Document:

FORM OF FACTORING AGREEMENT

 

EXHIBIT 10.10

 

 

MONTCAP FINANCIAL CORPORATION

3400 de Maisonneuve Blvd. West

Suite 1245

Montreal, Quebec

H3Z 3B8

FACTORING AGREEMENT (“AGREEMENT”)

DATE: June 18, 2001

	 	 	 	 	 
	TO:
	 	GRAND TOYS LTD. /
	 
	 	JOUETS GRAND LTÉE
	 
	 	1710 Trans Canada Highway
	 
	 	Dorval, Quebec, H9P 1H7
	 
	 
	 	GRAND CONCEPTS INC. /
	 
	 	CONCEPTS GRAND INC.
	 
	 	1710 Trans Canada Highway
	 
	 	Dorval, Quebec, H9P 1H7

You agree to sell and we agree to purchase all of your accounts receivable (the
«Receivables») under the following terms:

	1.	 	The Receivables shall be specifically identified on a Notification Sheet
(see Sample A annexed), or in any other manner and by any means of
notification (including by e-mail or other form of electronic
transmission), agreeable to both of us.
	 
	2.	 	When we issue our Notification Sheet, you will give us a specific
assignment of the Receivables on a form (see Sample B annexed) to which
you will attach a certified copy of the delivery slip, or other proof of
delivery of the order(s) representing the Receivables, together with
relevant invoices. You will also attach the relevant purchase orders, or
service orders, as the case may be. Concurrently, you will certify, on
the Notification Sheet, that each Receivable represents a valid and bona
fide sale; that the goods and/or services represented by the Receivable
have been completely delivered and/or completely rendered; and that, as at
the date of the Notification Sheet, you have had no notice or knowledge of
any dispute (as defined in Clause 3) relating to the Receivable or a
previous or subsequent Receivable, which could cause your customer to
refuse to pay the Receivable on its due date.
	 
	 	 	You warrant that (a) you are a properly constituted
corporation/partnership/sole proprietorship; (b) you are solvent; (c) you
own the goods shipped to the buyer, or (as the case may be) are authorized
or licensed (if a license is necessary) to provide the services, described
in every invoice we purchase. This is an ongoing warranty applicable to
all transactions between us under this Agreement.

 

	 	 	At our request, you will arrange for your customers and any guarantor of
any Receivable to be notified of our purchase of the Receivables in such
form as we may require and/or will obtain an acceptance by your customer
and any guarantor, of our purchase of the Receivables.
	 
	 	 	Every purchase of Receivables includes all accessories and rights of an
unpaid vendor, including all privileges, rights of stoppage in transit,
rights of dissolution and any rights flowing from any guarantees.
	 
	3.	 	«Dispute» means any claims, complaint, offset, defence, counter-account
or counter-claim whatever including without limitation, dispute as to
price, terms, discount, quantity, quality, returns, intended returns or
the rights to return, allowances, claims for credit, deliveries,
warranties, nature of buyer/seller relationship, claims of release from
liability, force majeure or any law or regulations; also the failure or
refusal by your customer to pay the full amount of the Receivable for any
reason whatsoever.
	 
	4.	 	You assume the risk of credit loss on the Receivables at all times and
including, without limitation, the customer’s failure to pay in full at
maturity because of financial inability and guarantee that each Receivable
will be paid in full at maturity in accordance with the contractual
arrangements between you and the customer. Without limiting the
generality of the foregoing and notwithstanding any provision of law to
the contrary, you will be liable for the solvency of a customer not only
at the time of the assignment of a Receivable, but at all times thereafter
so long as the Receivable remains outstanding and such liability will be
to the extent of the full amount of the Receivable.
	 
	5.	 	We will purchase each Receivable at a discount of two percent (2%) from
the face value thereof. In addition to the foregoing you will pay an
additional fee to us equal to one-fifteenth (1/15) of one percent (1%) per
day on any receivable outstanding after thirty (30) days from the purchase
date.
	 
