Trade Finance Agreement - THQ Inc. and Union Bank of California NA
TRADE FINANCE AGREEMENT
THIS TRADE FINANCE AGREEMENT ("Agreement") is made and entered into as
of December 4, 1998, by and between THQ INC., a Delaware corporation
("Borrower"), and UNION BANK OF CALIFORNIA, N.A., a national banking association
("Bank").
SECTION 1. THE CREDIT
1.1 THE TRADE FINANCE CREDIT FACILITY. Bank will extend to Borrower
a trade finance credit facility in an aggregate amount not to exceed Thirty
Million Dollars ($30,000,000) (the "Trade Finance Credit Facility"). The Trade
Finance Credit Facility shall terminate on May 1, 2000 and be subject to the
following sublimits:
(a) The Commercial L/C Line in an amount not to exceed (i) Thirty
Million Dollars ($30,000,000) during the period from August 1 to and including
February 28 (or February 29, in the case of a leap year) of each calendar year
and (ii) Fifteen Million Dollars ($15,000,000) during the period from March 1 to
and including July 31 of each calendar year;
(b) The Clean Advance Line in an amount not to exceed (i) Twenty
Million Dollars ($20,000,000) during the period from the date of this Agreement
to and including February 28, 1999 and (ii) Fifteen Million Dollars
($15,000,000) thereafter; and
(c) The Standby L/C Line in an amount not to exceed Thirty Million
Dollars ($30,000,000) during the period from the date of this Agreement to and
including May 31, 1999.
1.1.1 THE COMMERCIAL L/C LINE. Bank shall issue, for the account of
Borrower, one or more irrevocable commercial letters of credit (individually, a
"Commercial L/C" and collectively, the "Commercial L/Cs") and calling for drafts
at sight covering the importation or purchase of game cartridges and CD roms
(the "Commercial L/C Line"). Each Commercial L/C shall be drawn on such terms
and conditions as are acceptable to Bank and shall be governed by the terms of
(and Borrower agrees to execute) Bank's standard form of Commercial L/C
application and reimbursement agreement. No Commercial L/C shall have an
expiration date more than ninety (90) days from its date of issuance.
No Commercial L/C shall expire later than July 31, 2000.
1.1.2 CLEAN ADVANCE LINE. Bank will also make available an amount
that will not exceed the amount listed above (the "Clean Advance Line") for
Borrower's working capital purposes; provided, however, that for at least sixty
(60) consecutive days during each twelve (12) month period, commencing on the
date of this Agreement, there shall be no advances outstanding under the Clean
Advance Line. All advances under the Clean Advance Line must be made on or
before May 1, 2000, at which time all unpaid principal and interest under the
Clean Advance Line shall be due and
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payable. Borrower may borrow, repay and reborrow all or part of the Clean
Advance Line in accordance with the terms of the Clean Advance Note (as such
term is defined hereinbelow). The Clean Advance Line shall be evidenced by a
promissory note (the "Clean Advance Note") on the standard form used by Bank to
evidence its commercial loans. Bank shall enter each amount borrowed and repaid
in Bank's records and such entries shall be deemed to be the amount of the Clean
Advance Line outstanding. Omission by Bank to make any such entries shall not
discharge Borrower of its obligation to repay amounts borrowed in full with
interest.
1.1.3 THE STANDBY L/C LINE. Bank shall issue, for the account of
Borrower, one or more irrevocable, standby letters of credit (individually, a
"Standby L/C" and collectively, the "Standby L/Cs"). Each such Standby L/C shall
be drawn on such terms and conditions as are acceptable to Bank and shall be
governed by the terms of (and Borrower agrees to execute) Bank's standard form
of Standby L/C application and reimbursement agreement with respect thereto. No
Standby L/C shall expire after May 31, 1999.
1.1.4 TRADE FINANCE CREDIT FACILITY SUBLIMITS. The aggregate amount
available to be drawn under each sublimit listed above shall be reduced, dollar
for dollar, by the aggregate amount of unpaid principal obligations under the
respective sublimit. The aggregate of all unpaid advances and reimbursement
obligations shall reduce, dollar for dollar, the maximum amount available under
the Trade Finance Credit Facility. Borrower may reborrow or obtain new
extensions of credit under each such sublimit until the expiration date of the
Trade Finance Credit Facility, to the extent that Borrower has paid or otherwise
satisfied prior borrowings or extensions of credit, subject to all terms and
conditions in the Loan Documents.
