Business Loan Agreement - Media Arts Group Inc., Lightpost Publishing Inc. and Bank of America NA
BUSINESS LOAN AGREEMENT
This Agreement dated as of October 27, 1999, is among Media Arts Group, Inc., a
Delaware corporation ("MAGI"), Lightpost Publishing, Inc., a California
corporation ("Lightpost," and together with MAGI, each a "Borrower" and
collectively the "Borrowers") and Bank of America, N.A. (the "Bank").
1. REVOLVING LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a line
of credit to the Borrowers. The amount of the line of credit (the "Commitment")
is Twenty Million Dollars ($20,000,000), and is subject to increase as provided
in Section 1.7 below.
(b) This is a revolving line of credit providing for cash advances and letters
of credit. During the availability period, each Borrower may repay principal
amounts and reborrow them, subject to the limits set forth herein.
(c) Each advance must be for at least Five Hundred Thousand Dollars ($500,000),
or integral multiples thereof, or for the amount of the remaining available line
of credit, if less.
(d) Each Borrower agrees not to permit the outstanding principal balance of
advances under the line of credit plus the outstanding amounts of any letters of
credit, including amounts drawn on letters of credit and not yet reimbursed, to
exceed the Commitment.
1.2 Availability Period. The line of credit is available between the date of
this Agreement and September 30, 2001 (the "Expiration Date") unless any
Borrower is in default.
1.3 Interest Rate.
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(a) Unless Borrowers elect an optional interest rate as described below, the
interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the Bank's
costs and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans. The Bank may price loans to
its customers at, above, or below the Reference Rate. Any change in the
Reference Rate shall take effect at the opening of business on the day specified
in the public announcement of a change in the Bank's Reference Rate.
1.4 Repayment Terms.
(a) Borrowers will pay interest on any principal outstanding under this line of
credit on December 1, 1999, and then on the first day of each month thereafter
until payment in full of any principal outstanding under this line of credit.
(b) Borrowers will repay in full all principal and any unpaid interest or other
charges outstanding under this line of credit no later than the Expiration Date.
Any interest period for an optional interest rate (as described below) shall
expire no later than the Expiration Date.
(c) Borrowers may prepay the loan in full or in part at any time.
1.5 Optional Interest Rate. Instead of the interest rate based on the Bank's
Reference Rate, Borrowers may elect the optional interest rate listed below for
this line of credit during interest periods agreed to by the Bank and the
Borrowers. The optional interest rate shall be subject to the terms and
conditions described later in this Agreement. Any principal amount bearing
interest at an optional rate under this Agreement is referred to as a "Portion."
The following optional interest rate is available:
(a) The LIBOR Rate plus one and one-half (1.50) percentage points.
1.6 Letters of Credit.
(a) This line of credit may be used for financing:
(i) commercial letters of credit with a maximum maturity of 364 days but not to
extend more than 90 days beyond the Expiration Date. Each commercial letter of
credit will require drafts payable at sight or up to 90 days after sight.
(ii) The amount of the letters of credit outstanding at any one time (including
amounts drawn on the letters of credit and not yet reimbursed) may not exceed
Ten Million Dollars ($10,000,000) for all letters of credit, which amount is
subject to increase as provided in Section 1.7 below.
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(b) Each Borrower agrees:
(i) that any sum drawn under a letter of credit may, at the option of the Bank,
be added to the principal amount outstanding under this Agreement. The amount
will bear interest and be due as described elsewhere in this Agreement.
(ii) that if there is an Event of Default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters of credit.
(iii) that the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and content
satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.
(iv) to sign the Bank's form Application and Agreement for Commercial Letter of
Credit.
(v) to pay any standard issuance and/or other fees that the Bank notifies the
Borrowers will be charged for issuing and processing letters of credit for the
Borrowers.
(vi) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
1.7 Commitment Enhancement Event.
(a) The Borrowers may make a Commitment Enhancement Election if (i) MAGI
notifies the Bank of the occurrence of a Commitment Enhancement Event (as such
term is defined below) and that the Borrowers intend to make a Commitment
Enhancement Election, (ii) the Borrowers pay the fee to the Bank required under
Section 3.1(c) of this Agreement, and (iii) no Event of Default, as such term is
defined in Article 10 of this Agreement, and no event which with notice or lapse
of time or both would constitute an Event of Default, has occurred and is
continuing.
(b) For purposes of this Agreement, a "Commitment Enhancement Event" occurs if
the Borrowers' consolidated Adjusted EBITDA (as such term is defined in Section
8.5 of this Agreement) for any two consecutive fiscal quarters, as measured
pursuant to Section 8.6 of this Agreement (i.e., Adjusted EBITDA for a fiscal
quarter is measured at the end of that quarter, using the results of that
quarter and each of the three immediately preceding quarters), is at least
Thirty Million Dollars ($30,000,000).
(c) Upon the occurrence of a Commitment Enhancement Event, the making by the
Borrowers of a Commitment Enhancement Election and the satisfaction by the
Borrowers of the requirements set forth in Section 1.7(a): (i) the amount of the
Commitment shall be increased to Thirty Million Dollars ($30,000,000), (ii) the
amount of the sublimit for commercial letters of credit set forth in Section
1.6(a)(ii) shall be increased to Twenty Million Dollars ($20,000,000), (iii) the
minimum Adjusted EBITDA Debt Coverage Ratio required under Section 8.5 of this
Agreement shall be
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increased to 1.50:1.0, and (iv) the minimum Adjusted EBITDA required under
Section 8.6 of this Agreement shall be increased to Twenty-Five Million Dollars
($25,000,000).
2. OPTIONAL INTEREST RATES
2.1 Optional Rates. Each optional interest rate is a rate per year. Interest
will be paid on the last day of each interest period, and, if the interest
period is longer than 30 days, then on the first day of each month during the
interest period. At the end of any interest period, the interest rate will
revert to the rate based on the Reference Rate, unless the Borrowers have
designated another optional interest rate for the Portion. No Portion will be
converted to a different interest rate during the applicable interest period.
Upon the occurrence of an event of default under this Agreement, the Bank may
terminate the availability of optional interest rates for interest periods
commencing after the default occurs.
2.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the following
terms and requirements:
(a) The interest period during which the LIBOR Rate will be in effect will be
one, two, three, four, five, six, seven, eight, nine, ten, eleven, or twelve
months. The first day of the interest period must be a day other than a Saturday
or a Sunday on which the Bank is open for business in California, New York and
London and dealing in offshore dollars (a "LIBOR Banking Day"). The last day of
the interest period and the actual number of days during the interest period
will be determined by the Bank using the practices of the London inter-bank
market.
(b) Each LIBOR Rate Portion will be for an amount not less than the following:
(i) for interest periods of four months or longer, Five Hundred Thousand Dollars
($500,000).
(ii) for interest periods of one, two or three months, One Million Dollars
($1,000,000).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the
calculation will be determined by the Bank as of the first day of the interest
period.)
London Inter-Bank Offered Rate
LIBOR Rate = ------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest rate at which the Bank's
London Branch, London, Great Britain, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the London inter-bank market
at approximately 11:00 a.m. London time two (2)
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London Banking Days before the commencement of the interest period. A "London
Banking Day" is a day on which the Bank's London Branch is open for business and
dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve percentages for
determining the reserves to be maintained by member banks of the Federal Reserve
System for Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve percentages.
(d) Borrowers shall irrevocably request a LIBOR Rate Portion no later than 12:00
noon San Francisco time on the LIBOR Banking Day preceding the day on which the
London Inter-Bank Offered Rate will be set, as specified above. For example, if
there are no intervening holidays or weekend days in any of the relevant
locations, the request must be made at least three days before the LIBOR Rate
takes effect.
(e) Borrowers may not elect a LIBOR Rate with respect to any principal amount
which is scheduled to be repaid before the last day of the applicable interest
period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued interest
on the amount prepaid and a prepayment fee as described below. A "prepayment" is
a payment of an amount on a date earlier than the scheduled payment date for
such amount as required by this Agreement. The prepayment fee shall be equal to
the amount (if any) by which:
(i) the additional interest which would have been payable during the interest
period on the amount prepaid had it not been prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by placing the
amount prepaid on deposit in the domestic certificate of deposit market, the
eurodollar deposit market, or other appropriate money market selected by the
Bank, for a period starting on the date on which it was prepaid and ending on
the last day of the interest period for such Portion (or the scheduled payment
date for the amount prepaid, if earlier).
(g) The Bank will have no obligation to accept an election for a LIBOR Rate
Portion if any of the following described events has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of a LIBOR Rate Portion are not available in the London
inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
Portion.
3. FEES AND EXPENSES.
3.1 Fees.
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(a) Loan fee. Borrowers agree to pay a loan fee in the amount of Fifty Thousand
Dollars ($50,000). This fee is due on or before the date of this Agreement.
(b) Unused commitment fee. Borrowers agree to pay a fee on any difference
between the Commitment and the amount of credit it actually uses, determined by
the weighted average credit outstanding during each fiscal quarter of the
Borrowers, and shall be payable five days after the end of each such fiscal
quarter and upon the Expiration Date. The fee will be calculated at 0.175% per
year. The calculation of credit outstanding shall include the undrawn amount of
letters of credit.
(c) Fee Upon Increase of Commitment. Concurrently with the making by Borrowers
of a Commitment Enhancement Election under Section 1.7 of this Agreement,
Borrowers shall pay to the Bank a fee of Twenty-Five Thousand Dollars ($25,000).
