EXHIBIT 10.14
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ENTERTAINMENT INDUSTRIES GROUP DATE: JULY 18, 1997
0000 XXXXXXXX XXXXXXXXX, XXXXXX FLOOR -------------
XXXXXXX XXXXX, XX 00000 BORROWER: IWERKS ENTERTAINMENT INC.
SUBJECT: CREDIT TERMS AND CONDITIONS ("AGREEMENT")
Gentlepersons:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you ("Bank"), in your sole discretion, may
make to Borrower, Borrower warrants and agrees as follows:
A. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and
existing in good standing under the laws of the State of Delaware,
without limit as to the duration of its existence and is authorized and
in good standing to do business in the State of California; Borrower has
powers and adequate authority, rights and franchises to own its property
and to carry on its business as now conducted, and is duly qualified and
in good standing in each State in which the character of the properties
owned by it therein or the conduct of its business makes such
qualification necessary; and Borrower has the power and adequate
authority to make and carry out this Agreement.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval
of any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or Articles
of Association, as the case may be, and this Agreement is the valid,
binding and legally enforceable obligation of Borrower in accordance with
its terms.
3. NO CONFLICT. The execution, delivery and performance of this Agreement
are not in contravention of or in conflict with any agreement, indenture
or undertaking to which Borrower is a party or by which it or any of its
property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by
reason thereof.
4. LITIGATION. Borrower is aware of no litigation in excess of $50,000 or
other proceeding pending or threatened against or affecting Borrower, and
Borrower is not in default with respect to any order, writ, injunction,
decree or demand of any court or other governmental or regulatory
authority. Borrower also agrees to notify you in writing of any future
litigation threatened against or affecting Borrower that is reasonably
likely to result in damages or costs to Borrower in excess of $500,000.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of June 30, 1997, a
copy of which has heretofore been delivered to you by Borrower, and all
other statements and data submitted in writing by Borrower to you in
connection with this request for credit are true and correct in all
material respects, and said balance sheet fairly presents the financial
condition of Borrower as of
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Credit Terms and Conditions dated July 18, 1997
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the date thereof, and has been prepared in accordance with generally
accepted accounting principles on a basis consistently maintained. Since
such date there have been no material adverse changes in the financial
condition or business of Borrower. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments
or substantial contracts which are not reflected in said balance sheet,
other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition,
operations or business as now conducted.
6. 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 C.2 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, 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.
9. REGULATION U. The proceeds of this loan shall not be used to purchase or
carry margin stock (as defined within Regulation U of the Board of
Governors of the Federal Reserve system).
B. AFFIRMATIVE COVENANTS. Borrower agrees that so long as it is indebted to
you, under borrowings, or other indebtedness, it will, unless you shall
otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct
its business in an orderly manner without voluntary interruption and, if
a corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to
the extent usually maintained by similar businesses and/or in the
exercise of good business judgment.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties,
and all its other liabilities at any time existing, except to the extent
and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (aggregated to the
extent required by generally accepted accounting practice) deemed
by it adequate with respect thereto.
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Credit Terms and Conditions dated July 18, 1997
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4. FINANCIAL COVENANTS. (a) Borrower shall maintain tangible net worth
(meaning the excess of all assets, excluding any value for goodwill,
trademarks, patents, copyrights, organization expense, all amounts due
from affiliates, officers, directors, stockholders and affiliated
entities, and other similar intangible items, over its liabilities
excluding subordinated debt) of not less than $29,000,000; (b) maintain
debt to tangible net worth ratio, defined as total liabilities excluding
subordinated debt, divided by tangible net worth (as defined above) of
not more than 1.0 to 1.0; (c) maintain a quick ratio (defined as the sum
of cash & cash equivalents, marketable securities and accounts
receivable to current liabilities) of not less than 1.0 to 1.0; and (d)
maintain a fixed charge ratio (meaning the ratio for the proceeding four
quarters whose numerator is the sum of (i) net income of the Borrower
and its subsidiaries after deducting, without duplication, all operating
expenses, provisions for all taxes and reserves, and all other proper
deductions, (ii) interest expense, and (iii) depreciation and
amortization; and whose denominator is the sum of (a) interest expense
and (b) the current portion of long term debt and capitalized leases) of
not less than 1.25 to 1.0; all as computed quarterly, beginning March
31, 1997, and determined in accordance with generally accepted
accounting principles on a consolidated basis, after elimination of
inter company items, and as consistently maintained by Borrower.
5. RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit your representatives to have access to,
and to examine its properties, books and records at all reasonable times
during normal business hours; and furnish you:
a. As soon as available, and in any event within forty-five (45) days
after the close of each quarter of each fiscal year of Borrower,
including the fiscal year end of each fiscal year, a balance
sheet, profit and loss statement and reconciliation of Borrower's
capital accounts as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the
last day of such period, all in reasonable detail, prepared in
accordance with generally accepted accounting principles on a
basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower, subject, however, to year-end
audit adjustments.
b. As soon as available, and in any event within ninety (90) days
after the close of each fiscal year of Borrower, a report of audit
of Company as of the close of and for such fiscal year, all in
reasonable detail, with the unqualified opinion of accountants
satisfactory to you.
c. As soon as available, and in any event within fifteen (15) days
after the close of each month a liquidity report in form
satisfactory to Bank listing cash, cash equivalents, and
permitted investments in debt securities. Bank will waive this
reporting requirement as long as a minimum of $10,000,000 of
Borrower's aggregate cash, cash equivalents, and permitted
investments in debt securities are invested through the Bank's
Investment Department.
d. Within forty-five (45) days after the end of each quarter and
within ninety (90) days after the end of fiscal year of Borrower,
a certificate of chief financial officer of Borrower, stating that
Borrower has performed and observed each and every covenant
contained in this Letter to be performed by it and that no event
has occurred and no condition then exists which constitutes an
event of default hereunder or would constitute such an event of
default upon the lapse of time or upon the giving of notice and
the lapse of time specified herein; or, if any such event has
occurred or any such condition exists, specifying the nature
thereof;
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Credit Terms and Conditions dated July 18, 1997
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e. Within forty-five days (45) days after the end of each fiscal
quarter, a schedule of new and/or amended copyrights and patents
filed and intellectual properties acquired or developed in form
satisfactory to Bank.
f. Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
6. NOTICE OF DEFAULT. Promptly notify Bank in writing of the occurrence of
any event of default hereunder or which would be such an event
upon notice and lapse of time.
C. NEGATIVE COVENANTS. Borrower agrees that so long as it is indebted to you,
it will not, without your written consent, which will not be unreasonably
withheld:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any material change in its executive
management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys for any amount in excess of $200,000,
other than loans from you except obligations now existing as shown in
the financial statement dated June 30, 1997, and excluding those
obligations being refinanced by your bank; or sell or transfer, either
with or without recourse, any accounts or notes receivable or any moneys
due or to become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge,
encumbrance, lien or charge of any kind upon any asset now owned in
excess of $200,000, other than liens for taxes not delinquent and liens
in your favor except for those already existing as of June 30, 1997.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
for any amount in excess of $200,000, other than in the ordinary and
normal course of its business as now conducted or make any investment in
the securities of any person or other entity other than the United
States Government, with the exception of investments in commercial paper
of a rating not lower than "P-2" or "A-2" as rated by Standard & Poor's
and Xxxxx'x, respectively, and mutual funds deemed acceptable by Bank,
or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments
for deposit or collection in the ordinary and normal course of its
business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity
for an amount in excess of $500,000; or liquidate, dissolve, merge or
consolidate, or commence any proceedings therefor; or sell any assets
except in the ordinary and normal course of its business as now
conducted; or sell, lease, assign, or transfer any substantial part of
its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted, including without
limitation the selling of any property or other asset accompanied by the
leasing back of the same.