1.2 TERMINOLOGY. As used herein, the following terms shall have the
following meanings:
(a) The term "L/C" shall mean all Commercial L/Cs and Standby L/Cs
described above.
(b) The term "Loan" shall mean all of the credit facilities
described above.
(c) The term "Loan Documents" shall mean all documents, instruments
and agreements executed in connection with this Agreement.
(d) The term "Note" shall mean all of the promissory notes described
above.
(e) The term "T.HQ International" shall mean T.HQ International,
Ltd., a corporation organized and existing under the laws of the United Kingdom,
and a wholly-owned subsidiary of Borrower.
(f) The term "T.HQ International Agreement" shall mean that certain
Trade Finance Agreement dated as of December 4, 1998, by and between T.HQ
International and Bank, as at any time amended, supplemented or otherwise
modified or restated.
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1.3 PURPOSE OF THE LOAN. Each Commercial L/C shall be issued by Bank
to finance Borrower's customary trade cycle. Each advance under the Clean
Advance Line shall be used for Borrower's general working capital purposes. Each
Standby L/C shall be issued by Bank to Imperial Bank, as beneficiary, in order
to support Borrower's obligations to Imperial Bank with respect to certain
existing commercial letters of credit previously issued by Imperial Bank.
1.4 INTEREST. The unpaid principal balance of the Loan shall bear
interest at the rate or rates provided in the Note and selected by Borrower. The
Loan may be prepaid in full or in part only in accordance with the terms of the
Note and any such prepayment shall be subject to the prepayment fee provided for
therein.
1.5 TRADE FINANCE FEES. All fees in connection with the Trade
Finance Credit Facility will be in accordance with Bank's standard schedule of
fees as published from time to time, except as follows:
(a) The fees in connection with the issuance of each Commercial L/C
shall be, for each three-month period or fraction thereof, the greater of (i)
one-eighth of one percent (1/8 of 1%) or (ii) Ninety Dollars ($90.00);
(b) The fees in connection with the payment of each Commercial L/C
shall be the greater of (i) one-eighth of one percent (1/8 of 1%) per set of
documents or (ii) Seventy Dollars ($70.00); and
(c) The fees in connection with any amendment to a Commercial L/C
shall be, for each three-month period or fraction thereof, the greater of (i)
one-tenth of one percent (1/10 of 1%) or (ii) Sixty Dollars ($60.00).
1.6 LOAN COMMITMENT FEE. Borrower shall pay to Bank a commitment fee
of Seventy-Five Thousand Dollars ($75,000) on or before the date of execution of
this Agreement. No portion of such fee shall be reimbursable.
1.7 BALANCES. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement and the
Loan Documents have been paid in full.
1.8 DISBURSEMENT. Upon the execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorizations to
Disburse executed by Borrower.
1.9 SECURITY. Prior to any extension of credit under the Loan,
Borrower shall have executed a security agreement, on Bank's standard form, and
a UCC financing statement, suitable for filing in the office of the Secretary of
State of the State of California and any other state designated by Bank,
granting to Bank a first priority security interest in such of Borrower's
property as is described in said security agreement. The security agreement
shall provide that upon the occurrence of an Event
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of Default, Bank shall be entitled to exercise its remedies against the
collateral described therein and to sell such collateral wherever and to
whomever Bank deems necessary, in its reasonable discretion. Exceptions to
Bank's first priority, if any, are permitted only as otherwise provided in this
Agreement. At Bank's request, Borrower will also obtain executed landlord's and
mortgagee's waivers on Bank's form covering all of Borrower's property located
on leased or encumbered real property.
1.10 CONTROLLING DOCUMENT. In the event of any inconsistency between
the terms of this Agreement and the Note or any of the other Loan Documents, the
terms of the Note or such other Loan Documents will prevail over the terms of
this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the proceeds
of or extend any credit under the Loan unless at or prior to the time for
extending such credit, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied with
by it prior to or at the date of the making of such disbursement and shall have
executed and delivered to Bank the Note and the other Loan Documents.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the board of directors of
Borrower, authorizing the execution, delivery and performance of this Agreement
and the Loan Documents. Such resolutions shall also designate the persons who
are authorized to act on Borrower's behalf in connection with this Agreement and
to do the things required of Borrower pursuant to this Agreement.
2.3 TERMINATION STATEMENTS. Borrower shall have provided Bank with
UCC termination statements executed by such secured creditors as may be required
by Bank, suitable for filing with the Secretary of State in each state
designated by Bank.