3.2 Expenses. Borrowers agree to immediately repay the Bank for reasonable
expenses that include, but are not limited to, filing, recording and search
fees, appraisal fees, title report fees and documentation fees.
3.3 Reimbursement Costs.
(a) Borrowers agree to reimburse the Bank for any reasonable expenses incurred
in the preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable attorneys'
fees up to an amount not exceeding $35,000, including any allocated costs of the
Bank's in-house counsel.
(b) Borrowers agree to reimburse the Bank for the cost of periodic audits and
appraisals of the personal property collateral securing this Agreement, at such
intervals during the continuance of an Event of Default as the Bank may
reasonably require. The audits and appraisals may be performed by employees of
the Bank or by independent appraisers.
4. COLLATERAL
4.1 Personal Property. Borrowers' obligations to the Bank under this Agreement
and under any other agreement required hereunder will be secured by personal
property each Borrower now owns or will own in the future as listed below. The
collateral is further defined in security agreement(s) executed by each
Borrower. In addition, all personal property collateral securing this Agreement
shall also secure all other present and future obligations of each Borrower to
the Bank (excluding any consumer credit covered by the federal Truth in Lending
law, unless Borrowers have otherwise agreed in writing). All personal property
collateral securing any other present or future obligations of Borrowers to the
Bank shall also secure this Agreement.
(a) Machinery, equipment, and fixtures.
(b) Inventory.
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(c) Receivables.
(d) Patents, trademarks, copyrights and other general intangibles, including
without limitation all rights of MAGI under that certain License Agreement dated
December 3, 1997 (the "License Agreement") between the MAGI and Thomas Kinkade
(the "Artist").
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will be made in
writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
5.2 Disbursements and Payments. Each disbursement by the Bank and each payment
by Borrowers will be:
(a) made at the Bank's branch (or other location) selected by the Bank from time
to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected by
the Bank; and
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require Borrowers to sign one or more promissory notes.
5.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates and telefax
requests for the issuance of letters of credit given by any one of the
individuals authorized to sign loan agreements on behalf of each Borrower.
(b) Advances will be deposited in and repayments will be withdrawn from MAGI's
account number 14870-003541, or such other of any Borrower's accounts with the
Bank as designated in writing by the Borrowers.
(c) Borrowers indemnify and excuse the Bank (including its officers, employees,
and agents) from all liability, loss, and costs in connection with any act
resulting from telephone or telefax instructions the Bank reasonably believes
are made by any individual authorized by Borrowers to give such instructions,
except for any act of the Bank constituting gross negligence or willful
misconduct. This indemnity and excuse will survive this Agreement's termination.
(d) Each Borrower hereby designates MAGI as its representative and agent on its
behalf for the purposes of making requests for extensions of credit, giving
instructions with respect to the disbursement of the proceeds of advances,
selecting interest rate options, requesting letters of credit, and giving and
receiving all other notices and consents hereunder or under any other agreement,
instrument or document executed in
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connection herewith. MAGI hereby accepts such appointment. The Bank may regard
any notice or other communication from MAGI as a notice or communication from
all of the Borrowers, and may give any notice or communication required or
permitted to be given to any Borrower or Borrowers hereunder to MAGI on behalf
of such Borrower or Borrowers. Each Borrower agrees that each notice, election,
representation and warranty, covenant, agreement and undertaking made on its
behalf by MAGI shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been made directly by such Borrower.
5.4 Direct Debit.
(a) Borrowers agree that interest and principal payments and any fees charged
hereunder will be deducted automatically on the due date from MAGI's account
number 14870-003541, or such other of any Borrower's accounts with the Bank as
designated in writing by Borrowers.
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on the
first banking day following the due date.
(c) Borrowers will maintain sufficient funds in the account on the dates the
Bank enters debits authorized by this Agreement. If there are insufficient funds
in the account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
5.5 Banking Days. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. For amounts bearing interest at an offshore rate (if any), a
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California and dealing in offshore dollars. All payments and
disbursements which would be due on a day which is not a banking day will be due
on the next banking day. All payments received on a day which is not a banking
day will be applied to the credit on the next banking day.
5.6 Taxes.
(a) If any payments to the Bank under this Agreement are made from outside the
United States, Borrowers will not deduct any foreign taxes from any payments
they make to the Bank. If any such taxes are imposed on any payments made by
Borrowers (including payments under this paragraph), Borrowers will pay the
taxes and will also pay to the Bank, at the time interest is paid, any
additional amount which the Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been imposed.
Borrowers will confirm that they have paid the taxes by giving the Bank official
tax receipts (or notarized copies) within 30 days after the due date.
(b) Payments made by Borrowers to the Bank will be made without deduction of
United States withholding or similar taxes. If any Borrower is required to pay
U.S. withholding taxes, such Borrower will pay such taxes in addition to the
amounts due to the Bank under this Agreement. If such Borrower fails to make
such tax payments when due, Borrowers indemnify
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the Bank against any liability for such taxes, as well as for any related
interest, expenses, additions to tax, or penalties asserted against or suffered
by the Bank with respect to such taxes.
5.7 Additional Costs. Borrowers will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
5.8 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.
5.9 Default Rate. Upon the occurrence and during the continuation of any default
under this Agreement, principal amounts outstanding under this Agreement will at
the option of the Bank bear interest at a rate which is two (2.0) percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
5.10 Interest Compounding. At the Bank's sole option in each instance, any
interest, fees or costs which are not paid when due under this Agreement shall
bear interest from the due date until paid at the Bank's Reference Rate plus two
percentage points (2%). This may result in compounding of interest.
5.11 Overdrafts. At the Bank's sole option in each instance, the Bank may do one
of the following:
(a) The Bank may make advances under this Agreement to prevent or cover an
overdraft on any account of Borrowers with the Bank. Each such advance will
accrue interest from the date of the advance or the date on which the account is
overdrawn, whichever occurs first, at the interest rate described in this
Agreement.
(b) The Bank may reduce the amount of credit otherwise available under this
Agreement by the amount of any overdraft on any account of Borrowers with the
Bank.
This paragraph shall not be deemed to authorize Borrowers to create overdrafts
on any account of any Borrower with the Bank.
6. CONDITIONS
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6.1 Initial Conditions Precedent. The Bank must receive the following items, in
form and content acceptable to the Bank, before it is required to extend the
initial credit to Borrowers under this Agreement:
(a) Authorizations. Evidence that the execution, delivery and performance by
each Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
(b) Governing Documents. A copy of each Borrower's certificate of incorporation
and bylaws.
(c) Security Agreements. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest) which the Bank requires.
(d) Evidence of Priority. Evidence that security interests and liens in favor of
the Bank are valid, enforceable, and prior to all others' rights and interests,
except those the Bank consents to in writing.
(e) Consent to Removal. For any personal property collateral located on real
property which is subject to a mortgage or deed of trust or which is not owned
by any Borrower, a Consent to Removal from the owner of the real property and
the holder of any mortgage or deed of trust.
(f) Insurance. Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.
(g) Environmental Information. A completed Bank form Environmental
Questionnaire.
(h) Legal Opinion. A written opinion from legal counsel to the Borrowers
covering such matters as the Bank may require, including but not limited to the
matters to be confirmed under Section 6.1(l) below. The legal counsel and the
terms of the opinion must be acceptable to the Bank.
(i) Good Standing. Certificates of good standing for each Borrower from its
state of formation and from any other state in which each Borrower is required
to qualify to conduct its business.
(j) Payment of Fees. Payment of all accrued and unpaid expenses incurred by the
Bank as required by the paragraph entitled "Reimbursement Costs."
(k) Auditor's Management Letter. Copies of the management letters, and
correspondence relating to management letters, sent or received by Borrowers to
or from the Borrowers' auditor in connection with the most recent annual
financial statements audited by such auditor (or if no such management letter
was prepared, a letter from such auditor stating that no deficiencies were noted
that would otherwise be addressed in a management letter), and, upon request, a
copy of the Borrowers' plan, timetable and budget to address the year 2000
problem, together with periodic updates and expenses incurred to date, any third
party assessment of the Borrowers' year 2000 remediation efforts, any year 2000
contingency plans, and any estimates of the Borrowers' potential litigation
exposure (if any)
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resulting from the year 2000 problem.
(l) Confirmation.
(i) Receipt of a written confirmation from Thomas Kinkade ("Artist") confirming
that, upon the occurrence and during the continuance of an Event of Default, the
Bank shall have the right to liquidate the inventory collateral referred to in
Section 4.1(b) of this Agreement (including without limitation the then-existing
inventory of products under the License Agreement) in accordance with applicable
law, but not subject to any geographic or other marketing restrictions set forth
in the License Agreement.
(ii) Evidence of the amendment of the License Agreement to provide that no
default under any agreement between Borrowers and the Bank gives the Artist the
right to terminate the License Agreement unless (x) such default is an Event of
Default hereunder, and (y) such Event of Default shall have continued (and shall
not have been waived) for a period of 180 days after the date on which the Bank
gives written notice of such Event of Default to Borrowers.