	 	 	In the event that the Prime Rate of The Bank of Nova Scotia increases
above six and one-half percent (6.5%) per annum, our discount will
increased by 0.125 times the amount of such increase. The Bank of Nova
Scotia Prime Rate means the prime lending rate in effect from time to time
as a reference for loans in Canadian dollars.
You have paid to us upon signature of the offer dated May 15, 2001, an
amount of ONE THOUSAND DOLLARS ($1,000.00), as a deposit to be applied
against legal, appraisal and due diligence fees.
You will pay to us on the sooner of signature of this agreement or
approval of our credit committee, the sum of TEN THOUSAND DOLLARS
($10,000.00), representing our application fee.
	 
	6.	 	We will pay you the purchase price for each Receivable upon collection
thereof by us, which payment should be subject to deduction by an equal
amount of any deductions which may be taken by the customer. We will
also deduct from the purchase price any other amounts which may be owing
by you to us at such time.
	 
	7.	 	We may prepay the purchase price of eligible Receivables up to a maximum
of Eighty Percent (80%) , less any deductions which may be taken by the
customer in accordance with the invoice or purchase order or vendor
agreement.
	 
	 	 	Eligible Receivables mean your accounts receivable represented by invoices
to customers which have been credit approved by us and which customers
have acknowledged a direction to make payment directly to us. As well in
order for a receivable to be eligible for purchase by us, original
invoices, purchase orders and proof of shipments shall be provided by you
to Montcap. Montcap will mail the original invoices to customers at your
cost.
	 
	 	 	We will also deduct from the amounts payable to you the cost of
publication (registration) and notification of the hypothec granted by you
to us and the cost of any courier services.
	 
	8.	 	Each and every Receivable is, and will be clear of any liens, rights of
third parties, or other charges.
	 
	 	 	Without prejudice to our rights as a purchaser of the Receivables, we
will also hold all of your accounts receivable as security for the payment
and fulfilment of all of your indebtedness and obligations to us from time
to time. For such purposes, you will hypothecate your accounts receivable
in our favour in our standard form.

 

	9.	 	All reasonable legal fees and disbursements incurred by us in connection
with this Agreement and security documents hereunder shall be paid by you
at the time of closing or, at our sole discretion, deducted from such
amounts due you. You shall also pay all bank, wire and cable charges at
$20.00 per transfer and we may deduct such amounts from amounts payable by
us to you.
	 
	10.	 	You agree that you will not, without our prior written consent, accept
any change to any payment terms (as certified on the Notification Sheet)
relating to any Receivable. In the event that any payment terms are
changed without our prior written consent, we may, in our sole discretion,
either require you to immediately repurchase the Receivable for a price
equal to the outstanding amount thereof or may charge you a further
discount of five percent (5%) for each period of thirty (30) days, or
portion thereof, for which the payment terms were extended.
	 
	11.	 	Should any Dispute occur, or should you breach any provision hereof or
should any representation or warranty made herein or in any Notification
sheet or otherwise in respect of any Receivable be false or misleading, or
should any customer fail to pay within ninety (90) days of invoice date,
you will immediately, at our request, repurchase the Receivable for a
price equal to the outstanding amount thereof. You will notify us
immediately if a customer returns or desires to return any merchandise
representing the whole or any part of a Receivable, or if the customer in
any way alleges any Dispute. You will promptly adjust any Dispute and
will advise us of all adjustments.
Upon demand, you will reimburse us all legal and collection fees relating
to the Receivables and we may deduct such amounts from any amounts owing
by us to you in connection with the purchase of any Receivable.
	 
	 	 	In the event that pursuant to this Agreement you are obliged at any time
to repurchase any Receivable, you will forthwith pay to us the amount of
the Receivable. Any unpaid balance will bear interest at the Prime Rate of
interest of the Bank of Nova Scotia in effect from time to time plus ten
percent (10%) per annum, calculated on a daily basis and charged monthly.
Interest will be payable on the last day of each month.
	 
