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EXHIBIT 10.35
CONSENT AND AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT
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THIS CONSENT AND AMENDMENT NUMBER TWO TO LOAN AND SECURITY
AGREEMENT (this "Amendment") is entered into as of June 5, 1997 (but effective
only in accordance with the terms and conditions of Section 4 of this
Amendment), by and between ▇▇▇▇▇▇▇▇▇ L.L.C., a New York limited liability
company ("Lender"), and GRAPHIX ZONE, INC., a Delaware corporation ("Borrower"),
with reference to the following facts:
A. Lender and Borrower heretofore have entered into that certain
Loan and Security Agreement, dated as of January 31, 1997, as
amended by that certain Consent to Inscape and Trimark
Acquisitions and Amendment Number One to Loan and Security
Agreement, dated as of March 5, 1997 (as amended, the "Loan
Agreement");
B. Borrower has requested that Lender (i) amend the Loan
Agreement to provide for an additional term loan facility in
the amount of $1,250,000, (ii) waive those certain Events of
Default (the "Existing Events of Default") identified on (y)
that certain letter, dated May 14, 1997, from Borrower to
Lender, and (z) that certain update to such letter (both the
letter and the update are attached hereto as Exhibit A and
collectively shall be referred to as the "Notification
Letter"); and (iii) waive those certain exceptions to the
representations and warranties contained in the Loan Documents
as more particularly set forth in Schedule A attached hereto
the "Exceptions").
C. Borrower also has requested that Lender consent to the
following transactions being contemplated by Borrower: (i) the
proposed merger (such merger currently the subject of
preliminary discussions and not currently being subject to a
letter of intent or any other oral or written agreement to
which Borrower is a party) of a privately held company, which
confidentially has been identified to Lender and whose
identity is the subject of a letter previously delivered by
Borrower to Lender, with and into Borrower in exchange for the
issuance of securities of Borrower entitling the shareholders
of the acquired company to acquire approximately 30% of the
outstanding equity of Borrower on a fully-diluted basis, after
giving effect to the transactions contemplated in the Loan
Agreement, this Amendment, Warrant #1, Warrant #2, and Warrant
#3 (the "Proposed Merger"); (ii) the exchange of all of the
issued and outstanding shares of Series B Convertible
Preferred Stock of Borrower (the "Series B Stock") for shares
of Series D Convertible Preferred Stock of Borrower (the
"Series D Stock") which shall possess substantially the same
rights and be subject to substantially the same obligations of
the Series B Stock, except that the Series D Stock may not be
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converted at a conversion price below $1.00 per share during
the initial 3 year period that such shares are outstanding, or
$0.75 per share after such initial 3 year period if the
conversion price of the Series B Stock does not exceed $1.00
per share during such initial 3 year period (the "Series B
Stock Exchange Transaction"); (iii) the amendment of certain
rights and obligations of the Series C Convertible Preferred
Stock of Borrower (the "Series C Stock") to reduce the
conversion rate of the Series C Stock from $3.375 to $1.00 per
share and to delete the mandatory redemption provisions
applicable to the Series C Stock, which amendment may be
accomplished in the sole discretion of Borrower by either (x)
amending the Certificate of Designations of Series C
Convertible Preferred Stock of Borrower or (y) exchanging all
of the issued and outstanding shares of Series C Stock for
shares of a new series of preferred stock of Borrower which
shall possess substantially the same rights and be subject to
substantially the same obligations of the Series C Stock,
except as otherwise set forth in this subparagraph (iii) (the
"Series C Stock Exchange Transaction"); (iv) in connection
with the Series C Stock Exchange Transaction, the amendment of
that certain Asset Purchase Agreement, dated as of February
24, 1997, by and among Borrower, Inscape, and Warner Music
Group, Inc. to delete from the definition of "Acquired Assets"
contained therein all right, title, and interest in and to the
product "The KGB Files" and all agreements and intellectual
property related thereto (the "Inscape Amendment"); and (v)
the cancellation of the outstanding Indebtedness of Borrower
(other than Indebtedness related to the Executive Loan
Agreement and the Loan Agreement as amended by this Amendment)
identified on Schedule B attached hereto, in exchange for the
payment to each of the holders of such Indebtedness of cash in
an amount less than the aggregate amount of each such holder's
Indebtedness and shares of common Stock of Borrower to be
issued at a price equal to the fair market value of such
shares at the time of issuance for any remaining portion of
each such holder's Indebtedness (the "Creditor Exchange
Transaction").
D. Lender is willing to so amend the Loan Agreement and to
provide such waivers and consents in accordance with the terms
and conditions hereof; and
E. All capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Loan Agreement, as
amended hereby.
NOW, THEREFORE, in consideration of the above recitals and the
mutual premises contained herein, Lender and Borrower hereby agree as follows:
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1. Amendments to the Loan Agreement.
