deemed to
be for the use, forbearance or detention of money, exceed the maximum amount
which any of the Companies is legally entitled to contract for, charge or
collect under applicable state or federal law. If from any circumstance
whatsoever fulfillment of any provision hereof or of such other documents, at
the time performance of such provision shall be due, shall involve transcending
the limit of validity prescribed by law, then the obligation to be fulfilled
shall be automatically reduced to the limit of such validity, and if from any
such circumstance CITBC shall ever receive as interest or otherwise an amount
in excess of the maximum that can be legally collected, then such amount which
would be excessive interest shall be applied to the reduction of the principal
indebtedness hereof and any other amounts due with respect to the Obligations
evidenced hereby, but not to the payment of interest and if such amount which
would be excessive interest exceeds the Obligations and all other non interest
indebtedness described above, then such additional amount shall be refunded to
the Companies. This paragraph shall control every other provision hereof and
any other agreement made in connection herewith.
12.4 If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected by
such provision's severance. Furthermore, in lieu of any such provision, there
shall be added automatically as a part of the applicable agreement a legal and
enforceable provision as similar in terms to the severed provision as may be
possible.
12.5 EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. EACH OF THE
COMPANIES HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO
SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
12.6 Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
confirmed telegram, telecopy or telex, or three days after deposit in the
United States mails, with proper first class postage prepaid and addressed to
the party to be notified as follows:
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<PAGE> 50
(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Regional Manager
(B) if to the Companies at:
c/o Media Arts Group, Inc.
521 Charcot Avenue
San Jose, CA 95131
Attn: Bud Peterson
or to such other address as any party may designate for itself by like notice.
12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
12.8 The Companies have made and will, from time to time, make
available to CITBC certain non-public and confidential financial and other
business information (the "Confidential Information") relating to their
businesses. CITBC agrees to maintain the confidentiality of all Confidential
Information provided to CITBC by or on behalf of the Companies or any of their
subsidiaries, and to disclose such information only (a) to officers, directors
or employees of CITBC or to CITBC's legal or financial advisors or its
affiliates or assigns, in each case to the extent necessary to carry out this
Financing Agreement and the other Loan Documents in the ordinary course of its
business and consistent with its practices, (b) to any other person to the
extent the disclosure of such information to such person is required in
connection with the examination of CITBC's records by appropriate authorities,
or pursuant to court order, subpoena or other legal process, or otherwise as
required by law or regulation, and (c) to participants or potential
participants or co-lenders, but only after such participants or potential
participants have executed a written confidentiality agreement substantially in
the form of this paragraph 12.8. CITBC shall not be required to maintain the
confidentiality of any portion of the Confidential Information which (a)
becomes generally available to the public other than by CITBC's unauthorized
disclosure, (b) is know by CITBC or its agents, affiliates, directors,
officers, advisors or representatives prior to disclosure by the Companies or
(c) becomes available to CITBC from a source other than the Companies, provided
that the disclosure of Confidential Information to CITBC by such source does
not violate a confidentiality agreement or duty imposed on such source of which
CITBC has actual knowledge.
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<PAGE> 51
12.9 This Financing Agreement embodies the whole agreement of the
parties and may not be modified except in writing, and no course of dealing
between CITBC and any of the Companies shall be effective to change or modify
this Financing Agreement. CITBC's failure to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or any
other right at any other time and from time to time thereafter, and such rights
shall be considered as cumulative rather than alternative. No knowledge of any
breach or other nonobservance by any of the Companies of the terms and
provisions of this Financing Agreement shall constitute a waiver thereof, nor a
waiver of any obligations to be performed by the Companies hereunder.
Upon a default by the Companies, CITBC may elect to non-judicially or
judicially foreclose against any real or personal property security CITBC
holds for the Obligations, or any part thereof, or exercise any other remedy
against the Companies or the Collateral. No such action by CITBC will release
or limit the liability of the Companies hereunder, even if the effect of that
action is to deprive the Companies of the right to collect reimbursement from
any of the other Companies for any sums paid to CITBC.
The Companies hereby acknowledge and agree that the Companies are
knowingly waiving in advance as a result of the provisions hereof a complete or
partial defense it or they may later have had arising from CCP Section 580d or
580a based upon the CITBC's subsequent election to conduct a private
nonjudicial foreclosure sale, even though such election would destroy, diminish
or affect either the Companies' rights against the principal obligor or the
Companies' rights to pursue the principal obligor for reimbursement,
subrogation, contribution or indemnity.
Without limiting the foregoing or any provision hereof, the Companies
hereby expressly waive any and all rights, estoppels and benefits which might
otherwise be available from time to time under California Civil Code Sections
2809, 2810, 2819, 2839, 2845, 2849, 2850, 2899 and 3433, and California Code of
Civil Procedure Sections 580a, 580b, 580d and 726, or any of such sections.
Each of the Companies represents and warrants to CITBC that the
execution, delivery and performance of this Financing Agreement, and of any
documents securing the obligations under this Financing Agreement, (a) are not
done with actual intent to hinder, delay or defraud creditors, (b) are not done
at a time when the fair value of their consolidated assets, are less than their
consolidated debts, (c) are not done at a time when any such Company intends or
believes or reasonably should believe that it will incur debts beyond its
ability to pay as such debts mature or otherwise become due and (d) based upon
the Companies' historical needs and future projections, are not done at a time
when they are engaged in business or a transaction, or are about to engage in
business or a transaction, for which their property is unreasonably small
capital or for which their remaining assets are unreasonably small in relation
to their
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<PAGE> 52
business or transaction absent extraordinary and unforeseen circumstances.
Each of the Companies hereby confirms that each of the waivers set forth herein
are made with full knowledge of their significance and consequences and after
due deliberation.
57
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above. This Financing Agreement shall take
effect as of the date set forth above after being accepted below by an officer
of CITBC after which, CITBC shall forward to the Companies a fully executed
original for its files.
Very truly yours,
The CIT Group/Business Credit, Inc.
as Lender
By /s/ Jeff Simon
---------------------------------
Vice President
Read and Agreed to:
Media Arts Group, Inc.
By /s/ Kenneth Raasch
---------------------------------
Title: President
Thomas Kinkade Stores, Inc.
By /s/ Kenneth Raasch
---------------------------------
Title: President
California Coast Galleries, Inc.
By /s/ Kenneth Raasch
---------------------------------
Title: President
Executed and Accepted at
Los Angeles, CA
The CIT Group/Business Credit, Inc.
as Lender
By /s/ Jeff Simon
---------------------------------
Vice President
58
<PAGE> 54
EXHIBIT A
REVOLVING CREDIT NOTE
February 21, 1997
$10,000,000
FOR VALUE RECEIVED, the undersigned, Media Arts Group, Inc., Thomas Kinkade
Stores, Inc., and California Coast Galleries, Inc. (the "Companies"), hereby
absolutely and unconditionally promise to pay to the order of The CIT
Group/Business Credit, Inc., (herein "CITBC"), with offices located at 300
South Grand Avenue, Los Angeles, CA 90071, in lawful money of the United States
of America and in immediately available funds, the principal amount of Ten
Million Dollars ($10,000,000), or such other principal amount advanced pursuant
to Section 3, paragraph 3.1 and Section 5, paragraph 5.1 of the Financing
Agreement (as herein defined), such Revolving Loan advances shall be repaid on
a daily basis as a result of the application of the proceeds of collections of
the Accounts and the making of additional Revolving Loans as described in
Section 3. The Revolving Loans may be borrowed, repaid and reborrowed by the
Companies. A final balloon payment in an amount equal to the outstanding
aggregate balance of principal and interest remaining unpaid, if any, under
this Note as shown on the books and records of CITBC shall be due and payable
on the termination of the Financing Agreement, as set forth in Section 11
thereof.
The Companies further absolutely and unconditionally jointly and severally
promise to pay to the order of CITBC at said office, interest, in like money,
on the unpaid principal amount owing hereunder from time to time from the date
hereof on the dates and at the rates specified in Section 8, of the Financing
Agreement.
If any payment on this Note becomes due and payable on a day other than a
business day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is one of the Promissory Notes referred to in the Financing
Agreement, dated as of the date hereof, as the same may be amended and restated
and in effect from time to time, among the Companies and CITBC, (the "Financing
Agreement"), and is subject to, and entitled to, all of the terms, provisions
and benefits thereof and is subject to optional and mandatory prepayment, in
whole or in part, as provided therein. All capitalized terms used herein shall
have the meaning provided therefor in the Financing Agreement, unless otherwise
defined herein.
The date and amount of the advance(s) made hereunder may be recorded on the
grid page or pages which are attached hereto and hereby made part of this Note
or the separate ledgers maintained by CITBC. The aggregate unpaid principal
amount of all advances made pursuant hereto may be set forth in the balance
column on said grid page or such ledgers maintained by CITBC. All such
advances, whether or not so recorded, shall be due as part of this Note.
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<PAGE> 55
The Companies confirm that any amount received by or paid to CITBC in
connection with the Financing Agreement and/or any balances standing to their
credit on any of their accounts on CITBC's books under the Financing Agreement
may in accordance with the terms of the Financing Agreement be applied in
reduction of this Note, but no balance or amounts shall be deemed to effect
payment in whole or in part of this Note unless CITBC shall have actually
charged such account or accounts for the purposes of such reduction or payment
of this Note.
Upon the occurrence of any one or more of the Events of Default specified in
the Financing Agreement or upon termination of the Financing Agreement, all
amounts then remaining unpaid on this Note may become, or be declared to be,
immediately due and payable as provided in the Financing Agreement.
MEDIA ARTS GROUP, INC.
/s/ Kenneth Raasch
--------------------------
Title: President
THOMAS KINKADE STORES, INC.
/s/ Kenneth Raasch
--------------------------
Title: President
CALIFORNIA COAST GALLERIES, INC.
/s/ Kenneth Raasch
--------------------------
Title: President
60
<PAGE> 1
Exhibit 4.02
CREDIT AGREEMENT
(AMENDING AND RESTATING THE
SECURITIES PURCHASE AGREEMENT DATED
AS OF JULY 7, 1995, AS AMENDED)
by and among
LEVINE LEICHTMAN CAPITAL PARTNERS, L.P.,
as Lender
and
MEDIA ARTS GROUP, INC.,
THOMAS KINKADE STORES, INC.,
MAGI ENTERTAINMENT PRODUCTS, INC.,
MAGI SALES, INC.
and
CALIFORNIA COAST GALLERIES, INC.,
as Obligors
Dated as of February 21, 1997
61
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.3 Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.4 Certain Matters of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2. CLOSING AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Consolidation of Original Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Mutual Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3. REPRESENTATIONS AND WARRANTIES OF OBLIGORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Subsidiaries and Other Related Companies . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Due Execution and Delivery; Binding Obligations . . . . . . . . . . . . . . . . . . . 14
3.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.8 Validity and Issuance of the Acquired Stock . . . . . . . . . . . . . . . . . . . . . 16
3.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.10 Material Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.12 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.13 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.14 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.15 Labor Agreements and Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.16 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.18 Compliance With Charter, Laws and Contracts, etc. . . . . . . . . . . . . . . . . . . 19
3.19 Litigation; Adverse Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.20 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.21 Licenses, Permits and Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.22 Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.23 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.25 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.26 Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.27 Sources and Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.28 Inventory Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4. REPRESENTATIONS AND WARRANTIES OF LENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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<TABLE>
<S> <C> <C>
4.3 Due Execution and Delivery; Binding Obligations . . . . . . . . . . . . . . . . . . . 21
4.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Accredited Investor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Documents and Related Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Warrant and Note Amendment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Representations and Warranties; No Default; Other Matters . . . . . . . . . . . . . . 22
5.4 Restructuring and Prepayment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.5 CIT Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.6 Transactions Permitted By Applicable Laws . . . . . . . . . . . . . . . . . . . . . . 22
5.7 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8 No Material Judgment Or Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.9 Budget For Fiscal Year Ending March 31, 1998 . . . . . . . . . . . . . . . . . . . . . 23
6. CONDITIONS TO THE OBLIGATIONS OF OBLIGORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Purchase Permitted By Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 No Material Judgment or Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Payments with Respect to the Consolidated Note . . . . . . . . . . . . . . . . . . . . 24
7.2 Limitation On Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.5 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.6 Limitation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.7 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.8 Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.9 Visitation Rights for Board Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 27
7.10 Maintenance of Property, Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.11 Corporate Franchises; Material Rights . . . . . . . . . . . . . . . . . . . . . . . . 27
7.12 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.14 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.15 Restriction On Fundamental Changes; Right of First Refusal . . . . . . . . . . . . . . 28
7.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.17 Amendments to Documents Relating to Permitted Senior Indebtedness . . . . . . . . . . 28
7.18 Notice of Agreements Affecting Stock . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.19 Segregation of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.20 Restrictions on Payments On Account of Restricted Indebtedness . . . . . . . . . . . . 29
7.21 Certain Matters Regarding the Tax Refund Proceeds and Related Tax Return . . . . . . . 29
7.22 Change of Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.23 Key Person Life Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.24 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8. COVENANTS RELATING TO ACQUIRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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9.1 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.2 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.3 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.4 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.2 Consent to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.3 Form, Registration, Transfer and Exchange of Securities; Lost Securities . . . . . . . 34
11.4 Persons Deemed Owners; Participation . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.5 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 34
11.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.10 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.11 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.13 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.14 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.16 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.17 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.18 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.19 No Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.20 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.21 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12. CROSS-GUARANTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.1 Cross-Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.2 Waivers by Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.3 Benefit of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.4 Subordination of Subrogation, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.5 Election of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.6 Additional Real Property Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.7 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.8 Contribution with Respect to Guaranty Obligations . . . . . . . . . . . . . . . . . . 42
12.9 Liability Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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INDEX OF ANNEXES, EXHIBITS AND SCHEDULES
Annex A - Schedule of Documents
Annex B - Financial Covenants
Exhibit A - CIT Subordination Agreement
Exhibit B - Consolidated Note
Exhibit C - Intellectual Property Assignment
Exhibit D - Investment Monitoring Agreement Amendment
Exhibit E - Security Agreement
Exhibit F - Warrant and Note Amendment Agreement
Disclosure Schedule
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CREDIT AGREEMENT
(AMENDING AND RESTATING THE
SECURITIES PURCHASE AGREEMENT
DATED AS OF JULY 7, 1995, AS AMENDED)
This Credit Agreement (Amending and Restating the Securities Purchase
Agreement dated as of July 7, 1995, as Amended) (this "Agreement") is entered
into as of February 21, 1997 by and among:
1. Levine Leichtman Capital Partners, L.P., a California limited
partnership, as lender (the "Lender"), and
2. a. Media Arts Group, Inc., a Delaware corporation
("Media Arts"), for itself and as successor by merger
to Lightpost Publishing, Inc., a California
corporation ("Lightpost") and John Hine Studios,
Inc., a Texas corporation ("JH Texas"),
b. Thomas Kinkade Stores, Inc., a California corporation
("TKSI"),
c. MAGI Entertainment Products, Inc., a California
corporation ("MAGI Entertainment"),
d. MAGI Sales, Inc. a California corporation ("MAGI
Sales"), and
e. California Coast Galleries, Inc. ("CCG"; Media Arts,
TKSI, MAGI Entertainment, MAGI Sales and CCG may be
referred to herein collectively as "Obligors" and
individually as an "Obligor").
RECITALS
A. Lender, Obligors (other than CCG and MAGI Sales), Lightpost
and JH Texas are parties to a Securities Purchase Agreement dated as of July 7,
1995 (the "Original Purchase Agreement"; capitalized terms used in these
Recitals that are not otherwise defined in these Recitals are as defined in the
Original Purchase Agreement).
B. Pursuant to the Original Purchase Agreement, among other
things, Lender purchased:
1. a Senior Subordinated Note due June 30, 2002 in the
principal amount of $4,000,000 (subject to RECITAL C.3, the "Original $4
Million Note") and a Convertible Redeemable Senior Subordinated Note due June
30, 2002 in the principal amount of $3,000,000 (subject to RECITAL C.3, the
"Original $3 Million Convertible Note") from Media Arts, Lightpost, TKSI and
MAGI Entertainment,
2. a Senior Subordinated Note due June 30, 2002 in the
principal amount of $1,000,000 (subject to RECITAL C.3, the "Original $1
Million Note"; subject to RECITAL C.3, the Original $4 Million Note, the
Original $3 Million Convertible Note and the Original $1 Million Note shall be
referred to collectively as the "Original Notes") from JH Texas, and
3. a warrant to purchase an aggregate of 400,000 shares
of Common Stock (subject to RECITAL C.3, the "Original Warrant").
