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EXHIBIT 10.5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of May 12, 1999, is entered
into between SANTA XXXXXX BANK, a California banking corporation ("SMB"), on the
one hand, and INTERVISUAL BOOKS, INC., a California corporation ("IBI"), and FFM
ACQUISITION CORP., a California corporation which is in the process of changing
its name to Fast Forward Marketing, Inc. ("FFM"), on the other hand. IBI and FFM
are sometimes individually and collectively referred to as "Borrower" and
representations, warranties, covenants and agreements of "Borrower" contained in
this Agreement shall apply equally to IBI and FFM unless any such
representation, warranty, covenant or agreement is specifically limited to
either IBI or FFM. The liability of IBI and FFM under this Agreement is joint
and several.
The parties agree as follows:
1. DEFINITIONS. In addition to the defined terms contained in the
first paragraph above, as used herein, the following terms shall have the
following definitions:
1.1 "Accounts" means all presently existing and hereafter
arising accounts (as that term is defined in the Code), contract rights,
instruments, notes, drafts, documents, chattel paper and all other forms of
obligations owing to Borrower, and any and all credit insurance, guaranties and
other security therefor, as well as all merchandise returned to or reclaimed by
Borrower.
1.2 "Agreement" means this Loan and Security Agreement and any
supplements, amendments or modifications to this Loan and Security Agreement.
1.3 "Borrowing Base Certificate" means the certificate,
substantially in the form of Exhibit 1.3, with appropriate insertions, to be
submitted to SMB by Borrower pursuant to this Agreement and certified as true
and correct by the Chief Executive Officer or the Chief Financial Officer of
Borrower.
1.4 "Borrower's Books" means all of Borrower's books and
records including, but not limited to: minute books; ledgers; records
indicating, summarizing or evidencing Borrower's assets, liabilities, and the
Accounts; all information relating to Borrower's business operations; and all
computer programs, disc or tape files, printouts, runs, and other computer
prepared information and the equipment containing such information.
1.5 "Code" means the California Uniform Commercial Code, and
any and all terms used in this Agreement which are defined in the Code and are
not defined herein shall be construed and defined in accordance with the
definition of such terms under the Code.
1.6 "Collateral" means each and all of the following:
A. the Accounts;
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B. the Equipment;
C. the Financial Assets;
D. the General Intangibles;
E. the Inventory;
F. the Negotiable Collateral;
G. any money, deposit accounts or other assets of
Borrower in which SMB receives a security interest or which hereafter come into
the possession, custody or control of SMB; and
H. the proceeds of any of the foregoing, including,
but not limited to, proceeds of insurance covering the Collateral, or any
portion thereof, and any and all Accounts, Equipment, Financial Assets,
Inventory, General Intangibles, Negotiable Collateral, money, deposit accounts
or other tangible and intangible property resulting from the sale or other
disposition of the Collateral, or any portion thereof or interest therein, and
the proceeds thereof.
1.7 "Daily Balance" means the amount determined by taking the
amount of the Obligations owed at the beginning of a given day, adding any new
Obligations advanced or incurred on such date, and subtracting any payments or
collections which are deemed to be paid on that date under the provisions of
this Agreement.
1.8 "Debt to Tangible Net Worth Ratio" means on a consolidated
basis the figure derived by dividing Borrower's total liabilities, exclusive of
Subordinated Debt, by Borrower's Tangible Net Worth. Borrower's total
liabilities shall be determined in accordance with GAAP consistently applied.
1.9 "Eligible Accounts" means those Accounts (i) which have
been validly assigned to SMB, (ii) strictly comply with all of Borrower's
warranties and representations to SMB, (iii) contain payment terms of net ninety
(90) days, or less, from the date of invoice, and (iv) unless subject to a
specific written agreement of Borrower and SMB to the contrary, are not past due
more than (1) sixty (60) days from the invoice due date, or (2) one hundred
twenty (120) days following the date of the invoice, which ever is lesser;
provided, however, that Eligible Accounts shall not include the following: (a)
Accounts with respect to which the account debtor is an officer, employee or
agent of Borrower; (b) Accounts with respect to which services or goods are
placed on consignment, guaranteed sale, or other terms by reason of which the
payment by the account debtor may be conditional (other than that portion of the
Accounts which are subject to retention and Accounts as to which the account
debtor has the right to return goods in the ordinary course of business); (c)
Accounts with respect to which the account debtor is not a resident of the
United States, unless payment of such Account is fully supported by a letter of
credit issued by a bank, and containing terms and conditions, acceptable to SMB
or is fully supported by credit insurance issued by an insurer acceptable to SMB
and containing policy terms acceptable to SMB; (d) Accounts with respect to
which the account
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debtor is the United States or any department, agency or instrumentality of the
United States; provided, however, that an Account shall not be deemed ineligible
by reason of this clause (d) if Borrower has completed all of the steps
necessary to comply with the Federal Assignment of Claims Act of 1940 (31 U.S.C.
Section 203) with respect to such Account; (e) Accounts with respect to which
the account debtor is any state of the United States or any city, town,
municipality, county or division thereof; (f) Accounts with respect to which the
account debtor is a subsidiary of, related to, affiliated with, or has common
officers or directors with Borrower; (g) Accounts with respect to which Borrower
is or becomes liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower, but only to the extent of the offset rights
of such account debtor; (h) that portion of the Accounts owed by an account
debtor which exceeds twenty percent (20%) of all Eligible Accounts; (i) all of
the Accounts owed by an account debtor who is the subject of an Insolvency
Proceeding; (j) all of the Accounts owed by an account debtor where twenty
percent (20%) or more of all of the Accounts owed by that account debtor are
past due more than sixty (60) days from the invoice due date; and (k) Accounts
for which the services have not yet been rendered to the account debtor or the
goods sold have not yet been delivered to the account debtor (commonly referred
to as "pre-billed accounts").
1.10 "Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, motor vehicles, tools, parts, dies, jigs, goods, and any interest in
any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions and improvements thereto, wherever
located.
1.11 "Event of Default" means the occurrence of any one of the
events set forth in Section 9.
1.12 "Fast Forward" means Fast Forward Marketing, Inc., a
California corporation.
1.13 "Financial Assets" means all of Borrower's present and
future investment property, financial assets, securities, security entitlements,
securities accounts, commodity accounts and commodity contracts.
1.14 "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
1.15 "General Intangibles" means all of Borrower's present and
future general intangibles and all other presently owned or hereafter acquired
intangible personal property of Borrower (including, without limitation, any and
all choses or things in action, goodwill, patents, trade names, trademarks,
copyrights, maskworks, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, infringement claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, tax refunds and tax refund claims) other than goods
and Accounts, as well as Borrower's Books relating to any of the foregoing.
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1.16 "Governing Rate" shall have the meaning set forth in
Section 2.4.
1.17 "Guarantor" means individually, and "Guarantors" means
collectively, the following persons and entities:
A. Xxxxx Xxxx
X. Xxxx Family Trust
1.18 "Insolvency Proceeding" means any proceeding commenced by
or against any person or entity under any provision of the federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including,
but not limited to, assignments for the benefit of creditors, formal or informal
moratoriums, compositions or extensions generally with its creditors.
1.19 "Inventory" means and includes all of Borrower's present
and future inventory in which Borrower has any interest, including, but not
limited to, goods held for sale or lease or to be furnished under a contract of
service and all of Borrower'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.
1.20 "Judicial Officer or Assignee" means any trustee,
receiver, controller, custodian, assignee for the benefit of creditors or any
other person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian or assignee for the benefit
of creditors.
1.21 "Loan Documents" means collectively this Agreement, the
Note, and any other agreements entered into between Borrower and SMB in
connection with this Agreement.
1.22 "Loan Origination Fee" shall have the meaning set forth in
Section 2.9.
1.23 "Maximum Credit Line" means Two Million and 00/100 Dollars
($2,000,000.00).
1.24 "Merger Agreement" means the Agreement and Plan of Merger,
dated as of March 29, 1999, by and among IBI, FFM, Fast Forward, Xxxxxx X. Xxxx
and Xxxxxx X. Xxxx and Xxxxxx Xxxxx as trustees of the Xxxxxx Xxxx and Xxxxxx
Xxxxx Revocable Family Trust.
1.25 "Negotiable Collateral" means all of Borrower's present
and future letters of credit, advises of credit, notes, drafts, instruments,
documents, leases, and chattel paper, and Borrower's Books relating to any of
the foregoing.
1.26 "Net Worth" means, as of any date and on a consolidated
basis, the total asssets of Borrower minus the total liabilities of Borrower
calculated in conformity with GAAP.
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1.27 "Note" means that certain Secured Promissory Note, of even
date herewith, in the original principal amount of Two Million and 00/100
Dollars ($2,000,000.00) executed by Borrower to the order of SMB, and any
renewals, amendments, restatements or extensions of such Secured Promissory
Note.
1.28 "Obligations" means any and all loans, advances, debts,
liabilities (including, without limitation, any and all amounts charged to
Borrower's account pursuant to any agreement authorizing SMB to charge
Borrower's account), obligations, lease payments, guaranties, covenants and
duties owing by Borrower to SMB of any kind and description (whether advanced
pursuant to or evidenced by this Agreement, any of the other Loan Documents, or
any other instrument, or by any other agreement between SMB and Borrower and
whether or not for the payment of money), whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising, and
including, without limitation, any debt, liability or obligation owing from
Borrower to others which SMB may have obtained by assignment or otherwise, and
further including, without limitation, all interest not paid when due and all
SMB Expenses which Borrower is required to pay or reimburse by this Agreement,
by law, or otherwise.