2.4 CONTINUING COMPLIANCE. At the time any L/C is to be issued or
any disbursement is to be made, there shall not exist any event, condition or
act which constitutes an Event of Default under Section 6 hereof or any event,
condition or act which with notice, lapse of time or both would constitute an
Event of Default; nor shall there be any such event, condition or act
immediately after such credit extension were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
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3.1 BUSINESS ACTIVITY. The principal business of Borrower is the
development, publication and distribution of interactive software.
3.2 SUBSIDIARIES. Borrower's subsidiaries (those entities in which
Borrower has either a controlling interest or at least a twenty-five percent
(25%) ownership interest) and their addresses, and the names of Borrower's
principal shareholders are as provided on a schedule delivered to Bank on or
before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and performance of
this Agreement, the Note and the other Loan Documents are not in contravention
of any of the terms of any indenture, agreement or undertaking to which Borrower
is a party or by which it or any of its property is bound or affected.
3.4 FINANCIAL STATEMENTS. The consolidated financial statements of
Borrower and its subsidiaries, including both a consolidated balance sheet at
September 30, 1998, together with supporting schedules, and a consolidated
income statement for the nine (9) months ended September 30, 1998, have
heretofore been furnished to Bank, and are true and complete and fairly
represent the financial condition of Borrower and its subsidiaries during the
period covered thereby. Since September 30, 1998, there has been no material
adverse change in the financial condition or operations of Borrower and its
subsidiaries taken as a whole.
3.5 TITLE. Except for assets which may have been disposed of in the
ordinary course of business, Borrower and its subsidiaries have good and
marketable title to all of the property reflected in the consolidated financial
statements of Borrower and its subsidiaries delivered to Bank for the nine (9)
months ended September 30, 1998, and to all property acquired by Borrower and
its subsidiaries since the date of such financial statements, free and clear of
all Liens (as such term is defined in subsection 5.1 hereof) except those
specifically referred to in such financial statements. This representation and
warranty shall not apply to the property of Rushware Microhandelsgesellschaft
mbH and its two subsidiaries, SOFTGOLD Computerspiele GmbH and ABC Spielspass
GmbH (collectively, the "Rushware Entities").
3.6 LITIGATION. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely to
affect the financial condition, property or business of Borrower in a materially
adverse manner.
3.7 DEFAULT. Borrower is not now in default in the payment of any of
its material obligations (including, without limitation, any obligation to make
royalty payments under any license agreement to which it is a party), and there
exists no event, condition or act which constitutes an Event of Default under
Section 6 hereof and no condition, event or act which with notice or lapse of
time, or both, would constitute an Event of Default.
3.8 ORGANIZATION. Borrower is duly organized and existing under the
laws of the jurisdiction of its organization, and has the power and authority to
carry on the business in which it is engaged and/or proposes to engage.
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3.9 POWER. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and the other Loan Documents.
3.10 AUTHORIZATION. This Agreement and all things required by this
Agreement have been duly authorized by all requisite corporate action of
Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good standing
in any jurisdiction where such qualification is required.
3.12 COMPLIANCE WITH LAWS. Borrower is in compliance with all
applicable laws, rules, ordinances and regulations which materially affect the
operations or financial condition of Borrower.
3.13 REGULATION U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the same may hereafter
be in effect. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock as one of its important
activities and none of the proceeds of the Loan will be used, directly or
indirectly, for such purpose.