C. The Original Purchase Agreement was amended pursuant to the
First Amendment to Securities Purchase Agreement dated as of March 12, 1996
(the "First Amendment"; the Original
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Purchase Agreement as so amended will be referred to as the "Existing Purchase
Agreement"). In connection with the First Amendment, among other things,
1. Lender waived certain Events of Default and the
parties executed a mutual release with respect to certain claims described
therein,
2. MAGI Sales was added as a party to the Existing
Purchase Agreement,
3. the Original Notes and the Original Warrant were
amended (and all further references to such documents shall be to such
documents as they were amended on March 12, 1996), and
4. Lender was granted a lien and security interest in
the assets of Lightpost, JH Texas, and all of the Obligors other than CCG.
D. Since the time at which the First Amendment was entered into,
1. Lightpost and JH Texas have merged with and into
Media Arts, with Media Arts the surviving corporation,
2. Media Arts acquired CCG as a wholly owned subsidiary
of Media Arts (and has informed Lender that it intends to merge CCG with and
into TKSI prior to May 1997, and
3. Media Arts has informed Lender that the senior loan
to all Obligors other than CCG from Comerica Bank-California ("Comerica") will
be refinanced and replaced with a new senior revolving credit facility from The
CIT Group/Business Credit, Inc. ("CIT").
E. Various Events of Default under the Existing Purchase
Agreement have occurred and have been continuing since on or about June 30,
1996.
F. In connection with the refinancing of the existing Comerica
loan by CIT and the transactions described herein, Lender and Obligors have
agreed to restructure the obligations under the Existing Purchase Agreement and
the Original Notes, amend and restate the Existing Purchase Agreement in its
entirety as provided herein, and to enter into the transactions contemplated
herein and in the Related Agreements (as defined below).
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree, and the Existing Purchase Agreement is hereby amended and restated as of
the Closing Date (as defined below) in its entirety, as follows:
AGREEMENT
1. DEFINITIONS.
1.1 Defined Terms. The following terms, when used in
this Agreement, including its PREAMBLE and RECITALS, shall have the following
meanings (such meanings to be equally applicable to the singular and plural
forms thereof):
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"Acquired Stock" means the Common Stock being acquired by Lender upon
the exercise of the Original Warrant and the conversion option under the
Existing $3 Million Convertible Note, as more fully described in the Warrant
and Note Amendment Agreement.
"Affiliate" means, when used with reference to any specified Person,
any other Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified Person. For the
purposes of this definition, "control," when used with respect to any specified
Person, means the power to direct or cause the direction of management or
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing. Notwithstanding the
foregoing, the term Affiliate shall not include, with respect to any Obligor,
Lender, Levine Leichtman Capital Partners, Inc. or any other Person (or any of
the officers, directors, partners or employees of any of the foregoing Persons)
solely because of any such Person's record or beneficial ownership of the
Securities.
"Agreement" means this Credit Agreement as originally in effect on the
Closing Date, and as it may be amended from time to time thereafter.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Board of Directors" means the board of directors of any Person.
"Business Day" means any day except Saturday, Sunday and any day which
either is a legal holiday under the laws of the State of California or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close.
"Capital Lease Obligation" means any lease obligation of a Person
incurred with respect to any property (whether real, personal or mixed)
acquired or leased by such Person and used in its business that is required to
be recorded as a capitalized lease in accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"CIT" is defined in RECITAL D.3.
"CIT Credit Facility" means the revolving credit facility being
provided to Media Arts, CCG and TKSI pursuant to the CIT Documents.
"CIT Documents" means, collectively, (i) that certain Financing
Agreement of even date herewith by and among Media Arts, CCG, TKSI and CIT, and
(ii) all other "Loan Documents" (as defined therein).
"CIT Subordination Agreement" means an intercreditor and subordination
agreement by and between CIT and Lender and acknowledged by Obligors in
substantially the form of EXHIBIT A.
"Closing" is defined in SECTION 2.1.
"Closing Date" means February 21, 1997.
"Collateral" is defined in the Security Agreement.
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<PAGE> 9
"Comerica" is defined in RECITAL D.3.
"Common Stock" means the common stock of Media Arts.
"Consolidated Financial Statement" is defined in SECTION 3.9.
"Consolidated Note" means the Consolidated, Amended and Restated
13.50% Senior Subordinated Note Due December 31, 2001 of even date herewith in
substantially the form of EXHIBIT B.
"Convertible Securities" is defined in SECTION 3.7(C)(I).
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or lapse of time
or both would be, an Event of Default.
"Disclosure Schedule" is defined in the introductory paragraph of
SECTION 3.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including the rules and regulations promulgated thereunder.
"Event of Default" is defined in SECTION 10.1.
"Existing Purchase Agreement" is defined in RECITAL C.
"First Amendment" is defined in RECITAL C.
"GAAP" means generally accepted accounting principles and practices
set forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession that are applicable to the circumstances as of the
date hereof, applied on a consistent basis.
"Guarantee" means (i) any guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner, of any obligation and (ii) any agreement,
direct or indirect, contingent or otherwise, the practical effect of which is
to assure in any way the payment or performance (or payment of damages in the
event of non-performance) of any obligation, including, without limiting the
foregoing, any indemnification agreement, warranty and any agreement to pay
amounts drawn down by letters of credit. Notwithstanding anything herein to
the contrary, a Guarantee shall not include any agreement solely because such
agreement creates a Lien on the assets of any Person. The amount of a
Guarantee shall be deemed to be the maximum amount of the obligation guaranteed
for which the guarantor could be held liable under such Guarantee.
"Holder" means the Person in whose name any Security is registered on
any Obligor's books.
"Indebtedness" means (without duplication), when used with reference
to any Person,
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<PAGE> 10
(i) any indebtedness, contingent or otherwise, in
respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to
a portion thereof), or evidenced by bonds, notes, debentures
or similar instruments or letters of credit or representing
the unpaid balance of the purchase price of any property or
services (except any such balance that constitutes a trade
payable in the ordinary course of business that is not overdue
by more than 100 days or is being contested in good faith), if
and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person
prepared on a consolidated basis in accordance with GAAP,
(ii) the principal component of any Capital Lease
Obligations of such Person,
(iii) the maximum fixed repurchase price of any
Redeemable Stock of such Person,
(iv) obligations secured by a Lien to which any
property or asset, including leasehold interests and any other
tangible or intangible property rights, owned by such Person
is subject, whether or not the obligations secured thereby
have been assumed by such Person, and
(v) Guarantees of items which would be included
within this definition (regardless of whether such items would
appear upon such balance sheet);
provided, that for purposes of computing Indebtedness outstanding at any time,
such items shall be excluded to the extent that they would otherwise be
eliminated as intercompany items in consolidation. For purposes of the
foregoing, the maximum fixed repurchase price of any Redeemable Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Redeemable Stock as if such Redeemable Stock were repurchased
on any date on which Indebtedness shall be required to be determined pursuant
to this Agreement, and if such price is based upon or measured by the fair
market value of such Redeemable Stock (or any equity security for which it may
be exchanged or converted), such fair market value shall be determined in good
faith by the Board of Directors of such Person. Any such determination may be
challenged in good faith by the Holder of the Consolidated Note, and any
dispute shall be resolved by an investment bank or appraisal company of
recognized national standing selected by such Holder and reasonably acceptable
to such Person and whose decision shall be binding. If the parties cannot
agree on a mutually acceptable investment bank or appraisal company, then the
Holder and such Person shall each choose one such investment bank or appraisal
company and such firms shall jointly select a third investment bank or
appraisal company which shall make the determination. The costs of any such
determination shall be borne by such Person; provided, that in the event the
determination by such investment bank or appraisal company is not more than 10%
higher than the determination made by the Board of Directors of such Person,
then the Holder requesting such independent determination shall bear the cost
thereof.
"Initial Scheduled Payment" is the $2,000,000 principal payment that
is scheduled to be made on the Initial Date (as such term is defined in the
Consolidated Note).
"Intellectual Property Assignment" means the Amended and Restated
Assignment for Security of Patents, Trademark and Copyrights in favor of Lender
of even date herewith in substantially the form of EXHIBIT C, as the same may
be amended from time to time hereafter.
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"Investment Monitoring Agreement" means the Investment Monitoring
Agreement dated as of September 10, 1996 as amended on the date hereof pursuant
to the Investment Monitoring Agreement Amendment, and as may be amended from
time to time hereafter.
"Investment Monitoring Agreement Amendment" means the First Amendment
to Investment Monitoring Agreement of even date herewith in substantially the
form of EXHIBIT D.
"Investments" is defined in SECTION 7.6.
"JH Texas" is defined in the PREAMBLE.
"John Hine Obligation" means the obligation of Media Arts to John
Hine, an individual, in the principal amount as of the Closing Date of
approximately L.970,756, together with all accrued interest thereon as of any
time of determination, arising from the acquisition from John Hine of John Hine
U.K.
"John Hine U.K." means John Hine Limited, a corporation organized
under the laws of the United Kingdom.
"John Hine U.K. Obligation" means the existing net intercompany
obligation of Media Arts to John Hine U.K. arising from the acquisition of
inventory by JH Texas from John Hine U.K.
"Kinkade Inventory Agreement" means the agreement of even date
herewith by and between Thomas Kinkade, Kenneth E. Raasch, CIT and Lender with
respect to the Inventory of Obligors subject to the Kinkade License.
"Kinkade License" means the License Agreement dated as of December 1,
1993 between Thomas Kinkade, Kenneth E. Raasch and Lightpost Group, Inc, as
predecessor in interest to Media Arts.
"Lender" is defined in the PREAMBLE.
"Lien" means any lien, pledge, mortgage, claim, covenant, restriction,
security interest, charge or encumbrance of any kind, including Capital Lease
Obligations having substantially the same economic effect.
"Lightpost" is defined in the PREAMBLE.
"MAGI Entertainment" is defined in the PREAMBLE.
"MAGI Sales" is defined in the PREAMBLE.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise), business,
results of operations or properties of such Person.
"Media Arts" is defined in the PREAMBLE.
"Obligations" means all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment
of monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any
Obligor to Lender, and all covenants and duties regarding such amounts, of any
kind or nature, present or future,
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whether or not evidenced by any note, agreement or other instrument, arising
under this Agreement or any of the Related Agreements. This term includes all
principal, interest (including all interest which accrues after the
commencement of any case or proceeding in bankruptcy after the insolvency of,
or for the reorganization of any Obligor, whether or not allowed in such
proceeding), fees, expenses, attorneys' fees and any other sum chargeable by
Lender to any Obligor under this Agreement or any of the Related Agreements.
"Obligor" is defined in the PREAMBLE; provided, that from and after
the effective time of the merger of CCG with and into TKSI, CCG shall no longer
be an "Obligor," and all of the rights and obligations of CCG shall become
rights and obligations of TKSI.
"Option Rights" is defined in SECTION 3.7(C)(II).
"Original $1 Million Note" is defined in RECITAL B.2.
"Original $3 Million Convertible Note" is defined in RECITAL B.1.
"Original $4 Million Note" is defined in RECITAL B.1.
"Original Notes" is defined in RECITAL B.2.
"Original Purchase Agreement" is defined in RECITAL A.
"Original Warrant" is defined in RECITAL B.3.
"Other Permitted Indebtedness" means Indebtedness represented by (i)
Capital Lease Obligations or (ii) purchase money Indebtedness incurred to
acquire property or equipment in the ordinary course of business, in an
aggregate amount, as of any time of determination, of up to $1,000,000 minus
the amount of the Indebtedness of the type described in SECTION 7.4(A)(I) as of
such time of determination.
"Other Permitted Liens" means, with respect to any Person, any Lien
arising by reason of:
(i) any attachment, judgment, decree or order of any
court, so long as such Lien is being contested in good faith
and is either adequately bonded or execution thereon has been
stayed pending appeal or review, and any appropriate legal
proceedings which may have been duly initiated for the review
of such attachment, judgment, decree or order shall not have
been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(ii) taxes, assessments or governmental charges not
yet delinquent or which are being contested in good faith;
(iii) security for payment of workers' compensation
or other insurance;
(iv) security for the performance of leases;
(v) deposits to secure public or statutory
obligations or in lieu of surety or appeal bonds entered into
in the ordinary course of business;
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(vi) operation of law in favor or carriers,
warehousemen, landlords, mechanics, materialmen, laborers,
employees or suppliers, incurred in the ordinary course of
business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate
proceedings which suspend the collection thereof;
(vii) any interest or title of a lessor under any
lease (other than a Capital Lease Obligation);
(viii) easements, rights-of-way, zoning and similar
covenants and restrictions and other similar encumbrances or
title defects which, in the aggregate, are not material in
amount and which do not in any case materially interfere with
the ordinary course of the business of such Person; and
(ix) licenses of Intellectual Property Collateral (as
defined in the Security Agreement) in favor of third parties
in the ordinary course of business.
"Perkins Obligation" means the existing potential indemnification
obligation of Media Arts in favor of John Hine and John Hine U.K. with respect
to their respective obligations to Richard Archer Perkins.
"Permitted Investments" means:
(i) direct obligations of the United States of
America (including obligations issued or held in book-entry
form on the books of the Department of the Treasury of the
United States of America) or obligations the timely payment of
the principal of and interest on which are fully guaranteed by
the United States of America;
(ii) obligations, debentures, notes or other evidence
of indebtedness issued or guaranteed by the Export-Import Bank
of the United States, the Federal Housing Administration or
any other agency or instrumentality of the United States;
(iii) interest-bearing demand or time deposits
(including certificates of deposit) which are either (A)
insured by the Federal Deposit Insurance Corporation or (B)
held in Comerica or any United States, Australian, Canadian,
European or Japanese commercial banks having general
obligations rated at least "AA" or equivalent by Standard &
Poor's Corporation or Moody's Investor Service and having
capital and surplus of at least $500,000,000 or the
equivalent;
(iv) commercial paper rated (on the date of
acquisition thereof) at least A-1 or P-1 or equivalent by
Standard & Poor's Corporation or Moody's Investor Service,
respectively (or an equivalent rating by another nationally
recognized credit rating agency of similar standing if neither
of such corporations is then in the business of rating
commercial paper), maturing not more than 270 days from the
date of creation thereof; or
(v) any advances, loans or extensions of credit or
any stock, bonds, notes, debentures or other securities as
Lender may from time to time approve in its sole and absolute
discretion.
"Permitted Liens" is defined in SECTION 7.3.
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"Permitted Senior Indebtedness" means any Indebtedness incurred by one
or more of the Obligors pursuant to any secured credit facility or facilities
that (i) permits borrowings up to an amount determined by reference to a
specified borrowing base, which shall not exceed 85% of such Obligor's eligible
accounts receivable plus 50% of such Obligor's eligible inventory, and (ii)
expressly provides that borrowings under such facility or facilities are senior
in right of payment to the payment of principal of and interest on the
Consolidated Note. So long as the CIT Documents have not been amended in a
manner that is prohibited pursuant to SECTION 7.17, the CIT Credit Facility
shall constitute "Permitted Senior Indebtedness" hereunder.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation, limited
liability company, limited liability partnership, public benefit corporation,
or government (whether Federal, state, county, city or otherwise, including
without limitation, any instrumentality, political subdivision, agency, body or
department thereof).
"Pre-Closing Prepayment" means a prepayment of $592,500 of principal
amount of the Original Notes (allocated among the Original Notes as Lender may
determine in its sole and absolute discretion) to be made immediately prior to
the issuance of the Consolidated Note pursuant to the Warrant and Note
Amendment Agreement.
"Purchase Money Liens" means Liens (including the interest of a lessor
under a Capital Lease Obligation having substantially the same economic effect)
on any item of equipment acquired (including by means of entering into a
Capital Lease Obligation) or constructed after the Closing Date that secures
Indebtedness permitted to be incurred under SECTION 7.4 that is incurred for
the purpose of financing the acquisition or construction of such item.