D. EVENTS OF DEFAULT. The occurrence of any of the following events of default
(individually, an "Event of Default") shall, at your option, terminate your
commitment to lend and make all sums of principal and
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Credit Terms and Conditions dated July 18, 1997
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interest then remaining unpaid on all Borrower's indebtedness to you immediately
due and payable, all without demand, presentment or notice, all of which are
hereby expressly waived:
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal of or
interest on any indebtedness of Borrower to you, ten (10) days after its
due date.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this letter binding upon Borrower, where such breach has a
material financial consequence, that could reasonably result in a
material adverse affect on the financial condition of the Borrower.
3. BREACH OF WARRANTY. Any of Borrower's material representations or
material warranties made herein or any statement or certificate at any
time given in writing pursuant hereto or in connection herewith shall be
false or misleading in any material respect, that could reasonably
result in a material adverse affect on the financial condition of
Borrower.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent as
defined by the Bankruptcy Code; or admit its inability to pay its debts
as they mature; or make an assignment for the benefit of creditors; or
apply for or consent to the appointment of a receiver or trustee for it
or for a substantial part of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or
unstayed for a period later than five days prior to the date of any
proposed sale thereunder, for an amount in excess of $500,000, that
could reasonably result in a material adverse affect on the financial
condition of the Borrower.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against
Borrower and, if instituted against it, shall be consented to.
7. FINANCIAL COVENANTS. Failure to maintain minimum financial covenants as
stated.
8. CROSS DEFAULT. Any default occurs under any other agreement involving
the borrowing of money, the extension of credit, or the lease of
equipment under which Borrower may be obligated as borrower, guarantor,
installment purchaser, or lessee if such default to the holder of the
obligation concerned gives the right to accelerate the obligation.
E. LOAN PROVISIONS.
1. REVOLVING CREDIT FACILITY. The Bank agrees to lend to Borrower in the
form of advances by way of a revolving credit facility (the "Facility")
in the aggregate sum owing hereunder of up to $5,000,000 (the
"Commitment") from time to time, and expiring October 30, 1998. The
Facility may be utilized to issue standby letters of credit, at the
request of Borrower, with final expirations of the letters of credit no
later than April 30, 1999. At no time shall the aggregate of advances
under the Facility plus any amount outstanding in the form of a standby
letter of credit exceed the Commitment. Subject to the terms and
conditions of this Agreement, Borrower may borrow, repay and reborrow
amounts constituting the Commitment.
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Credit Terms and Conditions dated July 18, 1997
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2. INTEREST RATE. Interest on the Facility will be payable monthly in
arrears at the Bank's Prime Rate, as publicly announced from time to
time, plus one quarter percent (0.25%) per year of three hundred sixty
(360) days or based on the LIBOR rate as set forth on the addendum to
the Note evidencing the Facility.
3. LOAN FEES. Borrower shall pay to Bank upon execution of this Agreement,
a non-refundable loan fee equal to ten thousand dollars ($10,000).
4. COLLATERAL. Bank shall have first priority perfected security interest
in all assets (including copyrights and other intellectual properties)
of Borrower as specified in a General Security Agreement perfected by a
filed UCC-1 Financing Statement in the appropriate states' UCC Records
Office and the U.S. Patent, Trademark and or Copyright Offices.
F. MISCELLANEOUS PROVISIONS
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies existing under this
agreement or any note issued in connection with a loan that Bank may
make hereunder, are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
2. ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand after
notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising the Loan
after the occurrence of an event of default, whether or not suit is
filed. If suit is brought to enforce any provision of this Agreement,
the prevailing party shall be entitled to recover its reasonable
attorneys' fees and court costs in addition to any other remedy or
recovery awarded by the court.
3. ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights
of setoff or banker's lien.
4. INUREMENTS. The benefits of this Agreement shall inure to the successors
and assigns of Bank and the permitted successors and assigns of
Borrower.
5. APPLICABLE LAW. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the
jurisdiction of whose courts the parties hereby agree to submit.