	12.	 	You irrevocably appoint us or any person designated by us your lawful
attorney for all collection matters relating to the Receivables, and,
without limiting the scope of this appointment, we have the right to
endorse your name on all payment instruments, verifications of account,
notices to customers, and similar documents, to send to any customer in
your name or ours requests for verification or payment of accounts; to
draw and/or confirm acceptance of drafts; to sue for, recover and receive
all monies due, owing and payable under each Receivable; and otherwise
collect such accounts in whatever manner we see fit, including the right
to make compromises and settlements with your customers, to attend and
vote in your name or ours at all meetings of creditors, to file proofs of
claim and generally to perform any acts necessary or expedient for the
purpose of collecting the Receivable. You will remit to us forthwith, and
in the same form as received, all payments and evidences of payment
received from your customers representing payment of Receivables, and any
other communications from your customers relating to any Receivables.
	 
	13.	 	We may accept payments on account from customers, and deposit remittances
as received, irrespective of any deductions or notations, the whole
without affecting or reducing your liability to us in respect of any
amounts not paid by the customer.
	 
	 	 	Any payments received by us from or on behalf of a customer with more than
one outstanding Receivable may be applied by us against such Receivables
owing by that customer as we consider appropriate notwithstanding any
allocation made by the customer.
	 
	14.	 	You will provide us, within one hundred and twenty (120) days after the
end of each fiscal year, your annual financial statements and you hereby
authorize your accountant , from time to time, to furnish copies,
certified by him, of all such statements together with any certificates or
extracts of your books and records as we may reasonably request. Any of
our representatives may, from time to time, examine and make copies or
extracts of your books and records, which you agree to make available to
us during business hours.

 

	15.	 	This Agreement is for the benefit of and will bind us, and our respective
successors and assigns. We have made no representations to induce you to
enter into this Agreement other than those which may appear herein. No
amendment or waiver of any provision of this Agreement will be effective
unless it is in writing and signed by us.
	 
	16.	 	This Agreement will continue for an indefinite period of time from the
date hereof and unless one of us receives from the other by registered
mail a notice of termination of no less than thirty (30) days.

You guarantee to us that discount revenue generated from this contract for us
will be no less than SIXTY THOUSAND DOLLARS ($60,000.00). In the event that the
discount revenue earned is less when this agreement is terminated, then you
will pay us, on demand, the difference between SIXTY THOUSAND DOLLARS
($60,000.00) and the discount revenue actually generated during the period that
this agreement was in force. The aforesaid minimum discount fee shall be
payable to us as liquidated damages and will be validly due and owing to us
even if you should seek the protection of any insolvency legislation, go into
liquidation or may otherwise cease to carry on business.

	17.	 	You hereby agree that we may use your name and other information
pertaining to our financial arrangements including, without limitation,
the amount of the facility, for marketing and advertising purposes and you
hereby agree not to invoke the confidentiality of the financing
arrangements entered into between us, provided said information is being
used for said purposes. We agree to keep confidential the terms of our
financing arrangements and your financial information, except to the
extent permitted in the previous sentence and as regard disclosures in the
ordinary course of our business.
	 
	18.	 	Time, wherever material, shall be of the essence. This Agreement shall
be governed by the laws of Quebec. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction will not invalidate the
remaining provisions, nor will it invalidate or render unenforceable such
provision in any other jurisdiction.
	 
	19.	 	Upon every reasonable request from us, you will sign such further
documents and do such further acts as may be required in order to give
effect to the purpose and intent of this Agreement.
	 
	20.	 	This agreement may be referred to as bearing formal date of June 18,
2001, notwithstanding the actual date of its execution.
	 
	21.	 	The parties acknowledge that they have required that this agreement and
all related documents be drawn up in English.
	 
	 	 	Les parties reconnaissent avoir exigé que la présente convention et tous
les documents connexes soient rédigés en anglais.