3.14 CONTINUING REPRESENTATIONS. The foregoing representations and
warranties shall be considered to have been made again at and as of the date
each L/C is issued and each advance is made and shall be true and correct as of
such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement and the
Loan Documents have been paid in full, unless Bank otherwise consents in
writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the Loan and its proceeds
only as provided in subsection 1.3 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge promptly
all taxes, assessments and other governmental charges and claims levied or
imposed upon it or its property, or any part thereof; provided, however, that
Borrower shall have the right in good faith to contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
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4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank's internal auditors to have access
thereto, to make examination and photocopies thereof, and to make audits during
regular business hours, but no more frequently than quarterly, unless an Event
of Default has occurred and is continuing or there has been a material adverse
change in Borrower's financial condition. Costs for such audits shall be paid by
Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
(a) Within sixty (60) days after the close of each fiscal quarter,
except for the final quarter of each fiscal year, copies of the unaudited
consolidated balance sheet of Borrower and its subsidiaries on Form 10-Q as of
the close of such fiscal quarter, the unaudited consolidated income and expense
statement of Borrower and its subsidiaries, with supportive schedules, and the
consolidated statement of retained earnings of Borrower and its subsidiaries for
such fiscal quarter, prepared in accordance with generally accepted accounting
principles;
(b) Within one hundred twenty (120) days after the close of each
fiscal year, copies of the consolidated statement of financial condition of
Borrower and its subsidiaries on Form 10-K, including at least the consolidated
balance sheet of Borrower and its subsidiaries as of the close of such fiscal
year, the consolidated income and expense statement of Borrower and its
subsidiaries, with supportive schedules, and the consolidated statement of
retained earnings of Borrower and its subsidiaries for such fiscal year,
examined and prepared on an audited basis by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the previous fiscal year;
(c) Concurrently with the financial information furnished to Bank
pursuant to subparagraph (a) of this subsection 4.5, copies of the unaudited
consolidating balance sheet of Borrower and each of its subsidiaries as of the
close of each fiscal quarter, and the unaudited consolidating income and expense
statement of Borrower and each of its subsidiaries as of the close of each
fiscal quarter, with supportive schedules, prepared in accordance with generally
accepted accounting principles;
(d) Concurrently with the financial information furnished to Bank
pursuant to subparagraph (b) of this subsection 4.5, copies of the consolidating
statement of financial condition of Borrower and each of its subsidiaries,
including at least the consolidating balance sheet of Borrower and each of its
subsidiaries as of the close of such fiscal year, and the consolidating income
and expense statement of Borrower and
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each of its subsidiaries, with supportive schedules, prepared in accordance with
generally accepted accounting principles;
(e) Within one hundred twenty (120) days after the close of each
fiscal year, a copy of the projections of Borrower and its subsidiaries for the
following fiscal year, in form and substance reasonably acceptable to Bank;
(f) As soon as available, copies of such financial statements and
reports as Borrower or any of its subsidiaries may file with any state or
federal agency, excluding any state or federal income tax returns;
(g) Such other financial statements and information as Bank may
reasonably request from time to time;
(h) Prompt written notice to Bank of any Event of Default under any
of the terms or provisions of this Agreement or of any default under any other
agreement, contract, document or instrument entered, or to be entered into with
Bank; and of any litigation which, if decided adversely to Borrower or any of
its subsidiaries, would have a material adverse effect on the financial
condition of Borrower or any of its subsidiaries; and of any other matter which
has resulted in, or is likely to result in, a material adverse change in the
financial condition or operations of Borrower or any of its subsidiaries;
(i) Prompt written notice to Bank of any default, whether resulting
from the nonpayment of royalties or otherwise, that has occurred under the terms
of any license agreement to which Borrower or any of its affiliates is a party;
(j) Prompt written notice to Bank of any change in Borrower's chief
executive officer, president, chief financial officer or any senior vice
president; Borrower's name; and location of Borrower's assets, principal place
of business or chief executive office;
(k) Concurrently with the financial information furnished to Bank
pursuant to subparagraphs (a) and (b) of this subsection 4.5, a copy of the
agings of the accounts receivable of Borrower and its subsidiaries (which shall
include, without limitation, detail as to any charges against reserves and
current reserve position) and a copy of an inventory report for Borrower and its
subsidiaries (which shall include, without limitation, detail as to any
write-downs and returns), each in a form acceptable to Bank and certified as
being true and correct by Borrower's Vice President Finance & Administration or
other duly authorized officer of Borrower; and
(l) Concurrently with the financial information furnished to Bank
pursuant to subparagraphs (a) and (b) of this subsection 4.5, a written
statement of Borrower's Vice President Finance & Administration or other duly
authorized officer of Borrower, certifying that no Event of Default, and no
event which, with the lapse of time or notice, or both, would become an Event of
Default, has occurred and is continuing, or if an Event of Default or potential
Event of Default has occurred and is continuing, setting forth the details of
such Event of Default or potential Event of Default and stating the action which
Borrower has taken, is taking or proposes to take with respect thereto.