6. OFFSET. In addition to and not in limitation of all rights of offset
that Bank or other holder of the Loan may have under applicable law,
Bank or other holder of the Notes shall, upon the occurrence of any
Event of Default or any event which with the passage of time or notice
would constitute such an Event of Default, have the right to appropriate
and apply to the payment of the Loan any and all balances, credits,
deposits, accounts or monies of Borrower then or thereafter with Bank or
other holder, within ten (10) days after the Event of Default, and
notice of the occurrence of any Event of Default by Bank to Borrower.
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Credit Terms and Conditions dated July 18, 1997
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7. SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.
8. ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
9. TIME IS OF THE ESSENCE. This agreement may be modified only by a
writing signed by both parties hereto.
G. REFERENCE PROVISIONS.
1. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii)
the appointment of a receiver, or the exercise of other provisional remedies
(any and all of which may be initiated pursuant to applicable law), each
controversy, dispute or claim between the parties arising out of or relating to
this Note ("Agreement"), which controversy, dispute or claim is not settled in
writing within thirty (30) days after the "Claim Date" (defined as the date on
which a party subject to the Agreement gives written notice to all other parties
that a controversy, dispute or claim exists), will be settled by a reference
proceeding in California in accordance with the provisions of Section 638 et
--
seq. of the California Code of Civil Procedure, or their successor section
---
("CCP"), which shall constitute the exclusive remedy for the settlement of any
controversy, dispute or claim concerning this Agreement, including whether such
controversy, dispute or claim is subject to the reference proceeding and except
as set forth above, the parties waive their rights to initiate any legal
proceedings against each other in any court or jurisdiction other than the
Superior Court in the County where the real property securing this Agreement, if
any, is located or Los Angeles County if none (the "Court"). The referee shall
be a retired Judge of the Court selected by mutual agreement of the parties, and
if they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers of a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP (S)170.6. The
referee shall (a) be requested to set the matter for hearing within sixty (60)
days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Any decision rendered by the referee will be final, binding
and conclusive and judgment shall be entered pursuant to CCP (S)644 in any court
in the State of California having jurisdiction. Any party may apply for a
reference proceeding at any time after thirty (30) days following notice to any
other party of the nature of the controversy, dispute or claim, by filing a
petition for a hearing and/or trial. All discovery permitted by this Agreement
shall be completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery for any person whatsoever,
including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production or
inspection of documents shall be responded to within ten (10) days after
service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending
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Credit Terms and Conditions dated July 18, 1997
Page 7 or 9
appointment of the referee as provided herein, the Superior Court is
empowered to issue temporary and/or provisional remedies, as
appropriate.
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation
of evidence, and all other questions that arise with respect to the
course of the reference proceeding. All proceedings and hearings
conducted before the referee, except for trial, shall be conducted
without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee.
The party making such a request shall have the obligation to arrange for
and pay for the court reporter. The costs of the court reporter at the
trial shall be borne equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of
California will be applicable to the reference proceeding. The referee
shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable
orders that will be binding upon the parties. The referee shall issue a
single judgment at the close of the reference proceeding which shall
dispose of all of the claims of the parties that are the subject of the
reference. The parties hereto expressly reserve the right to contest or
appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve
the right to findings of fact, conclusions of law, a written statement
of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
4. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is
enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved
and determined by arbitration. The arbitration will be conducted by a
retired judge of the Court, in accordance with the California
Arbitration Act, (S)1280 through (S)1294.2 of the CCP as amended from
time to time. The limitations with respect to discovery as set forth
herein above shall apply to any such arbitration proceeding."
IWERKS ENTERTAINMENT, INC., as Borrower
Executive VP/
By: Chief Financial Officer 8/26/97 /s/ Xxxxx X. Xxxxxxxx
-------------------------------- --------------------
Title: Date:
VP/Controller 8/26/97 /s/ X.X. Xxxx
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Title: Date:
IMPERIAL BANK, as Bank
By: --------------------------------
Title: Date:
Iwerks Entertainment, Inc.
Credit Terms and Conditions dated July 18, 1997
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