MONTCAP FINANCIAL CORPORATION

Per: ______________________________FORM OF INVENTORY & EQUIPMENT LOAN AGREEMENT

 

 

EXHIBIT 10.11

 

INVENTORY AND EQUIPMENT LOAN AGREEMENT

	 	 	 
	BY AND BETWEEN:

	 	     MONTCAP FINANCIAL CORPORATION / CORPORATION FINANCIÈRE
MONTCAP, a legal person, having its registered office and
principal place of business at 1 Place Alexis Nihon, Suite
1245, 3400 de Maisonneuve Blvd., Montreal, Quebec, H3Z 3B8
	 
	

	 	(hereinafter referred to as «Montcap»)
	 
	AND:

	 	     GRAND TOYS LTD., a legal person, having a place of
business at 1710 Trans Canada Highway, in the City of
Dorval, Province of Quebec, H9P 1H7, herein acting and
represented by Ian R. Bradley, President, duly authorized
in virtue of a resolution of directors,
	 
	AND:

	 	     GRAND CONCEPTS INC., a legal person, having a place of
business at 1710 Trans Canada Highway, in the City of
Dorval, Province of Quebec, H9P 1H7, herein acting and
represented by Ian R. Bradley, President, duly authorized
in virtue of a resolution of directors,
	 
	AND:

	 	     GRAND TOYS INTERNATIONAL INC., a legal person, having a
place of business at 1710 Trans Canada Highway, in the
City of Dorval, Province of Quebec, H9P 1H7, herein acting
and represented by Ian R. Bradley, President, duly
authorized in virtue of a resolution of directors,
	 
	

	 	(each hereinafter referred to as the «Borrower»)

WHEREAS Montcap intends to make certain advances to each Borrower based on the
value of certain of its inventory and of its equipment, the whole subject to
the terms and conditions of the present Agreement.

 

NOW, THEREFORE, THIS AGREEMENT WITNESSETH:

	1.	 	Preamble
	 
	1.1	 	The preamble is deemed to be part of this Agreement.
	 
	2.	 	Demand Inventory Loan and Equipment Loan
	 
	2.1	 	Montcap agrees to make loans to each Borrower, repayable on demand, by
way of advances on a revolving basis, based on the value of certain of its
inventory, in accordance with the following formula and subject to the
terms and conditions hereof (the «Inventory Loan»);
	 
	2.2	 	Montcap agrees to make loans to each Borrower, repayable on demand, by
way of advances on a revolving basis, based on the value of certain of its
equipment, in accordance with the following formula and subject to the
terms and conditions hereof (the «Equipment Loan»);
	 
	2.3	 	The parties hereby agree that the aggregate sums advanced by Montcap to
all Borrowers hereunder, shall not exceed $925,000.00, with respect to the
Inventory Loan and $75,000.00 with respect to the Equipment Loan.
	 
	3.	 	Definitions
	 
	3.1	 	For the purposes hereof, the following words or expressions shall have
the meaning ascribed to them.

	 	(a)	 	Eligible Inventory: means each Borrower’s inventory of
Finished Goods, which is not subject to any conditional sale,
consignment or other vendor’s right of ownership or revindication;
	 
	 	(b)	 	Finished Goods: means only the products for the current
selling season of each Borrower, which are not subject to a license
or any other intellectual property right given or granted to the
Borrower except if such licensor or holder of the intellectual
property right has agreed and consented to the security to be granted
in favour of Montcap and to Montcap’s realization thereunder which
could entail a forced liquidation of the licensed products;
	 
	 	(c)	 	Cost of Eligible Inventory: means (i) with respect to Finished
Goods the price paid by each Borrower for the purchase of the
products net of transportation costs, commissions, duties, taxes and
any other charge;
	 
	 	(d)	 	Eligible Purchase Orders: means purchase orders received by
each Borrower for the purchase of Finished Goods from customers (i)
credit approved by Montcap, (ii) for which the mix of customers and
products is acceptable to Montcap and (iii) for which Montcap is
satisfied that the Borrower will be able to respect the delivery date
stipulated in the purchase orders by shipping all the products
referred to in the purchase orders;
	 