"Raasch Obligation" means the obligations of Media Arts to Linda
Raasch, an individual, arising pursuant to that certain 8% Subordinated
Convertible Promissory Note in the face amount of $1,200,000.
"Raasch Subordination Agreement" means the Subordination Agreement
(Raasch) dated as of July 25, 1995 of Linda Raasch in favor of Lender with
respect to the Raasch Obligation.
"Redeemable Stock" means, with respect to any Person, that portion of
any equity security of such Person that, by its terms or otherwise, is, or at
the option of the holder thereof may be, required to be redeemed or repurchased
prior to June 30, 2002.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of July 25, 1995, as amended by Amendment No. 1 to
Registration Rights Agreement dated as of March 12, 1996, as it may be amended
from time to time hereafter.
"Related Agreements" means:
(i) the Consolidated Note,
(ii) the Security Agreement,
(iii) the Intellectual Property Assignment,
(iv) the Registration Rights Agreement,
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(v) the CIT Subordination Agreement,
(vi) the Raasch Subordination Agreement,
(vii) the Investment Monitoring Agreement,
(viii) the Warrant and Note Amendment Agreement, and
(ix) the Kinkade Inventory Agreement,
in all cases as such agreements or instruments may be amended from time to time
in accordance with their terms.
"Released Claims" is defined in SECTION 2.3(a).
"Releasing Party" is defined in SECTION 2.3(a).
"Restricted Indebtedness" means, collectively, the John Hine
Obligations, the John Hine U.K. Obligation, and the Perkins Obligation.
"Restricted Payment" means, with respect to each Obligor and each
Subsidiary of any Obligor:
(i) any dividend or distribution, direct or indirect,
on account of any shares of any class of Capital Stock of such
Person now or hereafter outstanding,
(ii) any redemption, retirement, sinking fund or
similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of Capital
Stock of such Person, or any outstanding warrants, options or
other rights to acquire Stock of such Person, now or hereafter
outstanding,
(iii) any payment or prepayment of principal of,
premium, if any, or interest, fees or other charges on or with
respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment with respect to
Indebtedness that is subordinated in right of payment to the
Consolidated Note; or
(iv) any payment, distribution, contribution or
transfer of property of any kind to John Hine U.K. or any of
its Subsidiaries,
provided, that the following shall not constitute Restricted Payments:
(a) interest payments to Linda Raasch permitted under
the Raasch Subordination Agreement;
(b) the issuance of any equity securities by such
Person upon the exercise or conversion, whether mandatory or
optional, of any Option Rights or Convertible Securities;
(c) any dividend or distribution, direct or indirect,
on account of any shares of any class of Capital Stock of such
Person now or hereafter outstanding which is payable solely in
shares of Common Stock;
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(d) the payment of or exchange of Indebtedness that
is subordinate in right of payment to the Consolidated Note
solely with Common Stock; and
(e) the payment of any dividend by any Obligor or any
Subsidiary of any Obligor other than Media Arts.
"Security" means the Consolidated Note and the Acquired Stock.
"Security Agreement" means the Amended and Restated Pledge and
Security Agreement of even date herewith in substantially the form of EXHIBIT
E, as the same may be amended from time to time hereafter.
"Senior Lender" means any holder of Permitted Senior Indebtedness.
"Subsidiary" means, with respect to any Person, any other Person of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, officers or trustees thereof is at the time owned in the
aggregate, directly or indirectly, by such Person and its Subsidiaries;
provided, that in no event shall "Subsidiary" include, with respect to Media
Arts, John Hine U.K. or any of its Subsidiaries.
"Tax Refund Account" means a deposit account to be opened by Media
Arts for purposes of the deposit of the Tax Refund Proceeds.
"Tax Refund Proceeds" means the Federal tax refund of Media Arts for
the fiscal years ended March 31, 1995 and March 31, 1996 with respect to the
carryback of losses for the fiscal year ended March 31, 1997.
"Taxes" means any income, excise, sales, use, stamp or franchise taxes
and any other taxes, fees, duties, levies, withholdings or other charges of any
nature whatsoever imposed by any taxing authority, together with any interest
and penalties and additions to tax.
"TKSI" is defined in the PREAMBLE.
"Transferee" means any direct or indirect transferee of all or any
part of any Securities.
"Warrant and Note Amendment Agreement" means the Warrant and Note
Amendment Agreement of even date herewith in substantially the form of EXHIBIT
F hereto.
1.2 Use of Defined Terms. Unless otherwise defined or
the context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in any Exhibits, Schedules or
Annexes hereto, and in each notice and other communication delivered from time
to time in connection with this Agreement or any Related Agreement.
1.3 Cross-References. Unless otherwise specified,
references in this Agreement and in each other Related Agreement to any Section
are references to such Section of this Agreement or such other Related
Agreement, as the case may be, and unless otherwise specified, references in
any Section or definition to any clause are references to such clause of such
Section or definition.
1.4 Certain Matters of Construction. All Schedules,
Exhibits, Annexes and any other attachments hereto, or expressly identified by
this Agreement, are incorporated herein by reference, and taken together, shall
constitute but a single agreement. Unless otherwise expressly set
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forth herein, or in a written amendment referring to such Schedules, all
Schedules referred to herein shall mean the Schedules as in effect as of the
Closing Date. The Recitals shall be construed as part of this Agreement. For
purposes of this Agreement and the other Related Agreements, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; and
(e) all references to any instruments or agreements, including references to
any of the Related Agreements, shall include any and all modifications or
amendments thereto and any and all extensions or renewals thereof.
2. CLOSING AND RELATED MATTERS
2.1 Closing. The Closing of the transactions
contemplated herein (the "Closing") shall take place at the offices of Murphy,
Weir & Butler, 2049 Century Park East, Suite 2100, Los Angeles, California on
the Closing Date.
2.2 Consolidation of Original Notes. The Original Notes,
as amended by the Warrant and Note Amendment Agreement and as the principal
amount thereof shall have been reduced in connection with the actions
contemplated by the Warrant and Note Amendment Agreement, shall be
consolidated, amended and restated on the Closing Date, and shall be evidenced
by the Consolidated Note which shall be issued in favor of Lender at the
Closing upon the delivery to Media Arts of the Original Notes. The terms for
payment of principal and interest on the obligations evidenced by the
Consolidated Note, and all of the other terms relating thereto, are as set
forth in the Consolidated Note.
2.3 Mutual Releases.
(a) Release. Lender on the one hand, and each of
the Obligors on the other hand (each such Person, a "Releasing Party"), hereby
releases and forever discharges the other, together with their respective
control Persons, officers, partners, directors, agents, representatives,
employees and attorneys and each of their respective heirs, executors,
administrators, successors and assigns from any and all liabilities, claims,
demands, actions, causes of action or suits of any kind or nature whatsoever,
whether known or unknown, suspected or unsuspected, which such Releasing Party
ever had or now has against any such Person that could have been asserted in
connection with or arising out of (i) Lender's investment in the Obligors
pursuant to the Original Purchase Agreement and the Existing Purchase Agreement
and the "Related Agreements" executed in connection therewith, or (ii) any acts
or omissions taken subsequent to the date of the Original Purchase Agreement
and prior to the date hereof, including the occurrence of any Defaults or
Events of Default (as such terms are defined in the Existing Purchase Agreement
as of the relevant time of determination) during such period (collectively, the
"Released Claims").
(b) Acknowledgement. The parties acknowledge
that they may hereafter discover facts in addition to or different from those
which they now know or believe to be true with respect to the subject matter of
this Agreement, but they do each affirm that it is their intention to fully,
finally and forever settle and release any and all Released Claims
notwithstanding any such discovery or nullification or voidance of this
Agreement.
(c) Exclusions. Notwithstanding the foregoing
SECTIONS 2.3(A) AND 2.3(B), the parties agree that the releases contained
therein do not extend to any liabilities, claims, demands,
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actions, causes of action or suits of any kind or nature whatsoever, that may
arise out of any Defaults or Events of Default that may exist upon the
effectiveness of this Agreement or which may occur after the date hereof,
including by virtue of any breach of any representation, warranty or covenant
contained in this Agreement.
(d) Power to Release. The parties each represent
and warrant to the other that they are the sole owners of the claims which they
are releasing, and that they have full power to give the releases provided for
herein. The parties each further represent and warrant to the other that they
have not assigned or transferred any of the claims released herein, and each
agrees to indemnify and hold the other harmless from and against any liability,
loss, cost or expense, including attorneys' fees, incurred as a result of any
claim asserted by any other person, arising in whole or in part from the same
events as the claims released herein.
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3. REPRESENTATIONS AND WARRANTIES OF OBLIGORS. Obligors hereby
jointly and severally represent and warrant to Lender that, except as set forth
in the disclosure schedule attached hereto (the "Disclosure Schedule"), the
following statements are true and correct as of the date hereof (and such
representations and warranties shall survive the execution and delivery of this
Agreement):
3.1 Organization and Good Standing. Each Obligor is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, and has all requisite
corporate power and authority to own (or hold under lease) and operate its
material properties, to carry on its business as now conducted, to enter into
this Agreement and each Related Agreement to which it is a party, to issue and
deliver the Consolidated Note (and in the case of Media Arts, to issue, sell
and deliver the Acquired Stock) and to consummate the transactions contemplated
hereby and in the Related Agreements. Each Obligor is duly qualified as a
foreign corporation to do business and is in good standing wherever necessary
to carry on its present business and operations, except in such jurisdictions
in which the failure to so qualify or be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on Obligors,
taken as a whole.
3.2 Subsidiaries and Other Related Companies. The
Disclosure Schedule (Section 3.2) (i) sets forth (A) a complete list of each
direct and indirect Subsidiary of Media Arts and (B) the interest of Media Arts
in John Hine U.K. and a complete list of each direct and indirect Subsidiary of
John Hine U.K., and (ii) indicates the jurisdiction in which each entity
described in the immediately preceding CLAUSE (i) is incorporated.
3.3 Authorization. The execution, delivery and
performance of this Agreement and of each of the Related Agreements, the
issuance and delivery of the Consolidated Note and the issuance, sale and
delivery of the Acquired Stock, and the consummation of the transactions
contemplated hereby and in the Related Agreements have been duly authorized by
all necessary corporate action on the part of each Obligor (to the extent they
are parties thereto).
3.4 Due Execution and Delivery; Binding Obligations.
This Agreement and the Related Agreements have been duly executed and delivered
by Obligors. This Agreement and the Related Agreements are the legal, valid
and binding obligations of Obligors party thereto, enforceable against Obligors
party thereto in accordance with their respective terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or conveyance or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability and except as rights of indemnity or contribution may be limited
by Federal or state securities or other laws or the public policy underlying
such laws.
3.5 No Violation. The execution, delivery and
performance by Obligors of this Agreement and of each of the Related Agreements
to which they are parties, the issuance and delivery of the Consolidated Note
and the issuance, sale and delivery of the Acquired Stock, the creation of the
Liens contemplated in the Related Agreements, and the consummation of the
transactions contemplated hereby and in the Related Agreements do not violate
(i) the charter or bylaws of any Obligor, (ii) any material law, rule,
regulation or ordinance applicable to any Obligor or any Subsidiary of any
Obligor or any order, ruling, judgment or decree of any court or other
governmental agency binding on any
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Obligor or any Subsidiary of any Obligor, or (iii) any term of any material
indenture, mortgage, lease, agreement or instrument to which any Obligor or any
Subsidiary of any Obligor is a party.
3.6 Governmental Consents. The execution and delivery by
Obligors of this Agreement and of each Related Agreement to which they are
parties, the issuance and delivery of the Consolidated Note and the issuance,
sale and delivery of the Acquired Stock, the creation of the Liens contemplated
in the Related Agreements, and the consummation of the transactions
contemplated hereby and in the Related Agreements, do not and will not require
as of the Closing Date any authorization, registration or filing with, or
consent or approval of, any Federal, state or other governmental authority or
regulatory body other than filings under applicable Federal and state
securities laws.
3.7 Capitalization.
(a) The Disclosure Schedule (Section 3.7) sets
forth, in addition to the various exceptions to the representations and
warranties contained in this SECTION 3,
(i) the total authorized Capital Stock of Media
Arts as of the date hereof,
(ii) the number and class of all shares of Capital
Stock of Media Arts which have been issued and are outstanding as of
the date hereof (or the nearest practicable date, but in all cases
including the Acquired Stock),
(iii) the total authorized Capital Stock of each
Subsidiary of Media Arts, and of John Hine U.K., as of the date
hereof, and
(iv) the number and class of all shares of Capital
Stock of each Subsidiary of Media Arts, and of John Hine U.K. and its
Subsidiaries, which have been issued and are outstanding as of the
date hereof and the ownership of such shares of Capital Stock.
(b) All of the issued and outstanding shares of
Capital Stock of Media Arts and of each Subsidiary of Media Arts have been duly
authorized and validly issued, are fully paid and nonassessable and are free of
any preemptive or other similar rights to subscribe for or to purchase any such
Capital Stock.
(c) Except as described in the Disclosure Schedule
(Section 3.7), there are:
(i) no outstanding securities or obligations of
any Person convertible or exchangeable into any shares of Capital
Stock of Media Arts or any Subsidiary of Media Arts ("Convertible
Securities");
(ii) no outstanding warrants, rights or options to
subscribe for or purchase, or obligations to issue, any such shares of
Capital Stock of Media Arts or any Subsidiary of Media Arts or any
Convertible Securities of Media Arts or any Subsidiary of Media Arts
("Option Rights");
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(iii) no voting trusts or other agreements or
undertakings with respect to the voting of the Capital Stock of (A)
any Subsidiary of Media Arts or, (B) to the best knowledge of
Obligors, Media Arts;
(iv) no obligations on the part of Media Arts or
any Subsidiary of Media Arts to purchase or redeem any outstanding
shares of its Capital Stock, Convertible Securities or Option Rights;
and
(v) no agreements granting any Person any rights
of first offer or first refusal or "drag-along," "tag-along" or
similar rights with respect to any transfer of any Capital Stock,
Convertible Securities or Option Rights issued by Media Arts or any
Subsidiary of Media Arts.
(d) All shares of Capital Stock, Convertible
Securities and Option Rights that have been issued by Media Arts or any
Subsidiary of Media Arts prior to the date hereof have been issued and offered
without violation of any applicable Federal or state securities law.
(e) Neither the amendment of the Original Warrant
and the Original Notes pursuant to the Warrant and Note Amendment Agreement,
nor the issuance of the Acquired Stock as provided therein, requires or has
resulted in or caused any adjustment to the applicable share purchase price
under, or the number of shares purchasable pursuant to, any Convertible
Securities or Option Rights relating to the Capital Stock of Media Arts, other
than certain adjustments with respect to the warrants identified as the
"Dunning Warrants" and the "Hyprom Warrants" in the Disclosure Schedule
(Section 3.7).
3.8 Validity and Issuance of the Acquired Stock. Upon
the payment of the purchase price for the Acquired Stock in accordance with the
Original Warrant and Note Amendment Agreement, the Acquired Stock will be duly
and validly issued, fully paid and nonassessable.
3.9 Financial Statements. Obligors have delivered to
Lender the unaudited consolidated balance sheets of Media Arts and its
Subsidiaries as of December 31, 1996 and the related consolidated statements of
operations and stockholders' equity for the nine-month period ended December
31, 1996 (the "Consolidated Financial Statement"). The Consolidated Financial
Statement (i) is in accordance with the books and records of Media Arts and its
Subsidiaries, (ii) presents fairly the consolidated financial position of Media
Arts and its Subsidiaries as of the dates indicated and their respective
results of operations for the periods indicated, and (iii) has been prepared in
conformity with GAAP consistently applied throughout the periods indicated;
provided, that such statement is subject to normal year end adjustments and
does not include footnotes.
3.10 Material Liabilities. No Obligor, nor any Subsidiary
of any Obligor, has any liabilities or obligations, absolute or contingent
(individually or in the aggregate), except (i) liabilities and obligations
reflected in the Consolidated Financial Statement, (ii) liabilities and
obligations which have been incurred subsequent to December 31, 1996 in the
ordinary course of business and (iii) liabilities and obligations which, either
individually or in the aggregate, have not had and could not have a Material
Adverse Effect on Obligors, taken as a whole. The Disclosure Schedule (Section
3.10) contains a description of all ongoing obligations and liabilities of
Obligors with respect to discontinued operations, including the operations of
JH Texas.