(m) Retail Leases. A certificate of Borrowers signed by an authorized officer of
MAGI, setting forth the following information with respect to each Retail Lease:
the location of the leased property, the date the leased property was sold by
the Borrowers (or by a subsidiary of the Borrowers) to the tenant under the
Retail Lease, the name of the tenant (and if the tenant is a business
organization, the type of business organization and the state or other
jurisdiction where the tenant is organized), the principal terms of the sale
(including, without limitation, the sale price and the schedule for the payment
of the sale price to the Borrowers), a schedule of the remaining rental and
other payments owing (by fiscal year of the Borrowers) under the lease, and the
nature and principal terms of the direct or contingent liability of the
Borrowers under the lease "Retail Lease" means each lease of real property
operated by a third party where the inventory of a Borrower is sold or to be
sold, if a Borrower is primarily or secondarily liable for the obligation of the
tenant under such lease or has otherwise guaranteed (in whole or in part) the
obligations of the tenant under such lease.
(n) Other Items. Any other items that the Bank reasonably requires.
6.2 Other Conditions Precedent. Each of the following conditions precedent must
be satisfied before the Bank is required to make any extension of credit
hereunder:
(a) Continuation of Representations and Warranties(b)Continuation of
Representations and Warranties. The representations and warranties contained in
this Agreement and in any instrument, agreement or certificate executed and
delivered in connection herewith shall be true and correct on and as of such
date with the same effect as if made on and as of such date (except to the
extent such representations and warranties expressly refer to an earlier date,
in which case they shall be true and correct as of such earlier date).
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(b) No Existing Default. No Event of Default (or event which with notice or
lapse of time or both shall constitute an Event of Default) shall exist or shall
result from such extension of credit.
(c) Due Diligence. The Bank shall be satisfied with the results of such due
diligence regarding the Borrowers as the Bank deems appropriate in its sole
discretion.
(d) Other Documentation(e)Other Documentation. The Bank shall have received such
other documentation as it may require in connection with such extension of
credit, including without limitation resolutions of the Board of Directors of
each Borrower authorizing such extension of credit.
7. REPRESENTATIONS AND WARRANTIES
When Borrowers sign this Agreement, and until the Bank is repaid in full, each
Borrower makes the following representations and warranties. Each request for an
extension of credit constitutes a renewed representation:
7.1 Organization of Borrowers. Each Borrower and each subsidiary of a Borrower
is a corporation duly formed and existing under the laws of the state where
organized.
7.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within each Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of each Borrower, enforceable against such Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable against such
Borrower.
7.4 Good Standing. In each state in which a Borrower or a subsidiary of a
Borrower does business, such Borrower or subsidiary is properly licensed, in
good standing, and, where required, in compliance with fictitious name statutes.
7.5 No Conflicts. This Agreement does not conflict with any law, agreement, or
obligation by which any Borrower is bound.
7.6 Financial Information. All financial and other information that has been or
will be supplied to the Bank, including the Borrowers' audited financial
statement dated as of March 31, 1999 and the Borrowers' unaudited financial
statements dated June 30, 1999 is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrowers'
financial condition, including all material contingent liabilities.
(b) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the business condition (financial or otherwise),
operations, properties or prospects of any Borrower or any
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subsidiary of any Borrower, or of the Borrowers and their subsidiaries taken as
a whole.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against any Borrower or any subsidiary of a Borrower which, if lost,
would impair the financial condition of any Borrower or any such subsidiary, or
impair the ability of such Borrower to repay the loan, except as have been
disclosed in writing to the Bank.
7.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others, except as set forth on Schedule 7.8 attached hereto.
7.9 Permits, Franchises. Each Borrower and each subsidiary of a Borrower
possesses all permits, memberships, franchises, contracts and licenses required
and all trademark rights, trade name rights, patent rights and fictitious name
rights necessary to enable it to conduct the business in which it is now
engaged. Without limitation of the foregoing, the License Agreement is in full
force and effect, and no Borrower is aware of any existing default under the
License Agreement.
7.10 Other Obligations. No Borrower or subsidiary of a Borrower is in default on
any obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
7.11 Income Tax Matters. No Borrower has knowledge of any pending assessments or
adjustments of its income tax, or the income tax for any of its subsidiaries,
for any year.
7.12 No Tax Avoidance Plan. The obtaining of credit by Borrowers from the Bank
under this Agreement does not have as a principal purpose the avoidance of U.S.
withholding taxes.
7.13 No Event of Default. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.
7.14 Insurance. Each Borrower and each subsidiary of a Borrower has obtained,
and maintained in effect, the insurance coverage required in the "Covenants"
section of this Agreement.
7.15 ERISA Plans.
(a) Each Plan (other than a multiemployer plan) is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law. Each Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each Plan, and
has not incurred any liability with respect to any Plan under Title IV of ERISA.
(b) There are no claims, lawsuits or actions (including by any governmental
authority), and there has been no prohibited transaction or violation of the
fiduciary responsibility rules, with respect to any Plan which has resulted or
could reasonably be expected to result in a
<PAGE>
material adverse effect.
(c) With respect to any Plan subject to Title IV of ERISA:
(i) No reportable event has occurred under Section 4043(c) of ERISA for which
the PBGC requires 30-day notice.
(ii) No action by any Borrower or any ERISA Affiliate to terminate or withdraw
from any Plan has been taken and no notice of intent to terminate a Plan has
been filed under Section 4041 of ERISA.
(iii) No termination proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(d) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(ii) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
(iii) "ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with any Borrower or any subsidiary of a
Borrower within the meaning of Sections 414(b) or (c) of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation.
(v) "Plan" means a pension, profit-sharing, or stock bonus plan intended to
qualify under Section 401(a) of the Code, maintained or contributed to by any
Borrower or any ERISA Affiliate, including any multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA.
7.16 Location of Borrowers. Each Borrower's place of business (or, if such
Borrower has more than one place of business, its chief executive office) is
located at the address listed under such Borrower's signature on this Agreement.
7.17 Environmental Matters. No Borrower or subsidiary of a Borrower (a) is in
violation of any health, safety, or environmental law or regulation regarding
hazardous substances and (b) is the subject of any claim, proceeding, notice, or
other communication regarding hazardous substances. "Hazardous substances" means
any substance, material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas.
7.18 Year 2000 Compliance. Each Borrower and each subsidiary of a Borrower has
conducted a comprehensive review and assessment of its systems and equipment
applications and made inquiry of its key suppliers,
<PAGE>
vendors and customers with respect to the "year 2000 problem" (that is, the
inability of computers, as well as embedded microchips in non- computing
devices, to properly perform date-sensitive functions with respect to certain
dates prior to and after December 31, 1999). Based on that review and inquiry,
no Borrower believes the year 2000 problem, including costs of remediation, will
result in a material adverse change in the business condition (financial or
otherwise), operations, properties or prospects of any Borrower or any
subsidiary of a Borrower, or in the ability of any Borrower to repay the credit.
Each Borrower and each subsidiary of a Borrower has developed adequate
contingency plans to ensure uninterrupted and unimpaired business operation in
the event of a failure of its own or a third party's systems or equipment due to
the year 2000 problem, including those of vendors, customers, and suppliers.
8. COVENANTS
Borrowers agree, so long as credit is available under this Agreement and until
the Bank is repaid in full:
8.1 Use of Proceeds. To use the proceeds of the credit only for working capital
and other general corporate purposes.
8.2 Use of Proceeds - Ineligible Securities. Not to use any portion of the
proceeds of the credit to purchase during the underwriting period, or for thirty
days thereafter, Ineligible Securities underwritten by Banc of America
Securities LLC. Banc of America Securities LLC is a wholly-owned subsidiary of
BankAmerica Corporation, and is a registered broker-dealer which is permitted to
underwrite and deal in certain Ineligible Securities. "Ineligible Securities"
means securities which may not be underwritten or dealt in by member banks of
the Federal Reserve System under Section 16 of the Banking Act of 1933 (12
U.S.C. Sect. 24, Seventh), as amended. The restrictions of this paragraph shall
also cover Ineligible Securities underwritten by any other present or future
subsidiary of BankAmerica Corporation which underwrites Ineligible Securities.
8.3 Financial Information. To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:
(a) Within 95 days of the Borrowers' fiscal year end, the Borrowers' annual
financial statements. These financial statements must be audited (with an
opinion not qualified in any manner, including not qualified due to possible
errors generated by financial reporting and related systems due to the year 2000
problem) by a Certified Public Accountant acceptable to the Bank. The statements
shall be prepared on a consolidated basis.
(b) Within 50 days of the end of each of the first three fiscal quarters in each
fiscal year of the Borrowers, and within 95 days of the end of the final fiscal
quarter in each fiscal year of the Borrowers, the Borrowers' quarterly financial
statements. These financial statements may be prepared by Borrowers. The
statements shall be prepared on a consolidated and consolidating basis.
<PAGE>
(c) Promptly, upon sending or receipt, copies of any management letters and
correspondence relating to management letters, sent or received by the Borrowers
to or from the Borrowers' auditor, or, if no management letter is prepared, a
letter from such auditor stating that no deficiencies were noted that would
otherwise be addressed in a management letter, and, upon request, a copy of the
Borrowers' plan, timetable and budget to address the year 2000 problem, together
with periodic updates and expenses incurred to date, any third party assessment
of any Borrower's year 2000 remediation efforts, any year 2000 contingency
plans, and any estimates of any Borrower's potential litigation exposure (if
any) resulting from the year 2000 problem.
(d) Copies of MAGI's Form 10-K Annual Report, Form 10-Q Quarterly Report and
Form 8-K Current Report within 30 days after the date of filing with the
Securities and Exchange Commission.