	 	(e)	 	Eligible Equipment: means each Borrower’s equipment and office
furniture, which is not subject to any conditional sale, consignment
or other vendor’s right of ownership or revindication;
	 
	 	(f)	 	Net Realizable Value of the Equipment: means the liquidation
value of the Eligible Equipment net of all costs of sale, including
commissions and taxes. The Net Realizable Value of the Equipment
shall be determined by Montcap’s appraisers, Crescent Commercial
Corporation or any other auctioneer carrying on business in the
Province of Quebec which Montcap may designate from time to time;
	 
	 	(g)	 	Offer Letter of May 29, 2001: means Montcap’s offer of credit
facility to Grand Toys Ltd. and Grand Concepts Inc., by letter dated
May 15, 2001, accepted May 29, 2001;
	 
	 	(h)	 	Factoring Agreement: means the Factoring Agreement entered into
between Montcap and Grand Toys Ltd. and Grand Concepts Inc. on June
22, 2201, pursuant to the Letter Offer of May 29, 2001;

 

	 	(i)	 	Offer Letter of August 16, 2001: means Montcap’s offer of
credit facility to Grand Toys Ltd. and Grand Concepts Inc., by letter
dated August 16, 2001, accepted August 16, 2001;

	4.	 	Formula for Advances
	 
	4.1	 	Until September 15, 2001, the Inventory Loan of each Borrower shall not exceed the aggregate of:

	 	(a)	 	25% of its Cost of Eligible Inventory, not subject to Eligible Purchase Orders; and
	 
	 	(b)	 	60% of its Cost of Eligible Inventory, subject to Eligible Purchase Orders;

	4.2	 	On or after September 15, 2001, the Inventory Loan of each Borrower shall not exceed the aggregate of:

	 	(a)	 	15% of its Cost of Eligible Inventory not subject to Eligible
Purchase Orders. However, Montcap in its discretion can agree to
advance further sums based on the Cost of Eligible Inventory of the
Borrower, of certain specific products only of the Borrower,
acceptable to Montcap, provided that the total sums advanced shall
not exceed 25% of the Cost of Eligible Inventory of the Borrower
(including such specific products); and
	 
	 	(b)	 	60% of its Cost of Eligible Inventory subject to Eligible
Purchase Orders;

	4.3	 	The Equipment Loan of each Borrower shall not exceed 75% of the Net
Realizable Value of its Eligible Equipment.
	 
	5.	 	Disbursement of the Inventory Loan and of the Equipment Loan and
directions of payment
	 
	5.1	 	The Inventory Loan shall be disbursed by Montcap to each Borrower, at its
request. Prior to each advance, the Borrower shall complete and deliver
to Montcap an Availability Calculation Certificate in the form annexed
hereto as Schedule “1”. All advances shall be made by Montcap to each
Borrower by way of wire transfer at a cost of $20.00 per transfer.
	 
	5.2	 	The Equipment Loan shall be disbursed by Montcap to each Borrower, at its
request. Prior to each advance, Montcap shall have received the
confirmation of the Net Realizable Value of the Equipment from Montcap’s
appraisers. All advances shall be made by Montcap to each Borrower by
way of wire transfer at a cost of $20.00 per transfer.

 

	5.3	 	The parties hereby agree that the credit facility resulting from the
present agreement is available only after all Eligible Receivables (as
this term is defined in the Factoring Agreement) of the Borrower have been
purchased by Montcap, in accordance with the Factoring Agreement.
	 
	5.4	 	Each Borrower hereby directs and instructs Montcap to use, from time to
time, the proceeds of all sums available to the Borrower in virtue of the
Factoring Agreement, to reduce the amounts outstanding under the Inventory
Loan and the Equipment Loan of the three (3) Borrowers hereunder, on a pro
rata basis
	 
	6.	 	Reimbursement of the Inventory Loan and of the Equipment Loan
	 
	6.1	 	The Inventory Loan shall be repayable on demand. In addition, if at any
given time the outstanding advances exceeds the amount calculated in
accordance with the formula above, then the Borrower shall automatically
be deemed to be on notice to reimburse such excess without any other
demand by Montcap.
	 