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3.11 Changes. Except as set forth in the Disclosure
Schedule (Section 3.11), since December 31, 1996 there has not been:
(a) any damage, destruction or loss to any asset
of any Obligor or any Subsidiary of any Obligor, whether or not covered by
insurance, which could have a Material Adverse Effect on Obligors, taken as a
whole.
(b) any waiver by any Obligor or any Subsidiary
of any Obligor of a valuable right or of a material debt owed to it;
(c) any satisfaction or discharge of any Lien or
payment of any obligation by any Obligor or any Subsidiary of any Obligor,
except in the ordinary course of business;
(d) any change or amendment to a material
contract or arrangement by which any Obligor or any Subsidiary of any Obligor,
or any of their respective properties or assets is bound or subject;
(e) any change in the assets, liabilities,
financial condition or operations of any Obligor or any Subsidiary of any
Obligor, except changes in the ordinary course of business which individually
or in the aggregate could not have a Material Adverse Effect on Obligors, taken
as a whole.
(f) any change in the contingent obligations of
any Obligor or any Subsidiary of any Obligor, by way of Guarantee, or
otherwise, except in the ordinary course of business;
(g) any declaration or payment of any dividend or
other distribution of assets of any Obligor to its stockholders (other than
dividends of or distributions by any of Media Arts' direct Subsidiaries to
Media Arts), or the adoption or consideration of any plan or arrangement with
respect thereto;
(h) any Investment in John Hine U.K. or any of
its Subsidiaries by any Obligor;
(i) any resignation or termination or employment
of any key employee of any Obligor or any Subsidiary of any Obligor; or
(j) any other event or condition of any character
which could have a Material Adverse Effect on Obligors, taken as a whole.
3.12 Inventories. The Disclosure Schedule (Section 3.12)
contains an accurate list of each Obligor's inventory as of January 31, 1997.
All inventories of raw materials, work in process and finished goods of each
Obligor and of each Subsidiary of each Obligor consist of items of a quality
and quantity useable and saleable in the ordinary course of business, except
for such items which have been written down on the books of Obligors to fair
saleable value. The present quantities of inventories are reasonable in the
present circumstances and all items included in inventories are the property of
an Obligor or a Subsidiary of an Obligor, free and clear of all Liens other
than Permitted Liens.
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3.13 Accounts Receivable. The Disclosure Schedule
(Section 3.13) contains a summary aging of accounts receivable of Obligors as
of January 31, 1997, reflecting agings in categories of 30, 60, 90 and more than
90 days after the date of invoice. All accounts receivable of each Obligor and
of each Subsidiary of each Obligor (i) are legal, valid and binding obligations
of the parties shown on the books of the Obligors as the obligor with respect
thereto, (ii) are not subject to discount (other than as reflected in the
reserves taken in recording the accounts receivable on the books of Obligors and
their Subsidiaries, which reserves are adequate), rebate, offset, or return
privileges, and (iii) arose from valid sales in the ordinary course of business.
No Obligor is aware of any customer which has indicated an unwillingness or an
inability to pay any amount included in the accounts receivables of such
Obligor. Except as set forth in the Disclosure Schedule (Section 3.13), as of
the date hereof no Obligor places any products with third parties on consignment
or in any similar arrangement.
3.14 Accounts Payable. The Disclosure Schedule (Section
3.14) contains a summary aging of accounts payable of Obligors as of January
31, 1997, reflecting agings in categories of 30, 60, 90 and more than 90 days
after the date of invoice. All accounts payable of each Obligor and of each
Subsidiary of each Obligor are legal, valid and binding obligations of the
Obligors and were incurred in the ordinary course of business.
3.15 Labor Agreements and Actions. No Obligor and no
Subsidiary of any Obligor is bound by or subject to any written or oral,
express or implied, contract, commitment or arrangement with any labor union,
and no labor union has requested or sought to represent any of the employees,
representatives or agents of such Obligor or such Subsidiary. There is no
strike or other labor dispute involving any Obligor or any Subsidiary of any
Obligor pending or, to any Obligor's knowledge, threatened. No Obligor is aware
of any labor organization activity involving the employees of such Obligor or
any Subsidiary of such Obligor or of any officer or key employee, or any group
of officers or key employees, that intends to terminate their employment with
such Obligor or any subsidiary of such Obligor. After due inquiry of Kenneth E.
Raasch, Daniel P. Byrne, and Raymond A. Peterson, Obligors have no knowledge of
any fact or circumstance which would or could, with the passage of time or
otherwise, cause this representation and warranty to be no longer true and
correct.
3.16 Employee Benefit Plans; ERISA. All pension,
retirement, bonus, profit sharing, stock option, employee and other benefit
plans or arrangements maintained by any Obligor or any Subsidiary of any
Obligor, or to which any Obligor or any Subsidiary of any Obligor contributes or
is required to contribute, to the extent required, comply with the provisions of
and have been administered and maintained in compliance with the provisions of
ERISA and all other applicable laws.
3.17 Taxes. Each Obligor and each Subsidiary of such
Obligor has timely filed all Federal, state and other Tax returns required to
have been filed and has paid all Taxes which have become due and payable. Each
Obligor and each Subsidiary of each Obligor has withheld and paid all Taxes
required to be withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, stockholder or other third party. No
Obligor has been advised that any Tax returns, Federal, state or other, have
been or are being audited. There are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
of any Taxes or deficiency against any Obligor or any Subsidiary of any Obligor,
nor are there any actions, suits, proceedings or claims now pending against any
Obligor or any Subsidiary of any Obligor in respect of any Taxes or assessments.
There is no pending or, to Obligors' knowledge, threatened investigation of any
Obligor or any Subsidiary of any Obligor by any Federal, state, foreign or local
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authority relating to any Taxes or assessments, or any claims for additional
taxes or assessments asserted by any such authority. No Obligor is a party to
or bound by any tax sharing, tax indemnity or tax allocation agreement or other
similar arrangement.
3.18 Compliance With Charter, Laws and Contracts, etc. No
Obligor and no Subsidiary of any Obligor is in violation of any of the terms of
(i) its charter or bylaws as in effect on the date hereof, (ii) any law, rule,
regulation, or ordinance applicable to such Obligor or such Subsidiary
(including laws relating to the discharge of pollutants into the environment
and the storage and handling of hazardous materials), or any order, ruling,
judgment or decree of any court or other governmental agency binding on such
Obligor or such Subsidiary, or (iii) any indenture, mortgage, lease, contract,
agreement or instrument to which such Obligor or such Subsidiary is a party
(including, without limitation, the Kinkade License), and, in each case, there
does not exist any event or circumstance, that, with the giving of notice or
the lapse of time or both, would constitute any such violation except, in the
case of the foregoing CLAUSES (II) and (III) only, such violations which,
individually or in the aggregate would not have a Material Adverse Effect on
Obligors, taken as a whole. The Kinkade License has not been amended and is in
full force and effect in accordance with its terms, and Media Arts has
succeeded to the rights of Lightpost thereunder. Without limiting the
generality of the foregoing, there does not exist any "Event of Default" under
the terms of any of the CIT Documents nor is there any fact or circumstance
which, with the passage of time or the giving of notice or both would or could
constitute such an "Event of Default" thereunder.
3.19 Litigation; Adverse Facts. Except as set forth in
the Disclosure Schedule (Section 3.19), (i) there are no actions, suits,
proceedings or investigations at law or in equity ("Litigation") pending before
or by any Federal, state, municipal or governmental department, court, board,
bureau, agency or instrumentality or threatened against or affecting any
Obligor or any Subsidiary of any Obligor, and (ii) no Litigation, if adversely
determined, could, individually or in the aggregate have a Material Adverse
Effect on Obligors, taken as a whole, or impair the ability of Obligors to
perform fully on a timely basis any material obligation which they have or will
have under this Agreement or any Related Agreement, nor is there any judgment,
decree, injunction, rule or order of any public body against any Obligor or any
Subsidiary of any Obligor having any such effect. No Obligor is aware of any
fact or circumstance which could give rise to any Litigation which could,
individually or in the aggregate, have a Material Adverse Effect on Obligors,
taken as a whole.
3.20 Governmental Regulation. No Obligor and no
Subsidiary of any Obligor is subject to regulation under the Investment
Companies Act of 1940 or to any Federal or state statute or regulation limiting
its ability to incur Indebtedness for money borrowed or to create Liens on any
of its properties or assets to secure such Indebtedness. No Obligor and no
Subsidiary of any Obligor has extended credit for the purposes of purchasing or
carrying "margin stock" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System or Regulation U of such Board.
3.21 Licenses, Permits and Authorizations. Each Obligor,
and each Subsidiary of each Obligor, has all licenses, franchises, permits,
consents, registrations, certificates and other approvals of all governmental
or regulatory agencies, whether Federal, state or local, material to the
conduct of the business of Obligors, taken as a whole.
3.22 Properties and Assets. Each Obligor and each
Subsidiary of each Obligor has good and valid title to their respective assets,
free and clear of all Liens of any kind other than Permitted
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Liens. Each Obligor and each Subsidiary of each Obligor enjoys peaceful and
undisturbed possession of all its leasehold interests.
3.23 SEC Filings. Media Arts has made all filings
required to be made by it under the Securities Act of 1933 and the Securities
Exchange Act of 1934 and all applicable state securities laws during the one
year period prior to the date hereof. All such filings complied in all
material respects with the requirements of such Federal and state securities
laws.
3.24 Disclosure. In connection with the acquisition by
Lender of the Securities, to the best knowledge of Media Arts, none of (i) this
Agreement or any of the Related Agreements (including any Schedules hereto or
thereto) or documents delivered pursuant thereto or (ii) the reports filed by
Media Arts with the Securities and Exchange Commission pursuant to the
requirements of the Securities Exchange Act of 1934 for the period commencing
April 1, 1995 or (iii) any information conveyed to Lender by Kenneth E. Raasch
or Raymond A. Peterson since December 1, 1996 is or was, when made, untrue with
respect to any material fact or omits or omitted a material fact necessary in
order to make the statement not misleading.
3.25 Insurance. The Disclosure Schedule (Section 3.25)
lists all insurance policies of any nature maintained, as of the Closing Date,
for current occurrences by each Obligor, as well as a summary of the terms of
each such policy.
3.26 Deposit Accounts. The Disclosure Schedule (Section
3.26) lists all banks and other financial institutions at which any Obligor
maintains deposits and/or other accounts as of the Closing Date, and such
Schedule correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number.
3.27 Sources and Uses. The Disclosure Schedule (Section
3.27) contains a description of Obligors' sources and uses of funds as of the
Closing Date, including the loans of CIT and all fees, costs and expenses
relating to the transactions contemplated hereby and in the CIT Documents.
3.28 Inventory Locations. The Disclosure Schedule
(Section 3.28) lists and describes all real property leased and subleased to
each Obligor at which inventory is located, and lists the term and rent payable
thereunder. Obligors have delivered to Lender a true and complete copy of the
lease with respect to its headquarters at 521 Charcot Avenue in San Jose.
4. REPRESENTATIONS AND WARRANTIES OF LENDER. Lender hereby
represents and warrants to Obligors that the following statements are true and
correct as of the date hereof:
4.1 Organization and Good Standing. Lender is a limited
partnership, duly organized, validly existing and in good standing under the
laws of the State of California, and has all requisite power and authority to
enter into this Agreement and each Related Agreement to which it is a party and
to consummate the transactions contemplated hereby.
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4.2 Authorization. The execution, delivery and
performance of this Agreement and of each of the Related Agreements to which
Lender is a party, and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of
Lender.
4.3 Due Execution and Delivery; Binding Obligations.
This Agreement has been duly executed and delivered by Lender. This Agreement
and the Related Agreements to which Lender is a party are the legal valid and
binding obligations of Lender enforceable against Lender in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or conveyance or
similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability and except as rights of
indemnity or contribution may be limited by Federal or state securities or
other laws or the public policy underlying such laws.
4.4 No Violation. The execution, delivery and
performance by Lender of this Agreement, and of each of the Related Agreement
to which Lender is a party, and the consummation of the transactions
contemplated hereby and thereby do not violate (i) the organizational
agreements of Lender as in effect on the date hereof, (ii) any law, rule,
regulation or ordinance applicable to Lender or any order, ruling, judgment or
decree of any court or other governmental agency binding on Lender or (iii) any
term of any material indenture, mortgage, lease, agreement or instrument to
which Lender is a party.
4.5 Investment Intent. Lender is acquiring the Acquired
Stock for investment purposes and not with a view to or for sale in connection
with any distribution thereof. The foregoing notwithstanding, the disposition
of the Securities shall at all times be and remain within Lender's control, so
long as such disposition complies with applicable laws and regulations. Lender
understands that the Securities have not been registered under the Securities
Act or registered or qualified under any state securities law in reliance on
specific exemptions therefrom, which exemptions may depend upon, among other
things, the bona fide nature of Lender's investment intent as expressed herein.
4.6 Accredited Investor Status. Lender is an "accredited
investor" (as such term is defined in Rule 501 of Regulation D under the
Securities Act). By reason of its business and financial experience, Lender
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
investment in the Securities and is able to bear the economic risk of such
investment. Lender is aware of Obligors' business affairs and financial
condition and has acquired sufficient information about Obligors to reach an
informed and knowledgeable decision to acquire the Securities. Lender has had
the opportunity to ask questions and receive answers concerning Obligors which
it deems necessary to evaluate the risks and merits related to such decision.
4.7 Governmental Consents. The execution and delivery by
Lender of this Agreement and each of the Related Agreements to which it is a
party, and the consummation of the transactions contemplated hereby, do not and
will not require any authorization, registration or filing with, or consent or
approval of, any Federal, state or other governmental authority or regulatory
body other than filings under Federal and state securities laws.
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5. CLOSING CONDITIONS. The obligation of Lender to consummate
the transactions contemplated hereby is subject to the satisfaction, prior to
or at the Closing, of the following conditions; provided, that any or all of
the following conditions may be waived, in whole or in part, by Lender in its
sole and absolute discretion:
5.1 Documents and Related Materials. Lender shall have
received this Agreement duly executed by Obligors and delivered to Lender, and
all of the other documents, instruments, certificates, opinions, agreements and
other materials listed in the Schedule of Documents attached as ANNEX A, each
in form and substance satisfactory to Lender.
5.2 Warrant and Note Amendment Agreement. The
transactions described in the Warrant and Note Amendment Agreement shall have
occurred immediately prior to the issuance of the Consolidated Note, and in
connection therewith, among other things:
(a) Lender shall have acquired and shall have
received certificates evidencing the Acquired Stock; and
(b) Media Arts shall have paid the Pre-Closing
Prepayment, and all interest on the Original Notes that has accrued through and
including the Closing Date, to Lender by wire transfer of immediately available
funds.
5.3 Representations and Warranties; No Default; Other
Matters. The representations and warranties of Obligors contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date after giving effect to the transactions contemplated by this
Agreement, and there shall exist on the Closing Date, after giving effect to
such transactions, no Event of Default or Default. Obligors shall have
delivered to Lender a Closing Certificate signed by the Chief Executive Officer
and the Chief Financial Officer of each Obligor, dated the Closing Date,
satisfying the requirements of Item 3.11 of the Schedule of Documents.
5.4 Restructuring and Prepayment Fees. Media Arts shall
have paid by wire transfer of immediately available funds (i) a $150,000
restructuring fee to Levine Leichtman Capital Partners, Inc., (ii) a $11,500
prepayment fee to Lender, and (iii) all out-of-pocket costs and expenses
incurred by Lender in connection with the negotiation, documentation and
closing of the transactions contemplated herein (including the reasonable fees
and expenses of Lender's special counsel, Murphy, Weir & Butler and special
securities counsel, Riordan & McKinzie).
5.5 CIT Credit Facility. The transactions contemplated
in the CIT Documents shall have closed (and the CIT Credit Facility shall
comply with the definition of "Permitted Senior Indebtedness" as such term is
defined herein). As of the Closing Date, after giving effect to the payments
to Lender contemplated hereunder and the payment of all of the fees and costs
relating to this Agreement and the CIT Credit Facility, Borrower shall have
consolidated cash and unused borrowing availability under the CIT Credit
Facility of not less than $1,000,000 in the aggregate.