(e) Within the period(s) provided in (a) and (b) above, a compliance certificate
of Borrowers signed by an authorized financial officer of MAGI, substantially in
the form of Exhibit A attached hereto, setting forth (i) the information and
computations (in sufficient detail) to establish that such Borrower is in
compliance with all financial covenants at the end of the period covered by the
financial statements then being furnished, (ii) information and computations (in
sufficient detail) to establish the Borrowers' Defaulted Lease Exposure (as such
term is defined in Section 8.5 of this Agreement) at the end of the period
covered by the financial statements then being furnished, and (iii) whether
there existed as of the date of such financial statements and whether there
exists as of the date of the certificate, any default under this Agreement and,
if any such default exists, specifying the nature thereof and the action such
Borrower is taking and proposes to take with respect thereto.
(f) Promptly upon receipt, copies of all notices, orders, or other
communications regarding (i) any enforcement action by any governmental
authority relating to health, safety, the environment, or any hazardous
substances with regard to the property, activities, or operations of any
Borrower or any subsidiary of a Borrower, or (ii) any claim against any Borrower
or any subsidiary of a Borrower regarding hazardous substances.
8.4 Quick Ratio. To maintain on a consolidated basis a ratio of quick assets to
current liabilities of at least 1.25:1.0. "Quick assets" means cash, short-term
cash investments in non-affiliated entities, net trade receivables and
marketable securities not classified as long-term investments. "Current
liabilities" shall mean (a) all obligations classified as current liabilities
under generally accepted accounting principles, plus (b) all principal amounts
outstanding under revolving lines of credit, whether classified as current or
long-term, which are not already included under (a) above.
8.5 Adjusted EBITDA Debt Coverage Ratio. To maintain on a consolidated basis an
Adjusted EBITDA Debt Coverage Ratio of at least 1.00:1.0. provided that on and
after the occurrence of the events described in Section 1.7(c) of this
Agreement, Borrowers shall be required to maintain on a consolidated basis an
Adjusted EBITDA Debt Coverage Ratio of at least 1.50:1.0. "Adjusted EBITDA Debt
Coverage Ratio" means the ratio of Senior
<PAGE>
Funded Debt to Adjusted EBITDA. "Senior Funded Debt" means, without duplication,
all combined and consolidated indebtedness of Borrowers having an original
maturity of one year or longer (a) for borrowed money, (b) which has been
incurred in connection with the acquisition of property or assets, including
without limitation capitalized covenants not to compete included as part of the
liabilities of such person, (c) which is evidenced by a promissory note or other
instrument, (d) which is secured by a mortgage, security interest or other lien
on any asset of any Borrower or any subsidiary of a Borrower, whether or not
such Borrower or subsidiary has assumed or become liable for the payment of such
indebtedness, or (e) which consists of rent or other amounts due or to become
due under capitalized leases. "Senior Funded Debt" also includes, without
duplication of the foregoing, the combined and consolidated obligations and
agreements of Borrowers to become liable as a surety, guarantor, accommodation
endorser, or otherwise for or upon the Senior Funded Debt of any other person,
firm or corporation. Without limitation of the foregoing, "Senior Funded Debt"
of Borrowers includes all liabilities of Borrowers incurred under this
Agreement, but does not include liabilities subordinated to the Bank in a manner
acceptable to the Bank (using the Bank's standard form). "Adjusted EBITDA" means
the following, computed without duplication on a consolidated basis for
Borrowers: (i) the sum of net income before taxes, plus interest expense, plus
depreciation, depletion, amortization and other non-cash charges, plus any
extraordinary loss items, (ii) minus any extraordinary income items, (iii) minus
the current Defaulted Lease Exposure, and (iv) plus the amount of any cash
rental payments made by Borrowers in reduction of the Defaulted Lease Exposure.
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters. The
current portion of long term liabilities and the current Defaulted Lease
Exposure will be measured as of the last day of the calculation period.
"Defaulted Lease Exposure" means the aggregate of the following for each
Defaulted Retail Lease: (x) if a Borrower has agreed to pay any amount in
settlement of its obligations under such Defaulted Retail Lease, the amount of
such settlement (which settlement amount shall not be deemed to be a cash rental
payment for purposes of the computation of Adjusted EBITDA), and (y) in all
other events, twelve months' rent under such Defaulted Retail Lease. The amount
of the Defaulted Lease Exposure shall not be reduced by any payment made by
either Borrower on account of any component of the Defaulted Lease Exposure.
"Defaulted Retail Lease" means any Retail Lease where there has occurred any
uncured default by the tenant, if the default consists of a failure to make a
payment when due or gives the landlord the right to cause a Borrower to directly
assume all or a portion of the obligations of the tenant under such Retail
Lease.
8.6 Minimum Adjusted EBITDA. To maintain on a consolidated basis a minimum
Adjusted EBITDA of at least Sixteen Million Dollars ($16,000,000); provided that
on and after the occurrence of the events described in Section 1.7(c) of this
Agreement Borrowers shall be required to maintain on a consolidated basis a
minimum Adjusted EBITDA of at least Twenty-Five Million Dollars ($25,000,000).
This amount will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the three immediately preceding quarters.
<PAGE>
8.7 Minimum Net Income. To earn on a consolidated basis net income after taxes
and extraordinary items of at least One Million Dollars ($1,000,000) for the
fiscal quarter of the Borrowers ending on September 30, 1999, of at least Two
Million Dollars ($2,000,000) for each of the fiscal quarters of the Borrowers
ending on December 31, 1999 and March 31, 2000, of at least One Million Dollars
($1,000,000) for the fiscal quarter of the Borrowers ending on June 30, 2000,
and of at least Two Million Dollars ($2,000,000) for each fiscal quarter of the
Borrowers thereafter.
8.8 Tangible Net Worth. To maintain on a consolidated basis tangible net
worth equal to at least the sum of the following:
(a) Fifty Million Dollars ($50,000,000); plus
(b) the sum of 50% of net income after income taxes (without subtracting losses)
earned in each quarterly accounting period commencing on or after October 1,
1999; plus
(c) the net proceeds from any equity securities issued after the date of this
Agreement; plus
(d) any increase in stockholders' equity resulting from the conversion of debt
securities to equity securities after the date of this Agreement.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, capitalized or deferred
research and development costs, deferred marketing expenses, deferred
receivables, and other like intangibles, and monies due from officers,
directors, employees or shareholders of the Borrowers) plus liabilities
subordinated to the Bank in a manner acceptable to the Bank (using the Bank's
standard form) less total liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets.
8.9 Trusts. Not to transfer any assets of any Borrower to a trust (other than
the trust established under the Trust Agreement Pursuant to the Media Arts
Group, Inc. Management Deferred Compensation Plan dated as of June 15, 1998)
unless the trust is acceptable to the Bank in form and content, and the trustee
guarantees payment of the Borrowers' obligations under this Agreement prior to
any such transfer.
8.10 Other Debts. Not to, and not permit any of its subsidiaries to, have
outstanding or incur any direct or contingent liabilities or capitalized lease
obligations (other than those to the Bank), or become liable for the liabilities
of others, without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
<PAGE>
(d) Additional debts and capitalized lease obligations for business purposes
which do not exceed a total principal amount of Five Million Dollars
($5,000,000) outstanding at any one time.
(e) Contingent liabilities of the Borrowers with respect to any Retail Lease
disclosed pursuant to Section 6.1(m) of this Agreement.
8.11 Other Liens. Not to, and not permit any of its subsidiaries to, create,
assume, or allow any security interest or lien (including judicial liens) on
property any Borrower or any such subsidiary now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
(d) Additional liens securing indebtedness permitted under Section 8.10(d) of
this Agreement.
8.12 Capital Expenditures. Not to spend or incur obligations (including the
total amount of any capital leases) on a consolidated basis for more than
Twelve Million Five Hundred Thousand Dollars ($12,500,000) in the fiscal year
ending March 31, 2000, and more than Fifteen Million Dollars ($15,000,000) in
the fiscal year ending March 31, 2001, in either case to acquire fixed assets.
8.13 Dividends. Not to, and not permit any of its subsidiaries to, declare or
pay any dividends on any of its shares except dividends payable in capital stock
of a Borrower or such a subsidiary, and not to purchase, redeem or otherwise
acquire for value any of its shares, or create any sinking fund in relation
thereto without having received the prior written consent of the Bank, which
consent shall not be unreasonably withheld so long as (a) no default or Event of
Default shall have occurred hereunder or shall result from such payment or
acquisition, and the Borrowers shall have provided the Bank with a compliance
certificate containing their representations and warranties to such effect, and
(b) the Borrowers shall have repaid in full all advances under the line of
credit, including amounts drawn on letters of credit and not yet reimbursed (and
no advance under the line of credit shall be required for such payment or
acquisition).
8.14 Loans and Investments. Not to, and not permit any of its subsidiaries to,
make any loans or other extensions of credit to, or make any investments in, or
make any capital contributions or other transfers of assets to, any individual
or entity, except for:
(a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business to non-affiliated entities;
<PAGE>
(b) investments in any of the following:
(i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the federal government; and
(iii) other investments as permitted under the investment policy of the
Borrowers attached as Exhibit B hereto;
(c) loans to and investments in Exclaim Technologies ("Exclaim") by MAGI during
the fiscal year of MAGI ending March 31, 2000 not in excess of Nine Million
Dollars ($9,000,000) (no more than Five Million Dollars ($5,000,000) of which
may be invested after the date of this Agreement);
(d) existing loans to and investments by MAGI in Thomas Kinkade Stores, Inc., a
California corporation, Thomas Kinkade Media, Inc., a California corporation, as
described in the most recent consolidated financial statements of MAGI provided
to the Bank pursuant to Section 7.6 of this Agreement;
(e) loans to and investments by MAGI in wholly-owned subsidiaries of MAGI (in
addition to the loans and investments permitted under Section 8.14(d) above) not
in excess of an aggregate of Two Million Five Hundred Thousand Dollars
($2,500,000) at any time outstanding; and
(f) investments that do not exceed an aggregate amount of One Million Dollars
($1,000,000) during the period from the date hereof to and including September
30, 2001.
