1
Exhibit: 10.11FD
BUSINESS LOAN NOTE WITH COVENANTS
August 27, 1998
Farmington Hills, Michigan
Up to $1,000,000.00
For value received, FUNDEX GAMES, LTD., a Nevada corporation (the "Borrower")
promises to pay to LIBERTY BIDCO INVESTMENT CORPORATION, a Michigan Corporation
("BIDCO"), at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇, the principal sum of up to One Million Dollars ($1,000,000.00) plus
interest computed on the basis of the actual number of days elapsed in a year of
360 days at the rate of:
Three and One-Half (3-1/2) percentage points above the rate published by
the Wall Street Journal for the first business day of every month as the
"prime" rate per annum ("Note Rate"), until maturity. The "prime" rate
published for the first business day of each month will change the Note
Rate effective for that month and shall be used to calculate the payment
due (whether interest only or principal and interest, as set forth below)
on the last business day of that month.
After maturity, the interest rate on all principal or interest
outstanding, whether by acceleration or otherwise, shall be eight (8%)
percentage points above the Note Rate.
1. PAYMENT OF LOAN PROCEEDS: The proceeds of the loan shall be disbursed to
Borrower as follows:
1.1 Upon execution of this note, $500,000 (net of expenses) shall be
disbursed to Borrower; and
1.2 The remaining $500,000 shall be disbursed to Borrower if each of the
following occur:
▇. ▇▇▇▇▇▇▇▇ shall have simultaneously closed a loan of
at least $1,870,000 and not more than $2,500,000 with a senior
lender ("Senior Lender") reasonably satisfactory to BIDCO; and
▇. ▇▇▇▇▇ and Senior Lender shall have executed a
Subordination Agreement reasonably satisfactory to BIDCO.
Disbursement may occur at any time on or after closing if all of the
conditions are met. BIDCO is not required to disburse after
September 1, 1999 if the conditions are not met by that time.
No disbursement by BIDCO shall be required, then or at any time in
the future unless such conditions are met. In addition, if Borrower
is not in full compliance
2
with this note and the other loan documents, then disbursement of
the proceeds shall be subject to the resolution of such
noncompliance. In no event shall BIDCO be obligated to make any
disbursement if an Event of Default hereunder has occurred and is
continuing.
2. PAYMENT: Commencing on the last business day of the month following the
month in which the Closing occurs, the Borrower will pay the following
sums:
FIRST TWELVE MONTHS: Interest only payments based on the Note Rate due on
the last business day of each month.
THIRTEENTH THROUGH SIXTIETH MONTHS: Interest and Principal in equal
monthly installments so as to entirely amortize the principal over sixty
(60) months from the due date of the first payment of principal and
interest, based on the Note Rate, on the last business day of each month,
with the entire outstanding principal due on the sixtieth month. The
monthly installment will be adjusted if the Prime Rate changes.
In all events, payment in full shall be due five (5) years from the date
hereof at which time the entire balance of unpaid principal plus accrued
interest shall be due and payable immediately. Each payment shall be
applied first to outstanding revenue participation fees, then to accrued
interest, then to principal. All payments shall be made to BIDCO at its
office at the above address.
In the event payment is not received by BIDCO on or before the date due,
(or the next business day if the due date is a Saturday, Sunday or legal
holiday) a late fee in the amount of five percent (5%) of the payment
amount due will be immediately payable by the Borrower to BIDCO.
3. PREPAYMENT: This Note may be prepaid without penalty at any time. In the
event of a prepayment, the Revenue Participation Agreement, and Continuing
Security Agreement, of even date entered into by the Borrower and BIDCO,
and the Guaranties executed by certain of ▇▇▇▇▇▇▇▇'s shareholders, shall
remain in full force and effect until all sums due thereunder have been
paid in full.
4. SECURITY: To secure the payment of this Note and any other present or
future liability of the Borrower to BIDCO, whether several, joint, or
joint and several, the Borrower pledges and grants to BIDCO a first
continuing security interest in all of Borrower's accounts, chattel paper,
instruments and general intangibles, machinery and equipment, inventory
and supplies, all furniture and fixtures and interest in joint ventures or
other entities, as more fully defined in the Continuing Security
Agreement, of even date, and all of its additions, substitutions,
increments, proceeds and products, whether now or later acquired
("Collateral"). Notwithstanding the above, ▇▇▇▇▇'s security interest is
subordinate to the "Senior Lender" identified on Exhibit "B", if any.