	6.2	 	The Equipment Loan shall be repayable on demand. In addition, if at any
given time the outstanding advances exceeds the amount calculated in
accordance with the formula above, then the Borrower shall automatically
be deemed to be on notice to reimburse such excess without any other
demand by Montcap.
	 
	7.	 	Interest
	 
	7.1	 	Each Borrower shall pay to Montcap interest, calculated daily and charged
monthly, on the last day of each month, while the Inventory Loan and the
Equipment Loan are outstanding, both before and after default, at a rate
per annum calculated on the daily outstanding balance of the Inventory
Loan and of the Equipment Loan, at a rate equal to the Bank of Nova Scotia
Prime Rate plus seven and one-half percent (7.5%).
	 
	7.2	 	The Bank of Nova Scotia Prime Rate means the floating annual rate of
interest established and announced by the Bank of Nova Scotia from time to
time as a reference rate for purposes of determining rates of interest it
will charge on loans denominated in Canadian dollars. Each Borrower
acknowledges that the Bank of Nova Scotia Prime Rate is currently 6.0%. A
certificate of a manager of the Bank of Nova Scotia shall be conclusive
evidence of the Bank of Nova Scotia Prime Rate from time to time.
	 
	8.	 	Fees
	 
	8.1	 	In addition to interest, each Borrower shall pay to Montcap a monitoring
fee of $250.00 per month, in any month when any part of the Inventory Loan
or of the Equipment Loan is outstanding with respect to any of the
Borrowers. The monitoring fee shall be paid by each Borrower to Montcap
in advance the first day of each month.
	 
	9.	 	Term of Agreement and minimum annual revenues
	 
	9.1	 	This Agreement shall remain in force for a period of one year from the
date of signature thereof and will be automatically renewed for successive
periods of one (1) year, unless either party give at least ninety (90)
days prior notice.

 

	9.2	 	The total annual revenue paid by the three (3) Borrowers to Montcap shall
not be inferior to $225,000.00 (the “Minimum Revenues”). For the purposes
hereof the parties hereby agree that:

	 	(i)	 	the first year shall be calculated from June 5, 2001; and
	 
	 	(ii)	 	the revenues shall be composed of the interest and the”
monitoring fee” as well as any other fee payable by each Borrower to
Montcap in virtue of (i) this Inventory and Equipment Loan Agreement,
(ii) the Offer Letter of August 16, 2001,(iii) the Factoring
Agreement and (iv) the Offer Letter of May 29, 2001, excluding however the “application fee” of
$10,000.00 paid pursuant to the Offer Letter of May 29, 2001.

	9.3	 	After each year, each Borrower shall be solidary liable to pay to
Montcap, upon demand, the difference between the total annual revenues
paid to Montcap during the preceding year and the Minimum Revenues.
	 
	10.	 	Security
	 
	10.1	 	The Inventory Loan, the Equipment Loan and the obligations of each
Borrower in virtue of the Factoring Agreement (where applicable) shall be
secured by the following documentation, completed and where necessary
registered in a form and manner acceptable to Montcap’s attorneys:

	 	(a)	 	First ranking Movable Hypothec in the principal amount of
$4,000,000.00 granted by each Borrower in favour of Montcap, ranking
immediately after the existing hypothec in favour of Montcap, if any,
on the universality of all its present and future assets;
	 
	 	(b)	 	Assignment by each Borrower to Montcap of all risk insurance,
including extended coverage, showing Montcap as loss payee in
accordance with its interest and together with a mortgage endorsement
in favour of Montcap. Said policies shall include business
interruption, and the coverage over inventory to be not less than
$5,000,000.00;
	 
	 	(c)	 	Opinion of corporate counsel of each Borrower;
	 
	 	(d)	 	Fidelity Certificate signed by Ian R. Bradley, President;
	 
	 	(e)	 	Where applicable, releases or cessions of priority from the
landlord, Storage Leaseholds Inc., together with an agreement from
such landlord authorizing Montcap to occupy the premises of each
Borrower for a period of one hundred and twenty (120) days to conduct
a liquidation sale or otherwise to liquidate the assets of each
Borrower subject to Montcap’s security provided Montcap pays an
occupation rent on a per diem basis;
	 
	 	(f)	 	Such supporting certificates and other opinions as Montcap or
its attorneys shall reasonably require;

	 	Copies of Montcap’s usual form of security and supporting documentation
are available for inspection upon request.