5.6 Transactions Permitted By Applicable Laws. The
consummation of the transactions contemplated hereby and in the Related
Agreements shall comply with all applicable requirements of Federal and state
securities laws. The consummation of the transaction contemplated hereby shall
not
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be prohibited by or violate any law, governmental regulation or similar
constraint and shall not subject any party to any Tax, penalty or liability,
under or pursuant to any applicable law or governmental regulation, and shall
not be enjoined (temporarily or permanently) under, or prohibited by or
contrary to, any injunction, order or decree.
5.7 No Material Adverse Effect. There shall not have
occurred any event or circumstance which, individually or in the aggregate,
could have a Material Adverse Effect on Obligors, taken as a whole.
5.8 No Material Judgment Or Order. There shall not be
any judgment or order of a court of competent jurisdiction or any ruling of any
agency of the Federal or any state or local government which, in the reasonable
judgment of Lender, would prohibit the delivery of the Securities or subject
Lender to any material penalty in connection with such delivery.
5.9 Budget For Fiscal Year Ending March 31, 1998. Lender
shall have received Media Arts' final consolidated monthly budget with respect
to the fiscal year ending March 31, 1998, including a balance sheet and income
statement and such additional information reasonably requested by Lender.
6. CONDITIONS TO THE OBLIGATIONS OF OBLIGORS. The obligation of
Obligors to consummate the transactions contemplated hereby is subject to the
satisfaction, prior to or on the Closing Date, of the following conditions;
provided, that any or all of the following conditions may be waived, in whole
or in part, by Media Arts in its sole and absolute discretion (which waiver
shall be binding on all Obligors):
6.1 Representations and Warranties. The representations
and warranties of Lender contained in this Agreement shall be true in all
material respects at and as of the Closing Date after giving effect to the
transactions contemplated by this Agreement.
6.2 Purchase Permitted By Applicable Laws. The
consummation of the transactions contemplated hereby and in the Related
Agreements shall otherwise comply with all applicable requirements of Federal
and state securities laws. The consummation of the transactions contemplated
hereby shall not be prohibited by or violate any law, governmental regulation
or similar constraint and shall not subject any party to any Tax, penalty or
liability under or pursuant to any applicable law or governmental regulation,
and shall not be enjoined (temporarily or permanently) under, or prohibited by
or contrary to, any injunction, order or decree.
6.3 No Material Judgment or Order. There shall not be
any judgment or order of a court of competent jurisdiction or any ruling of any
agency of the Federal or any state or local government which, in the reasonable
judgment of Media Arts would prohibit the delivery of the Securities or subject
any Obligor to any material penalty in connection with such delivery.
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7. COVENANTS. Obligors covenant that so long as any principal,
interest or other amounts remain outstanding under the Consolidated Note, they
will perform all of the covenants in this SECTION 7.
7.1 Payments with Respect to the Consolidated Note.
Obligors shall pay the principal of, interest on and other amounts due pursuant
to the terms of the Consolidated Note on the dates and in the manner provided
therein.
7.2 Limitation On Restricted Payments. Obligors shall
not make (whether directly or indirectly), and shall not permit any of their
Subsidiaries to make (whether directly or indirectly), any Restricted Payment.
7.3 Limitation on Liens. Obligors shall not, and shall
not permit, cause or suffer any of their respective Subsidiaries to, directly
or indirectly, create, incur, assume or suffer to exist any Lien of any kind
upon any property or assets now owned or hereafter acquired. Notwithstanding
the foregoing, the following Liens (the "Permitted Liens") may be created,
incurred, assumed and permitted to exist (all of which are described in the
Disclosure Schedule (Section 7.3) to the extent they exist as of the Closing
Date):
(a) Liens existing as of the date hereof with
respect to Capital Lease Obligations, and extensions, renewals and replacements
of such Liens, provided that any such extension, renewal or replacement Lien
shall be limited to the property or assets covered by the Lien being extended,
renewed or replaced and such new Lien shall not secure an obligation greater
than the obligation secured by the Lien being extended, renewed or replaced
immediately prior to such extension, renewal or replacement;
(b) Other Permitted Liens;
(c) Liens securing Permitted Senior Indebtedness;
(d) Liens securing Other Permitted Indebtedness;
(e) Liens granted to Lender, whether pursuant to
the Security Agreement, the Intellectual Property Assignment or otherwise,
provided, that, until such time at which the Initial Scheduled Payment has been
made, in no event may any Lien other than the Lien of Lender exist with respect
to the Tax Refund Proceeds or the Tax Refund Account.
7.4 Limitation on Indebtedness.
(a) Obligors shall not, and shall not permit,
cause or suffer any of their respective Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Indebtedness, except
for the following, all of which is described in the Disclosure Schedule
(Section 7.4) to the extent that it exists as of the Closing Date:
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(i) certain Indebtedness existing as of
the date hereof relating to Capital Lease Obligations;
(ii) Indebtedness under the Consolidated
Note;
(iii) Permitted Senior Indebtedness and
Guarantees thereof;
(iv) Indebtedness consisting of (A) trade
payables incurred in the ordinary course of business payable
to Thomas Kinkade pursuant to the Kinkade License or
otherwise or (B) other trade payables incurred in the
ordinary course in an aggregate amount of up to $150,000;
(v) Other Permitted Indebtedness;
(vi) Indebtedness owed to any other
Obligor;
(vii) the Raasch Indebtedness, but only so
long as it remains expressly subordinated to the Obligations
pursuant to the Raasch Subordination Agreement; and
(viii) the Restricted Indebtedness (and the
Disclosure Schedule (Section 7.4) shall include the amount
of accrued interest thereon).
(b) Except to the extent otherwise permitted
pursuant to the immediately preceding SECTION 7.4(A), no Obligor shall create,
incur, assume or issue, directly or indirectly, or guarantee or in any manner
become, directly or indirectly, liable for or with respect to the payment of
any Indebtedness which is subordinate or junior in right of payment to any
Permitted Senior Indebtedness of such Obligor and senior or pari passu in any
respect in right of payment or in maturity to the Consolidated Note.
7.5 Financial Covenants. Obligors shall not breach or
fail to comply with any of the Financial Covenants set forth in ANNEX B.
7.6 Limitation on Investments. Obligors shall not make
or suffer to exist, and shall not permit or cause any of their respective
Subsidiaries to, directly or indirectly, make or suffer to exist any capital
contributions, advances or loans to (including any guarantees of loans to), or
investment in or purchases of Capital Stock (other than pursuant to a
stock-for-stock exchange or pursuant to a transaction in which Capital Stock is
acquired in exchange for Indebtedness permitted under SECTION 7.4(A)) in, any
Person (collectively, "Investments"), other than (i) Permitted Investments,
(ii) Investments by any Obligor in any other Obligor, (iii) advances to
non-director employees pursuant to transactions approved by the Board of
Directors of the relevant Obligor or Subsidiary making such advance so long as
the aggregate amount of all such advances does not exceed $100,000 and no
single employee receives advances in excess of $25,000, (iv) Investments which
represent Capital Expenditures otherwise permitted hereunder, and (v)
promissory notes of Kenneth Raasch and Thomas Kinkade in favor of Media Arts in
the principal amounts of $43,000 and $45,000, respectively relating to certain
fringe benefits (provided, that Media Arts shall use its best efforts to
eliminate these items from its balance sheet as soon as possible).
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7.7 Information Covenants. Obligors shall furnish to Lender:
(a) Monthly Financial Statements. Within 30 days
after the last day of each monthly accounting period in each fiscal year (in
draft form with respect to the final monthly period of each fiscal quarter),
the consolidated and consolidating balance sheet of Media Arts as at the end of
such monthly period, and the related statements of operations, stockholders'
equity and cash flows for Media Arts for such monthly period and for the
elapsed portion of the fiscal year ended with the last day of such monthly
period, and including comparative figures for the related periods in the prior
fiscal year.
(b) Quarterly Financial Statements. Within 45
days after the close of each quarterly accounting period in each fiscal year
(other than the fourth fiscal quarter), the consolidated and consolidating
balance sheet of Media Arts as at the end of such quarterly period, and the
related statements of operations, stockholders' equity and cash flows for Media
Arts for such quarterly period and for the elapsed portion of the fiscal year
ended with the last day of such quarterly period, and including comparative
figures for the related periods in the prior fiscal year, all of which shall be
certified by the Chief Financial Officer of Media Arts subject to normal
year-end audit adjustments.
(c) Annual Financial Statements. Within 90 days
after the close of each fiscal year, the consolidated and consolidating balance
sheet of Media Arts as at the end of such fiscal year, and the related
statements of operations, stockholders' equity and cash flows for Media Arts
for such fiscal year (which consolidated financial statements shall be audited
and accompanied by an unqualified audit report from Media Arts' independent
certified public accountants, who shall be one of the six largest national
accounting firms), setting forth comparative figures for the prior fiscal year.
(d) Officer's Certificates. At the time of the
delivery of the financial statements provided for in the foregoing SECTIONS
7.7(B) AND (C), a certificate signed by the Chief Financial Officer of Media
Arts which (i) shall include computations of the Financial Covenants set forth
in ANNEX B and (ii) shall indicate, to the best knowledge of such officer,
whether or not a Default or an Event of Default has occurred during the period
covered by such financial statements and, if so, shall specify the nature and
extent thereof and indicate whether such Default or Event of Default is
continuing.
(e) Other Reports and Filings. Promptly, copies
of all financial information, proxy materials and other information and
reports, if any, which any Obligor files with the Securities and Exchange
Commission or any governmental agencies substituted therefor.
(f) Notice of Default or Litigation. Promptly,
and in any event within two Business Days after an officer of any Obligor
obtains actual knowledge thereof, notice of (i) the occurrence of any event,
act or condition which constitutes a Default or Event of Default, (ii) any
litigation or governmental proceeding pending against any Obligor or any
Subsidiary of any Obligor which could have a Material Adverse Effect on
Obligors, taken as a whole, and (iii) any other event which is likely to have
such a Material Adverse Effect.
(g) Other Information. From time to time, such
other information or documents (financial or otherwise) as Lender may
reasonably request.
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7.8 Books, Records and Inspections. Each Obligor shall, and shall
cause each of its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. Each Obligor shall, and shall cause each of
its Subsidiaries to, permit officers and designated representatives or agents
of Lender to visit and inspect any of the properties of such Obligor or such
Subsidiary of such Obligor, and to examine the books of account of such Obligor
and such Subsidiary and discuss the affairs, finances and accounts of such
Obligor and such Subsidiaries with, and be advised as to the same by, its
officers and independent accountants, all at such reasonable times and
intervals and to such reasonable extent as Lender may request; provided, that
any such visit, inspection, examination or discussion shall be during normal
business hours and shall not interfere unreasonably with such Obligor's or
Subsidiary's business; and provided further, that all confidential information
obtained pursuant to any such visit, inspection, examination or discussion
shall be treated in accordance with SECTION 11.15.
7.9 Visitation Rights for Board Meetings. Without limiting the
generality of SECTION 7.8, Lender shall also receive notice of and be entitled
to have a representative (who shall be an employee of Levine Leichtman Capital
Partners, Inc.) attend as an observer all meetings of the Boards of Directors
of each Obligor and of each Subsidiary of each Obligor and of all committees of
all such Boards of Directors. Notice of such meetings shall be given to Lender
in the same manner and at the same times as to members of such Boards of
Directors or such committees (which shall be at least 48 hours prior to such
meeting unless otherwise agreed to by Lender). Lender shall be provided with
copies of (i) a meeting agenda, if any is prepared, (ii) all information which
is provided to the members of any such Board of Directors or committee thereof
(whether prior to, at, or subsequent to any such meetings) at the same time as
such materials are provided to the members of such Boards of Directors or such
committees, as the case may be, and (iii) copies of the minutes of all such
meetings within 10 days thereafter.
7.10 Maintenance of Property, Insurance.
Each Obligor shall, and shall cause each of its Subsidiaries to (i)
keep all property useful and necessary in its business in good working order
and condition, (ii) maintain with financially sound and reputable insurance
companies insurance on all its property, and (iii) furnish to Lender, upon
written request, full information as to the insurance carried. If any Obligor
at any time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required above or to pay all premiums relating thereto,
Lender may at any time or times thereafter obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which Lender deems advisable. Lender shall have no obligation to obtain
insurance for any Obligor or pay any premiums therefor. By doing so, Lender
shall not be deemed to have waived any Default or Event of Default arising from
any Obligor's failure to maintain such insurance or pay any premiums therefor.
All sums so disbursed, including attorneys' fees, court costs and other charges
related thereto, shall be payable on demand by Obligors to Lender and shall be
additional Obligations hereunder secured by the Collateral.
7.11 Corporate Franchises; Material Rights. Each Obligor
shall, and shall cause each of its Subsidiaries to use reasonable efforts to,
do or cause to be done, all things necessary to preserve and keep in full force
and effect the existence and the material rights, franchises, agreements,
contracts,
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licenses and patents of such Obligor and each Subsidiary of such Obligor
(including, without limitation, the Kinkade License).
7.12 Compliance With Law. Each Obligor shall, and shall
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to ERISA and labor matters, and
environmental standards and controls).
7.13 Taxes. Each Obligor shall, and shall cause each of
its Subsidiaries to, pay when due all Taxes, except as contested in good faith
and by appropriate proceedings if adequate reserves (in the good faith judgment
of the management of such Obligor) have been established with respect thereto.
7.14 Transactions With Affiliates. Except for the
transactions described in the Disclosure Schedule (Section 7.14), and except
for renewals and extensions of existing licensing agreements on terms no less
favorable to Obligors than the existing agreements (without any implication
that any such transactions or agreements would otherwise violate this
covenant), Obligors shall not make or suffer to exist, and shall not permit or
cause any of their respective Subsidiaries to, directly or indirectly, make or
suffer to exist, any transaction with any Affiliate on terms that are less
favorable to such Obligor or such Subsidiary than those that might be obtained
in an arm's length transaction at the time from a Person who is not an
Affiliate.
7.15 Restriction On Fundamental Changes; Right of First
Refusal. No Obligor shall (i) enter into any merger or consolidation, except
in a transaction solely involving another Obligor, (ii) liquidate, wind-up or
dissolve, (iii) convey, lease, sell, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or substantially all of such
Obligor's business or assets, except in a transaction solely involving another
Obligor, (iv) change its capital or legal structure or amend its charter or
by-laws, in each case in any way that would have an adverse impact on Lender,
or (v) issue, or reserve for issuance, pursuant to employee equity incentive
plans, Common Stock which, in the aggregate (including shares issued prior to
the date hereof pursuant to such equity incentive plans), exceeds 10% of the
outstanding Capital Stock of Media Arts. Media Arts shall not issue any equity
securities in a private placement for cash unless Lender is offered a right to
participate in such private placement to the extent necessary to maintain
Lender's equity interest in Media Arts computed on a fully diluted basis.
7.16 ERISA. Each Obligor shall deliver to Lender
promptly, but in no event more than three Business Days after any executive
officer of such Obligor obtains knowledge of the occurrence of any "reportable
event," as such term is defined in Section 4043 of ERISA, or "prohibited
transaction", as such term is defined in Section 4975 of the Internal Revenue
Code of 1986, in connection with any plan or trust thereunder, a written notice
specifying the nature thereof, what action such Obligor has taken, is taking or
proposes to take with respect thereto and a copy of any notice delivered by
such Obligor to the Pension Benefit Guaranty Corporation with respect thereto,
and, when known, any further action taken or threatened by the Internal Revenue
Service, the Department of Labor or the Pension Benefit Guaranty Corporation
with respect thereto.