1.29 "Over Advance" shall have the meaning set forth in Section
2.2.
1.30 "Prime Rate" means the highest variable rate of interest,
per annum, published daily as the "prime rate" in the Money Rates Section of the
Western Edition of the Wall Street Journal. In the event that such a rate is no
longer published, then the "Prime Rate" shall mean the variable rate of
interest, per annum, most recently announced by SMB Bank at its headquarters
office as its "prime rate," with the understanding that SMB Bank's "prime rate"
is one of its base rates and serves as a basis upon which effective rates of
interest are calculated for loans making reference thereto and may not be the
lowest of SMB Bank's base rates.
1.31 "SMB Expenses" means all of the following: (i) costs or
expenses (including, without limitation, taxes and insurance premiums) required
to be paid by Borrower under this Agreement or any of the other Loan Documents
which are paid or advanced by SMB; (ii) filing, recording, publication and
search fees paid or incurred by SMB; and (iii) costs, fees (including reasonable
attorneys' and paralegals' fees) and expenses incurred by or charged to SMB: (a)
to audit Borrower and the Collateral; (b) to correct any default or enforce any
provision of this Agreement, any of the other Loan Documents and any guaranty of
the Obligations, whether or not litigation is commenced; (c) in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; (d) in collecting the Accounts and in collecting the
Obligations, whether from Borrower, any guarantor or both; and (e) in
structuring, drafting, reviewing, amending, defending or concerning this
Agreement or any of the other Loan Documents.
1.32 "Subordinating Creditor" means ZINDART LIMITED, a Hong
Kong corporation.
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1.33 "Subordinated Debt" means all of the indebtedness owed by
Borrower to any third parties, including the Subordinating Creditor, the
repayment of which is subordinated to the repayment of the Obligations pursuant
to the terms of a subordination agreement approved by SMB in its sole and
absolute discretion.
1.34 "Subordination Agreement" means that certain Subordination
Agreement, dated as of May 12, 1999, among Subordinating Creditor, SMB, IBI and
FFM.
1.35 "Tangible Net Worth" means on a consolidated basis an
amount equal to the Net Worth of Borrower increased by Subordinated Debt and
decreased by the following: patents, licenses, leasehold improvements, goodwill,
subscription lists, organization expenses, monies due from affiliates (including
officers, directors and shareholders) and security deposits.
1.36 "Working Capital" means on a consolidated basis the amount
determined by subtracting the aggregate amount of Borrower's current liabilities
from the aggregate amount of Borrower's current assets. Borrower's current
liabilities and current assets shall be determined in accordance with GAAP
consistently applied.
1.37 Other Definitional Provisions. References to "Sections",
"subsections", and "Exhibits" shall be to Sections, subsections, and Exhibits,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in Section 1 may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this
Agreement, words importing any gender include the other genders; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement;
references to any person includes their respective permitted successors and
assigns or people succeeding to the relevant functions of such persons; and all
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations.
2. LOANS AND TERMS OF PAYMENT
2.1 Advances. Upon the request of Borrower, made at any time
and from time to time during the term of this Agreement, and so long as no Event
of Default has occurred, SMB shall consider Borrower's requests for advances of
up to seventy five percent (75%) of the net amount of Borrower's Eligible
Accounts (the "net amount" of Eligible Accounts means the gross amount of said
Eligible Accounts less actual returns, discounts (based upon the shortest or
longest payment terms, as SMB may elect), credits, or allowances of any nature
issued, owing, claimed by account debtors, granted or outstanding) based upon
the most recent Borrowing Base Certificate submitted to SMB under this
Agreement, less the amount of outstanding obligations owing to any third party
with a security interest in any of the Collateral which is senior to the
security interest of SMB in such Collateral; provided, however, that in no event
shall SMB be obligated to consider Borrower's requests for advances to Borrower
under this Section 2.1 whenever the aggregate amount of the then outstanding
advances made pursuant to Sections 2.1
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(regardless of whether such advances were made to IBI or FFM) exceeds, or would
exceed as a result of the requested advance, the Maximum Credit Line. Each
requested advance shall be allocated to IBI and FFM based upon the amount of the
Eligible Accounts each has assigned to SMB as collateral and the allocated
portion of each advance shall be disbursed directly into their respective
deposit accounts maintained with SMB. The Obligations arising pursuant to this
Section 2.1 shall be evidenced by the Note.
2.2 Over Advances. All of the advances made pursuant to
Sections 2.1 shall be added to and deemed part of the Obligations when made. If,
at any time and for any reason, the amount of advances made pursuant to Sections
2.1 exceeds the percentage or dollar limitations set forth in that section, or
if all of Borrower's Obligations, at any time and for any reason, exceed the
Maximum Credit Line (an "Over Advance"), then Borrower, upon SMB's election and
demand, shall immediately pay to SMB, in cash, the amount of such excess.
2.3 Authorizations. SMB is hereby authorized to make the loan
and the extensions of credit provided for in this Agreement based upon
telephonic or other instructions and transaction reports received from any one
of the authorized personnel of Borrower identified on Exhibit 2.3, or, at the
discretion of SMB, if such extensions of credit are necessary to satisfy any
Obligations of Borrower to SMB. Although SMB shall make a reasonable effort to
determine the person's identity, SMB shall not be responsible for determining
the exact identity of the person calling and SMB may act on the instructions of
anyone it perceives to be one of the authorized personnel identified on Exhibit
2.3.
2.4 Interest Rates. All Obligations owed by Borrower to SMB
shall bear interest, on the average Daily Balance owing, at a rate two and
one-half (2.50) percentage points above the Prime Rate (the "Governing Rate").
All Obligations owed by Borrower to SMB shall bear interest, from and after the
occurrence of an Event of Default, and without constituting a waiver of any such
Event of Default, on the average Daily Balance owing, at a rate five (5)
percentage points above the Governing Rate. All interest chargeable under this
Agreement shall be computed on the basis of a three hundred sixty (360) day year
for actual days elapsed.
2.5 Payment of Interest. The Prime Rate as of the date of this
Agreement is seven and three quarters percent (7.75%) per annum. In the event
that the Prime Rate published or announced, as appropriate, is from time to time
hereafter changed, adjustment in the rate of interest payable by Borrower shall
be made as of 12:01 a.m. on the day such change is published or announced. The
minimum interest payable by Borrower under this Agreement shall in no event be
less than Two Hundred Fifty and 00/100 Dollars ($250.00) for each month during
the term of this Agreement. All interest payable by Borrower shall be due and
payable on the first (1st) day of each calendar month during the term of this
Agreement and SMB shall, at its option, charge such interest and any and all SMB
Expenses to either IBI's account number 00-000-000 with SMB or FFM's account
number ___________ with SMB, with the amount charged to each such account to be
determined by SMB in its sole and reasonable discretion. If there are
insufficient funds in such accounts, then SMB reserves the right to charge such
interest and SMB Expenses to Borrower's loan account with SMB, which amounts
shall thereupon constitute Obligations hereunder and shall thereafter accrue
interest at the rate then provided under this Agreement.
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2.6 Assignment of Accounts, Borrowing Base Certificates and
Collection Reports. Borrower shall deliver to SMB the following items as
indicated below:
A. On the date Borrower requests the initial advance
under this Agreement and on the twentieth (20th) day of each month, Borrower
shall execute and deliver to SMB an assignment schedule which shall include an
assignment of all Accounts which arose during the immediately preceding calendar
month, and if requested by SMB, a copy of the sales journal(s) supporting each
Account listed on the assignment schedule.
B. Concurrent with the execution of this Agreement by
Borrower and on the tenth day of each calendar month, Borrower shall deliver to
SMB a fully completed Borrowing Base Certificate certified by the Chief
Executive Officer or Chief Financial Officer of Borrower as being true and
correct as of the last day of the immediately preceding calendar month.
Concurrent with the delivery of the Borrowing Base Certificate, Borrower shall
provide a written report to SMB of all returns and all material disputes and
claims. If Borrower fails to deliver to SMB the Borrowing Base Certificate on
the date when due, then notwithstanding any of the provisions contained in
Section 2.1, or in any other Loan Document to the contrary, SMB shall not make
any advances to Borrower until the Borrowing Base Certificate is delivered to
SMB.
2.7 Collections. Borrower shall collect all payments now or
hereafter owing in connection with the Accounts and shall deposit such payments
in IBI's account and FFM's account with SMB, as appropriate. SMB or SMB's
designee may, at any time following the occurrence of an Event of Default and so
long as such Event of Default has not been cured during any applicable cure
period, if any, notify customers or account debtors of Borrower that the
Accounts have been assigned to SMB and that SMB has a security interest therein,
collect them directly, and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that all payments received by Borrower
in connection with the Accounts and any other Collateral shall be held in trust
for SMB as SMB's trustee. The receipt of any wire transfer of funds, check, or
other item of payment by SMB shall be applied to conditionally reduce Borrower's
Obligations, but shall not be considered a payment on account unless such wire
transfer is of immediately available federal funds and is made to the
appropriate deposit account of SMB or unless and until such check or other item
of payment is honored when presented for payment.
