Warrant and Note Amendment Agreement - Levine Leichtman Capital Partners LP, Media Arts Group Inc., Thomas Kinkade Stores Inc., MAGI Entertainment Products Inc. and MAGI Sales Inc.
WARRANT AND NOTE AMENDMENT AGREEMENT
This Warrant and Note Amendment Agreement (this "Amendment Agreement")
is entered into as of February 21, 1997 by and among:
1. Levine Leichtman Capital Partners, L.P., a California limited
partnership, as lender (the "Holder"), and
2. a. Media Arts Group, Inc., a Delaware corporation
("Media Arts"), for itself and as successor by merger
to Lightpost Publishing, Inc., a California
corporation ("Lightpost") and John Hine Studios,
Inc., a Texas corporation ("JH Texas"),
b. Thomas Kinkade Stores, Inc., a California corporation
("TKSI"),
c. MAGI Entertainment Products, Inc., a California
corporation ("MAGI Entertainment"), and
d. MAGI Sales, Inc. a California corporation ("MAGI
Sales"; Media Arts, TKSI, MAGI Entertainment, and
MAGI Sales may be referred to herein collectively as
"Issuers" and individually as an "Issuer").
This Amendment Agreement is the "Warrant and Note Amendment
Agreement" referred to in that certain Credit Agreement of even date herewith
(the "Credit Agreement") by and between Holder and Issuers (and California Coast
Galleries, Inc.), is a "Related Agreement" thereunder, and is entitled to all of
the protections and benefits provided for therein for or with respect to the
Related Agreements.
RECITALS
A. Reference is made to the following:
1. that certain Senior Subordinated Note due June 30, 2002 in
favor of Holder in the principal amount of $4,000,000, originally issued on July
7, 1995 and amended and reissued by Issuers on March 12, 1996 (the "$4 Million
Note");
2. that certain Convertible Redeemable Senior Subordinated
Note due June 30, 2002 in favor of Holder in the principal amount of $3,000,000,
originally issued on July 7, 1995 and amended and reissued by Issuers on March
12, 1996 (the "$3 Million Convertible Note");
3. that certain Senior Subordinated Note due June 30, 2002 in
favor of Holder in the principal amount of $1,000,000, originally issued on July
7, 1995 and amended and reissued by Issuers on March 12, 1996 (the "$1 Million
Note"; the $4 Million Note, the $3 Million Convertible Note and the $1 Million
Note shall be referred to collectively as the "Notes"); and
4. that certain Warrant to Purchase Up to 400,000 Shares of
Common Stock of Media Arts Group, Inc. in favor of Holder, originally issued on
July 7, 1995 and amended and reissued by Media Arts on March 12, 1996 (the
"Warrant").
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B. In connection with, among other things, the refinancing of the
senior obligations of Issuers, the waiver of various defaults relating to the
Notes, and the restructuring of the obligations evidenced by the Notes and the
issuance of the Consolidated Note (as defined in the Credit Agreement), all as
described in the Credit Agreement, the parties hereto have agreed to (i) (A)
amend all of the Notes to provide for a partial prepayment with a reduced
prepayment penalty concurrently herewith, and (B) amend the $3 Million
Convertible Note and the Warrant to reduce the per share conversion or exercise
price, as the case may be, as provided herein, and (ii) immediately after the
foregoing amendments, provide for the full exercise of the conversion right
pursuant to the $3 Million Convertible Note (as so amended) and the full
exercise of the Warrant (as so amended), all as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT
1. Partial Prepayment of Notes. Notwithstanding anything to
the contrary in Section 3 of the Notes or otherwise, concurrently herewith
Issuers shall make a prepayment of the Notes in the amount of $592,500 (the
"Partial Prepayment") by wire transfer of immediately available funds to Holder,
which amount shall be paid without premium or penalty other than a prepayment
fee of $11,500. Holder may allocate the Partial Prepayment among the Notes in
such manner as it may determine in its sole and absolute discretion. Upon the
payment of the Partial Prepayment and the accompanying prepayment fee, any
existing obligation of Issuers to pay the "Offer Amount" (as such term is
defined in the Notes) with respect to the current fiscal year of Media Arts
shall terminate, but only as to the portion of such fiscal year ending as of the
date hereof.
2. Amendment of $3 Million Convertible Note. The $3 Million
Convertible Note is hereby amended by deleting the first sentence of Section 2.1
of Annex 1 thereof and replacing it with the following:
Up to $7,500 in principal amount of this Note may be
converted, at the option of Holder, at any time and
from time to time during the Conversion Period, for
all or any part of 750,000 of the Note Shares, at a
conversion price equal to $0.01 per share of Common
Stock (such conversion price is referred to as the
"Note Conversion Price").