7.17 Amendments to Documents Relating to Permitted Senior
Indebtedness. Without the prior written consent of Lender, Obligors shall not
amend any CIT Document (or any other agreement
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relating to Permitted Senior Indebtedness to which any Obligor may be a party
at any time) to (i) provide for a term loan or other credit facility which
requires scheduled or other principal payments of principal prior to the stated
maturity of such loan or facility, (ii) provide for any overformula (meaning an
amount in excess of the borrowing base provided therein) or other overadvance
or similar facility (except to the extent expressly permitted pursuant to a
written agreement between Lender and the holder of the relevant Permitted
Senior Indebtedness), or (iii) provide for an increase in the interest rate or
aggregate commitment or an increase in the applicable lending percentages to a
level greater than the levels provided in the definition of "Permitted Senior
Indebtedness." Obligors shall promptly notify Lender of any permitted
amendment, extension, waiver, or modification entered into or given under the
CIT Documents or any other agreement relating to Permitted Senior Indebtedness,
and of any negotiations or discussions with respect thereto, and shall provide
Lender with detailed information concerning any Indebtedness incurred by any
Obligor for the purpose of refinancing the Indebtedness of such Obligor under
the CIT Documents or any other Permitted Senior Indebtedness.
7.18 Notice of Agreements Affecting Stock. Media Arts
shall give Lender prompt notice of any of the following agreements of which
Media Arts becomes aware after the date hereof to which any of the securities
holders of Media Arts is or becomes a party: voting agreements, voting trusts,
irrevocable proxies or other agreements affecting the voting rights of shares
of the Capital Stock of Media Arts or any agreements to which any Obligor is a
party or by which it is bound providing for any call or put option, right of
first refusal or offer or other rights to acquire or dispose of any shares of
the Capital Stock of Media Arts or any Convertible Securities or Option Rights.
7.19 Segregation of Funds. So long as the principal
balance of the Consolidated Note is equal to or greater than $5,400,000, Media
Arts shall maintain a separate bank account, in its name, and shall use its
reasonable efforts to deposit into such account each Friday during each month
funds such that the amount on deposit in such account equals or exceeds the
aggregate amount of all accrued but unpaid interest on the Consolidated Note as
of such date (and, to the extent any principal payments are required to be made
on or prior to the last day of such month, such deposits shall also include a
pro rata amount of such principal payment, determined such that the entire
principal payment will be on deposit as of the last day of such month). Media
Arts shall notify Lender within two Business Days if at any time it withdraws
any amounts from such account for any reason, the result of which is that the
amount in such account is less than the aggregate amount of accrued but unpaid
interest with respect to the Consolidated Note as of the date on which the most
recent deposit was required to be made.
7.20 Restrictions on Payments On Account of Restricted
Indebtedness. Notwithstanding anything to the contrary herein, Obligors may
not make any payment on account of the Restricted Indebtedness without the
written consent of Lender. Any settlement of any of the Restricted
Indebtedness shall include complete mutual releases that extend to all Obligors
and all of their respective Subsidiaries and Affiliates, and notice thereof
(together with the relevant documentation) shall promptly be given to Lender in
writing.
7.21 Certain Matters Regarding the Tax Refund Proceeds and
Related Tax Return. Media Arts shall (i) file its Federal tax return for the
fiscal year ended March 31, 1997 no later than June 30, 1997 (and shall notify
Lender in writing immediately upon such filing and provide Lender with a copy
of such tax return), (ii) use its best efforts to cause the Tax Refund Proceeds
to be paid to it as soon as possible, (iii) take all steps necessary to ensure
that Lender has a first priority Lien on the Tax Refund Account and upon the
Tax Refund Proceeds, and that the Tax Refund Account and Tax Refund
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Proceeds are not subject to any other Lien except as otherwise permitted
pursuant to the PROVISO to SECTION 7.3, (iv) cause the Tax Refund Proceeds to
be deposited directly into the Tax Refund Account (or if it cannot have the Tax
Refund Proceeds direct-deposited, deposit the Tax Refund Proceeds into the Tax
Refund Account immediately upon receipt thereof), (v) immediately provide
Lender with any material information Media Arts may receive or learn of
regarding the anticipated receipt of the Tax Refund Proceeds or any delays or
potential delays relating thereto, and (vi) immediately notify Lender via
facsimile of the receipt of the Tax Refund Proceeds. Once the Initial
Scheduled Payment has been made, Media Arts shall transfer the balance
remaining in the Tax Refund Account, if any, to any other of its deposit
accounts and may close the Tax Refund Account (or use it for some other
purpose).
7.22 Change of Fiscal Year. No Obligor shall change its
Fiscal Year.
7.23 Key Person Life Insurance. Obligors shall maintain
"key person" life insurance policies with respect to Thomas Kinkade (in an
amount of not less than $5,000,000) and Kenneth Raasch (in an amount of not
less than $1,000,000), and shall assign such policies to Lender; provided that
any such assignment may be junior and subject to an assignment of such policies
as security for any Permitted Senior Indebtedness.
7.24 Further Assurances. Each Obligor shall, at its cost
and expense, upon request of Lender, duly execute and deliver, or cause to be
duly executed and delivered, to Lender such further instruments and do and
cause to be done such further acts as may be necessary or proper in the
reasonable opinion of Lender to carry out more effectually the provisions and
purposes of this Agreement or any Related Agreement.
8. COVENANTS RELATING TO ACQUIRED STOCK. Media Arts covenants
that, as long as at least 500,000 shares of Acquired Stock (i) continue to
constitute Registrable Securities, as such term is defined in the Registration
Rights Agreement, and (ii) are held by Lender, Media Arts shall (i) deliver to
Lender the information and reports described in SECTION 7.7; (ii) extend to
Lender the visitation and inspection rights set forth in SECTION 7.9; and (iii)
honor the covenants set forth in SECTION 7.8, SECTIONS 7.10 through 7.14,
inclusive, SECTION 7.16 and SECTION 7.18 hereof. The benefits of this SECTION
8 are for the sole benefit of Lender and are not assignable to any Transferee
of any Registrable Securities.
9. INDEMNIFICATION.
9.1 Transfer Taxes. Obligors shall pay any and all
stamp, transfer and other similar taxes (together in each case with interest
and penalties, if any) payable or determined to be payable in connection with
the execution and delivery of this Agreement or the issuance of the Securities
and shall hold Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission to pay, such
taxes.
9.2 Losses. Whether or not the transactions contemplated
by this Agreement are consummated, Obligors, jointly and severally, shall
indemnify Lender, its Affiliates, and its employees, officers, directors,
agents, attorneys, successors and assigns (the "Indemnified Parties") against,
and hold each Indemnified Party harmless from, all losses, claims, damages,
liabilities, expenses and costs,
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including without limitation, the costs of preparing for, and attorneys' fees
and other fees and expenses incurred in, investigating or defending any matter
(collectively, "Losses") incurred by such Indemnified Party (i) in connection
with or arising from any breach of any warranty, or the inaccuracy of any
representation made by any Obligor or the failure of any Obligor to fulfill any
of its agreements or undertakings under this Agreement or any Related Agreement
(or any other document or instrument executed herewith or pursuant hereto) or
the transactions to which they relate, or (ii) pursuant to any investigation or
proceeding against any Obligor or any Indemnified Party brought by any
third-party, arising out of or in connection with this Agreement or any Related
Agreement (or any other document or instrument executed herewith or pursuant
hereto) or the transactions to which they relate. Obligors shall either pay
directly all Losses which they are required to pay hereunder or shall reimburse
any Indemnified Party within 10 days after any request for such payment. The
obligation of Obligors to the Indemnified Parties hereunder shall be separate
obligations to each Indemnified Party, and the liability of Obligors to such
Indemnified Parties hereunder shall not be extinguished solely because any
Indemnified Party is not entitled to indemnity hereunder. The obligations of
Obligors under this SECTION 9.2 shall survive the payment or prepayment of the
Consolidated Note, at maturity, upon redemption or otherwise, any transfer of
the Consolidated Note or any interest therein and the termination of this
Agreement and the Related Agreements.
9.3 Indemnification Procedures. Any Person entitled to
indemnification hereunder shall (i) give prompt written notice to Obligors of
any claim with respect to which it seeks indemnification and (ii) permit
Obligors to assume the defense of such claim with counsel reasonably
satisfactory to the relevant Indemnified Party; provided, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a)
Obligors have agreed to pay such fees or expenses, (b) Obligors have failed to
assume the defense of such claim or to employ counsel reasonably satisfactory
to such Person within 10 days of the written notice of such claim to Obligors
or (c) in the reasonable judgment of any such Person, based upon the written
advice of counsel, a conflict of interest may exist between such Person and
Obligors with respect to such claim (in which case, if the Person notifies
Obligors in writing that such Person elects to employ separate counsel at the
expense of Obligors, Obligors shall not have the right to assume the defense of
such claim on behalf of such Person). No Obligor will be subject to any
liability for any settlement made without its consent (but such consent may not
be unreasonably withheld). No Indemnified Party may, without the consent
(which consent will not be reasonably withheld) of each Obligor consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
Obligor of a release from all liability in respect of such claim or litigation.
9.4 Contribution. If the indemnification provided for in
SECTION 9.2 is unavailable to Lender or any other Indemnified Party in respect
of any Losses, then Obligors, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of Obligors, on the one hand, and such Indemnified Party on the
other, in connection with the actions, statements or omissions which resulted
in such Losses, as well as any other relevant equitable considerations. The
relative fault of Obligors, on the one hand, and such Indemnified Party, on the
other, shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been taken by, or relates to information supplied by, either Obligors or such
Indemnified Party, and
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the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent any such action, statement or omission. The parties
hereto agree that it would not be just and equitable if contribution pursuant
to this SECTION 9.4 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to above. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
10. DEFAULTS AND REMEDIES.
10.1 Events of Default. An "Event of Default" occurs if:
(a) Obligors fail to make any payment of
principal on the Consolidated Note when due, whether at maturity, upon
prepayment, acceleration, or otherwise;
(b) Obligors fail to make any payment of accrued
interest with respect to the Consolidated Note within five Business Days after
such payment becomes due, whether such payment is a regularly scheduled monthly
payment or otherwise;
(c) any Obligor fails to comply with (A) any of
the agreements or covenants contained in SECTIONS 7.2, 7.3, 7.4, 7.5, 7.6, 7.9,
7.15, 7.17, 7.20, or 7.21 hereof and such failure continues for a period of
more than ten days, or (B) any of the other agreements or covenants in, or
provisions of, this Agreement, the Consolidated Note, or any other Related
Agreement and the failure continues for a period of 30 days after such failure
is known to any Obligor; provided, that any failure of any Obligor to comply
with the agreements or covenants in SECTION 7.19 shall in no event be or become
an Event of Default;
(d) any representation or warranty made by any
Obligor under, relating to or in connection with this Agreement or any Related
Agreement shall be false or misleading in any material respect when made;
(e) any Permitted Senior Indebtedness is declared
to be due and payable prior to its stated maturity, or an event of default
shall occur with respect to any Permitted Senior Indebtedness;
(f) any Indebtedness of any Obligor or any
Subsidiary of any Obligor for borrowed money having an outstanding principal
amount of $100,000 or more under one or more agreements (but excluding the
Restricted Indebtedness), whether such Indebtedness now exists or shall
hereafter be created, is declared to be due and payable prior to its stated
maturity;
(g) any judgment or order for the payment of
money in excess of $500,000 shall be rendered against any Obligor or any
Subsidiary of any Obligor and shall not be discharged or paid and either (A) an
enforcement proceeding shall have been commenced by any creditor upon such
judgment or order or (B) there shall be any period of 30 consecutive days,
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
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(h) any material provision of any the Security
Agreement or the Intellectual Property Assignment shall for any reason cease to
be valid or enforceable in accordance with its terms, the Security Agreement or
the Intellectual Property Agreement shall be repudiated, revoked, renounced or
terminated, including by operation of law, or any Lien created under the
Security Agreement or the Intellectual Property Assignment shall cease to be a
valid and perfected Lien, second in priority only to the Lien of CIT granted
pursuant to the CIT Documents (or the Lien of any other holder of Permitted
Senior Indebtedness) except as otherwise provided in the Security Agreement or
the Intellectual Property Assignment with respect to any material portion of
the Collateral purported to be covered thereby and such condition continues for
a period of 30 days; provided, that with respect to the Tax Refund Account and
the Tax Refund Proceeds, Lender's lien shall be a first priority Lien until the
Initial Scheduled Payment has been made.
(i) any Obligor or any Subsidiary of any Obligor
pursuant to or within the meaning of any Bankruptcy Law commences a voluntary
case or proceeding, consents to the entry of an order for relief against it in
an involuntary case or proceeding, consents to the appointment of a Custodian
of it or for all or substantially all of its property, makes a general
assignment for the benefit of its creditors, or generally is unable to pay its
debts as they become due; or
(j) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that is for relief against any Obligor
or any Subsidiary of any Obligor in an involuntary case or proceeding, appoints
a Custodian of any Obligor or any Subsidiary of any Obligor or for all or
substantially all of its property, or orders the liquidation of any Obligor or
any Subsidiary of any Obligor.
10.2 Acceleration. If an Event of Default (other than an
Event of Default specified in CLAUSE (i) or (j) of SECTION 10.1) occurs and is
continuing, Lender, by written notice to Obligors, may declare all unpaid
principal of and accrued interest on the Consolidated Note to be due and
payable as specified below. Upon a declaration of acceleration, such principal
and accrued interest shall become immediately due and payable. If an Event of
Default specified in CLAUSE (i) or (j) of SECTION 10.1 occurs, all principal of
and interest on the Consolidated Note then outstanding shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of Lender.
10.3 Other Remedies. If any Event of Default shall occur
and be continuing, Lender may, subject to the restrictions set forth in the CIT
Subordination Agreement, proceed to protect and enforce its rights under this
Agreement and the Consolidated Note by exercising such remedies as are
available in respect thereof under this Agreement under applicable law, either
by suit in equity or by action at law, or both, whether for the collection of
the payment of principal of or interest on the Consolidated Note or to enforce
the specific performance of any covenant or other agreement contained in this
Agreement. No remedy conferred in this Agreement upon Lender is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
10.4 Waiver of Past Defaults. Lender, by notice to
Obligors, may waive an existing Default or Event of Default and its
consequences with respect to the Consolidated Note; provided, that no such
waiver will extend to any subsequent or other Default or Event of Default or
impair any right of Lender which may arise as a result of such Default or Event
of Default.
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11. MISCELLANEOUS.
11.1 Payments. Before disposing of the Consolidated Note
or any portion thereof, Lender shall make a notation thereon (or on a schedule
attached thereto) of the amount of all payments previously made with respect
thereto.
11.2 Consent to Amendments. This Agreement may be amended
and any Obligor may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, if, and only if, prior to taking any
such action or omitting to perform any such act, Obligors shall have obtained
the written consent of Lender to such amendment, action, or omission to act.
No course of dealing between any Obligor and Lender nor any delay in exercising
any rights hereunder or under the Securities shall operate as a waiver of any
rights of any Holder thereof.
11.3 Form, Registration, Transfer and Exchange of
Securities; Lost Securities. Media Arts shall keep at its principal office a
register in which it shall provide for the registration of the Securities and
of transfers thereof or any portion thereof. Upon surrender for registration
of transfer of the Securities at such principal office in accordance with the
provisions hereof, Obligors shall, at their expense and within three Business
Days of such surrender, execute and deliver one or more new Securities of like
tenor and of a like aggregate principal amount, in the case of the Consolidated
Note, and a like aggregate number of shares of Common Stock, in the case of the
Acquired Stock, which new Securities shall be registered in the name of the
relevant Transferee or Transferees. At the option of the Holder (or nominee)
of any Security, such Security may be exchanged for a Security of like tenor
and of a like aggregate principal amount, in the case of any Note, and a like
aggregate number of shares of Common Stock, in the case of the Acquired Stock,
in each case, upon surrender of the Security to be exchanged at the principal
office of Media Arts. Whenever any Security is so surrendered for exchange,
the Obligors shall, at their expense and within three Business Days of such
surrender, execute and deliver the Security which the holder making the
exchange is entitled to receive. Every Security surrendered for registration
of transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder or such holder's attorney
duly authorized in writing. Any note issued in exchange for any note or upon
transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from any Holder (or nominee) of any
Security and, in the case of any loss, theft or destruction, upon receipt of an
indemnity agreement, or other indemnity reasonably satisfactory to the Obligors
from such holder, or in the case of any mutilation, upon surrender and
cancellation of such Security, the Obligors shall, within three Business Days
of such receipt or surrender, make and deliver a new Security, of like tenor,
in lieu of the lost, stolen, destroyed or mutilated Security.