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a. Section 1.1 of the Loan Agreement hereby is
amended by adding the following defined terms in alphabetical order:
"Creditor Exchange Transaction" has the meaning set forth in
the recitals to the Second Amendment.
"Executive" means ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, an individual.
"Executive Intercreditor Agreement" means an intercreditor
agreement executed and delivered by Executive and Lender in form and substance
satisfactory to Lender in its sole discretion.
"Executive Loan Agreement" means that certain Loan and
Security Agreement executed and delivered by Executive and Borrower, in respect
of a loan by Executive to Borrower in the principal amount of $250,000, which
loan shall be pari-passu with Term Loan #2 on a pro rata basis.
"Executive Loan Documents" means the Executive Loan Agreement,
Warrant #3, and any and all other agreements, instruments, and documents
executed and delivered by Executive and/or Borrower in respect of the
transactions contemplated by the Executive Loan Agreement, each of which
documents shall be in form and substance satisfactory to Lender in its sole
discretion.
"Exceptions" has the meaning set forth in the recitals to the
Second Amendment.
"Liquidity" means unrestricted cash and cash equivalents.
"Notification Letter" has the meaning set forth in the
recitals to the Second Amendment.
"Proposed Merger" has the meaning set forth in the recitals to
the Second Amendment.
"Second Amendment" means that certain Consent and Amendment
Number Two to Loan and Security Agreement, dated as of June 5, 1997,
between Lender and Borrower.
"Second Amendment Closing Date" means the date of the funding
of Term Loan #2.
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"Second Amendment Closing Fee" has the meaning set forth in
Section 2.8(d).
"Series B Stock" has the meaning set forth in the recitals to
the Second Amendment.
"Series C Stock" has the meaning set forth in the recitals to
the Second Amendment.
"Series D Stock" has the meaning set forth in the recitals to
the Second Amendment.
"Series B Stock Exchange Transaction" has the meaning set
forth in the recitals to the Second Amendment.
"Series C Stock Exchange Transaction" has the meaning set
forth in the recitals to the Second Amendment.
"Servicing Fee" has the meaning set forth in Section 2.8(c).
"Term Loan #1" has the meaning set forth in Section 2.1(a).
"Term Loan #2" has the meaning set forth in Section 2.1(b).
"Warrant #1" means those certain common Stock purchase
warrants issued and delivered to Lender by Borrower on the Closing Date
for the purchase of 300,000 shares of Borrower's common Stock, $0.01
par value, having the powers, preferences, and rights, and the
qualifications, limitations, or restrictions set forth in Borrower's
Governing Documents.
"Warrant #2" means those certain common Stock purchase
warrants issued and delivered to Lender by Borrower, in form and
substance satisfactory to Lender, on the Second Amendment Closing Date
for the purchase of shares of Borrower's common Stock, $0.01 par value,
having the powers, preferences, and rights, and the qualifications,
limitations, or restrictions set forth in Borrower's Governing
Documents, as amended, modified, or supplemented to the Second
Amendment Closing Date.
"Warrant #3" means those certain common Stock purchase
warrants issued and delivered to Executive by Borrower in connection
with the Executive Loan Agreement, in form and substance satisfactory
to Executive and Lender, on the date of the Executive Loan Agreement
for the purchase of shares of Borrower's common Stock, $0.01 par value,
having the powers, preferences, and rights, and the
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qualifications, limitations, or restrictions set forth in Borrower's
Governing Documents, as amended, modified, or supplemented to the date
thereof.
b. The definition of "Loan Documents" contained in Section 1.1
of the Loan Agreement hereby is amended by adding the defined term "Second
Amendment."
c. The definition of "Permitted Liens" contained in Section
1.1 of the Loan Agreement hereby is amended by adding the following text at the
end of such definition:
(k) Liens granted to Executive so long as the Executive
Intercreditor Agreement is in full force and effect.
d. The definition of "Term Loan" contained in Section 1.1 of
the Loan Agreement hereby is deleted in its entirety and the following is
substituted in alphabetical order in lieu thereof:
"Term Loan" means Term Loan #1 and Term Loan #2, individually
and collectively.
e. The defined term "Term Loan" used in the definition of
"Closing Date," and Sections 2.8(a) (Closing Fee) and 3.1 (Conditions Precedent)
of the Loan Agreement shall be deleted and the defined term "Term Loan #1" shall
be substituted in lieu thereof.
f. The defined term "Warrants" shall be deleted in its
entirety and the following is substituted in alphabetical order in lieu thereof:
"Warrants" means Warrant #1 and Warrant #2, individually and
collectively.
g. The defined term "Warrants" used in subsections 3.1(c) and
(r) (Conditions Precedent) of the Loan Agreement hereby is deleted and the
defined term "Warrant #1" is substituted in lieu thereof.
h. Section 2.1 of the Loan Agreement hereby is deleted in its
entirety and the following is substituted in lieu thereof:
2.1 TERM LOAN.
(a) Lender has agreed to make a term loan ("Term Loan #1")
to Borrower on the Closing Date in the original principal amount of (i)
$3,500,000, plus (ii) the amount of the Closing Fee.