2.8 Monthly Statements. SMB shall render monthly statements of
the Obligations owing by Borrower to SMB, including statements of all principal,
interest, and SMB Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and SMB unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to SMB, by registered or certified mail, at
SMB's address indicated in Section 14, written objection thereto specifying the
error or errors, if any, contained in any such statement.
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2.9 Loan Origination Fee. On the effective date of this
Agreement, Borrower shall pay to SMB a loan origination fee (the "Loan
Origination Fee") equal to three eighths of one percent (0.375%) of the Maximum
Credit Line. Payment of the Loan Origination Fee shall be made as of the due
date by charging Borrower's account with the amount of the Loan Origination Fee.
The Loan Origination Fee shall represent an unconditional payment to SMB in
consideration of SMB's agreement to extend financial accommodations to Borrower
pursuant to this Agreement and shall not reduce or be a deposit on account of
the Obligations.
3. TERM AND PREPAYMENT
3.1 Term.
A. This Agreement shall have a term commencing on the
date hereof and concluding on May 1, 2000.
B. Notwithstanding such term, upon the occurrence of
an Event of Default, SMB may terminate this Agreement without notice. In
addition, should either SMB or Borrower become insolvent or is unable to meet
its debts as they mature, then the other party shall have the right to terminate
this Agreement at any time without notice. On the date of a termination by
Borrower or SMB, all Obligations shall become immediately due and payable
without notice or demand and shall be paid to SMB in cash or by a wire transfer
of immediately available funds.
C. When SMB has received payment and performance in
full of all Obligations (whether pursuant to this Section 3.1 or Section 3.2)
and an acknowledgment from Borrower that it is no longer entitled to request any
advances from SMB under this Agreement, SMB shall execute a termination of all
security interests given by Borrower to SMB, upon the execution and delivery of
mutual general releases by Borrower, any guarantor or surety of Borrower's
Obligations, and SMB.
3.2 Prepayment. Borrower may at any time, on three (3)
business days prior written notice, prepay the Obligations and terminate this
Agreement by paying to SMB in cash or by a wire transfer of immediately
available federal funds, the Obligations. When prepaying the Obligations,
Borrower shall also pay the interest accrued on the principal amount being
prepaid to the date of such prepayment.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants to SMB
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations owed by Borrower to SMB and in order to secure prompt performance by
Borrower of each and all of its covenants and obligations under this Agreement
and otherwise created. SMB's security interest in the Collateral shall attach to
all Collateral without further act on the part of SMB or Borrower. In the event
that any Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral, Borrower shall, immediately upon written request therefor
from SMB, endorse and assign such Negotiable
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Collateral over to SMB and deliver actual physical possession of the Negotiable
Collateral to SMB.
4.2 Right to Audit and Inspect. In order to verify the
validity of any Borrowing Base Certificate, Borrower shall, upon the request of
SMB, promptly furnish SMB with copies of Borrower's purchase orders, sales
journals, invoices, chattel paper, customer's purchase orders, or the
equivalent, and original shipping or delivery receipts for all Inventory
purchased and goods sold, and Borrower shall warrant the genuineness thereof. In
addition, SMB shall be entitled to conduct from time to time during the term of
this Agreement audits of Borrower's Books, business operations and Inventory and
to check and test the same as to quality, quantity, value and condition.
Borrower shall reimburse SMB for all audit fees, expenses and costs incurred by
SMB in connection with the first three (3) audits during each consecutive twelve
(12) month period following the date of this Agreement, as well as in connection
with any audits conducted during a period that an Event of Default exists and is
continuing hereunder, and the amount charged shall be deemed included in the
"Obligations" when incurred. SMB shall be entitled to charge the appropriate
Borrower's account maintained with Bank with the amount of any such fees,
expenses and costs.
4.3 Sale of Inventory. Until the occurrence of an Event of
Default by Borrower under this Agreement, Borrower may, subject to the
provisions hereof and consistent herewith, sell or lease the Inventory, but only
in the ordinary course of Borrower's business. A sale or lease of Inventory in
Borrower's ordinary course of business does not include an exchange or a
transfer in partial or total satisfaction of a debt owing by Borrower, nor does
it include an exchange for less than reasonably equivalent value.
4.4 Continuation of Security Interest. Notwithstanding
termination of this Agreement, until all Obligations, contingent or otherwise,
have been fully repaid and performed, SMB shall retain its security interest in
all presently owned and hereafter arising or acquired Collateral and Borrower
shall continue to immediately deliver to SMB, in kind, all collections received
respecting the Accounts.
4.5 Perfection of Security Interest. Borrower shall execute
and deliver to SMB, concurrent with Borrower's execution of this Agreement, and
at any time or times hereafter at the reasonable request of SMB, all financing
statements, continuation financing statements, security agreements, control
agreements, assignments, endorsements, affidavits, reports, notices, schedules
of accounts, letters of authority and all other documents that SMB may
reasonably request, in form satisfactory to SMB, to perfect and maintain
perfected SMB's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement.
4.6 Access to Borrower's Books. SMB (through any of its
officers, employees or agents) shall have the right, at any time or times
hereafter upon one (1) business days' prior notice, during Borrower's usual
business hours, or during the usual business hours of any third party having
control over the records of Borrower, to inspect and verify Borrower's Books in
order to verify the amount or condition of, or any other matter relating to, the
Collateral and
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Borrower's financial condition. Upon the occurrence of an Event of Default and
during the continuation thereof, no prior notice shall be required for SMB to
conduct any such inspection.
4.7 Power of Attorney. Borrower hereby irrevocably makes,
constitutes and appoints SMB (and any of SMB's officers, employees or agents
designated by SMB) as Borrower's true and lawful attorney with power:
A. Upon Borrower's failure or refusal to comply with
its undertakings contained in Section 4.5, to sign the name of Borrower on any
of the documents described in that section or on any other similar documents
which need to be executed, recorded and/or filed in order to perfect or continue
perfected SMB's security interest in the Collateral;
B. To endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into SMB's possession;
C. To sign Borrower's name on drafts against account
debtors and on schedules and assignments of Accounts;
D. After the occurrence of an Event of Default and
during the continuation thereof, to sign Borrower's name on collection notices
to account debtors;
E. After the occurrence of an Event of Default and
during the continuation thereof, to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by SMB, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward, within two (2) business days of SMB's receipt
thereof, all other mail to Borrower;
F. To send requests for verification of Accounts; and
G. After the occurrence of an Event of Default and
during the continuation thereof, to compromise and settle any and all Accounts
and other obligations owing to Borrower, to enter into settlement agreements and
mutual general releases on Borrower's behalf and to execute any notices, UCC
termination statements, reconveyances or other documentation in connection with
any such settlement.
The appointment of SMB as Borrower's attorney, and each and every
one of SMB's rights and powers, being coupled with an interest, are irrevocable
so long as any Accounts in which SMB has a security interest remain unpaid and
until all of the Obligations have been fully paid and performed. Neither SMB nor
its employees, officers or agents shall be liable for any acts or omissions or
for any error in judgment or mistake of fact or law made in good faith except
for gross negligence or willful misconduct.
5. CONDITIONS PRECEDENT AND SUBSEQUENT.
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5.1 As conditions precedent to any advances by SMB hereunder
or any other Loan Documents, Borrower shall execute and deliver, or cause to be
executed and delivered, to SMB, in form and substance satisfactory to SMB and
its counsel, the following:
A. The Loan Documents.
B. Financing statements (form UCC-1) and fixture
filings in form satisfactory for filing and recording with the appropriate
governmental authorities.
C. Certified extracts from the minutes of the meetings
of Borrower's board of directors authorizing the borrowings and the granting of
the security interest provided for herein and authorizing specific officers to
execute and deliver the agreements provided for herein.
D. A certified copy of Borrower's Articles of
Incorporation and any amendments thereto, a certificate of good standing showing
that Borrower is in good standing under the laws of the State of its
incorporation and certificates indicating that Borrower has qualified to
transact business and is in good standing in any other state in which the
conduct of its business or its ownership of property requires that it be so
qualified.
E. UCC searches, tax lien and litigation searches,
fictitious business statement filings, insurance certificates, notices or other
similar documents which SMB may require and in such form as SMB may require, in
order to reflect, perfect or protect the priority of SMB's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement.
F. A fully completed Borrowing Base Certificate, dated
as of the date of this Agreement, and certified as being true and correct by the
Chief Executive Officer or Chief Financial Officer.
G. Evidence satisfactory to SMB that Borrower has
obtained insurance policies or binders, with such insurers and in such amounts
as may be acceptable to SMB, respecting the Inventory, Equipment and any other
tangible personal property comprising the Collateral and naming SMB as a loss
payee on a lender's loss payee endorsement acceptable to SMB in its sole
discretion.
H. A subordination agreement, in a form acceptable to
SMB in its sole discretion, duly executed and delivered by the Subordinating
Creditor to SMB.
I. Evidence satisfactory to SMB, in its sole
discretion, that Borrower has recorded fictitious business name statements in
the appropriate governmental offices regarding all of the trade names used by
Borrower in its business.
J. An executed counterpart of the Merger Agreement
certified by an officer of IBI and FFM to be a true and correct counterpart of
the Merger Agreement, including all amendments, modifications, exhibits and
schedules thereto.