11.4 Persons Deemed Owners; Participation. Prior to due
presentment for registration of transfer, Obligors may treat the Person in
whose name any Security is registered as the owner and Holder of such Security
for all purposes whatsoever, and Obligors shall not be affected by notice to
the contrary. Subject to the preceding sentence and to the provisions of
SECTION 11.8, any Holder may from time to time grant participation in all or
any part of such Security to any Person on such terms and conditions as may be
determined by such Holder in its sole and absolute discretion.
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11.5 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained herein or made
in writing by or on behalf of Obligors pursuant to or in connection herewith
shall survive the execution and delivery of this Agreement, the issuance and
delivery of the Consolidated Note and the issuance, sale and delivery of the
Acquired Stock, the Closing and any investigation by Lender.
11.6 Entire Agreement. This Agreement and the Related
Agreements constitute the full and entire agreement and understanding between
Lender and the Companies, and supersede all prior agreements and understandings
relating to the subject matter hereof, including, without limitation (i) the
Existing Purchase Agreement and (ii) the letter agreement dated February 6,
1997 by and between Media Arts and Lender.
11.7 Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
11.8 Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee). Lender may assign any
of its rights under this Agreement to any Transferee in connection with any
assignment of all or any portion of any Security and upon such assignment such
Transferee shall be entitled to all of the rights of Lender hereunder (except
for the rights and benefits granted in SECTION 8) and under any applicable
Related Agreement to the same extent as if such Transferee were an original
party hereof; provided, that Lender may not assign any of its rights hereunder
or under the Consolidated Note to any direct competitor of any Obligor.
Notwithstanding any other provision of this Agreement and the Related
Agreements, (i) the visitation and information rights set forth in SECTION 7.9
shall inure to the sole and exclusive benefit of Lender and may not be assigned
or delegated by Lender to any other Person, (ii) in the event of any transfer
to a Transferee of any but not all of the Securities (to the extent the Holders
thereof retain rights under this Agreement), the rights conferred under
SECTIONS 10.4 and 11.2, and the rights of Lender to waive any conditions or
covenants set forth in this Agreement shall be exercised solely and exclusively
by Lender and Lender's determination shall bind Lender and all such other
Transferees and (iii) Obligors shall at no time be obligated to give notices or
provide information hereunder to more than an aggregate of five Holders.
11.9 Notices. Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any party by another party, or whenever any party desires to give or serve
upon another party any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered:
(a) upon the earlier of actual receipt and three
(3) days after deposit in the United States Mail, registered or certified mail,
return receipt requested, with proper postage prepaid;
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(b) upon transmission, when sent by telecopy or
other similar facsimile transmission (with such telecopy or facsimile promptly
confirmed by telecopy answerback);
(c) one Business Day after deposit with a
reputable overnight courier with all charges prepaid; or
(d) when delivered, if hand-delivered by
messenger,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated below or to such other address (or
facsimile number) as may be substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice.
(i) If to Lender, at:
c/o Levine Leichtman Capital Partners, Inc.
345 North Maple Drive, Suite 304
Beverly Hills, CA 90210
Attention: Arthur E. Levine, President
Telecopy: (310) 275-1441
with a copy to:
Murphy, Weir & Butler
2049 Century Park East, Suite 2100
Los Angeles, CA 90067
Attention: Jean B. LeBlanc, Esq.
Telecopy: (310) 788-3777
(ii) If to Obligors, at:
Media Arts Group, Inc.
521 Charcot Avenue
San Jose, CA 95131
Attention: Chief Executive Officer
Telecopy: (408) 232-4821
with a copy to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Attention: Ora T. Fruehauf, Esq.
Telecopy: (415) 395-8095
11.10 Accounting Terms. For purposes of this Agreement,
all accounting terms not otherwise defined herein shall have the meanings
assigned to them by GAAP and all accounting
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determinations hereunder or pursuant hereto shall be made, and all financial
statements required to be delivered by Obligors hereunder shall be prepared in
accordance with GAAP applied on a consistent basis.
11.11 Descriptive Headings. The descriptive headings of
the several paragraphs of this Agreement are for convenience of reference only
and do not constitute a part of this Agreement and are not to be considered in
construing or interpreting this Agreement.
11.12 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.
11.13 Remedies. In the event that any Obligor fails to
observe or perform any covenant or agreement to be observed or performed under
this Agreement or any Related Agreement, Lender may proceed to protect and
enforce its rights by suit in equity or action at law, whether for specific
performance of any term contained in this Agreement or any Related Agreement or
for an injunction against the breach of any such term or in aid of the exercise
of any power granted in this Agreement or any Related Agreement or to enforce
any other legal or equitable right, or to take any one or more of such actions.
Except as otherwise provided in the Consolidated Note with respect to the costs
of collection and enforcement thereof, and as provided in SECTION 11.14 hereof
with respect to certain specific proceedings, in the event of any litigation
relating to this Agreement or any Related Agreement, each party shall bear its
own fees, costs, and expenses, including without limitation fees and expenses
of attorneys and accountants and, all fees, costs and expenses of appeals.
None of the rights, powers or remedies conferred under this Agreement shall be
mutually exclusive, and each such right, power or remedy shall be cumulative
and in addition to any other right, power or remedy whether conferred by this
Agreement or now or hereafter available at law, in equity, by statute or
otherwise.
11.14 Payment of Fees and Expenses. The Companies shall
pay third party service providers directly, or shall reimburse Lender upon
demand for, all out-of-pocket costs and expenses of every type and nature in
connection with: (i) the preparation, negotiation, execution and delivery of
this Agreement and the Related Agreements, and any amendment, waiver,
supplement, consent or release relating hereto or thereto and the documents and
instruments referred to herein and therein, (ii) exercising any rights of any
kind under or relating to the rights and benefits granted in this Agreement or
any Related Agreement, including without limitation the taking of any action to
protect, collect or enforce the Consolidated Note or Lender's rights with
respect to this Agreement, or the Collateral, whether or not such costs or
expenses are incurred in connection with a lawsuit, arbitration or other
proceeding (including a bankruptcy or other insolvency proceeding and in any
appellate proceedings), provided, however that Lender shall be entitled to such
reimbursement in connection with any lawsuit, arbitration or other proceeding
only if Lender substantially prevails on its claims, (iii) in connection with
any refinancing or restructuring of the Consolidated Note in the nature of a
"work out" or in any insolvency or bankruptcy proceeding, (iv) in connection
with monitoring or administering Lender's investment in Obligors or otherwise
evaluating, observing or assessing Obligors or their affairs, including any
audits, inspections or appraisals, provided, however, that Obligors shall be
responsible for not more than $50,000 per fiscal year of expenses pursuant to
this CLAUSE (IV), except in the event that any Obligor is involved in a
bankruptcy or other insolvency proceeding, in which case such $50,000 limit
will not apply, (v) verifying or perfecting any security interest granted to
Lender, or (vi) any effort by Lender to protect, assemble, complete, collect,
sell, liquidate or otherwise dispose of
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any Collateral, including in connection with a case under any Federal, state or
foreign bankruptcy or other similar insolvency law and including, in each of
the foregoing cases, the attorneys' and other professional and service
providers' fees and costs arising from such services.
11.15 Confidentiality. Lender agrees to keep confidential
any information provided to it hereunder and to use such information only in
connection with Lender's review of Obligors' operations. Lender shall not,
directly or indirectly, publish or disclose any such information to any Person
and shall take all necessary actions and precautions to protect the
confidentiality of such information; provided, however, that nothing herein
shall be construed to prevent Lender from disclosing any portion of such
information:
(a) to any of Lender's employees, agents,
attorneys, accountants, partners, affiliates, or others affiliated with Lender
who have a need to know and are informed of the confidential nature of such
information and of Lender's obligation to protect the confidentiality of such
information as provided in this SECTION 11.15;
(b) upon the order or request of any court or
administrative agency or as otherwise required by law;
(c) that is in the public domain by reason of
prior publication not attributable to any act or omission of Lender or any of
its partners, officers, agents, representatives or employees;
(d) that has been obtained from any Person (other
than any Affiliate of Lender) who was not similarly bound;
(e) in connection with (but only to the extent
necessary for) the exercise of any remedy hereunder or, as determined in
Lender's sole judgment, under any Related Agreement; or
(f) with the consent of Media Arts.
If Lender is ordered or required to disclose information pursuant to CLAUSE (b)
of the preceding sentence, Lender shall, within two Business Days of actual
knowledge thereof, notify Media Arts of such order or requirement and the terms
thereof prior to such disclosure and shall cooperate to the extent practicable
to minimize the disclosure of such information and shall use reasonable efforts
to obtain proprietary or confidential treatment of such information by such
court or administrative agency, and will, to the extent such remedies are
available, seek protective orders limiting the dissemination and use of the
information. This Agreement does not alter the rights of Media Arts to
challenge any law requiring any such disclosure. The confidentiality
obligations of Lender shall remain in full force and effect for a period
expiring on the second anniversary of such date that it is no longer is
eligible to receive non-public information hereunder.
11.16 Conflict of Terms. Except as otherwise provided in
this Agreement or any of the Related Agreements by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of
the Related Agreements, the provision contained in this Agreement shall govern
and control.
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11.17 Agreement to Subordinate. Lender hereby covenants to
(i) subordinate the Consolidated Note to any Permitted Senior Indebtedness
incurred by any Obligor (other than Indebtedness incurred pursuant to the CIT
Documents) on customary and reasonable terms and conditions and (ii) upon
request, execute any and all documents necessary to evidence such subordination
at any time.
11.18 Reinstatement. This Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against any Obligor for liquidation or reorganization, should any Obligor
become insolvent or make an assignment of the benefit of any creditor or
creditors or should a Custodian be appointed for all or any significant part of
any Obligor's assets, and shall continue to be effective or to be reinstated,
as the case may be, if at any time payment and performance of the Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
11.19 No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement and the
Related Agreements to which they are a party. In the event an ambiguity or
question of intent or interpretation arises, such documents shall be construed
as if drafted jointly by the parties hereto who are parties thereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of any such document.
11.20 GOVERNING LAW. THIS AGREEMENT AND EACH OF THE
RELATED AGREEMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO AGREEMENTS MADE IN AND TO BE PERFORMED IN THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES.
11.21 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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<PAGE> 45
12. CROSS-GUARANTY.
12.1 Cross-Guaranty. Each Obligor hereby agrees that such
Obligor is jointly and severally liable for, and hereby absolutely and
unconditionally guarantees to Lender and its successors and assigns, the full
and prompt payment (whether at stated maturity, by acceleration or otherwise)
and performance of, all Obligations owed or hereafter owing to Lender by each
other Obligor. Each Obligor agrees that its guaranty obligation hereunder is a
continuing guaranty of payment and performance and not of collection, and that
its obligations under this SECTION 12 shall be absolute and unconditional,
irrespective of, and unaffected by,
(a) the genuineness, validity, regularity,
enforceability or any future amendment of, or change in, this Agreement, any
Related Agreement or any other agreement, document or instrument to which any
Obligor is or may become a party;
(b) the absence of any action to enforce this
Agreement (including this SECTION 12) or any Related Agreement or the waiver or
consent by Lender with respect to any of the provisions thereof;
(c) the existence, value or condition of, or
failure to perfect its Lien against, any security for the Obligations or any
action, or the absence of any action, by Lender in respect thereof (including
the release of any such security);
(d) the insolvency of any Obligor; or
(e) any other action or circumstances which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor,
it being agreed by each Obligor that its obligations under this SECTION 12
shall not be discharged until the payment and performance, in full, of the
Obligations has occurred. Each Obligor shall be regarded, and shall be in the
same position, as principal debtor with respect to the Obligations guaranteed
hereunder.
12.2 Waivers by Obligors. Each Obligor expressly waives
all rights it may have now or in the future under any statute, or at common
law, or at law or in equity, or otherwise, to compel Lender to marshall assets
or to proceed in respect of the Obligations guaranteed hereunder against any
other Obligor, any other party, or against any security for the payment and
performance of the Obligations before proceeding against, or as a condition to
proceeding against, such Obligor. It is agreed among each Obligor and Lender
that the foregoing waivers are of the essence of the transaction contemplated
by this Agreement and the Related Agreements and that, but for the provisions
of this SECTION 12 and such waivers, Lender would decline to enter into this
Agreement.
12.3 Benefit of Guaranty. Each Obligor agrees that the
provisions of this SECTION 12 are for the benefit of Lender and its successors,
transferees, endorsees and assigns, and nothing herein contained shall impair,
as between any other Obligor and Lender, the obligations of such other Obligor
under this Agreement and the Related Agreements.
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<PAGE> 46
12.4 Subordination of Subrogation, Etc. Notwithstanding
anything to the contrary in this Agreement or in any Related Agreement, and
except as set forth in SECTION 12.8, each Obligor hereby expressly and
irrevocably subordinates to payment of the Obligations any and all rights at
law or in equity to subrogation, reimbursement, exoneration, contribution,
indemnification or set off and any and all defenses available to a surety,
guarantor or accommodation co-obligor until the Obligations are indefeasibly
paid in full in cash. Each Obligor acknowledges and agrees that this waiver is
intended to benefit Lender and shall not limit or otherwise affect such
Obligor's liability hereunder or the enforceability of this SECTION 12, and
that Lender and its successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this SECTION 12.
12.5 Election of Remedies. If Lender may, under
applicable law, proceed to realize its benefits under this Agreement or any
Related Agreements giving Lender a Lien upon any Collateral, whether owned by
any Obligor or by any other Person, either by judicial foreclosure or by
non-judicial sale or enforcement, Lender may, at its sole option, determine
which of its remedies or rights it may pursue without affecting any of its
rights and remedies under this SECTION 12. If, in the exercise of any of its
rights and remedies, Lender shall forfeit any of its rights or remedies,
including its right to enter a deficiency judgment against any Obligor or any
other Person, whether because of any applicable laws pertaining to "election of
remedies" or the like, each Obligor hereby consents to such action by Lender
and waives any claim based upon such action, even if such action by Lender
shall result in a full or partial loss of any rights of subrogation which each
Obligor might otherwise have had but for such action by Lender. Any election
of remedies which results in the denial or impairment of the right of Lender to
seek a deficiency judgment against any Obligor shall not impair any other
Obligor's obligation to pay the full amount of the Obligations. In the event
Lender shall bid at any foreclosure or trustee's sale or at any private sale
permitted by law or this Agreement or any Related Agreements, Lender may bid
all or less than the amount of the Obligations and the amount of such bid need
not be paid by Lender but shall be credited against the Obligations. The
amount of the successful bid at any such sale, whether Lender or any other
party is the successful bidder, shall be conclusively deemed to be the fair
market value of the Collateral and the difference between such bid amount and
the remaining balance of the Obligations shall be conclusively deemed to be the
amount of the Obligations guaranteed under this SECTION 12, notwithstanding
that any present or future law or court decision or ruling may have the effect
of reducing the amount of any deficiency claim to which Agent or any Lender
might otherwise be entitled but for such bidding at any such sale. In
addition, each Obligor waives all rights and defenses arising out of an
election of remedies by Lender, even though the election of remedies, such as a
nonjudicial foreclosure with respect to security for the Obligations, has
destroyed any Obligor's rights of subrogation and reimbursement against the
principal by the operation of Section 580d of the California Code of Civil
Procedure or otherwise.
12.6 Additional Real Property Waivers. Each Obligor
waives all rights and defenses that it may have because the Obligations are
secured by real property. This means, among other things: (i) Lender may
collect from such Obligor without first foreclosing on any real or personal
property collateral pledged by any other Obligor; and (ii) if Lender forecloses
on any real property collateral pledged by any Obligor, (A) the amount of the
Obligations may be reduced only by the price for which that collateral is sold
at the foreclosure sale, even if the collateral is worth more than the sale
price, and (B) Lender may collect from such Obligor even if Lender, by
foreclosing on the real property collateral, has destroyed any right such
Obligor may have to collect from any other Obligor. This is an unconditional
and irrevocable waiver of any rights and defenses each Obligor may have because
the Obligations are secured by real property. These rights and defenses
include, but are not limited to, any
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rights or defenses based upon Section 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure.