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(b) Lender has agreed to make a term loan ("Term Loan #2")
to Borrower on the Second Amendment Closing Date in the original
principal amount of (i) $1,250,000, plus (ii) the amount of the Second
Amendment Closing Fee.
(c) The outstanding principal balance of the Term Loan and all
accrued and unpaid interest under the Term Loan shall be due and payable
upon the termination of this Agreement, whether by its terms, by
prepayment, by acceleration, or otherwise. The unpaid principal balance
of the Term Loan may be prepaid in whole or in part without penalty or
premium at any time during the term of this Agreement upon 30 days prior
written notice by Borrower to Lender. All amounts outstanding under the
Term Loan shall constitute Obligations.
i. Section 2.2(e) of the Loan Agreement hereby is deleted in its
entirety and the following is substituted in lieu thereof:
(e) Application of Proceeds. With respect to mandatory
prepayments described in subsection (a) through (d) above, such
prepayments shall be applied (i) first, in payment of the outstanding
balance of the Term Loan on a pro rata basis until the Term Loan is paid
in full, and (ii) then, in payment of any other Obligations owing by
Borrower to Lender, such payments to be applied to such Obligations by
Lender in its sole discretion.
j. Section 2.8(c) of the Loan Agreement hereby is deleted in its
entirety and the following is substituted in lieu thereof:
(c) Servicing Fee. On the first day of each of April, July,
October, and January during the term of this Agreement, and thereafter
so long as the Obligations are outstanding, a servicing fee (the
"Servicing Fee") in an amount equal to $35,000.
k. Section 2.8 of the Loan Agreement hereby is amended by adding the
following subsection (d) thereto:
(d) Second Amendment Closing Fee. On the Second Amendment
Closing Date, a closing fee (the "Second Amendment Closing Fee") of
$50,000, which fee is in addition to any fees previously paid by
Borrower to Lender and shall be paid by adding the amount thereof to the
balance of Term Loan #2.
l. Section 7.17 of the Loan Agreement hereby is deleted in its
entirety and the following is substituted in lieu thereof:
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7.17 USE OF PROCEEDS. (a) Use the proceeds of Term Loan #1 made
hereunder for any purpose other than (i) on the Closing Date, (y) to repay
(1) in full the outstanding principal, accrued interest, and accrued fees
and expenses owing to Existing Lender and (2) trade payables; provided,
however, that not more than $3,000,000 of the proceeds of Term Loan #1 may
be used to complete the payments under this clause (y), and (z) to pay
transactional costs and expenses incurred in connection with this
Agreement, and (ii) thereafter, consistent with the terms and conditions
hereof, for its lawful and permitted corporate purposes.
(b) Use the proceeds of Term Loan #2 for any purpose other than
(i) on the Second Amendment Closing Date, to pay transactional costs and
expenses incurred in connection with the Second Amendment, and (ii)
thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes.
m. Section 7.20 of the Loan Agreement hereby is amended by adding
following thereto:
(d) Liquidity. Liquidity, at all times, of at least $250,000
after giving effect to the repayment of Indebtedness made by Borrower in
connection with the Creditor Exchange Transaction.
2. Waivers and Consents.
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a. Lender hereby (i) waives the Existing Events of Default and the
Exceptions, and (ii) agrees to forbear until the earlier of (y) such time as
Borrower shall have completed its restructuring, and (z) 90 days from the Second
Amendment Closing Date from exercising any of its rights, powers, or remedies
under the Loan Agreement in respect of any Event of Default caused by (1)
Borrower's failure to maintain the covenants set forth in Section 7.20 of the
Loan Agreement (other than the covenant contained in subsection 7.20(d)
thereof), and (2) Borrower's insolvency, unless and until an Insolvency
Proceeding as described in Sections 8.5 or 8.6 of the Loan Agreement is
commenced by any Person other than Lender.
b. Lender hereby consents to the Proposed Merger, the Series B
Stock Exchange Transaction, the Series C Stock Exchange Transaction, the
Creditor Exchange Transaction, the Inscape Amendment, and the Executive Loan
Agreement (collectively, the "Transactions") and agrees that the consummation of
the Transactions shall be deemed not to cause any Default or Event of Default or
accelerate any rights or remedies under, or otherwise violate the Loan
Agreement, including, but not limited to, with respect to the provisions of
Sections 7.1, 7.3, 7.4, or 7.9 of the Loan Agreement, or any other applicable
provision of the Loan Agreement as amended by this Agreement, and any other Loan
Document; provided, however, that the foregoing consent and agreement
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with respect to the Creditor Exchange Transaction shall be subject to the
satisfaction of the covenant contained in subsection 7.20(d) of the Loan
Agreement.
c. Lender hereby (i) consents to Borrower doing business under
the name "Ignite" and "Ignite Media" and any variations thereof and (ii)
acknowledges that the use of such names by Borrower shall not constitute a
breach of the provisions of Section 7.5 of the Loan Agreement.