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K. Evidence acceptable to SMB that IBI, FFM and Fast
Forward have filed with the office of the California Secretary of State all of
the documents and have paid all of the required fees which are necessary to
complete the merger of FFM and Fast Forward, with FFM being the surviving
entity, on terms and conditions acceptable to SMB, in its sole discretion.
L. An opinion of counsel for IBI and FFM addressed to
SMB stating that the merger of FFM and Fast Forward pursuant to the Merger
Agreement was in compliance with applicable law and has been consummated, IBI
and FFM each has full corporate power and authority to enter into and perform
the Loan Documents; each of the officers of IBI and FFM who executes and/or
delivers any of the Loan Documents has been duly authorized to do so and each of
them has the full corporate power and authority to perform such acts and to bind
IBI and FFM (as appropriate) thereby; IBI's and FFM's execution and delivery of
the Loan Documents will not result in a breach of any material agreement known
to such counsel to which either IBI or FFM, or both, is a party; each of the
Loan Documents is binding and enforceable against IBI and FFM in accordance with
its terms, subject only to bankruptcy, insolvency, or other laws affecting the
rights of creditors generally; provided, however, that such laws do not and will
not materially impair, affect, or limit the rights and benefits granted to SMB
under such documents; IBI and FFM each conducts its business in conformity with
all applicable federal, state and local laws and regulations; all permits,
notices, consents, and other actions necessary to complete the transactions
contemplated by the Loan Documents have been obtained and taken; and such other
and further matters which are customarily opined to by counsel for borrowers in
connection with similar transactions.
M. A separate continuing guaranty of the Obligations
of Borrower to SMB, in a form acceptable to SMB in its sole discretion, duly
executed and delivered by each of the Guarantors, respectively. The guaranties
shall not constitute an obligation of Guarantors owing to SMB unless and until
Guarantors no longer beneficially own at least thirty percent (30%) of the
issued and outstanding common stock of IBI as determined in accordance with the
terms of the guaranties.
N. Evidence satisfactory to SMB, in its sole
discretion, that the amount of the Subordinated Debt is not less than Two
Million Dollars ($2,000,000).
O. A disbursement letter from Borrower authorizing and
directing SMB to make the initial advances hereunder.
5.2 Condition Subsequent. Notwithstanding any other provisions
of this Agreement or any of the other Loan Documents to the contrary, and
without affecting in any manner the rights of SMB under the other Sections of
this Agreement, SMB shall not continue to make advances under Section 2.1 and
SMB shall be entitled to immediately declare an Event of Default under this
Agreement, if Borrower fails to deliver to SMB or fails to cause to be delivered
to SMB the following items on or prior to the date corresponding to such items:
A. Within thirty (30) days following the date of this
Agreement, evidence acceptable to SMB that FFM and Fast Forward have completed
their merger, that FFM
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is the surviving entity in connection with such merger, that all consents,
approvals and authorizations required in connection with such merger have been
obtained, and that all required filings and registrations have been completed.
B. Within thirty (30) days following the written
request of SMB, Borrower shall use its best efforts to obtain a separate waiver
and consent by real property owner, containing terms and conditions acceptable
to SMB in its sole discretion, for each facility where Collateral is located,
executed by the owner of such facility and notarized for recording in the real
estate records of the county where such facility is located. Failure to obtain
any requested waiver and consent of real property owner despite the best efforts
of Borrower shall not constitute an Event of Default.
6. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower makes the
following representations and warranties which shall be deemed to be continuing
representations and warranties until the Obligations have been repaid in full
and this Agreement has been terminated:
6.1 Existence and Rights.
A. The chief executive office of Borrower is at the
address indicated in Section 14;
B. Borrower is a corporation duly organized and
existing under the laws of the State of California and is qualified and licensed
to do business and is in good standing in any state in which the conduct of its
business or its ownership of property requires that it be so qualified;
C. Borrower has the right and power to enter into this
Agreement and each of the other Loan Documents;
D. Borrower has the power, authority, rights and
franchises to own its property and to carry on its business as now conducted;
E. Other than IBI's investment in FFM, Borrower has no
investment in any other business entity.
6.2 Agreement Authorized. The execution, delivery and
performance by Borrower of this Agreement and each of the other Loan Documents:
(a) have been duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; and (b) shall not constitute a
breach of any provision contained in Borrower's Articles of Incorporation or
Bylaws.
6.3 Binding Agreement. This Agreement is the valid, binding
and legally enforceable obligation of Borrower in accordance with its terms.
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6.4 No Conflict. The execution, delivery and performance by
Borrower of this Agreement and each of the other Loan Documents: (a) shall not
constitute an event of default under any agreement, indenture or undertakings to
which Borrower is a party or by which it or any of its property may be bound or
affected; (b) are not in contravention of or in conflict with any law or
regulation; and (c) do not cause any lien, charge or other encumbrance to be
created or imposed upon any such property by reason thereof other than the
security interests granted to SMB in the Collateral.
6.5 Litigation. Except as set forth on Exhibit 6.5, there are
no actions or proceedings pending by or against Borrower or any guarantor of
Borrower before any court or administrative agency, and Borrower has no
knowledge or belief of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except for ongoing collection
matters in which Borrower is the plaintiff and except as heretofore disclosed,
in writing, to SMB. Borrower is not in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental or regulatory
authority.
6.6 Financial Condition. All financial statements and
information relating to Borrower which have been delivered by Borrower to SMB
have been prepared in accordance with GAAP consistently applied, unless
otherwise stated therein, and fairly and reasonably present Borrower's financial
condition. There has been no material adverse change in the financial condition
of Borrower since the date of the most recent of such financial statements
submitted to SMB. Borrower has no knowledge of any liabilities, contingent or
otherwise, which are not reflected in such financial statements and information,
and Borrower has not entered into any special commitments or contracts which are
not reflected in such financial statements or information which may have a
materially adverse effect upon Borrower's financial condition, operations or
business as now conducted.
6.7 Tax Status. Borrower has no liability for any delinquent
state, local or federal taxes.
6.8 Title to Assets. Borrower has good title to its assets and
the same are not subject to any liens or encumbrances other than those permitted
by Section 6.11A.
6.9 Trademarks and Patents. Borrower, as of the date hereof,
possesses all necessary trademarks, trade names, copyrights, patents, patent
rights and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and license
rights of others.
6.10 Environmental Quality. Borrower has in the past and is
currently in compliance with any and all federal, state and local statutes, laws
and regulations concerning the preservation of the environment and the use and
disposal of hazardous and toxic materials and substances. Borrower is not aware
that it is under investigation by any state or federal agency designed to
enforce any of such laws or regulations.
6.11 Accounts and General Intangibles.
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A. Borrower has good and marketable title to the
Accounts and General Intangibles, free and clear of liens, claims, security
interests, or encumbrances (except as held by SMB and Subordinating Creditor,
and except as may be specifically consented to, in advance and in writing, by
SMB); at the time of their assignment to SMB the Accounts will be bona fide
existing obligations created by the sale or lease of goods or the rendition of
services to account debtors in the ordinary and usual course of business and
will be owed to Borrower without any known defenses, disputes, offsets or
counterclaims, or any rights of return or cancellation; Borrower shall have
received no notice of actual or imminent bankruptcy or insolvency of any account
debtor at the time the Account due from such account debtor is created; and in
accordance with prudent credit policies, the account debtor shall be able to
timely discharge all of its indebtedness to Borrower;
B. Borrower shall deliver to SMB, as SMB may from time
to time reasonably require, original delivery receipts, customer's purchase
orders, shipping instructions, bills of lading and other documentation
respecting shipment arrangements. Absent such a request by SMB, copies of all
such documentation shall be held by Borrower as custodian for SMB;
C. At the time each Eligible Account is assigned to
SMB, such Eligible Account will be due and payable in accordance with the terms
set forth in Section 1.9, or on such other terms approved, in writing, by SMB in
advance of the creation of such Account, and such terms shall be expressly set
forth on the face of the invoice for such Account. No Eligible Account will be
past due at the time it is assigned to SMB.
6.12 Inventory and Equipment.
A. The Inventory and Equipment are currently located
only at the locations identified on Exhibit 6.12;
B. All Inventory is now and at all times hereafter
shall be of good and merchantable quality, free from material defects;
C. Except as set forth on Exhibit 6.12, the Inventory
and Equipment are and shall remain free from all liens, claims, encumbrances,
and security interests (except as held by SMB, and except as may be specifically
consented, in advance and in writing, by SMB and Subordinating Creditor);
D. Except as set forth on Exhibit 6.12, the Inventory
is not now stored with a bailee, warehouseman or similar party; and
E. Borrower currently keeps correct and accurate
records itemizing and describing the kind, type, quality and quantity of the
Inventory, and its cost therefor.
6.13 Year 2000 Compliance. Borrower has taken commercially
reasonable steps and efforts to ensure that all computer software, computer
hardware and firmware used by the Borrower is Year 2000 compliant, is designed
to be used prior to, during and after the
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calendar year 2000 A.D. All such computer software, computer hardware and
firmware used during each such time period will accurately receive, provide and
process date/time data (including, but not limited to, calculating, comparing
and sequencing) from, into and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations and will not
malfunction, cease to function, or provide invalid or incorrect results as
result of the date/time data, to the extent that all other information
technology used in combination with the Borrower's computer software, properly
exchanges date/time data with it.