2
3
5. REPRESENTATIONS AND WARRANTIES: Borrower represents that (i) it is a
Nevada corporation, and is authorized to execute this Note, which
constitutes valid and binding obligations enforceable against it in
accordance with its terms except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditor's rights generally and subject to general
principles of equity; (ii) all balance sheets, profit and loss statements
and other information furnished to BIDCO, if any, are to the best of
▇▇▇▇▇▇▇▇'s knowledge true, accurate and fairly reflect the financial
condition of Borrower, on their effective dates, including known
contingent liabilities of every type; (iii) there has been no material
adverse effect on the financial condition of Borrower since those dates.
6. AFFIRMATIVE COVENANTS: So long as this Note remains outstanding, as
regards its business operations, Borrower will:
6.1 Maintain insurance with financially sound and reputable insurers
covering its properties and business against those casualties and
contingencies and in the types and amounts as shall be in accordance
with sound business practices and industry standards.
6.2 Maintain its existence and business operations as presently in
effect in accordance with all applicable laws and regulations, pay
its debts and obligations when due under normal terms, the
nonpayment of which will not have a material adverse effect on the
financial condition of Borrower, and pay on or before the date they
are last payable without penalty, all taxes, assessments, fees and
other governmental monetary obligations, except as they may be
contested in good faith if they have been properly reflected on its
books and, at BIDCO's request, adequate funds or security has been
pledged to insure payment.
6.3 Maintain proper books of records and accounts in accordance with
generally accepted accounting principles (subject to Section 6.4)
and consistent with financial statements previously submitted to
BIDCO.
6.4 Furnish to BIDCO whatever information, books and records BIDCO may
reasonably request, including at a minimum:
A. Within thirty (30) days after each month, a balance sheet as
of the end of that month, and a statement of profit and loss
and surplus (including a comparison to previously submitted
budgets), for that month and from the beginning of that fiscal
year to the end of that month.
B. Within one hundred twenty (120) days after, and as of the end
of each of its fiscal years, detailed financial and operating
statements, including a balance sheet and a statement of
profit and loss and surplus. The
3
4
statements shall be audited by ▇▇▇▇▇▇▇▇'s current independent
certified public accounting firm which has been approved by
BIDCO.
All financial and operating statements submitted to BIDCO shall be
prepared in accordance with generally accepted accounting principles
("G.A.A.P."), applied on a consistent basis, and shall be
accompanied by a Certificate of Compliance, in the form attached as
Exhibit A, executed by an officer of the Borrower. Notwithstanding
the above, statements or records submitted or maintained pursuant to
Sections 6.3 and 6.4A shall be in conformance with G.A.A.P. except
for year-end adjustments, inventory verification and non-recurring
adjustments to such financial statements or records not typically
made for preparing interim financial statements.
6.5 Furnish to BIDCO a written and detailed annual operating budget for
each fiscal year during the Term not less than sixty (60) days prior
to the beginning of the subject fiscal year.
6.6 Furnish BIDCO with copies of all of ▇▇▇▇▇▇▇▇'s material
correspondence with the Borrower's shareholders, directors,
executive committees and the financial community.
6.7 Cause ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇ to remain the President of Borrower.
6.8 Hold Board of Directors meetings no less than one each one hundred
and twenty days and invite ▇▇▇▇▇ to each meeting.
6.9 Notify BIDCO in the event that Borrower is or reasonably expects to
be in default of any of the provisions hereof.
6.10 During the term of the loan, purchase a life insurance policy on the
life of ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇, in an amount not less than the
outstanding balance of the loan, and collaterally assign the policy
to BIDCO as additional security for payment of this Note and the
Revenue Participation Agreement. Borrower shall provide a copy of
this insurance policy with a paid receipt to BIDCO prior to the
beginning of each term of the insurance. All proceeds received from
such life insurance by BIDCO shall be applied to any amounts due
from Borrower to BIDCO, including, but not limited to, the
outstanding loan balance, including principal and interest, and
revenue participation payments. Any excess shall be paid to the
Borrower.