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4.6 CONSOLIDATED QUICK RATIO. Borrower shall not permit the ratio of
(a) the sum of cash, Cash Equivalents and accounts receivable, in each case for
Borrower and its subsidiaries, to (b) the consolidated current liabilities of
Borrower and its subsidiaries (including advances made under the Clean Advance
Line and outstanding at such time) to be less than 1.25:1.00 as at the end of
any fiscal quarter. As used herein, the term "Cash Equivalents" shall mean (i)
securities issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof), (ii) Dollar denominated time deposits and certificates of deposit of
any commercial bank having a long-term unsecured debt rating of at least A or
the equivalent thereof from Standard & Poor's Ratings Services, a division of
McGraw-Hill, Inc. ("S&P"), (iii) commercial paper issued by any corporation
organized under the laws of any state of the United States of America having a
rating of at least A- or the equivalent thereof from S&P or at least P-1 or the
equivalent thereof from Moody's Investors Service, Inc. ("Moody's") and (iv)
investments in money market funds substantially all of which are comprised of
securities of the types described in clauses (i) through (iii) hereinabove.
4.7 INVENTORY TURNOVER. Borrower shall not permit its level of
Inventory Turnover to exceed thirty (30) days on a cumulative basis for any
fiscal quarter. As used herein, the term "Inventory Turnover" shall mean (a) the
value of the Inventory of Borrower and its subsidiaries as of the last day of
each fiscal quarter, determined at the lower of cost or fair market value, on a
first-in, first-out basis, in accordance with generally accepted accounting
principles, divided by (b) the greater of (i) four (4) times the cost of sales
for such Inventory for such fiscal quarter or (ii) the aggregate cost of sales
for such Inventory for such fiscal quarter and the three (3) immediately
preceding fiscal quarters, multiplied by (c) 365 days. As used in this
Agreement, the term "Inventory" shall mean all present and future inventory in
which Borrower or any of its subsidiaries has any interest, including but not
limited to goods, machinery, equipment held by Borrower or such subsidiary for
sale or lease or to be furnished under a contract of service and all of
Borrower's or such subsidiary's present and future raw materials, work in
process, finished goods and packing and shipping materials, wherever located,
and any documents of title representing any of the above.
4.8 CONSOLIDATED SHAREHOLDERS' EQUITY. Borrower will achieve
Consolidated Shareholders' Equity of not less than Fifty Million Dollars
($50,000,000) as at the end of the fiscal year ending December 31, 1998. Such
Consolidated Shareholders' Equity shall increase as of December 31, 1999, and
thereafter, as of the end of each successive fiscal year, by an amount not less
than the greater of (a) Ten Million Dollars ($10,000,000) or (b) ninety percent
(90%) of the consolidated net profit after taxes of Borrower and its
subsidiaries for such fiscal year. As used in this Agreement, "Consolidated
Shareholders' Equity" shall mean the consolidated net worth of Borrower and its
subsidiaries as reflected in the quarterly consolidated balance sheet of
Borrower and its subsidiaries on Form 10-Q and in the annual consolidated
statement of financial condition of Borrower and its subsidiaries on Form 10-K.
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4.9 CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED SHAREHOLDERS'
EQUITY. Borrower will maintain a ratio of Consolidated Total Liabilities to
Consolidated Shareholders' Equity of not greater than 1.00:1.00 as at the end of
each fiscal quarter. As used in this Agreement, "Consolidated Total Liabilities"
shall mean the consolidated total liabilities of Borrower and its subsidiaries,
as determined in accordance with generally accepted accounting principles, as
shown on the liability side of the consolidated balance sheet of Borrower and
its subsidiaries.
4.10 CONSOLIDATED OPERATING PROFIT. Borrower will achieve
Consolidated Operating Profit of not less than One Dollar ($1) as at the end of
and for each fiscal quarter. As used in this Agreement, "Consolidated Operating
Profit" shall mean the consolidated net operating income of Borrower and its
subsidiaries, as determined in accordance with generally accepted accounting
principles, before provision for taxes and non-recurring expenses.
4.11 INSURANCE. Borrower will keep all of its insurable property,
whether real, personal or mixed, insured by companies and in amounts approved by
Bank against fire and such other risks as are customarily insured against by
companies conducting similar business. Borrower will maintain workers
compensation insurance, insurance against liability for damage to persons or
property and insurance to cover loss of or to goods in transit to Borrower.
Borrower will furnish to Bank statements of its insurance coverage, will
promptly furnish other or additional insurance deemed necessary by and upon
request of Bank to the extent that such insurance may be available and hereby
assigns to Bank, as security for Borrower's obligations to Bank, the proceeds of
any such insurance. All of such insurance shall be maintained in such amounts as
is customarily obtained by companies conducting similar business with respect to
like risks. Prior to any extension of credit, Bank will be named loss payee on
all policies insuring collateral. All policies shall require at least ten (10)
days' written notice to Bank before any policy may be altered or cancelled.