6.14 Sales for Resale. Borrower's sales for ultimate use, as
opposed to sales for resale, as of the date of this Agreement and for the twelve
(12) months preceding said date, did not equal or exceed twenty-five percent
(25%) in dollar volume of Borrower's total sales. During each month of the term
of this Agreement, Borrower's sales for ultimate use shall not equal or exceed
twenty-five percent (25%) in dollar volume of Borrower's total sales in said
month.
7. BORROWER'S AFFIRMATIVE COVENANTS. Borrower covenants and agrees
that until the Obligations have been repaid in full and this Agreement has been
terminated, unless SMB shall otherwise consent in writing, Borrower shall do all
of the following:
7.1 Assignment Schedules and Invoices. On the twentieth (20th)
day of each month during the term of this Agreement, Borrower shall deliver to
SMB an assignment schedule of all Accounts created by Borrower since the
delivery of the immediately preceding assignment schedule required hereunder. In
addition, upon the request of SMB, Borrower shall deliver to SMB copies of
invoices evidencing sales by Borrower and shipping evidence and proofs of
delivery relating thereto.
7.2 Rights and Facilities. Borrower shall maintain and
preserve all rights, franchises and other authority adequate for the conduct of
its business. Borrower shall also maintain its properties, equipment and
facilities in good order and repair and conduct its business in an orderly
manner without voluntary interruption and maintain and preserve its existence,
other than as permitted hereunder.
7.3 Location of Inventory and Equipment. The Inventory and
Equipment shall be located only at locations listed on Exhibit 6.12 or such
other locations as shall have been approved by SMB, which approval shall not be
unreasonably withheld.
7.4 Inventory Records. Borrower shall keep correct and
accurate records itemizing and describing the kind, type, quality and quantity
of the Inventory, and its cost therefor, and, upon the reasonable request of
SMB, shall be available to any of SMB's officers, agents and employees for
inspection and copying during Borrower's normal business hours or the normal
business hours of any third party maintaining custody of such Inventory and
records.
7.5 Insurance. Borrower, at its expense, shall keep and
maintain its Inventory and Equipment insured against loss or damage by fire,
theft, explosion, sprinklers and all other hazards and risks ordinarily insured
against by other owners who use such properties in similar businesses for the
full insurable value thereof. Borrower shall deliver to SMB certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. Borrower
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shall also keep and maintain business interruption, public liability, and
property damage insurance relating to Borrower's ownership and use of the
Inventory, Equipment and its other assets. All such policies of insurance shall
be in such form, with such companies, and in such amounts as may be satisfactory
to SMB. All such policies of insurance (except those of public liability and
property damage) shall contain an endorsement in a form satisfactory to SMB
showing SMB as a loss payee thereof, and all proceeds payable thereunder shall
be payable to SMB and, upon receipt by SMB, shall be applied on account of the
Obligations owing to SMB. To secure the payment of the Obligations, Borrower
grants SMB a security interest in and to all such policies of insurance (except
those of public liability and property damage) and the proceeds thereof, and
Borrower shall direct all insurers under such policies of insurance to pay all
proceeds thereof directly to SMB.
7.6 Notice of Litigation. If at any time during the term of
this Agreement any litigation, governmental investigations or claims,
complaints, actions or prosecutions involving Borrower or, to Borrower's
knowledge, any guarantor of Borrower shall be commenced or threatened which
involve claims against Borrower or the guarantor for an amount, either
individually or when added to other pending claims, in excess of $25,000,
Borrower shall promptly notify SMB in writing of such event.
7.7 Submission of Records and Reports.
A. Borrower shall execute and deliver to SMB by the
fifteenth (15th) day of each month during the term of this Agreement, each
certified by the Chief Executive Officer or Chief Operating Officer of Borrower
as being true and correct, a current detailed aging, by total and by customer,
of Borrower's Accounts;
B. Borrower shall promptly supply SMB with such other
information concerning its affairs as SMB may reasonably request from time to
time hereafter, and shall promptly notify SMB of any material adverse change in
Borrower's financial condition and of any condition or event which constitutes a
breach of, or an event which constitutes an Event of Default under, this
Agreement.
7.8 Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against Borrower
or any of its property shall be paid in full, before delinquency or before the
expiration of any extension period unless the same is being contested in good
faith and Borrower has established adequate reserves, in accordance with GAAP,
for such contested taxes. Borrower shall make due and timely payment or deposit
of all federal, state and local taxes, assessments or contributions required of
it by law, unless the same is being contested in good faith and Borrower has
established adequate reserves, in accordance with GAAP, for such contested
items, and will execute and deliver to SMB, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, unless the same is being contested in good faith and Borrower
has established adequate reserves, in accordance with GAAP, for such contested
items, and will, upon request, furnish SMB with proof satisfactory to SMB
indicating that Borrower has made such payments or deposits.
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7.9 Financial Statements.
A. Borrower shall maintain a standard and modern
system of accounting in accordance with GAAP consistently applied with ledger
and account cards and/or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as may from time to time
be reasonably requested by SMB. Borrower shall not modify or change its method
of accounting or enter into, modify or terminate any agreement presently
existing, or at any time hereafter entered into with any third party accounting
firm and/or service bureau for the preparation and/or storage of Borrower's
accounting records without said accounting firm and/or service bureau agreeing
to provide to SMB information regarding the Collateral and Borrower's financial
condition. Borrower agrees to permit SMB and any of its employees, officers or
agents, upon demand, during Borrower's usual business hours, or the usual
business hours of third persons having control thereof, to have access to and
examine all of Borrower's Books relating to the Collateral, the Obligations,
Borrower's financial condition and the results of Borrower's operations, and, in
connection therewith, permit SMB or any of its agents, employees or officers to
copy and make extracts therefrom.
B. For each of Borrower's fiscal years during the term
of this Agreement, Borrower shall deliver to SMB:
(i) within thirty (30) days after the end of
each month, other than the end of a fiscal quarter and in that case within forty
five (45) days, a company prepared statement of the financial condition of
Borrower for such monthly period, including, but not limited to, a balance
sheet, a profit and loss statement, and a cash flow statement, and any other
report requested by SMB relating to the Collateral and the financial condition
of Borrower, and a certificate signed by the Chief Executive Officer or Chief
Operating Officer of Borrower, to the effect that all statements and reports
delivered or caused to be delivered to SMB under this subsection, fairly and
thoroughly present the financial condition of Borrower;
(ii) within sixty (60) days after the end of the
first three (3) fiscal quarters of each of Borrower's fiscal years, a company
prepared statement of the financial condition of Borrower for each such
quarterly period, on a consolidated and consolidating basis, including, but not
limited to, a balance sheet, a profit and loss statement, and a cash flow
statement, a copy of the 10Q statement filed with the Securities and Exchange
Commission, and any other report requested by SMB relating to the Collateral and
the financial condition of Borrower, and a certificate signed by the Chief
Executive Officer or Chief Operating Officer of Borrower, to the effect that all
reports, statements, computer disc or tape files, printouts, runs, or other
computer prepared information of any kind or nature relating to the foregoing or
documents delivered or caused to be delivered to SMB under this subsection,
fairly and thoroughly present the financial condition of Borrower.
(iii) within ninety (90) days after the end of
each of Borrower's fiscal years, an audited statement of the financial condition
of Borrower for such fiscal year, on a consolidated and consolidating basis,
prepared by independent certified public accountants acceptable to SMB,
including, but not limited to, a balance sheet, a profit and loss statement, and
a cash flow statement, a copy of the 10K statement filed with the Securities and
Exchange
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Commission for such period and any other report requested by SMB relating to the
Collateral and the financial condition of Borrower, and a certificate signed by
the Chief Executive Officer or Chief Operating Officer of Borrower, to the
effect that all reports, statements, computer disc or tape files, printouts,
runs, or other computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be delivered to SMB under this
subsection, fairly and thoroughly present the financial condition of Borrower.
7.10 Financial Covenants. Borrower shall be in compliance with
the following financial covenants which shall be measured on a quarterly basis:
A. A Debt to Tangible Effective Net Worth Ratio of not
more than the following:
Time Period Maximum Ratio
----------- -------------
As of June 30, 1999 1.85 to 1.0
As of September 30, 1999 2.35 to 1.0
As of December 31, 1999 1.80 to 1.0
As of March 31, 2000 1.80 to 1.0
B. Working Capital of not less than the following:
Time Period Minimum Amount
----------- --------------
As of June 30, 1999 $ 500,000
As of September 30, 1999 $1,300,000
As of December 31, 1999 $1,500,000
As of March 31, 2000 $ 500,000
C. Tangible Net Worth of not less than the following:
Time Period Minimum Amount
----------- --------------
As of June 30, 1999 $4,400,000
As of September 30, 1999 $4,700,000
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As of December 31, 1999 $5,100,000
As of March 31, 2000 $4,500,000
7.11 Payment of Debts. Borrower shall be at all times hereafter
solvent and able to pay its debts (including trade debts) as they mature.
7.12 Compliance with Environmental Laws. Borrower shall comply
in all material respects with any and all federal, state and local statutes,
laws and regulations concerning the preservation of the environment and the use
and disposal of hazardous and toxic materials and substances.