8.15 Change of Ownership.
(a) Not to cause, permit, or suffer (i) any change, direct or indirect, in any
Borrower's capital ownership, or in the capital ownership of any subsidiary of
any Borrower, in excess of 10%, except as specifically provided in Section
8.15(b) below, (ii) any "Change in Control," as such term is defined in the
License Agreement, or (iii) any other change in the ownership of any Borrower or
any subsidiary of any Borrower, if the result thereof is to accelerate or
increase amounts payable to any employee or consultant of any Borrower.
(b) Notwithstanding the provisions of clause (i) of Section 8.15(a), MAGI may
sell more than an aggregate of 10% of the stock of Exclaim in one or more
transactions to one or more persons or entities, provided that (i) so long as
Exclaim is at least 50% owned by the Borrowers, the business of Exclaim shall be
limited in all material respects to the sale of goods and performance of
services through means of the Internet, and Exclaim shall not own more than
$2,500,000 of inventory and accounts receivable on a combined basis at any time;
(ii) prior to the consummation of any sale or sales of the stock of Exclaim or
other transactions that would result in MAGI being the owner of less than 50% of
the outstanding voting stock of Exclaim, the Borrowers shall have provided the
Bank with a pro forma consolidated balance sheet, income statement and cash flow
statement of the Borrowers, based on recent financial statements, which shall be
<PAGE>
complete and shall fairly present in all material respects the assets,
liabilities, financial condition and results of operations of the Borrowers
during the Compliance Period (as hereinafter defined), but excluding Exclaim as
a consolidated subsidiary of MAGI, and such pro forma financial statements shall
indicate on a pro forma basis (and containing the calculations necessary to
demonstrate compliance with Sections 8.4, 8.5, 8.6, 8.7 and 8.8 of this
Agreement as of the last day of the period covered by the attached financial
statements that giving effect to such exclusion, no Event of Default would have
occurred hereunder at any time during the Compliance Period; and (iii) upon the
consummation of any sale or sales of the stock of Exclaim or other transactions
that result in MAGI being the owner of less than 50% of the outstanding voting
stock of Exclaim or that otherwise results in Exclaim no longer being deemed to
be a subsidiary of MAGI,, the Borrowers shall cause Exclaim to comply with all
covenants and agreements set forth in Sections 8.20, 8.25 and 8.29 of this
Credit Agreement applicable to the Borrowers. For purposes of this Agreement,
"Compliance Period" shall mean the four complete fiscal quarters of the
Borrowers preceding any sale of the stock of Exclaim or other transaction that
results in MAGI being the owner of less than 50% of the outstanding voting stock
of Exclaim (but excluding any fiscal quarter commencing prior to October 1,
1999), plus the current fiscal quarter of the Borrowers in which such sale or
other transaction takes place, plus any remaining fiscal quarters of the
Borrowers during the fiscal year of the Borrowers in which such sale or other
transaction takes place. For example, (1) if any such sale or other transaction
takes place on February 1, 2000, then the Compliance Period shall be the period
from October 1, 1999 to and including March 31, 2000, and (2) if any such sale
or other transaction takes place on December 1, 2000, then the Compliance Period
shall be the period from October 1, 1999 to and including March 31, 2001.
8.16 Out of Debt Period. To either (a) repay any advances in full, and not to
draw any additional advances on its revolving line of credit, for a period of at
least thirty (30) consecutive days, or (b) reduce the outstanding principal
balance on the revolving line of credit to an amount not exceeding Five Million
Dollars ($5,000,000) for a period of at least sixty (60) consecutive days, in
each case during the period from the date of this Agreement to and including
September 30, 2001. For the purposes of this paragraph, "advances" does not
include undrawn amounts of outstanding letters of credit.
8.17 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Hundred Thousand Dollars ($500,000) against any
Borrower or any subsidiary of any Borrower (or any guarantor).
(b) any substantial dispute between any Borrower (or any subsidiary of any
Borrower, or any guarantor) and any government authority.
(c) any material failure to comply with this Agreement.
(d) any material adverse change in the business condition (financial or
otherwise), operations, properties or prospects of any Borrower (or any
subsidiary of any Borrower, or any guarantor), or any material adverse change in
the ability of any Borrower (or any guarantor) to repay the credit.
<PAGE>
(e) any change in any Borrower's name, legal structure, place of business, or
chief executive office if such Borrower has more than one place of business.
(f) the receipt of any notice or communication regarding (i) any threatened or
pending investigation or enforcement action by any governmental authority or any
other claim relating to health, safety, the environment, or any hazardous
substances with regard to any Borrower's property, activities, or operations or
(ii) any belief or suspicion of any Borrower that hazardous substances exist on
or under such Borrower's real property.
(g) (i) any default (or any event which with notice or the passage of time or
both could become a default) under any obligation guaranteed by any Borrower (or
any subsidiary of any Borrower, or any guarantor), which obligations shall
include without limitation any obligation of a Borrower under or with respect to
any Retail Lease; or (ii) the receipt of any notice or communication alleging
the existence or regarding the present or future possibility of the existence of
any such default or potential default. Each notice under this Section 8.17(g)
with respect to any obligation or potential obligation of a Borrower under a
Retail Lease shall (in addition to the other information required under this
Section 8.17(g)) set forth the amount of rental and other payments due and owing
under such Retail Lease as of the date of such notice, and the amount of such
rental and other payments owing under such Retail Lease during the twelve-month
period following the date of such notice.
8.18 Books and Records. To maintain, and to cause each subsidiary of a Borrower
to maintain, adequate books and records.
8.19 Audits. To allow the Bank and its agents to inspect the properties of each
Borrower and each subsidiary of a Borrower (including taking and removing
samples for environmental testing) and examine, audit, and make copies of books
and records at any reasonable time. If any Borrower's or any such subsidiary's
properties, books or records are in the possession of a third party, the
Borrowers authorize that third party to permit the Bank or its agents to have
access to perform inspections or audits and to respond to the Bank's requests
for information concerning such properties, books and records. The Bank has no
duty to inspect the properties of any Borrower or subsidiary, or to examine,
audit, or copy books and records and the Bank shall not incur any obligation or
liability by reason of not making any such inspection or inquiry. In the event
that the Bank inspects the properties of any Borrower or subsidiary, or
examines, audits, or copies books and records, the Bank will be acting solely
for the purposes of protecting the Bank's security and preserving the Bank's
rights under this Agreement. No Borrower nor any other party is entitled to rely
on any inspection or other inquiry by the Bank. The Bank owes no duty of care to
protect any Borrower or any other party or entity against, or to inform
Borrowers or any other party or entity of, any adverse condition that may be
observed as affecting any Borrower's or subsidiary's properties or premises, or
any Borrower's or subsidiary's business. In the event that the Bank has a duty
or obligation under applicable laws, regulations or legal requirements to
disclose any report or findings made
<PAGE>
as a result of, or in connection with, any site visit, observation or testing by
the Bank, the Bank may make such a disclosure to Borrowers or any other party.
8.20 Compliance with Laws. To comply, and to cause each of its subsidiaries to
comply, with the laws (including any fictitious name statute), regulations, and
orders of any government body with authority over any Borrower's or subsidiary's
business.
8.21 Preservation of Rights. To maintain and preserve all rights, privileges,
and franchises Borrowers now have. Without limitation of the foregoing, the
Borrowers will not consent to any material modification or amendment of the
License Agreement without having received the prior written consent of the Bank,
which consent shall not be unreasonably withheld.
8.22 Maintenance of Properties. To make any repairs, renewals, or replacements
to keep Borrowers' properties in good working condition.
8.23 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.24 Cooperation. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.
8.25 Insurance.
(a) Insurance Covering Collateral. To maintain all risk property damage
insurance policies covering the tangible property comprising the collateral.
Each insurance policy must be for the full replacement cost of the collateral
and include a replacement cost endorsement. The insurance must be issued by an
insurance company acceptable to the Bank and must include a lender's loss
payable endorsement in favor of the Bank in a form acceptable to the Bank.
(b) General Business Insurance. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss of use
and occupancy) to any of the properties of either Borrower or any subsidiary of
a Borrower, public liability insurance including coverage for contractual
liability, product liability and workers' compensation, and any other insurance
which is usual for the businesses of the Borrowers and the subsidiaries of the
Borrowers.
(c) Evidence of Insurance. Upon the request of the Bank, to deliver to the Bank
a copy of each insurance policy, or, if permitted by the Bank, a certificate of
insurance listing all insurance in force.
8.26 Additional Negative Covenants. Not to, and not to permit any
subsidiary of any Borrower to, without the Bank's written consent:
(a) engage in any business activities substantially different from any of
Borrowers' or such subsidiaries' present businesses.
<PAGE>
(b) liquidate or dissolve any business of any Borrower or any subsidiary of any
Borrower.
(c) enter or permit any subsidiary to enter into any consolidation, merger, or
other combination, or become a partner in a partnership, a member of a joint
venture, or a member of a limited liability company.