4.12 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon demand by
Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other information
concerning its affairs as Bank may request from time to time.
4.13 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and staff) and all costs and other expenses paid or incurred by Bank in
collecting, modifying or compromising the Loan or in enforcing or exercising its
rights or remedies created by, connected with or provided for in this Agreement
or any of the Loan Documents, whether or not an arbitration, judicial action or
other proceeding is commenced. If such proceeding is commenced, only the
prevailing party shall be entitled to attorneys' fees and court costs.
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4.14 BANK EXPENSES. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement, the Loan Documents and the Loan, and all amendments and modifications
thereof, including but not limited to all filing and recording fees, costs of
appraisals, insurance and attorneys' fees, including the reasonable estimate of
the allocated costs and expenses of in-house legal counsel and staff.
4.15 ROYALTY PAYMENTS. Borrower will comply, and will cause each of
its affiliates to comply, in all material respects with any and all license
agreements to which Borrower or any such affiliate is a party. Without in any
manner limiting the generality of the foregoing sentence, Borrower will pay, and
will cause each of such affiliates to pay, all royalty and other payments
required to be paid by Borrower or such affiliate under such license agreements
when and as such payments become due.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this
Agreement and the Loan Documents have been paid in full, unless Bank otherwise
consents in writing, Borrower agrees that:
5.1 LIENS. Borrower will not create, assume or suffer to exist any
mortgage, pledge, security interest, encumbrance, or lien (collectively, "Liens"
and individually, a "Lien") (other than for taxes not delinquent and for taxes
and other items being contested in good faith) on property of any kind, whether
real, personal or mixed, now owned or hereafter acquired, or upon the income or
profits thereof, except (a) Liens in favor of Bank, (b) minor encumbrances and
easements on real property which do not affect its market, (c) Liens in favor of
Imperial Bank securing reimbursement obligations of Borrower in respect of
commercial letters of credit previously issued by Imperial Bank and (d) Liens
upon equipment or other property created in connection with the acquisition by
Borrower of such equipment or other property, provided, however, that (i) the
indebtedness incurred to finance each such acquisition is permitted by this
Agreement, (ii) each such Lien attaches only to the equipment or other property
acquired with the indebtedness secured thereby and (iii) the indebtedness
incurred to finance each such acquisition does not exceed Two Hundred Fifty
Thousand Dollars ($250,000).
5.2 BORROWINGS. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face value
for deposit or collection purposes only and without any fee other than fees
normally charged by the financial institution for deposit or collection
services. Except as otherwise provided in this Agreement, Borrower will not
borrow any money, become contingently liable to borrow money, nor enter any
agreement to directly or indirectly obtain borrowed money, except (a) pursuant
to agreements made with Bank and (b) pursuant to reimbursement agreements made
with Imperial Bank in connection with commercial letters of credit previously
issued by Imperial Bank.
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5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will not
liquidate, dissolve or enter into any consolidation, merger, partnership or
other combination, nor convey, sell or lease all or the greater part of its
assets or business, nor purchase or lease all or the greater part of the assets
or business of another; provided, however, that Borrower may purchase all or the
greater part of the assets or business of another so long as (a) no Event of
Default or event which, with the lapse of time or notice, or both, would become
an Event of Default, has occurred and is continuing or would result therefrom,
(b) Borrower provides Bank with prior written notice thereof and (c) the sum of
(i) the aggregate amount of all such acquisitions plus (ii) the aggregate
outstanding principal amount of all loans, advances and guaranties permitted
under subsection 5.4(c) hereof shall not exceed Five Million Dollars
($5,000,000) at any time.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except in the
ordinary course of business as currently conducted, make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any manner or
extend credit; provided, however, that (a) Borrower may guarantee certain
working capital obligations of the Rushware Entities, or any of them, to one or
more financial institutions, so long as the principal amount of the obligations
of the Rushware Entities so guaranteed does not exceed, in the aggregate amount
at any one time outstanding, the sum of Ten Million Dollars ($10,000,000), (b)
Borrower may make, or permit to exist, loans or advances to T.HQ International,
provided that the aggregate outstanding principal amount of all such loans or
advances shall not exceed Nine Million Five Hundred Thousand Dollars
($9,500,000) at any one time and (c) on or after the date of this Agreement,
Borrower may make loans or advances to, or guarantee the obligations of any of
its affiliates (in addition to the loans or advances to T.HQ International
permitted by subparagraph (b) hereof), provided that the sum of (i) the
aggregate outstanding principal amount of all loans or advances so made, or
obligations so guaranteed, plus (ii) the aggregate amount of all acquisitions
permitted by subsection 5.3 hereof, shall not exceed Five Million Dollars
($5,000,000) at any time.