7. NEGATIVE COVENANTS: Without the written consent of ▇▇▇▇▇, so long as this
Note remains outstanding, as regards its business operations, Borrower
will not:
4
5
7.1 Permit the ratio of its current assets to its current liabilities at
any time during the indicated periods to be less than:
Ratio Period
----- ------
0.85:1.00 Closing until December 31, 1998
1.25:1.00 January 1, 1999 and thereafter
7.2 Permit its net worth at any time during the indicated periods to be
less than:
Net Worth Period
--------- ------
$ 900,000 Closing until December 31, 1998
$1,150,000 January 1, 1999 until March 31, 1999
$1,100,000 April 1, 1999 until June 30, 1999
$1,400,000 July 1, 1999 until September 30, 1999
$2,000,000 October 1, 1999 until December 31, 1999
$1,600,000 January 1, 2000 until March 31, 2000
$1,500,000 April 1, 2000 until June 30, 2000
$1,900,000 July 1, 2000 until September 30, 2000
$2,500,000 October 1, 2000 until December 31, 2000
$2,100,000 January 1, 2001 until March 31, 2001
$2,050,000 April 1, 2001 until June 30, 2001
$2,450,000 July 1, 2001 until September 30, 2001
$2,500,000 October 1, 2001 and thereafter
7.3 Permit the ratio of its total liabilities to its total net worth at
any time during the indicated periods to be greater than:
Ratio Period
----- ------
5.00:1.00 Closing until December 31, 1998
3.50:1.00 January 1, 1999 until June 30, 1999
2.50:1.00 July 1, 1999 until December 31, 1999
2.00:1.00 January 1, 2000 until June 30, 2000
1.50:1.00 July 1, 2000 and thereafter
The above ratios and net worth shall be computed on a basis
consistent with financial statements previously submitted to BIDCO
and in conformance with G.A.A.P. (subject to the modification to
G.A.A.P. set forth in Section 6.4) For the purpose of calculation,
net worth shall be reduced by loans to stockholders and related
party receivables.
5
6
7.4 Acquire, repurchase or retire any shares of any class of its common
stock, or declare or pay dividends or make any other distributions
upon any shares of any class of its common stock, without the
consent of BIDCO, which shall not be unreasonably withheld, except
cash distributions to shareholders provided Borrower is a Subchapter
"S" corporation at the time and the distribution is not greater than
the income tax liability of the shareholders due to Borrower's
Subchapter "S" status.
7.5 Incur, or permit to remain outstanding, debt for borrowed money or
installment obligations, except (i) debt to BIDCO, (ii) unsecured
debt incurred in the ordinary course of business, (iii) debt
disclosed in writing to BIDCO prior to the date hereof, (iv) other
debt accepted by BIDCO in writing including those set forth on
Exhibit "B" hereto and (v) debt incurred for equipment purchases or
other capital expenditures which aggregate less than $50,000 per
calendar year (the "Permitted Debt"). For the purposes of this
covenant, the sale of ▇▇▇▇▇▇▇▇'s accounts receivable shall be deemed
the incurring of debt for borrowed money.
7.6 Create or permit to exist any lien on any of its property, real or
personal, except: liens granted to the Senior Lender; liens to
secure Permitted Debt (if consented to in writing by BIDCO); liens
to BIDCO; purchase money liens amounting to less than $50,000 per
calendar year; liens incurred in the ordinary course of business
securing current nondelinquent liabilities for taxes, worker's
compensation, unemployment insurance, social security and pension
liabilities, and liens for taxes being contested in good faith.
7.7 Except in the ordinary course of business or with the consent of
BIDCO (which consent shall not be unreasonably withheld), (i)
consolidate with or merge into any corporation or business entity,
or permit any corporation or business entity to merge into it; (ii)
nor convey, lease or sell all or a material portion of its assets or
business, nor lease, purchase or otherwise acquire all or a material
portion of the assets or business of any other person, corporation
or business entity.
7.8 Guarantee or otherwise become or remain secondarily liable on the
undertaking of another, except on endorsement for deposit and
collection in the ordinary course of business.
7.9 Purchase or acquire any securities of, or make any loans or advances
to, or investment in, any person, firm or corporation, except
obligations of the United States Government, open market commercial
paper rated one of the top two ratings by a rating agency of
recognized standing and/or certificates of deposit in commercial
banks.
6
7
7.10 Create any subsidiary or any other class of common stock other than
the now existing classes of Common Stock or change its fiscal year.
7.11 Enter into any partnership or joint venture, or cause or allow any
shareholder of Borrower to enter into any partnership or joint
venture which shall be related to the activities of the Borrower
except consistent with Borrower's prior practice and which does not
result in a diminution of revenues which would have otherwise have
been received by Borrower.
7.12 Cause or allow ▇▇▇▇ ▇. ▇▇▇▇▇, III or ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇ to sell,
transfer or otherwise dispose of any of their shares in Common Stock
of the Borrower except the transfer to a revocable living trust for
the primary benefit of the shareholder, or his or her immediate
family, being his or her spouse, lineal descendants or their
spouses, the trustee of which is the shareholder.