7.13 Reimbursement for SMB Expenses. Upon the demand of SMB,
Borrower shall immediately reimburse SMB for all sums expended by SMB which
constitute SMB Expenses, and Borrower hereby authorizes and approves all
advances and payments by SMB for items constituting SMB Expenses.
8. BORROWER'S NEGATIVE COVENANTS. Borrower covenants and agrees that
until the Obligations have been repaid in full and this Agreement has been
terminated, unless SMB shall otherwise consent in writing, Borrower shall not do
any of the following:
8.1 Relocate of Chief Executive Office. Borrower will not,
without thirty (30) days prior written notification to SMB, relocate its chief
executive office.
8.2 Agreements with Account Debtors. After an Event of Default
and during the continuation thereof, no discount, credit or allowance shall be
granted by Borrower to any account debtor and no return of merchandise shall be
accepted by Borrower without SMB's consent. SMB may, after an Event of Default
and during the continuation thereof, settle or adjust disputes and claims
directly with account debtors for amounts and upon terms which SMB considers
advisable, and in such cases, SMB will credit Borrower's account with only the
net amounts received by SMB in payment of such disputed Accounts, after
deducting all SMB Expenses incurred or expended in connection therewith.
8.3 Storage of Inventory. The Inventory shall not at any time
or times hereafter be stored with a bailee, warehouseman or similar party
without SMB's prior written consent, and, in such event, Borrower will,
concurrent therewith, cause any such bailee, warehouseman or similar party to
issue and deliver to SMB, in a form acceptable to SMB, warehouse receipts in
SMB's name evidencing the storage of the Inventory.
8.4 Business Structure and Operations. Borrower shall not,
without SMB's prior written consent:
A. Sell, lease, or otherwise dispose of, move,
relocate (except in connection with a relocation of Borrower's business
facility) or transfer, whether by sale or otherwise, any of Borrower's assets,
except sales of Inventory in the ordinary and usual course of Borrower's
business as presently conducted or disposition of obsolete equipment;
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B. Change Borrower's name or form of entity, or add
any new fictitious name;
C. Acquire, merge or consolidate with or into any
other business organization other than a merger of FFM and IBI;
D. Enter into any transaction not in the ordinary and
usual course of Borrower's business;
E. Guarantee or otherwise become in any way liable
with respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the general account of Borrower
or which are transmitted or turned over to SMB;
F. Make any change in the Borrower's financial
structure or in any of its business objectives, purposes or operations which
could adversely affect the ability of Borrower to repay the Obligations;
G. Other than the Subordinated Debt, incur any debts
outside the ordinary and usual course of Borrower's business;
H. Make any advance or loan to any person or entity
during the term of this Agreement other than to an employee, director or officer
of Borrower, or a related party, which individually does not exceed Twenty Five
Thousand Dollars ($25,000) or in the aggregate with all other outstanding
advances or loans does not exceed One Hundred Fifty Thousand Dollars ($150,000);
I. Prepay any existing indebtedness owing to any third
party except as permitted under the Subordination Agreement;
J. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem or retire any
of its capital stock, of any class, whether now or hereafter outstanding;
K. Make any plant or fixed SMB expenditure, or any
commitment therefor, in any fiscal year, in an aggregate amount in excess of
Three Hundred Thousand Dollars ($300,000);
L. Cause the Subordinated Debt to be less than Two
Million and 00/100 Dollars ($2,000,000.00); provided, however, that so long as
there are no outstanding Obligations and no existing Event of Default, the
Subordinated Debt may be reduced to less than Two Million and 00/100 Dollars
($2,000,000.00);
M. Suspend or go out of business.
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8.5 ERISA.
A. Borrower shall not withdraw from participation in,
permit the termination or partial termination of, or permit the occurrence of
any other event with respect to any deferred compensation plan maintained for
the benefit of Borrower's employees under circumstances that could result in
liability to the Pension Benefit Guaranty Corporation, or any of its successors
or assigns, or to any entity which provides funds for such deferred compensation
plan.
B. Borrower shall not withdraw from any multi-employer
plan described in Section 4001(a)(3) of ERISA which covers Borrower's employees.
9. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
9.1 Failure to Pay Obligations. If Borrower fails to pay when
due and payable or when declared due and payable all or any portion of the
Obligations owing to SMB (whether of principal, taxes, reimbursement of SMB
Expenses, or otherwise);
9.2 Failure to Perform. If Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, agreement,
warranty or representation contained in this Agreement, in any of the other Loan
Documents, or in any other present or future agreement between Borrower and SMB
and such failure has a materially adverse effect on the Collateral or the
business operations of Borrower;
9.3 Inaccurate Information. If any representation, statement,
report, or certificate made or delivered by Borrower, or any of its officers,
employees or agents, to SMB is not true and correct in any material respect,
including, but not limited to, any Borrowing Base Certificate delivered to SMB
pursuant to this Agreement;
9.4 Third Party Claim. If all or a material portion of
Borrower's assets are attached, seized, subjected to a writ or distress warrant,
or are levied upon, or come into the possession of any Judicial Officer or
Assignee;
9.5 Impairment. If there is a material impairment of the
prospect of repayment of all or any portion of the Obligations owing to SMB or a
material impairment of the value or priority of SMB's security interests in the
Collateral;
9.6 Voluntary Insolvency Proceeding. If an Insolvency
Proceeding is commenced by Borrower;
9.7 Involuntary Insolvency Proceeding. If an Insolvency
Proceeding is commenced against Borrower;
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9.8 Interruption of Business. If Borrower is enjoined,
restrained or in any way prevented by court order from continuing to conduct all
or any material part of its business affairs;
9.9 Governmental Lien. If a notice of lien, levy or assessment
is filed of record with respect to all or a material portion of Borrower's
assets by the United States Government, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, or if any tax or debt owing at any time hereafter to any
one or more of such entities becomes a lien, whether xxxxxx or otherwise, upon
all or a material portion of the Borrower's assets and the same is not paid on
the payment date thereof unless such is being contested in good faith and
Borrower has established adequate reserves for such item in accordance with
GAAP;
9.10 Liens. If a judgment or other claim becomes a lien or
encumbrance upon all or a material portion of Borrower's assets;
9.11 Default in Agreement with Third Party. If there is a
default in any loan agreement, mortgage, indenture or other agreement to which
Borrower is a party with third parties and SMB determines that such default
shall have a materially adverse effect on Borrower's business or the prospects
for repayment of the Obligations;
9.12 Payment on Subordinated Debt. If Borrower makes any
payment on the Subordinated Debt in violation of the applicable Subordination
Agreement;
9.13 Misrepresentation. If any misrepresentation exists now or
hereafter in any warranty or representation made to SMB by Borrower or any
officer or director of Borrower, or if any material warranty or representation
is withdrawn by Borrower or by any officer or director of Borrower;
9.14 Reportable Event Under ERISA. If any reportable event,
which SMB determines will have a material adverse effect on the financial
condition of Borrower or which SMB determines constitutes grounds for the
termination of any deferred compensation plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to administer any such plan, shall have occurred and be
continuing thirty (30) days after written notice of such determination shall
have been given to Borrower by SMB, or any such Plan shall be terminated within
the meaning of Title IV of ERISA, or a trustee shall be appointed by the
appropriate United States District Court to administer any such plan, or the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate
any plan and in case of any event described in this Section 9.14, the aggregate
amount of the Borrower's liability to the Pension Benefit Guaranty Corporation
under Sections 4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of
Borrower's Tangible Net Worth; or
9.15 Withdrawal from Multi-Employer Plan. Borrower shall have
withdrawn from a multi-employer plan described in Section 4001(a)(3) of ERISA
and incurs withdrawal liability as a result thereof.
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9.16 Cure Periods. Notwithstanding anything contained in this
Section 9 to the contrary, SMB shall refrain from exercising its rights and
remedies and an Event of Default shall not be deemed to have occurred by reason
of the occurrence of: (i) an event set forth in Section 9.7 if, within ninety
(90) calendar days from the date thereof, the same is discharged or dismissed,
or (ii) any of the events set forth in Sections 9.4 or 9.10 if, within ten (10)
calendar days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, SMB shall not be
obligated to make advances to Borrower during such cure period.
10. SMB'S RIGHTS AND REMEDIES
10.1 Remedies. Upon the occurrence of an Event of Default by
Borrower under this Agreement, SMB may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
A. Declare all Obligations, whether arising pursuant
to this Agreement or otherwise, immediately due and payable;
B. Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and SMB;
C. Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of SMB, but without affecting
SMB's rights and security interest in the Collateral and without affecting the
Obligations owing by Borrower to SMB;
D. SMB or SMB's designee may notify customers, account
debtors or lessees of Borrower that the Accounts have been assigned to SMB and
that SMB has a security interest therein, collect them directly, and charge the
collection costs and expenses to Borrower's loan account;
E. Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as SMB considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if SMB so requires, and to make the Collateral
available to SMB as SMB may designate. Borrower authorizes SMB to enter the
premises where the Collateral is located, take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of SMB appears to be prior or
superior to its security interest and to pay all expenses incurred in connection
therewith;
F. SMB is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral and Borrower's
rights under all licenses, and all franchise agreements shall inure to SMB's
benefit;
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G. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the manner provided
for herein) the Collateral;
H. Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms. It is not necessary that the Collateral be present at any such sale;
I. In connection with any such sale, the standard of
commercial reasonableness will be deemed satisfied if SMB does the following:
(i) Location of Sale(s). The sale(s) may be
conducted at Borrower's premises, SMB's premises, the premises of any third
party located in or adjacent to any county in which any of the Collateral is
located, or any other location which SMB believes is reasonably convenient to
potential purchasers. The selection of any such location(s) shall be in the sole
and absolute discretion of SMB.