5.5 INVESTMENTS. Borrower will not purchase the debt or equity of
another person or entity except (a) for savings accounts, money market accounts,
sweep investment accounts and certificates of deposit of Bank, (b) for direct
U.S. Government obligations and commercial paper issued by corporations with the
top ratings of Moody's or S&P, provided that all such permitted investments
shall mature within one (1) year of purchase, and (c) as permitted by subsection
5.3 of this Agreement.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or hereafter
outstanding.
5.7 RETIREMENT OF STOCK. Borrower will not acquire or retire any
share of its capital stock for value.
5.8 PARENT AND SUBSIDIARY PROPERTY. Borrower will not transfer any
property to its parent or any affiliate of its parent, except for value received
in the normal
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course of business as business would be conducted with an unrelated or
unaffiliated entity. In no event shall management fees or fees for services be
paid by Borrower to any such direct or indirect affiliate without Bank's prior
written approval.
5.9 CAPITAL EXPENDITURES. Borrower and its subsidiaries shall not
make capital expenditures in excess of Seven Hundred Fifty Thousand Dollars
($750,000) in any fiscal year, as reflected in the consolidated balance sheet of
Borrower and its subsidiaries on Form 10-Q and in the consolidated statement of
financial condition of Borrower and its subsidiaries on Form 10-K. Each such
capital expenditure shall be needed by Borrower or any of its subsidiaries in
the ordinary course of its business.
5.10 LEASE OBLIGATIONS. Borrower shall not, and shall not permit any
of its subsidiaries to, incur new lease obligations as lessee which would result
in aggregate lease payments made by Borrower and its subsidiaries for any fiscal
year exceeding Six Hundred Thousand Dollars ($600,000). Each said lease shall be
of equipment or real property needed by Borrower or any of its subsidiaries in
the ordinary course of its business.
SECTION 6. EVENTS OF DEFAULT
Upon the occurrence of any of the following events ("Events of
Default"), Bank, in its discretion, may cease extending credit hereunder and may
declare all obligations hereunder and under the Loan Documents immediately due
and payable; provided, however, that upon the occurrence of an Event of Default
described in subsection 6.4, 6.5, 6.6, 6.7 or 6.8 hereinbelow, all principal and
interest and any other amounts owing under the Loan Documents shall
automatically become immediately due and payable.
6.1 PAYMENT DEFAULTS. Borrower shall default in the due and punctual
payment of the principal of or the interest on the Note or any of the other Loan
Documents; or
6.2 BREACH OF REPRESENTATIONS OR WARRANTIES Any representation or
warranty made or deemed made by Borrower under this Agreement or any Loan
Document to which it is a party shall prove to have been incorrect in any
material respect on and as of the date made or deemed made; or
6.3 COVENANT DEFAULTS. Borrower shall default in the due performance
or observance of any covenant or condition of any Loan Document to which it is a
party and, in the case of the covenants set forth in subsections 4.2, 4.3, 4.4,
4.5, 5.1, 5.2, 5.5, 5.6, 5.7 and 5.8 and in the security agreement provided for
in subsection 1.9 hereof only, but only if such default is capable of being
cured, shall fail to cure such default within thirty (30) days; or
6.4 INSOLVENCY. Borrower shall become insolvent or fail to pay its
debts as such debts become due; or
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6.5 BANKRUPTCY. Borrower shall commence any voluntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization, arrangement,
debt adjustment or debtor relief or shall consent to any relief in any
involuntary proceeding under any laws relating to bankruptcy, insolvency,
reorganization, arrangement, debt adjustment or debtor relief; or any contested
involuntary proceeding under any laws relating to bankruptcy, insolvency,
reorganization, arrangement, debt adjustment or debtor relief shall be commenced
against Borrower and such involuntary proceeding shall not be dismissed or
discharged within sixty (60) days of commencement; or
6.6 ASSIGNMENT FOR BENEFIT OF CREDITORS. There shall be an
assignment by Borrower for the benefit of its creditors; or
6.7 APPOINTMENT OF RECEIVER. Borrower shall apply for or consent to
the appointment, or commence any proceeding for the appointment, of a receiver,
trustee, custodian or similar official for all or substantially all of
Borrower's property; or any proceeding for the appointment of a receiver,
trustee, custodian or similar official for all or substantially all of