3. Representations and Warranties. Borrower hereby represents and
warrants to Lender that (a) the execution, delivery, and performance of
this Amendment and of the Loan Agreement, as amended by this Amendment, are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of
any arbitrator, court, or governmental authority, or of the terms of its
charter or bylaws, or of any contract or undertaking to which it is a party
or by which any of its properties may be bound or affected, and (b) this
Amendment and the Loan Agreement, as amended by this Amendment, constitute
Borrower's legal, valid, and binding obligation, enforceable against
Borrower in accordance with its terms.
4. Conditions Precedent to the Effectiveness of this Amendment. The
effectiveness of this Amendment is subject to the fulfillment, to the
satisfaction of Lender and its counsel, of each of the following
conditions:
a. Lender shall have received Warrant #2 duly executed and in full
force and effect;
b. Lender shall have received a certificate from the Secretary of
Borrower attesting to (i) the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Amendment and
Warrant #2 and authorizing specific officers to execute the same, and (ii)
Borrower's Governing Documents, as amended, modified, or supplemented to
the Second Amendment Closing Date;
c. ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ shall have been nominated for the position of
director of Borrower;
d. Except as set forth in the Exceptions, the representations and
warranties in this Amendment, the Loan Agreement as amended by this
Amendment, and the other Loan Documents shall be true and correct in all
respects on and as of the date hereof, as though made on such date (except
to the extent that such representations and warranties relate solely to an
earlier date);
e. Except as set forth in the Exceptions and the Notification
Letter, no Event of Default or event which with the giving of notice or
passage of time would
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constitute an Event of Default shall have occurred and be continuing on the
date hereof, nor shall result from the consummation of the transactions
contemplated herein;
f. No injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force
by any governmental authority against Borrower, Lender, or any of their
Affiliates; and
g. Except as set forth in the Exceptions and the Notification
Letter, no material adverse change in the financial condition of Borrower
or in the value of the Collateral shall have occurred since March 31, 1997.
5. Conditions Subsequent. As conditions subsequent to the making of
Term Loan #2 on the Second Amendment Closing Date, Borrower shall perform
or cause to be performed the following (the failure by Borrower to so
perform or cause to be performed constituting an Event of Default under the
Loan Agreement):
a. Within 10 days of the Second Amendment Closing Date, Lender
shall have received Collateral Access Agreements in respect of any new
facilities occupied by Borrower subsequent to and in connection with the
consummation of the acquisition of certain assets of Inscape and Trimark
Interactive, Inc. by Borrower;
b. Within 15 days of the Second Amendment Closing Date, Lender
shall have received (i) fully executed copies of the Executive Loan
Documents, each certified by the Secretary of Borrower as being true,
correct, and complete, and (ii) a fully executed original of the Executive
Intercreditor Agreement; and
c. Within 5 days of the Second Amendment Closing Date, Lender
shall have received UCC-1 Financing Statements in regard to the additional
locations of Inventory listed on Schedule A attached hereto.
6. Effect on Loan Agreement. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects. The
execution, delivery, and performance of this Amendment shall not operate as
a waiver of or, except as expressly set forth herein, as an amendment, of
any right, power, or remedy of Lender under the Loan Agreement, as in
effect prior to the date hereof.
7. Further Assurances. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory
to Lender, and take all actions as Lender may reasonably request from time
to time, to perfect and maintain the perfection and priority of Lender's
security interests in the Collateral and to
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fully consummate the transactions contemplated under this Amendment and the
Loan Agreement, as amended by this Amendment.
8. Miscellaneous.
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a. Upon the effectiveness of this Amendment, each reference in
the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof", or
words of like import referring to the Loan Agreement shall mean and refer
to the Loan Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein",
"thereof" or words of like import referring to the Loan Agreement shall
mean and refer to the Loan Agreement as amended by this Amendment.
c. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
d. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument
and any of the parties hereto may execute this Amendment by signing any
such counterpart.
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IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
▇▇▇▇▇▇▇▇▇ L.L.C.,
a New York limited liability company
By: /s/ ▇▇▇▇▇ ▇. GENDA
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Title: ▇▇▇▇▇ ▇. Genda, Attorney-in-Fact
GRAPHIX ZONE, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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Title: President and Chief Executive Officer
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