7.13 Cause or allow the Borrower to purchase, sell or issue any shares of
any class of its common stock, except employee and director stock
option plans as in existence at the date hereof.
7.14 Amend or revise its Articles of Incorporation or Bylaws such that a
super majority of any class of outstanding common stock is required
for shareholder action.
8. EVENTS OF DEFAULT/ACCELERATION: There shall be a default of this Note, and
this Note and all other liabilities of the Borrower to BIDCO shall
immediately mature and be due and payable, without notice or demand,
unless BIDCO otherwise elects, upon the occurrence of any of the following
events:
8.1 Default in the payment of this Note or any other obligation owing to
BIDCO or material debt to any other creditor, other than unsecured
debt incurred during the ordinary course of business, and such
default continues for a period of ten (10) days without cure.
8.2 Default in the performance of any term or condition of this Note or
in any document given as security for this Note, or in any other
material agreement between the Borrower and any creditor, and such
default continues without cure for a period of ten (10) days.
8.3 Any warranty, representation, or statement made or furnished to
BIDCO by Borrower hereunder or otherwise is untrue in any material
respect.
8.4 If any "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974, as amended) occurs.
7
8
8.5 The dissolution, termination of existence, suspension of business
(including failure to open for business for more than five (5)
consecutive days), or insolvency of Borrower; or the appointment of
a receiver for any part of the property of Borrower; or the making
of an assignment for the benefit of creditors by Borrower; or the
commencement of bankruptcy or insolvency proceedings by Borrower; or
the commencement of bankruptcy or insolvency proceedings against
Borrower which are not dismissed within sixty (60) days; or the
Borrower admits in writing its inability to pay its debts as they
mature; or death of the President of the Borrower.
8.6 The material loss, theft, damage or destruction, without insurance,
or the encumbrance to or of any material part or all of the
Collateral.
8.7 The entry, placement or issuance of any judgment, levy, lien, writ
of attachment, writ of garnishment, writ of execution or similar
process, against Borrower or any of Borrower's property unless they
do not have a material adverse impact on Borrower's financial
condition.
8.8 The sale of a material part of the Borrower's assets or business,
outside the ordinary course of business, without ▇▇▇▇▇'s written
consent which shall not be unreasonably withheld.
8.9 BIDCO shall deem itself insecure in reasonable good faith believing
that the prospect of payment of liabilities or performance under
this Note is materially impaired.
8.10 Any event which results in the acceleration of the maturity of any
debt of Borrower to BIDCO or a material debt to others under any
notice, indenture, agreement or undertaking.
8.11 Failure to observe and perform any of the terms and conditions of
the Revenue Participation Agreement, of even date, entered into by
the Borrower and BIDCO.
9. REMEDIES ON DEFAULT: If either the Principal or Interest amounts of this
Note are not paid at maturity, whether by acceleration or otherwise, BIDCO
shall have all of the rights and remedies provided by any law or
agreement. Further, and without extending the maturity date thereof, or
otherwise limiting the scope or nature of remedies of BIDCO in the event
of a default hereunder, BIDCO shall have the right, but not the
obligation, upon notice to the Borrower, to deem that any or all said due
and unpaid Interest Payments are to be converted to and included as unpaid
principal under the respective Note, and payment of principal and interest
thereon shall become due and payable from the due date according to the
terms of such Note. Any requirement of reasonable notice shall be met if
BIDCO sends the notice to the Borrower at least ten (10) days prior to the
date of sale, disposition or other event giving rise to the required
notice. BIDCO is
8
9
authorized to cause all or any part of the Collateral to be transferred to
or registered in its name or in the name of any other person, firm or
corporation, with or without designation of the capacity of the nominee.
The Borrower shall be liable for any deficiency remaining after
disposition of any Collateral.
10. MISCELLANEOUS:
10.1 No delay on the part of BIDCO in the exercise of any right or remedy
shall operate as a waiver. No single or partial exercise by BIDCO of
any right or remedy shall preclude any other future exercise of it
or the exercise of any other right or remedy. No waiver or
indulgence by BIDCO of any default shall be effective unless in
writing and signed by BIDCO, nor shall a waiver on one occasion be
construed as a bar to or waiver of any such right on any future
occasion. Any election to waive its right of acceleration shall not
be construed as a bar to or waiver of any right to elect
acceleration on a future occasion. An election by BIDCO to convert
any unpaid interest payment to principal shall not require BIDCO to
make a similar election in respect of subsequent unpaid interest
payments hereunder.