Borrower's property shall be commenced against Borrower or its property and
shall not be dismissed or discharged within sixty (60) days of commencement; or
6.8 DISSOLUTION OR LIQUIDATION. Borrower shall be dissolved or
liquidated in full or in part; or any proceeding for the dissolution or
liquidation of Borrower shall be commenced against Borrower and not dismissed or
discharged within sixty (60) days of commencement; or
6.9 FAILURE TO COMPLY. Borrower shall fail to comply with (a) any
money judgment in an individual amount of Five Hundred Thousand Dollars
($500,000) or more, or in an aggregate amount of One Million Dollars
($1,000,000) or more, or (b) any order, non-monetary judgment, injunction,
decree, writ or demand of any court or other public authority and, in the case
of either subparagraph (a) or (b) of this subsection 6.9, such order, judgment,
injunction, decree, writ or demand shall continue unsatisfied and in effect for
a period of thirty (30) days without being vacated, discharged, satisfied or
stayed or bonded pending appeal; or
6.10 LEGAL PROCESS. There shall be filed or recorded any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes against Borrower or against the property of Borrower in an individual
amount of Five Hundred Thousand Dollars ($500,000) or more, or in an aggregate
amount of One Million Dollars ($1,000,000) or more, and such notice or other
legal process shall not be released, stayed, vacated, bonded or otherwise
dismissed within thirty (30) days after the date of its filing or recording; or
6.11 DEFAULT CONCERNING BORROWING OF MONEY. Borrower shall default
on any obligation concerning the borrowing of money that is outstanding in the
aggregate amount of One Hundred Thousand Dollars ($100,000) or more; or
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6.12 WRITS OF ATTACHMENT, ETC. The issuance against Borrower, or the
property of Borrower, of any writ of attachment, writ of execution or other
judicial lien in an individual amount of Five Hundred Thousand Dollars
($500,000) or more, or in an aggregate amount of One Million Dollars
($1,000,000) or more, and such writ or other judicial lien shall not be
released, stayed, vacated, bonded or otherwise dismissed within thirty (30) days
after the date of its issuance; or
6.13 DEFAULT UNDER T.HQ INTERNATIONAL AGREEMENT. An Event of Default
shall occur under the T.HQ International Agreement and such Event of Default
shall continue beyond any applicable grace period or shall not be waived.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower, and any assignment of Borrower without Bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and the Loan Documents shall be
governed by and construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications
between Borrower and Bank, whether verbal or written, shall be of no further
effect or evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing signed
by all parties hereto.
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7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original and
all of which, when taken together, shall constitute but one and the same
agreement.
SECTION 8. SERVICE OF NOTICES
8.1 NOTICES. Any notices or other communications provided for or
allowed hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have been
validly given: (a) upon delivery, if delivered personally; (b) upon receipt, if
mailed, first class postage prepaid, with the United States Postal Service; (c)
on the next business day, if sent by overnight courier service of recognized
standing; and (d) upon telephoned confirmation of receipt, if telecopied.
8.2 CHANGE OF ADDRESS. The addresses to which notices or demands are
to be given may be changed from time to time by notice delivered as provided
above.
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THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A.
By: /s/ ANN FORBES
-------------------------------
Ann Forbes
Title: Vice President
-----------------------------
Address:
Union Bank of California, N.A.
Commercial Banking Group--Greater Los Angeles Division
445 South Figueroa Street, 10th Floor
Los Angeles, California 90071
Attention: Ann Forbes
Vice President
Telecopier: (213) 236-7614
Telephone: (213) 236-7635
THQ INC.
By: /s/ BRIAN J. FARRELL
-------------------------------
Title: President and CEO
----------------------------
By: /s/ FRED A. GYSI
-------------------------------
Title: VP of Finance and
Administration and CFO
----------------------------
Address:
THQ Inc.
5016 North Parkway Calabasas, Suite 100
Calabasas, California 91302
Attention: Fred Gysi
Vice President Finance & Administration
Telecopier: (818) 591-1615
Telephone: (818) 591-1310
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