(d) sell, assign, lease, transfer or otherwise dispose of any assets for less
than fair market value, or enter into any agreement to do so.
(e) sell, assign, lease, transfer or otherwise dispose of all or a substantial
part of the business or assets of any Borrower or any subsidiary of a Borrower,
other than (i) assets of Thomas Kinkade Stores, Inc., (ii) sales of retail store
locations owned by a Borrower, or (iii) as otherwise permitted under Section
8.15(b) of this Agreement).
(f) enter into any sale and leaseback agreement covering any of its fixed
assets.
(g) acquire or purchase a business or its assets for a consideration, including
assumption of direct or contingent debt, in excess of Five Million Dollars
($5,000,000) in the aggregate for all such acquisitions and purchases made from
the date hereof to and including the Expiration Date; provided that (i) on and
after the occurrence of the events described in Section 1.7(c) of this
Agreement, the maximum aggregate consideration for acquisitions and purchases
permitted hereunder shall increase to Ten Million Dollars ($10,000,000), (ii) no
acquisition or purchase of a business or its assets shall be permitted hereunder
unless such business had a positive net income after taxes (or a net loss after
taxes not in excess of $250,000) for both its current fiscal year and its most
recently concluded fiscal year; (iii) the Bank shall receive at least thirty
days prior written notice of such acquisition or purchase, which notice shall
include a reasonably detailed description of such acquisition or purchase, (iv)
the business and assets acquired in such Permitted Acquisition shall be free and
clear of all liens (other than those permitted under Section 8.11 of this
Agreement); (v) at or prior to the closing of such acquisition or purchase, the
Bank will be granted a first priority perfected lien and security interest in
all assets acquired pursuant thereto (or in the assets and capital stock of any
business acquired pursuant thereto), and Borrowers (and such business) shall
have executed such documents and taken such actions as may be required by the
Bank in connection therewith, (vi) if such acquisition or purchase is the
acquisition or purchase of a corporation or other entity, then at or prior to
the closing of such acquisition or purchase, such entity will guaranty the
obligations of Borrowers to the Bank, and such entity shall have taken such
actions as may be required by the Bank in connection therewith, and (vii) at the
time of such acquisition or purchase and after giving effect thereto, no default
or Event of Default shall have occurred and be continuing.
8.27 ERISA Plans. With respect to a Plan subject to Title IV of ERISA, to give
prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(c) of ERISA
<PAGE>
for which the PBGC requires 30-day notice.
(b) Any action by any Borrower, any subsidiary of any Borrower or any ERISA
Affiliate to terminate or withdraw from a Plan or the filing of any notice of
intent to terminate under Section 4041 of ERISA.
(c) The commencement of any proceeding with respect to a Plan under Section 4042
of ERISA.
8.28 Compliance with Environmental Requirements. With regard to the property,
activities and operations of any Borrower or any subsidiary of a Borrower, to
comply with the recommendations of any qualified environmental engineer or
orders or directions issued by any governmental authority relating to health,
safety, the environment, or any hazardous substances including those orders or
directives requiring the investigation, clean-up, or removal of hazardous
substances.
8.29 Transactions with Affiliates. Not to, and not permit any of its
subsidiaries to, enter into any transaction with any executive, officer,
director or shareholder (or any relative of any of the foregoing), or to with
any entity affiliated with any Borrower or such subsidiary, except upon fair and
reasonable terms no less favorable to such Borrower or subsidiary than it would
obtain in a comparable arm's-length transaction with a person or entity not an
affiliate of such Borrower or subsidiary.
9. HAZARDOUS WASTE
Borrowers will indemnify and hold harmless the Bank from any loss or liability
directly or indirectly arising out of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance. This indemnity will apply whether the
hazardous substance is on, under or about the Borrowers' property or operations
or property leased to Borrowers. The indemnity includes but is not limited to
attorneys' fees (including the reasonable estimate of the allocated cost of
in-house counsel and staff). The indemnity extends to the Bank, its parent,
subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. "Hazardous substances" means any substance,
material or waste that is or becomes designated or regulated as "toxic,"
"hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of Borrowers' obligations to the Bank.
10. DEFAULT
If any of the following events (herein, an "Event of Default") occurs, the Bank
may do one or more of the following: declare Borrowers in default, stop making
any additional credit available to Borrowers, and require Borrowers to repay
their entire debt immediately and without prior notice. If an Event of Default
occurs under the paragraph entitled "Bankruptcy, " below, then the entire debt
outstanding under this Agreement will automatically be due immediately.
<PAGE>
10.1 Failure to Pay. (a) Any Borrower fails to make a payment of principal and
interest when due under this Agreement, or (b) any Borrower shall fail to pay
any other amount to the Bank when due and such failure shall continue for a
period of seven (7) days.
10.2 Lien Priority. The Bank fails to have an enforceable first lien (except for
any prior liens to which the Bank has consented in writing) on or security
interest in any material property given as security for this Agreement (or any
guaranty).
10.3 False Information. Any Borrower (or any subsidiary of any Borrower, or any
guarantor) has given the Bank information or representations that is false or
misleading in any material respect.
10.4 Bankruptcy. Any Borrower (or any subsidiary of any Borrower, or any
guarantor) files a bankruptcy petition, a bankruptcy petition is filed against
any Borrower (or any subsidiary of any Borrower, or any guarantor) or any
Borrower (or any subsidiary of any Borrower, or any guarantor) makes a general
assignment for the benefit of creditors. The default will be deemed cured if any
bankruptcy petition filed against any Borrower (or any subsidiary of any
Borrower, or any guarantor) is dismissed within a period of 45 days after the
filing; provided, however, that the Bank will not be obligated to extend any
additional credit to the Borrowers during that period.
10.5 Receivers. A receiver or similar official is appointed for the business of
any Borrower (or any subsidiary of any Borrower, or any guarantor), or any such
business is terminated, or any Borrower (or any subsidiary of any Borrower, or
any guarantor) is liquidated or dissolved.
10.6 Judgments. Any judgments or arbitration awards are entered against any one
or more Borrowers (or any subsidiary of any Borrower, or any guarantor), or any
Borrower (or any subsidiary of any Borrower, or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Hundred Thousand Dollars ($500,000) or more in excess
of any insurance coverage.
10.7 Government Action. Any government authority takes action that the Bank
believes materially adversely affects any Borrower's (or any guarantor's)
financial condition or ability to repay.
10.8 Material Adverse Change. A material adverse change occurs, or is reasonably
likely to occur, in any Borrower's (or any guarantor's) business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the credit.
10.9 Cross-default. Any default occurs under any agreement in connection with
any credit any Borrower (or any subsidiary of any Borrower, or any guarantor) or
any of Borrower's related entities or affiliates has obtained from anyone else
or which any Borrower (or any subsidiary of any Borrower, or any guarantor) or
any of such Borrower's related entities or affiliates has guaranteed (other than
a Retail Lease) if the default consists of failing to make a payment when due or
gives the other lender
<PAGE>
the right to accelerate the obligation.
10.10 Default under License Agreement. Any material default by any Borrower or
any subsidiary of any Borrower under the License Agreement, or any termination
or cancellation of the License Agreement.
10.11 Default under Related Documents. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
10.12 Other Bank Agreements. Any Borrower (or any subsidiary of any Borrower, or
any guarantor) fails to meet the conditions of, or fails to perform any
obligation under any other agreement any Borrower (or any subsidiary of any
Borrower, or any guarantor) has with the Bank or any affiliate of the Bank. If
the breach does not consist of a failure to pay any amount when due to the Bank
and, in the Bank's opinion, the breach is capable of being remedied, the breach
will not be considered an Event of Default under this Agreement for a period of
ten (10) days after the date on which the Bank gives written notice of the
breach to the Borrowers; provided, however, that the Bank will not be obligated
to extend any additional credit to the Borrowers during that period.
10.13 ERISA Plans. Any one or more of the following events occurs with respect
to a Plan of any Borrower subject to Title IV of ERISA, provided such event or
events could reasonably be expected, in the judgment of the Bank, to subject
such Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate, could have a material adverse effect on the
financial condition of such Borrower:
(a) A reportable event shall occur under Section 4043(c) of ERISA with respect
to a Plan.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan) or
the full or partial withdrawal from a Plan by any Borrower or any ERISA
Affiliate.
10.14 Other Breach Under Agreement. Any Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article. This includes any failure by any
Borrower to comply with any financial covenants set forth in this Agreement,
whether such failure is evidenced by financial statements delivered to the Bank
or is otherwise known to such Borrower or the Bank.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 California Law. This Agreement is governed by California law.
11.3 Successors and Assigns. This Agreement is binding on Borrowers' and the
Bank's successors and assignees. The Borrowers agree that they may
<PAGE>
not assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about Borrowers with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against Borrowers.
11.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between any one or more Borrowers and the Bank, including but not limited to
those that arise from:
(i) This Agreement (including any renewals, extensions or modifications of
this Agreement);
(ii) Any document, agreement or procedure related to or delivered in connection
with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
Borrowers and the Bank, including claims for injury to persons, property or
business interests (torts).
(b) At the request of any Borrower or the Bank, any such controversies or claims
will be settled by arbitration in accordance with the United States Arbitration
Act. The United States Arbitration Act will apply even though this Agreement
provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration. The
arbitration will be conducted in San Jose, California.