10.2 Any reference to BIDCO shall include any holder of this Note. This
Note is assignable and transferable individually or collectively
upon written notice to the Borrower.
10.3 This Note is governed by Michigan law without giving effect to any
choice or conflict of law provision or rule (whether of Michigan or
any other jurisdiction) that would cause the application of the laws
of any other jurisdiction other than Michigan to apply.
Each of the parties submits to the exclusive jurisdiction of the
United States District Courts for the Southern and Eastern Districts
of Michigan, and if subject matter jurisdiction is not available in
the Oakland County Circuit Court, in any action or proceeding
arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and
determined through such courts. Each party also agrees not to bring
any such action or proceeding arising out of or relating to this
Agreement in any other court. Each of the parties waives any defense
of inconvenient forum to the maintenance of any action or proceeding
so brought.
10.4 The Borrower is liable to BIDCO for all reasonable costs and
expenses, of every kind, incurred in the making or collection of
this Note, including, without limitation, actual attorney fees and
court costs. These costs and expenses shall include, without
limitation, any costs or expenses incurred by BIDCO in any
bankruptcy, reorganization, insolvency or other similar proceeding.
9
10
10.5 All notices required or permitted under this Note shall be in
writing and personally delivered, sent by certified mail, return
receipt requested or by a reliable overnight delivery service, to
the respective address above, or to any other address required by
the respective party, or by facsimile transmission with confirmation
of receipt, and notice shall be deemed given on the earlier of: a)
three (3) business days after notice is mailed as set forth above;
or b) upon actual receipt.
10.6 If any provision of this agreement is invalid, it shall be
ineffective only to the extent of its invalidity, and the remaining
provisions shall be valid and effective.
10.7 Borrower expressly waives presentment, demand, notice (other than
notice of an event of default if otherwise required by this Note),
protest, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Note.
10.8 At no time shall the interest payable hereunder be deemed to exceed
the maximum interest rate permitted to be paid by the Borrower or
received by BIDCO with respect to the indebtedness represented by
this Note under applicable law (the "Legal Rate"). In the event any
interest is charged or received by BIDCO in excess of the Legal
Rate, the Borrower acknowledges that any such excess interest shall
be the result of an accidental and bona fide error, and such excess
shall first be applied to reduce the principal then unpaid hereunder
(in inverse order of their maturities if principal amounts are due
in installments); second, applied to reduce any obligation for other
indebtedness of the Borrower to BIDCO; and third, any remaining
excess returned to the Borrower.
10.9 If any payment applied to BIDCO to this Note is subsequently set
aside, recovered, rescinded or otherwise required to be returned or
disgorged by BIDCO for any reason (pursuant to bankruptcy
proceedings, fraudulent conveyance statutes or otherwise), this Note
shall be deemed to have continued in existence, notwithstanding the
application, and this Note shall be enforceable as to the payment of
such payment as fully as if BIDCO had not received or applied the
payment.
10.10 Borrowers, on one hand, and BIDCO, on the other hand, acknowledge
that the right to trial by jury is a constitutional one, but that it
may be waived. ▇▇▇▇▇ AND ▇▇▇▇▇▇▇▇, AFTER CONSULTING COUNSEL OF THEIR
CHOICE, EACH HEREBY KNOWINGLY AND VOLUNTARILY, WITHOUT COERCION,
WAIVE ALL RIGHTS TO A TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM.
Neither Borrower nor BIDCO shall be deemed to have given up this
waiver of jury trial unless such relinquishment is in a written
instrument signed by the party to be charged.
10
11
10.11 This Agreement may be amended only in a writing signed by ▇▇▇▇▇▇▇▇
and BIDCO.
WITNESS: FUNDEX GAMES, LTD.,
a Nevada corporation,
______________________________ By:______________________________
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇, President
STATE OF MICHIGAN )
COUNTY OF OAKLAND ) ss.
On this 27th day of August, 1998, before me personally appeared ▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇ who acknowledge executing the foregoing instrument on behalf of FUNDEX
GAMES, LTD.
_________________________________
Notary Public, ___________ County
My commission expires: __________
11
12
TABLE OF EXHIBITS TO
BUSINESS LOAN NOTE DATED AUGUST 27, 1998
Exhibit A - Certificate of Compliance
Exhibit B - Permitted Debt
Exhibit C - Schedule of Equipment Leases