(ii) Notice of Sale. SMB shall give notice of the
disposition of the Collateral as follows:
(a) SMB shall give Borrower and each
holder of a security interest in the Collateral who has filed with SMB a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, the time on or after which the private
sale or other disposition is to be made;
(b) The notice shall be personally
delivered or mailed, postage prepaid, to Borrower as provided in Section 14, at
least ten (10) calendar days before the date fixed for the sale, or at least ten
(10) calendar days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower claiming an
interest in the Collateral shall be sent to such addresses as they have
furnished to SMB;
(c) If the sale is to be a public sale,
SMB shall also give notice of the time and place by publishing a notice one time
at least ten (10) calendar days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
J. SMB may credit bid and purchase at any public sale;
K. Borrower shall pay all SMB Expenses incurred in
connection with SMB's enforcement and exercise of any of its rights and remedies
as herein provided, whether or not suit is commenced by SMB;
L. Any deficiency which exists after disposition of
the Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
parties, to Borrower by SMB.
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10.2 Cumulative Rights. SMB's rights and remedies under this
Agreement and all other agreements shall be cumulative. SMB shall have all other
rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity. No exercise by SMB of one right or remedy shall be deemed an
election, and no waiver by SMB of any default on Borrower's part shall be deemed
a continuing waiver. No delay by SMB shall constitute a waiver, election or
acquiescence by it.
11. TAXES AND EXPENSES REGARDING THE COLLATERAL. If Borrower fails to
pay any monies (whether taxes, assessments, insurance premiums, or otherwise)
due to third persons or entities, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then SMB may, to the extent that it determines in its sole discretion
that such failure by Borrower could have a material adverse change on SMB's
interests in the Collateral, in its discretion and with prior notice to Borrower
(unless SMB has determined, in its sole and good faith determination that the
delay caused by giving notice to Borrower could have a materially adverse effect
on the rights of SMB, in which case, no notice to Borrower shall be required),
(i) make payment of the same or any part thereof; (ii) set up such reserves in
Borrower's loan account as SMB deems necessary to protect SMB from the exposure
created by such failure; or (iii) both. Any amounts paid or deposited by SMB
shall constitute SMB Expenses, shall be immediately charged to Borrower's loan
account and become additional Obligations owing to SMB, shall bear interest at
the applicable rate set forth in Section 2.4, and shall be secured by the
Collateral. Any payments made by SMB shall not constitute: (i) an agreement by
SMB to make similar payments in the future, or (ii) a waiver by SMB of any Event
of Default under this Agreement. SMB need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance or lien, and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
12. WAIVERS
12.1 Application of Payments. Borrower waives the right to
direct the application of any and all payments at any time or times hereafter
received by SMB on account of any Obligations owed by Borrower to SMB, and
Borrower agrees that SMB shall have the continuing exclusive right to apply and
reapply such payments in any manner as SMB may deem advisable, notwithstanding
any entry by SMB upon its books.
12.2 Demand, Protest, Default, Etc. Except as otherwise
provided herein, Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guarantees at any time held by SMB on which Borrower may in any way be liable.
12.3 Maintenance of Collateral. So long as SMB complies with
its obligations, if any, under Section 9207 of the Code, SMB shall not in any
way or manner be liable or responsible for: (a) the safekeeping of the Inventory
and/or Equipment; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency
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or other person whomsoever. All risk or loss, damage or destruction of the
Inventory and Equipment shall be borne by Borrower.
12.4 Confidential Relationship. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
and/or service bureau in connection with any information requested by SMB
pursuant to or in accordance with this Agreement, and agrees that SMB may
contact directly any such accounting firm and/or service bureau in order to
obtain such information.
13. SURETY WAIVERS. In the event IBI or FFM or both are deemed to be
guarantors of all or a portion of the Obligations, then IBI and FFM each agrees
as follows:
13.1 SMB's Direct Rights.
A. Guaranty of Payment. Borrower guaranties payment
and performance of any such Obligations, not merely collection. In the event
that payment or performance of any of the Obligations is not made in a timely
manner, SMB may enforce its rights, without first seeking to obtain payment or
performance from or without resorting to (i) Borrower for the Obligations
(meaning that SMB may delay, in SMB's sole and complete discretion, in the
exercise of rights against Borrower); (ii) any other guarantor; (iii) any
collateral SMB may hold as security for the Obligations; or (iv) any other
remedy or right that SMB may have.
B. Waiver of Priority of Collection. Borrower waives
any rights it may have to require SMB to proceed against any other party or to
pursue any other remedy in SMB's power which Borrower could not pursue which
would lighten Borrower's burden, as guarantor. In addition, Borrower waives any
right it may have to benefit from every security which now or hereafter exists
for the performance of the Obligations or for the performance of any other
guarantor's obligations owing to SMB. If SMB decides to proceed first to
exercise any other remedy or right, or to proceed against another person or any
collateral, SMB retains any and all of it's rights created under this Section.
13.2 Continuing Guaranty and Revocation. If Borrower is deemed
a guarantor of all or any portion of the Obligations, then such guaranty shall
apply to all such Obligations, including existing Obligations as well as all
future Obligations. Borrower shall also guaranty all future liability under
successive transactions which either continue such Obligations or from time to
time renew some or all of them after having been satisfied and, to that extent,
the guaranty of Borrower shall be continuing in nature. Borrower may not
terminate or revoke such guaranty. Borrower irrevocably waives any right it has,
including any rights under California Civil Code Section 2815, to terminate or
revoke the continuing nature of its guaranty and its application to any
Obligations arising after any attempt to terminate such guaranty.
13.3 No Notice Required. Borrower, as guarantor, will not be
released or exonerated from it's obligations as guarantor if Borrower, as
guarantor, is not notified by SMB of these events: (i) the failure of SMB to
receive timely payment of any amount owed under any of the Loan Documents or to
receive payment or performance of any of the other Obligations; (ii)
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any failure of any third party to perform any other Obligation under any of the
Loan Documents; (iii) any adverse change in the financial condition or business
of any party obligated in connection with any of the Obligations; and (iv) all
other notices to which Borrower, as guarantor, might be entitled.
13.4 Additional Waivers. Borrower, as guarantor, waives any
right it may have to require any of the following acts: demand; presentment;
diligence; protest; notice of dishonor; and any other notice to which it may be
entitled.
13.5 No Release. SMB may do or suffer any of the following, by
action or inaction, without releasing or exonerating Borrower, as guarantor,
from its responsibility to pay or perform any of the Obligations (and SMB need
not notify Borrower, as guarantor of any of the following): (i) renew, extend,
rearrange, alter, impair, suspend or otherwise modify any of the Obligations or
any of the rights or remedies of SMB under the Loan Documents; (ii) release
Borrower or any other guarantor from any of the Obligations; (iii) sell,
release, subordinate, impair, suspend, waive or otherwise fail to obtain,
perfect or realize upon (or continue the perfection of) a security interest in
any collateral for any of the Obligations or any other guaranty of the
Obligations; (iv) exercise SMB's rights in any Collateral for any of the
Obligations or any other collateral for any other guaranty of the Obligations in
any order that SMB may elect in its sole discretion; (v) advance additional
funds to or for the benefit of Borrower, as borrower; (vi) foreclose on any
Collateral for the Obligations, or any portion thereof (including the collateral
provided under a deed of trust) or a guaranty of the Obligations, or any portion
thereof in a manner that diminishes, impairs or precludes the right of Borrower,
as guarantor, to enjoy any rights of subrogation against any other guarantor or
third person, or to obtain reimbursement, performance, or indemnification for
payment or performance under this Agreement (in this connection, Borrower, as
guarantor, waives any rights and defenses arising out of an election of remedies
by SMB, even though that election of remedies, such as nonjudicial foreclosure
with respect to security for the Obligations or any other guaranty, has
destroyed Borrower's rights, as guarantor, of subrogation and reimbursement
against any other guarantor or third person by operation of law and, in
addition, Borrower, as guarantor, waives any defenses arising under Uniform
Commercial Code Sections 1103 and 9501 et seq.); (vii) permit or suffer the
impairment of any of the Obligations in a case under the Bankruptcy Code by or
against Borrower; (viii) permit or suffer the creation of secured or unsecured
credit or debt under Bankruptcy Code Section 364 in a case involving any of the
Obligations; (ix) permit or suffer the disallowance, avoidance or subordination
of any of the Obligations or Collateral; (x) fail to exercise any right or
remedy SMB may have with respect to the payment or performance of, any of the
Loan Documents or any of the Obligations; or (xi) fail to obtain a guaranty,
other assurance of payment, or credit enhancement from any other person.