(d) For purposes of the application of the statute of limitations, the filing of
an arbitration pursuant to this paragraph is the equivalent of the filing of a
lawsuit, and any claim or controversy which may be arbitrated under this
paragraph is subject to any applicable statute of limitations. The arbitrators
will have the authority to decide whether any such claim or controversy is
barred by the statute of limitations and, if so, to dismiss the arbitration on
that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted to
any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim, at
the time of the proposed submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property located in California. In this
case, both Borrowers and the Bank must consent to submission of the claim or
controversy to arbitration. If both parties do not consent to arbitration, the
controversy or claim will be settled as follows:
<PAGE>
(i) Borrowers and the Bank will designate a referee (or a panel of referees)
selected under the auspices of the American Arbitration Association in the same
manner as arbitrators are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be appointed by a
court as provided in California Code of Civil Procedure Section 638 and the
following related sections;
(iii) The referee (or the presiding referee of the panel) will be an active
attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the panel) will
be entered as a judgment in the court that appointed the referee, in accordance
with the provisions of California Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of Borrowers or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration proceeding
to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute a
waiver of the right of Borrowers or the Bank, including the suing party, to
submit the controversy or claim to arbitration if the other party contests the
lawsuit. However, if the controversy or claim arises from or relates to an
obligation to the Bank which is secured by real property located in California
at the time of the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of Borrowers and the Bank
to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of trust or
mortgage, or to proceed by judicial foreclosure.
11.5 Severability; Waivers. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
11.6 Administration Costs. Borrowers shall pay the Bank for all
<PAGE>
reasonable costs incurred by the Bank in connection with administering this
Agreement.
11.7 Attorneys' Fees. Borrowers shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against any
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.
11.8 One Agreement. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrowers concerning this credit;
(b) replace any prior oral or written agreements between the Bank and Borrowers
concerning this credit; and
(c) are intended by the Bank and Borrowers as the final, complete and exclusive
statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.9 Indemnification. Borrowers will indemnify and hold the Bank harmless from
any loss, liability, damages, judgments, and costs of any kind relating to or
arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to
Borrowers hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit. This indemnity
includes but is not limited to attorneys' fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries
and all of their directors, officers, employees, agents, successors, attorneys,
and assigns. This indemnity will survive repayment of Borrowers' obligations to
the Bank. All sums due to the Bank hereunder shall be obligations of Borrowers,
due and payable immediately without demand.
11.10 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and
Borrowers may specify from time to time in writing.
<PAGE>
11.11 Headings. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
11.12 Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
11.13 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and severally liable to the Bank for
the payment of all obligations arising under this Agreement, regardless of which
Borrower requested, received, used, or directly enjoyed the benefit of, the
extensions of credit hereunder, and that such liability is independent of the
obligations of the other Borrowers. The Bank may bring an action against any
Borrower, whether an action is brought against the other Borrowers or any
guarantor.
(b) As a separate, additional, continuing and primary obligation each Borrower
hereby unconditionally and irrevocably undertakes with the Bank that should all
or any portion of the obligations arising under this Agreement not be
recoverable from any other Borrower for any reason, then such Borrower shall
make payment of such obligations by way of a full indemnity in the manner
provided in this Agreement and shall indemnify the Bank against all losses,
claims, costs, charges and expenses to which it may be subject or which it may
incur under or in connection with this Agreement. The liabilities and
obligations of each Borrower under this Section 11.13 shall remain in force
notwithstanding any act, omission, neglect, event or other matter whatsoever
(other than the irrevocable payment in full of such obligations), regardless of
anything which might discharge such Borrower (wholly or in part) or which would
have afforded such Borrower a legal or equitable defense under any applicable
law.
(c) Each Borrower agrees that any release which may be given by the Bank to
another Borrower or a guarantor will not release such Borrower from its
obligations under this Agreement. Each Borrower, to the extent permitted by
applicable law, hereby waives any defense to such obligations that may arise by
reason of the disability or other defense or cessation of liability of any other
Borrower for any reason other than payment in full. Each Borrower also waives
deferral of such obligations arising by reason of the institution of proceedings
by or against another Borrower under or pursuant to any insolvency or bankruptcy
proceeding, and waives any defense to such obligations that it may have as a
result of any holder's election of or failure to exercise any right, power, or
remedy, including, without limitation, the failure to proceed first against such
other Borrower or any security it holds for such other Borrower's obligations
under this Agreement, if any. Without limiting the generality of the foregoing,
each Borrower expressly waives all demands and notices whatsoever (except for
any demands or notices, if any, that such Borrower expressly is entitled to
receive pursuant to the terms of this Agreement), and agrees that the Bank may,
without notice (except for such notice, if
<PAGE>
any, as such Borrower expressly is entitled to receive pursuant to the terms
of this Agreement) and without releasing the liability of such Borrower,
extend for the benefit of any other Borrower the time for making any payment,
waive or extend the performance of any agreement or make any settlement of
any agreement for the benefit of any other Borrower, and may proceed against
each Borrower, directly and independently of any other Borrower, as such
obligee may elect in accordance with this Agreement.
(d) Each Borrower waives any right to assert against the Bank any defense,
setoff, counterclaim, or claims which such Borrower may have against another
Borrower or any other party liable to the Bank for the obligations of Borrowers
under this Agreement.
(e) Each Borrower consents and agrees that the Bank may, at any time and from
time to time, without notice or demand, whether before or after any actual or
purported termination, repudiation or revocation of this Agreement by any one or
more Borrowers, and without affecting the enforceability or continuing
effectiveness hereof as to such Borrower, in accordance with the terms of this
Agreement: (i) accept new or additional instruments, documents or agreements;
(ii) accept partial payments on the obligations of Borrowers to the Bank; (iii)
receive and hold additional security or guarantees for such obligations or any
part thereof; (iv) release, reconvey, terminate, waive, abandon, fail to
perfect, subordinate, exchange, substitute, transfer or enforce any security or
guarantees, and apply any security and direct the order or manner of sale
thereof as the Bank may determine; (v) release any other person or entity
(including, without limitation, any other Borrower) from any personal liability
with respect to such obligations or any part thereof; (vi) with respect to any
person or entity other than such Borrower (including without limitation, any
other Borrower), settle, release (by operation of applicable laws or otherwise)
liquidate or enforce any such obligations and any security therefor or guaranty
thereof in any manner, consent to the transfer of any security and bid and
purchase at any sale; or (vii) consent to the merger, change or any other
restructuring or termination of the corporate existence of any other Borrower or
any other person or entity, and correspondingly agree, in accordance with all
applicable provisions of this Agreement, to the restructure of such obligations,
and any such merger, change, restructuring or termination shall not affect the
liability of any Borrower or the continuing effectiveness hereof, or the
enforceability hereof with respect to all or any part of such obligations.
(f) Upon the occurrence and during the continuance of any Event of Default, the
Bank may enforce this Agreement or any other document independently of any other
remedy or security they may have or hold in connection with the obligations of
Borrowers to the Bank, and it shall not be necessary for the Bank to marshal
assets in favor of any Borrower or any other person or entity or to proceed upon
or against or exhaust any security or remedy before proceeding to enforce this
Agreement.
(g) Each Borrower agrees that it is solely responsible for keeping itself
informed as to the financial condition of the other Borrowers and of all
circumstances which bear upon the risk of nonpayment. Each Borrower waives any
right it may have to require the Bank to disclose to such Borrower any
<PAGE>
information which the Bank may now or hereafter acquire concerning the financial
condition of the other Borrowers.
(h) Each Borrower waives all rights to notices of the existence or the creation
of new indebtedness by any other Borrower.
(i) The Borrowers represent and warrant to the Bank that they are integral parts
of a consolidated enterprise, and that each will derive benefit, directly and
indirectly, from the collective administration and availability of credit under
this Agreement. The Borrowers agree that the Bank will not be required to
inquire as to the disposition by any Borrower of funds disbursed in accordance
with the terms of this Agreement.
(j) Each Borrower waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or otherwise),
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute (or any
other applicable law regarding bankruptcy, reorganization, insolvency,
administration, administrative receivership, liquidation, receivership,
dissolution, winding-up or relief of debtors) which such Borrower may now or
hereafter have against any other Borrower with respect to the indebtedness
incurred under this Agreement. Each Borrower waives any right to enforce any
remedy which the Bank now has or may hereafter have against any other Borrower,
and waives any benefit of, and any right to participate in, any security now or
hereafter held by the Bank, until such time as the obligations of Borrowers to
the Bank have been paid in full and this Agreement has been terminated.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA, N.A. MEDIA ARTS GROUP, INC.
By /s/ Kenneth E. Jones By /s/ Bud Peterson
-------------------------------- --------------------------------
Kenneth E. Jones, Vice President Name: Bud Peterson
Title: Corporate Secretary
By /s/ John C. Plecque LIGHTPOST PUBLISHING, INC.
--------------------------------
John C. Plecque, Vice President
Address where notices to: By /s/ Bud Peterson
the Bank are to be sent --------------------------------
Name: Bud Peterson
Title: Corporate Secretary
Bank of America, N.A.
San Jose RCBO #1487
101 Park Center Drive Address where notices to
San Jose, California 95113 the Borrowers are to be sent:
Attn: Ken Jones, Vice President
Media Arts Group, Inc
521 Charcot Avenue
San Jose, California 95131
Attn: Corporate Secretary
<PAGE>
EXHIBIT A
FORM OF COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
Financial Statement Date:
Reference is made to that certain Business Loan Agreement dated as of October
27, 1999 (as extended, renewed, amended or restated from time to time, the
"Credit Agreement") among Media Arts Group, Inc, a Delaware corporation and
Lightpost Publishing, Inc., a California corporation (each a "Borrower" and
collectively, the "Borrowers") and Bank of America, N.A. (the "Bank").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Credit Agreement.