12.7 Limitation. Notwithstanding any provision herein
contained to the contrary, each Obligor's liability under this SECTION 12
(which liability is in any event in addition to any Advances (as defined below)
that were made to such Obligor) shall be limited to an amount not to exceed as
of any date of determination the greater of:
(a) the net amount of all Advances to any other
Obligor that were re-loaned or otherwise transferred to, or for the benefit of,
such Obligor; and
(b) the amount which could be claimed by Lender
from such Obligor under this SECTION 12 without rendering such claim voidable
or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under
any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law after taking into account,
among other things, such Obligor's right of contribution and indemnification
from each other Obligor under SECTION 12.8.
As used in this Agreement, "Advances" means the amounts that were paid by
Lender to or for the benefit of Obligors for the purchase of the Original Notes
and the Original Warrant.
12.8 Contribution with Respect to Guaranty Obligations.
(a) To the extent that any Obligor shall make a
payment under this SECTION 12 of all or any of the Obligations other than
Advances that were made to such Obligor (any such payment, a "Guarantor
Payment") which, taking into account all other Guarantor Payments then
previously or concurrently made by Obligors, exceeds the amount which such
Obligor would otherwise have paid if each Obligor had paid the aggregate
Obligations satisfied by such Guarantor Payment in the same proportion that
such Obligor's "Allocable Amount" (as defined below) (as determined immediately
prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of
each of the Obligors as determined immediately prior to the making of such
Guarantor Payment, then, following indefeasible payment in full in cash of the
Obligations, such Obligor shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each other Obligor for the
amount of such excess, pro rata based upon their respective Allocable Amounts
in effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the
"Allocable Amount" of any Obligor shall be equal to the maximum amount of the
claim which could then be recovered from such Obligor under this SECTION 12
without rendering such claim voidable or avoidable under Section 548 of Chapter
11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent
Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common
law.
(c) This SECTION 12.8 is intended only to define
the relative rights of Obligors and nothing set forth in this SECTION 12.8 is
intended to or shall impair the obligations of Obligors, jointly and
severally, to pay any amounts as and when the same shall become due and payable
in accordance with the terms of this Agreement, including SECTION 12.1.
Nothing contained in this SECTION 12.8 shall limit the liability of any Obligor
to repay the Advances made directly or indirectly to
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that Obligor and accrued interest, fees and expenses with respect thereto for
which such Obligor shall be primarily liable.
(d) The parties hereto acknowledge that the
rights of contribution and indemnification hereunder shall constitute assets of
the Obligor to which such contribution and indemnification is owing.
(e) The rights of the indemnifying Obligors
against other Obligors under this SECTION 12.8 shall be exercisable upon the
full and indefeasible payment of the Obligations.
12.9 Liability Cumulative. The liability of Obligors
under this SECTION 12 is in addition to and shall be cumulative with all
liabilities of each Obligor to Lender under this Agreement and the Related
Agreements to which such Obligor is a party, without any limitation as to
amount.
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<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized representatives as of the
date first written above.
"OBLIGORS":
"MEDIA ARTS" "TKSI"
MEDIA ARTS GROUP, INC. THOMAS KINKADE STORES, INC.
By:/s/ Kenneth E. Raasch By: /s/ Kenneth E. Raasch
---------------------------- ----------------------------
Kenneth E. Raasch Kenneth E. Raasch
President and CEO President and CEO
"MAGI ENTERTAINMENT" "MAGI SALES"
MAGI ENTERTAINMENT PRODUCTS, INC., MAGI SALES, INC.
By: /s/ Kenneth E. Raasch By: /s/ Kenneth E. Raasch
---------------------------- ----------------------------
Kenneth E. Raasch Kenneth E. Raasch
President and CEO President and CEO
"CCG" "LENDER"
CALIFORNIA COAST GALLERIES, INC. LEVINE LEICHTMAN CAPITAL
PARTNERS, INC.
on behalf of
By: /s/ Kenneth E. Raasch LEVINE LEICHTMAN CAPITAL
---------------------------- PARTNERS, L.P.
Kenneth E. Raasch
President and CEO
By:/s/ Arthur E. Levine
----------------------------
Arthur E. Levine,
President
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ANNEX B
to
Credit Agreement
Dated as of February 21, 1997
FINANCIAL COVENANTS
Obligors shall not breach any of the following financial covenants,
each of which shall be calculated in accordance with GAAP, consistently
applied:
1. Minimum Net Worth.
a. Media Arts shall maintain, on a
stand alone basis, a Net Worth of not less than $14,000,000 at all times.
b. TKSI and CCG shall maintain a
combined Net Worth of not less than $50,000 at all times.
c. Obligors shall maintain, on a
consolidated basis, Net Worth of not less than the following amounts at all
times during each of the following fiscal quarters:
<TABLE>
<CAPTION>
FISCAL QUARTER(S)
ENDING MINIMUM NET WORTH
----------------- -----------------
<S> <C>
3/31/97 $2,000,000
6/30/97 $2,100,000
9/30/97 $2,800,000
12/31/97 $4,300,000
3/31/98 $4,500,000
6/30/98 $4,700,000
9/30/98 $5,500,000
12/31/98 $6,900,000
3/31/99 and thereafter $7,000,000
</TABLE>
2. Minimum Fixed Charge Coverage Ratio.
Obligors shall maintain a Fixed Charge Coverage Ratio of at least 1.05 to 1.0
as of (a) 3/31/97 on a two fiscal quarter basis, (b) 6/30/97 on a three fiscal
quarter basis, (c) 9/30/97 on a four fiscal quarter basis, and (d) the last day
of each fiscal quarter thereafter on a four fiscal quarter basis. For purposes
hereof the calculation of the Fixed Charge Coverage Ratio shall not include:
(i) the $150,000 fee payment made to Levine Leichtman Capital Partners, Inc.,
the $11,500 fee payment made to Lender, and the $592,500 principal payment made
to Lender, all of which were made on or about the Closing Date; or (ii) the
$2,000,000 payment to Lender to be made on the Initial Payment Date.
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3. Operating Leases. Obligors will not enter
into any leases of property (whether real, personal or mixed, but excluding
Capital Leases) if after giving effect thereto the aggregate obligations, on a
consolidated basis, with respect to all such leases during any fiscal year
would exceed $3,000,000.
4. Capital Expenditures. Obligors will not
contract for, purchase, make expenditures for, lease pursuant to a Capital
Lease or otherwise incur obligations with respect to Capital Expenditures
(whether subject to a security interest or otherwise) during any fiscal year in
an aggregate amount exceeding the amount shown for such period below:
<TABLE>
<CAPTION>
MAXIMUM CAPITAL
FISCAL YEAR(S) ENDING EXPENDITURES
--------------------- ---------------
<S> <C>
3/31/97* $300,000
3/31/98 $2,000,000
3/31/99 and thereafter $2,200,000
</TABLE>
* only Capital Expenditures during the fourth fiscal quarter of the fiscal year
ending 3/31/97 are counted for purposes of this covenant.
5. Availability. So long as the principal
balance of the Consolidated Note is less than $5,400,000, and notwithstanding
any provision to the contrary contained in this Agreement, in the event that
Obligors' aggregate Availability for each day of a thirty (30) day period
immediately preceding any applicable calculation date for any of the covenants
set forth in SECTIONS 1 THROUGH 4 above is $2,500,000 or more, such covenants
shall not be effective solely for any such calculation date and Obligors shall
have no obligation hereunder to comply with such financial covenants with
respect to such calculation date. The foregoing contemplates that Obligors'
accounts payable and any other Indebtedness is current in the ordinary course
of business of each Obligor (excluding the Perkins Obligation, the John Hine
Obligation and the John Hine U.K. Obligation.
6. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Availability" is defined in the CIT Documents as in effect on the date hereof.
"Capital Expenditures" for any period shall mean the aggregate
of all expenditures of Obligors during such period, that in conformity with
GAAP, are required to be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in the consolidated balance
sheet of Obligors.
"EBITDA" means, with respect to Obligors on a consolidated
basis for any period, the sum of the following for such period: (i)
Consolidated Net Income (as defined in accordance with GAAP, before all
extraordinary items and changes for discontinued operations, in accordance with
GAAP); (ii) Interest Expense; (iii) provisions for taxes; (iv) charges for
depreciation; and (v) charges
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for amortization of intangible assets, all as determined in accordance with
GAAP consistently applied. For purposes hereof, "intangible assets" shall
include, but shall not be limited to organization costs, securities issuance
costs, unamortized debt discount and expense, goodwill, covenants not to
compete, patents, trademarks, franchises and capitalized research and
development expenses.
"Fixed Charge Coverage Ratio" means, with respect to Obligors on a
consolidated basis for any period, the ratio determined by dividing EBITDA for
such period by the sum of the following for such period: (i) cash Interest
Expense, (ii) Capital Expenditures made and paid for in cash, (iii) the amount
of principal repaid on (a) the Obligations, (b) Indebtedness of the type
described in CLAUSE (ii) of the definition of "Other Permitted Indebtedness,"
(c) the John Hine Obligation or the Raasch Obligation (provided that nothing in
this definition shall be construed to permit principal payments with respect to
such obligations), and (iv) all Federal, state and local income tax expenses
due and payable.
"Interest Expense" means total interest obligations (paid or accrued)
of the Obligors on a consolidated basis, determined in accordance with GAAP on
a basis consistent with the latest audited statements of Obligors.
"Net Worth" means, with respect to any Person at any date of
determination, an amount equal to (a) the total assets of such Person as of
such date minus (b) the total liabilities of such Person as of such date, in
each case determined in accordance with GAAP, on a consistent basis with the
latest audited statements.
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<PAGE> 1
Exhibit 21.01
MEDIA ARTS GROUP, INC.
List of Subsidiaries
1. Thomas Kinkade Stores, Inc., a California corporation
2. MAGI Entertainment Products, Inc., a California corporation
3. California Coast Galleries, Inc., a California corporation
4. MAGI Sales, Inc., a California corporation
5. John Hine Limited, a U.K. company
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<PAGE> 1
Exhibit 99.01
NEWS FOR RELEASE: Monday February 24, 1997
CONTACT: Sue Edstrom
Media Arts Group, Inc.
(408) 324 2020
MEDIA ARTS GROUP FOLLOWS UP RECORD THIRD QUARTER WITH NEW FINANCING
SAN JOSE, CA - Media Arts Group, Inc. (NASDAQ: ARTS) today announced the
completion of a new $10 million Senior Revolving Credit Facility with The CIT
Group/Business Credit which increased the Company's borrowing capacity over its
former senior credit facility by approximately $4 million. The CIT
Group/Business Credit, a wholly owned subsidiary of the CIT Group, specializes
in senior secured financing for middle market companies. Founded in 1908, the
CIT Group, Inc. is an $18 billion asset-based lender which offers loans and
leasing products to businesses and consumers, and financial advisory services
throughout the U.S. through eight strategically-focussed business units. The
Company's ability to borrow will depend upon its level of eligible trade
receivables and inventory. "Our new relationship with CIT combined with record
sales and net income for the recently completed December quarter places us in a
strong position for financial stability and future growth" said Ken Raasch,
President and CEO. As previously reported, income from continuing operations
for the December 1996 quarter was $1.8 million (18 cents per share) on sales of
$15.5 million in comparison to income from continuing operations of $1.4
million (14 cents per share) on sales of $12.2 million for the December 1995
quarter.
In conjunction with the new financing the Company repaid approximately $600,000
of principal on its $8 million Senior Subordinated Debt and agreed to make an
additional $2 million principal payment in September 1997 using the proceeds of
an expected $2 million income tax refund. The Company also issued
approximately 1.1 million shares to the Senior Subordinated Lender on its
exercise in full of warrants and conversion of convertible notes at a per share
price of 1 cent per share. Interest rates on the Company's Senior and Senior
Subordinated Debt were reduced as part of the refinancing, however the non-cash
amortization expense of additional debt discount is expected to offset the
reduction in interest rates.
Sales for the nine months ended December 31, 1996 were $35.5 million, an
increase of 21% compared to $29 million reported for the same period in the
prior year. Income from continuing operations were $2.0 million or 20 cents
per share and $1.8 million or 18 cents per share for the same periods.
Significant factors contributing to the growth were a 19% increase in same
store sales of the Company owned galleries and an increase in the range of
pricepoints of Thomas Kinkade products, as well as the negative impact in the
prior year of the transition from independent sales representatives to an
in-house sales force.
The Company's customer base has continued to expand through programs such as
the "Signature Gallery Program" which gives individual entrepreneurs the
opportunity to open up a dedicated "Thomas Kinkade Signature Gallery." "Our
targeted expansion through this program is on track, with 20 stores being
opened or converted to date, and we expect 24 licensed galleries to have been
opened by the end of fiscal 1998," said Raasch. The Signature Galleries are
free standing stores that sell Thomas Kinkade products exclusively. These new
stores will not only provide additional distribution for Thomas Kinkade
products, but will also effectively increase the Thomas Kinkade brand name
awareness in new regions of the country.
The Company's distribution currently includes its own retail galleries,
licensed Thomas Kinkade Signature Galleries, independent galleries and dealers,
and mass marketers such as QVC. New distribution channels being
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developed by the Company include the Christian market. "Media Arts Group's
goal is to develop products for people's homes that create a warm, positive,
loving environment. These products reflect Christian values, and we believe
that the Christian market has a large untapped potential for our products,"
said Raasch. "As an example, Harvest House recently published a book authored
by Thomas Kinkade, titled 'Simpler Times', which has quickly become a best
seller in the Christian market." Based on the success of that book, Harvest
House has signed a subsequent agreement to publish 6 additional books and other
ancillary products using Kinkade's art.
The Company is continuing to seek increased international distribution. In
December 1996, Thomas Kinkade attended his first international art exhibition
scheduled at Daimaru, a leading department store in Tokyo. Twenty original
paintings were on display for the introduction of Kinkade's art to the Japanese
market. Daimaru also promoted Thomas Kinkade products as part of their
Christmas campaign which had a theme of "Thomas Kinkade's Christmas". In
addition, the Company entered into a distribution agreement with James Lumbers
Publishing, a leading Canadian art distributor. Lumbers is actively opening
galleries in Canada and is marketing Thomas Kinkade products through
promotions, exhibitions, and trade shows.
While seeking to increase distribution of Thomas Kinkade products is one of the
Company's major goals, management continues to seek opportunities to reduce and
control costs in all areas. Various cost cutting measures have been implemented
during the last twelve months, including reductions in headcount, changes in
manufacturing practices and consolidation of the Company's San Jose corporate
and distribution facilities. In addition, management has focused on improving
financial performance through such means as tighter control over product
returns and stricter application of credit terms. "Significant progress has
been made in reducing costs, however we must continue to seek further
efficiencies and maintain our current cost cutting programs," said Raasch. "In
addition, the substantial completion of the disposal of John Hine Limited has
allowed our management team to focus their energy on the more profitable Thomas
Kinkade brand-name products."
The foregoing comments include forward looking statements and actual results
may vary. Among the factors that could impact these expectations are the
continued expansion of the Signature Stores and other distribution channels for
Thomas Kinkade products, as well as the continued control of operating
expenses. These and other factors are discussed in the Company's Form 10-K and
Annual Report to Shareholders.
Based in San Jose, Media Arts Group, Inc. designs, manufactures, distributes
and licenses fine quality gift and collectible art work and other art
memorabilia primarily in the United States.
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CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
1996 1995 1996 1995
----------- ---------- ---------- -----------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $ 15,471 $ 12,189 $ 35,512 $ 29,355
Gross profit . . . . . . . . . . . . . . . . . . 10,243 8,248 22,530 19,537
Operating expenses . . . . . . . . . . . . . . . 6,335 5,324 17,212 15,514
Income from continuing operations . . . . . . . . 1,804 1,422 1,967 1,824
Loss from discontinued operations . . . . . . . . - (740) (13,630) (1,902)
Net income (loss) . . . . . . . . . . . . . . . . $ 1,804 $ 682 $ (11,663) $ (78)
========== ========== ========= =========
Income from continuing operations per
common share . . . . . . . . . . . . . . . . . $ 0.18 $ 0.14 $ 0.20 $ 0.18
Loss from discontinued operations . . . . . . . . - (0.07) (1.38) (0.19)
Net income (loss) per common share . . . . . . . $ 0.18 $ 0.07 $ (1.18) $ (0.01)
========== ========== ========= =========
</TABLE>
116