13.6 Waiver of Subrogation, Reimbursement, Performance and
Indemnification. Borrower, as guarantor, permanently waives and shall not seek
to exercise any of the following rights that it may have against any other
guarantor, third person or any collateral provided by any other guarantor or
third person for any amounts paid by Borrower, as guarantor, or acts performed
by Borrower, as guarantor, of any of the Obligations: (i) all rights that
Borrower, as guarantor, may have upon satisfying the Obligations, or any portion
thereof, to enforce any remedies which SMB then has against any other guarantor
or third person to
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contribute to the amount paid by Borrower, as guarantor; (ii) all rights that
Borrower, as guarantor, may have to the benefit of any security for the
performance of the Obligations or the performance by any other guarantor or
third person of the Obligations; (iii) all rights of reimbursement for the
amounts paid by Borrower, as guarantor, in connection with the Obligations
(including costs and expenses); (iv) any right to compel any guarantor or other
third person to perform the Obligations when due; or (v) all rights of
indemnification from any other guarantor or any other third party.
13.7 No Marshaling. SMB has no obligation to marshal any assets
in favor of Borrower, as guarantor, or against or in payment of: (i) any of the
Obligations, or (ii) any other obligation owed to SMB by any other guarantor or
any third party.
14. NOTICES. Unless otherwise specifically provided herein, all
notices and service of any process shall be in writing addressed to the
respective party as set forth below and may be personally served, telecopied or
sent by overnight courier service or United States mail and shall be deemed to
have been given: (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if confirmed and if transmitted on a
Business Day before 4:00 p.m. (Los Angeles time) or, if not, on the next
succeeding Business Day; (c) if delivered by overnight courier, two days after
delivery to such courier properly addressed; or (d) if by U.S. Mail, four
Business Days after depositing in the United States mail, with postage prepaid
and properly addressed.
If to Borrower: Intervisual Books, Inc. and/or
FFM Acquisition Corp.
0000 Xxxxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attn: Xxx Xxxxxx, Executive Vice President
Telecopier Number (000) 000-0000
If to SMB: Santa Xxxxxx Bank
0000 Xxxxx Xxxxxx
X.X. Xxx 0000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxx Xxxxxxxxx, Executive Vice President
Telecopier Number (000) 000-0000
The parties hereto may change the address at which they are to
receive notices and the telecopier number at which they are to receive
telecopies hereunder, by notice in writing in the foregoing manner given to the
other.
15. DESTRUCTION OF BORROWER'S DOCUMENTS. Any documents, schedules,
invoices or other papers delivered to SMB may be destroyed or otherwise disposed
of by SMB four (4) months after they are delivered to or received by SMB, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
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16. CHOICE OF LAW. The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by, and construed
in accordance with the laws of the State of California. The parties agree that
all actions or proceedings arising in connection with this Agreement shall be
tried and litigated only in the state and federal courts located in the County
of Los Angeles, State of California. Borrower waives any right it may have to
assert the doctrine of forum non conveniens or to object to such venue and
hereby consents to any court ordered relief.
17. GENERAL PROVISIONS
17.1 Representations and Warranties Repeated. Each
representation, warranty and agreement contained in this Agreement shall be
automatically deemed repeated with each advance and shall be conclusively
presumed to have been relied on by SMB regardless of any investigation made or
information possessed by SMB. The warranties, representations and agreements set
forth herein shall be cumulative and in addition to any and all other
warranties, representations and agreements which Borrower shall give, or cause
to be given, to SMB, either now or hereafter.
17.2 Binding Agreement. This Agreement shall be binding and
deemed effective when executed by Borrower and accepted and executed by SMB.
17.3 Right to Grant Participations. This Agreement shall bind
and inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights hereunder without SMB's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by SMB shall
release Borrower from its Obligations to SMB. SMB may assign this Agreement and
its rights and duties hereunder. SMB reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, SMB's rights and benefits hereunder. In connection therewith, SMB
may disclose all documents and information which SMB now or hereafter may have
relating to Borrower or Borrower's business.
17.4 Indemnification. In consideration of the execution and
delivery of this Agreement and the extension of financial accommodations by SMB
to Borrower pursuant to this Agreement, Borrower agrees to indemnify, save,
exonerate, and hold SMB, and each of the officers, directors, employees and
agents of SMB (herein collectively called the "Indemnitees" and individually
called an "Indemnitee") free and harmless from and against any and all actions,
claims, causes of action, suits, losses, liabilities, damages, and expenses,
including, without limitation, reasonable attorneys' fees (including allocated
costs for in-house legal services provided and attorneys' fees in all bankruptcy
proceedings) and disbursements (herein collectively called the "Indemnified
Liabilities"), which may be incurred by or asserted against the Indemnitees or
any Indemnitee as a result of, or arising out of, or relating to, or in
connection with, any investigation, litigation, or proceeding related to any use
made or proposed to be made by Borrower of the proceeds of any advance or loan
made hereunder, or the consummation of the transactions contemplated hereby,
whether or not any such Indemnitee is a party thereto, and, if and to the extent
that the foregoing undertaking may be unenforceable for any reason, Borrower
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hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities as is permissible under applicable law.
If any action, suit, or proceeding arising from any of the
foregoing is brought against SMB, or any Indemnitee or affiliate of an
Indemnitee indemnified or intended to be indemnified pursuant to this Section
17.4, Borrower, to the extent and in the manner directed by the Indemnitee or
intended Indemnitee, shall resist and defend such action, suit, or proceeding or
cause the same to be resisted and defended by counsel designated by Borrower
(which counsel shall be reasonably satisfactory to the Indemnitee or intended
Indemnitee). Each Indemnitee shall use its best efforts to cooperate in the
defense of any such action, writ, or proceeding. Borrower shall have no
obligation to any Indemnitee under this Section 17.4 to the extent that the
Indemnified Liabilities resulted from the gross negligence or willful misconduct
on the part of any Indemnitee. The Obligations of Borrower under this Section
17.4 shall survive the termination of this Agreement and the discharge of the
Borrower's other Obligations hereunder.
17.5 Section Headings. Section headings and section numbers
have been set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section applies equally
to this entire Agreement.
17.6 Interpretation. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against SMB or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
17.7 Severability. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
17.8 Modification and Merger. This Agreement cannot be changed
or terminated orally. All prior agreements, understandings, representations,
warranties and negotiations, if any, are merged into this Agreement.
17.9 Supersedure and Release. This Agreement supercedes and
replaces any and all prior written and oral agreements providing for the
extension of credit by SMB to Borrower. Any such prior agreements shall be of no
further force or effect. In this connection, Borrower, for itself and its
agents, servants, employees, shareholders, subsidiaries, officers, directors,
heirs, executors, administrators, agents, successors and assigns forever
releases and discharges SMB and its respective agents, servants, employees,
accountants, attorneys, shareholders, subsidiaries, officers, directors, heirs,
executors, administrators, successors and assigns from any and all claims,
demands, liabilities, accounts, obligations, costs, expenses, liens, actions,
causes of action, rights to indemnity (legal or equitable), rights to
subrogation, rights to contribution and remedies of any nature whatsoever, known
or unknown, which Borrower had, now has, or has acquired, individually or
jointly, at any time prior to the date of the execution of this Agreement.
Borrower acknowledges that there is a risk that subsequent to the execution of
this Agreement it may incur or suffer losses, damages or injuries which are in
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some way caused by the transactions which occurred prior to the date of this
Agreement, but which are unknown and unanticipated at the time this Agreement is
executed. Borrower hereby assumes the above mentioned risks and agree that this
Agreement shall apply to all unknown or unanticipated results of the
transactions and occurrences described herein, as well as those known and
anticipated, and upon advice of counsel, Borrower hereby knowingly waive any and
all rights and protections under California Civil Code Section 1542 which
section has been duly explained and reads as follows: "A general release does
not extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." Borrower has executed this
Agreement with full knowledge of its significance, and with the express
intention of effecting the legal consequences provided by Section 1541 of the
California Civil Code, namely, the extinguishment of obligations except for the
executory provisions of this Agreement.
17.10 Good Faith Requirement. The parties intend and agree that
their respective rights, duties, powers, liabilities, obligations and
discretions shall be performed, carried out, discharged and exercised reasonably
and in good faith.
17.11 JURY TRIAL. BORROWER AND SMB HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION WITH THIS
AGREEMENT OR ANY DEALINGS BETWEEN BORROWER AND SMB RELATING TO THIS AGREEMENT,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AND SMB EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH OF BORROWER AND SMB HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH OF BORROWER AND SMB WILL CONTINUE TO
RELY ON THIS WAIVER IN ANY RELATED FUTURE DEALINGS BETWEEN BORROWER AND SMB.
BORROWER AND SMB FURTHER WARRANT AND REPRESENT THAT THEY EACH KNOWINGLY AND
VOLUNTARILY WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH
LEGAL COUNSEL.
IN WITNESS WHEREOF, Borrower has executed this Agreement.
INTERVISUAL BOOKS, INC.,
a California corporation
By: /s/ Xxxxx X. Xxxx
-----------------------------------
Title: Chairman & CEO
By /s/Xxxxxx X. Xxxxxxxx
-----------------------------------
Title: President
--------------------------------
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FFM ACQUISITION CORP.,
a California corporation
By: /s/ Xxx X. Xxxxxx
-----------------------------------
Title: President
--------------------------------
By
-----------------------------------
Title:
--------------------------------
SANTA XXXXXX BANK,
a California banking corporation
By: /s/ Xxx Xxxxxxxxx
-----------------------------------
Title: Executive Vice President
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