The undersigned hereby certifies as of the date hereof that he/she is the
______________________ of Media Arts Group, Inc., and that, as such, he/she is
authorized to execute and deliver this Certificate to the Bank on the behalf of
the Borrowers, and that:
1. Attached as Schedule 1 hereto are a true and correct copy of the unaudited
[and audited] consolidated and consolidating balance sheets of the Borrowers
as of the end of the fiscal quarter [and fiscal year] of the Borrowers ending
on ____________________ and the related consolidated and consolidating
statements of income and retained earnings for the period ending on the last
day of such quarter [and year]. The undersigned certifies that the attached
financial statements present fairly, in accordance with GAAP (subject to
ordinary, good faith year-end audit adjustments), the financial position and
the results of operations of the Borrowers.
2. The undersigned has reviewed and is familiar with the terms of the Credit
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Borrowers during the accounting period covered by the attached financial
statements.
3. To the best of the undersigned's knowledge, the Borrowers, during such
period, have observed, performed or satisfied all of its covenants and other
agreements, and satisfied every condition in the Credit Agreement to be
observed, performed or satisfied by the Borrowers, and as of the date of the
financial statements attached hereto and the date hereof, no default exists
under the Credit Agreement.
4. The financial covenant analyses and information set forth on Schedule 2
attached hereto are true and accurate on and as of the date of this Certificate
and set forth the calculations necessary to demonstrate compliance with Sections
8.4, 8.5, 8.6, 8.7 and 8.8 of the Credit
<PAGE>
Agreement as of the last day of the period covered by the attached financial
statements.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
_________________________.
MEDIA ARTS GROUP, INC.
By:
----------------------------
Name:
Title:
AMENDMENT TO BUSINESS LOAN AGREEMENT
This Amendment to Business Loan Agreement, dated as of October 27, 1999 (the
"Amendment"), is among Media Arts Group, Inc., a Delaware corporation ("MAGI"),
Lightpost Publishing, Inc., a California corporation ("Lightpost," and together
with MAGI, each a Borrower and collectively the "Borrowers") and Bank of
America, N.A. (the "Bank").
A. The Borrowers and the Bank have entered into a certain Business Loan
Agreement dated as of October 27, 1999 (the "Loan Agreement").
B. The Borrowers have disclosed to the Bank the existence of the following
letters of credit issued by The Dai-Ichi Kangyo Bank, Ltd., New York Branch (the
"Issuer") for the account of MAGI (collectively, the "CIT Letters of Credit"):
L/C Number Beneficiary Expiration Date Amount
SDC-026967 Limar Realty Corp. July 16, 2000 $50,000
SDC-028888 870 Market Street Associates, L.P. January 5, 2000 $100,000
C. The Borrowers have requested that the Bank waive certain conditions precedent
set forth in the Loan Agreement and amend the Loan Agreement on the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the premises herein contained and for other
good and valuable consideration, the Borrowers and the Bank do hereby mutually
agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Loan Agreement.
2. Amendment.
<PAGE>
2.1 Section 8.13 of the Loan Agreement is amended by inserting the phrase
"(other than Exclaim)" between the words "subsidiaries" and "to" in the first
line of such Section.
2.2 Section 8.14 of the Loan Agreement is amended by deleting the word "and" at
the end of Section 8.14(e), by replacing the period at the end of Section
8.14(f) with a semicolon and the word "and", and by adding the following as
Section 8.14(g):
"(g) loans or other extensions of credit to any Borrower's or any such
subsidiary's executives or officers not exceeding Five Hundred Thousand Dollars
($500,000) in aggregate principal amount at any time outstanding."
2.3 The Loan Agreement is amended by adding the following thereto as Sections
11.14, 11.15, 11.16 and 11.17:
"11.14 Arrangements with CIT Group. Reference is made to each of the agreements
dated November 16, 1999 (such Agreements, the "CIT Agreements") between the
Bank, the Borrowers and/or The CIT Group/Business Credit, Inc. ("CIT"), which
agreements may include without limitation a Pay-Out Letter, a Letter of Credit
Indemnity Agreement and a Termination/ Reassignment letter. The Borrowers
acknowledge that the Bank has entered into the CIT Agreements at the request of
the Borrowers, and that the Borrowers have reviewed and approved the terms of
the CIT Agreements. The Borrowers agree that the liability, loss, damages and
costs referred to in Section 11.9 of this Agreement include without limitation
any and all losses, damages and costs in connection with the CIT Agreements.
Without limitation of the foregoing, the Borrowers agree that any sum drawn
under a CIT Letter of Credit and not immediately reimbursed by the Borrowers to
the Issuer may, at the option of the Bank, be added to the principal amount
outstanding under this Agreement, and bear interest and be due as described
elsewhere in this Agreement. If there is a default under this Agreement, in
addition to all other sums due and owing under the Agreement, the Borrowers
shall immediately pay the outstanding amount of the CIT Letters of Credit to the
Bank. All amounts due to the Bank hereunder shall be obligations of Borrowers,
due and payable immediately and without demand, and shall be absolute,
irrevocable and unconditional obligations under any and all circumstances
whatsoever and irrespective of any set-off, counterclaim or defense to payment
which any Borrower may have against Issuer or any other person, including
without limitation any setoff, counterclaim or defense based upon or arising out
of (a) any lack of validity or enforceability of any agreement, or (b) any
demand, statement or any other document proving to be forged, fraudulent,
invalid or insufficient in any respect, or any statement therein being untrue or
inaccurate in any respect.
11.15 CIT Letters of Credit. The Borrowers agree that on or before November 30,
1999 they shall cause the CIT Letters of Credit to be surrendered by the
beneficiaries thereof and cancelled by the Issuer.
11.16 Asbestos Operations and Maintenance Program. Reference is made to the
Phase I Environmental Assessment dated June 19, 1997 (the "Assessment") by
Eckland Consultants Inc. (the "Consultant") with respect to the real property
leased by the Borrowers at 521 Charcot Avenue, San
<PAGE>
Jose, California 95131 (the "Real Property"). The Borrowers agree that on or
prior to December 31, 1999 they shall prepare and implement an Asbestos
Operations and Maintenance Program for the Real Property as recommended in
the Assessment, which Asbestos Operations and Maintenance Program shall be
approved in writing by the Consultant (or by another environmental consultant
satisfactory to the Bank).
11.17 Definitions. For purposes of this Agreement, "subsidiary" of a Borrower
means any corporation, association, partnership, limited liability company,
joint venture or other business entity (a) of which more than 50% of the voting
stock, membership interests or other equity interests (in the case of entities
other than corporations), is owned or controlled directly or indirectly by the
Borrower, or one or more of the Subsidiaries of the Borrower, or a combination
thereof, or (b) whose financial results must be consolidated with the
consolidated financial results of the Borrower in accordance with generally
accepted accounting principles."
3. Waivers.
3.1 Section 6.1(e) of the Loan Agreement requires, as a condition precedent to
the extension of the initial credit under the Loan Agreement, that Borrowers
provide Bank with a Consent to Removal from any owner of real property and
holder of a mortgage or deed of trust on real property, if there is any personal
property collateral located on such real property. The Bank agrees to waive the
condition precedent set forth in Section 6.1(e) of the Loan Agreement; provided
that the Borrowers provide the Bank with the Consents to Removal required under
Section 6.1(e) on or before February 16, 2000.
4. Representations and Warranties. When the Borrowers sign this Amendment, each
Borrower represents and warrants to the Bank that: (a) giving effect to this
Amendment, there is no event which is, or with notice of, or lapse of time, or
both would be, a default under the Loan Agreement, (b) giving effect to this
Amendment, the representations and warranties of the Borrowers in the Loan
Agreement are true on and as of the date hereof as if made on and as of said
date, (c) this Amendment is within such Borrower's powers, has been duly
authorized and does not conflict with any of such Borrower's organizational
papers, and (d) this Amendment does not conflict with any law, agreement or
obligations by which such Borrower is bound.
5. Effect of Amendment. Except as specifically amended above, the Loan Agreement
shall remain in full force and effect and is hereby ratified and confirmed. The
waiver contained above shall be limited precisely as written and relate solely
to the items and times above. Nothing in this Amendment shall be deemed to (a)
constitute a waiver of compliance by any Borrower with respect to any other
term, provision or condition of the Loan Agreement or any other instrument or
agreement referred to therein or (b) prejudice any right or remedy that the Bank
may now have or may have in the future under applicable law or instrument or
agreement referred to therein.
6. Counterparts. This Amendment may be executed in any number of
<PAGE>
counterparts, each of which when so executed shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first above written.
BANK OF AMERICA, N.A.
By: /s/ Kenneth E. Jones
--------------------------------
Kenneth E. Jones, Vice President
By: /s/ John C. Plecque
--------------------------------
John C. Plecque, Vice President
MEDIA ARTS GROUP, INC.
By: /s/ Bud Peterson
--------------------------------
Name: Bud Peterson
Title: Corporate Secretary
LIGHTPOST PUBLISHING, INC.
By: /s/ Bud Peterson
--------------------------------
Name: Bud Peterson
Title: Corporate Secretary