3. Amendment of Warrant.
a. Warrant Share Price. The term "Warrant Purchase
Price" in the Warrant is hereby amended to mean $0.01 per Warrant Share.
b. Fair Market Value. It is hereby agreed that,
notwithstanding anything to the contrary in the Warrant, the Fair Market Value
of the Common Stock (as defined in the Warrant) as of the date hereof is $3.07
per share of Common Stock.
4. Full Exercise of Conversion Rights Under $3 Million
Convertible Note. Concurrently herewith, Holder has delivered to Media Arts a
Conversion Notice with respect to the conversion of $7,500 of principal amount
of the $3 Million Note (as amended hereby) into 750,000
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shares of Common Stock, and Media Arts hereby waives the requirement that such
notice be delivered to it at its principal office. Notwithstanding anything to
the contrary contained in the $3 Million Convertible Note, a certificate
representing the above-described 750,000 shares of Common Stock will be
delivered to Holder immediately upon the closing of the transactions
contemplated herein and in the Credit Agreement.
5. Full Exercise of Warrant. Concurrently herewith, Holder has
delivered to Media Arts an Exercise Subscription with respect to the exercise in
full of the Warrant (as amended hereby) for the purchase of 398,693 Warrant
Shares, which are being paid for by cancellation of 1,307 Warrant Shares in
accordance with Section 2.2(iii) of the Warrant. Media Arts hereby waives the
requirement that such notice be delivered to it at its principal office.
Notwithstanding anything to the contrary contained in the Warrant, a certificate
representing the 398,693 Warrant Shares being purchased will be delivered to
Holder immediately upon the closing of the transactions contemplated herein and
in the Credit Agreement.
6. Amendment Agreement Subject to Closing Under Credit
Agreement. The transactions contemplated in this Amendment Agreement are an
integral part of the transactions contemplated in the Credit Agreement and in
the other Related Agreements, and this Amendment Agreement shall be of no force
or effect until the Closing (as defined in the Credit Agreement) has occurred.
In connection with such Closing, the transactions contemplated herein shall be
deemed to have occurred immediately before the issuance of the Consolidated Note
(as defined in the Credit Agreement).
7. Representations and Warranties of Holder. Holder hereby
represents and warrants to Issuers that the following statements are true and
correct as of the date hereof:
a. Investment Intent. Holder is acquiring the Note
Shares and the Warrant Shares (collectively, the "Shares") for investment
purposes and not with a view to or for sale in connection with any distribution
thereof. The foregoing notwithstanding, the disposition of the Shares shall at
all times be and remain within Holder's control, so long as such disposition
complies with applicable laws and regulations. Holder understands that the
Shares have not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Holder's investment intent as expressed herein.
b. Accredited Investor Status. Holder is an
"accredited investor" (as such term is defined in Rule 501 of Regulation D under
the Securities Act). By reason of its business and financial experience, Lender
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the investment
in the Shares and is able to bear the economic risk of such investment. Holder
is aware of Issuers' business affairs and financial condition and has acquired
sufficient information about Issuers to reach an informed and knowledgeable
decision to acquire the Shares. Holder has had the opportunity to ask questions
and receive answers concerning Issuers which it deems necessary to evaluate the
risks and merits related to such decision.
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8. MISCELLANEOUS.
a. Entire Agreement. This Amendment Agreement
constitutes the full and entire agreement and understanding between Holder and
Issuers with respect to the subject matter hereof, and supersedes all prior
agreements and understandings relating to the subject matter hereof, including,
without limitation, the letter agreement dated February 6, 1997 by and between
Media Arts and Holder.
b. Severability. Any provision of this Amendment
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
c. Descriptive Headings. The descriptive headings of
the several paragraphs of this Amendment Agreement are for convenience of
reference only and do not constitute a part of this Amendment Agreement and are
not to be considered in construing or interpreting this Amendment Agreement.
d. Counterparts. This Amendment Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be executed and delivered by their duly authorized representatives
as of the date first written above.
"ISSUERS":
"MEDIA ARTS" "TKSI"
MEDIA ARTS GROUP, INC. THOMAS KINKADE STORES, INC.
By: /s/ Kenneth E. Raasch By: /s/ Kenneth E. Raasch
------------------------- -------------------------
Kenneth E. Raasch Kenneth E. Raasch
President and CEO President and CEO
"MAGI ENTERTAINMENT" "MAGI SALES"
MAGI ENTERTAINMENT PRODUCTS, INC., MAGI SALES, INC.
By: /s/ Kenneth E. Raasch By: /s/ Kenneth E. Raasch
------------------------- --------------------------
Kenneth E. Raasch Kenneth E. Raasch
President and CEO President and CEO
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"HOLDER"
LEVINE LEICHTMAN CAPITAL PARTNERS, INC.
on behalf of
LEVINE LEICHTMAN CAPITAL PARTNERS, L.P.
By: /s/ Arthur E. Levine
-------------------------------
Arthur E. Levine, President
WARRANT AND NOTE AMENDMENT AGREEMENT
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