 

	11.	 	Conditions Precedent
	 
	11.1	 	The receipt by Montcap of the following shall be condition precedent to
the advance of any sums under the Inventory Loan and under the Equipment
Loan:

	 	(a)	 	security documents with respect to each Borrower completed and,
where necessary, registered in the form and manner satisfactory to
Montcap’s attorneys, including a Agreement of Cession of Rank by
Storage Leaseholds Inc. containing the occupancy right of Montcap, as
hereinabove mentioned;
	 
	 	(b)	 	confirmation of insurance with respect to each Borrower;
	 
	 	(c)	 	satisfactory inventory inspection report and receipt of the
first Inventory Declaration in the form annexed herewith, duly
executed, with respect to each Borrower;
	 
	 	(d)	 	confirmation of the Net Realizable Value of the Equipment by
Montcap’s appraisers, with respect to each Borrower.

	12.	 	Conditions of Loan
	 
	12.1	 	The following covenants shall apply:

	 	(a)	 	each Borrower shall respect the margin requirements provided in
paragraph 4 above;
	 
	 	(b)	 	each Borrower shall complete and deliver to Montcap each week
the Availability Calculation Certificate in the form of Schedule 1,
together with supporting documents including the SKU number of the
products of Finished Goods, the number of units, the costs per unit,
the total costs of SKU products, the purchase orders and the number
of units and the costs thereof for each purchase orders;
	 
	 	(c)	 	each Borrower shall segregate in its premises all inventory of
Finished Goods sold to third parties;
	 
	 	(d)	 	each Borrower shall give full and unfettered access to its
premises to Montcap’s representatives in order for Montcap to be able
to value the Eligible Inventory and all of the Borrower’s other
requirements hereunder;
	 
	 	(e)	 	each Borrower shall not, without the prior written consent of
Montcap:

	 	i)	 	declare or pay dividends on any class or kind of
its shares, repurchase or redeem any of its shares or reduce
its capital in any way whatsoever or repay any shareholders’ or
directors’ advances;
	 
	 	ii)	 	grant or allow any lien, charge, lease or other
encumbrance, whether fixed or floating, to be registered
against or exist on any of its assets save as specifically
provided herein;
	 
	 	iii)	 	become guarantor or endorser or otherwise become
liable upon any note or other obligation other than in the
normal course of its business;

 

 

	 	(f)	 	each Borrower shall during the term of this Agreement:

	 	i)	 	maintain an on line computer system to provide
current detailed inventory, sales, markdown, cash and banking
information so as to allow Montcap to continually evaluate its
inventory or Montcap’s security position to the entire
satisfaction of Montcap;
	 
	 	ii)	 	maintain current all rent, utilities, property and
business tax and all occupancy costs with respect to all rented
premises;
	 
	 	iii)	 	maintain current any and all claims which may give
rise to creditor’s rights ranking in priority to or pari passu
with the rights of Montcap including but not limited to wages,
vacation pay, pension contributions, source deductions,
business or municipal taxes, sales taxes and the like;
	 
	 	iv)	 	provide on request by Montcap evidence that all
lease obligations are being met at all times and that leases
are not in default;
	 
	 	v)	 	maintain current all loan payments with respect to
equipment, furnishings, leasehold improvements or any other
term loan commitment;
	 
	 	vi)	 	provide to Montcap, within twenty (20) days of each
month, the following information:

	 		 	1.     its monthly internal financial
statements showing the monthly and cumulative activities
together with a trial balance.
	 
	 		 	2.     An aged summary accounts payable
listing.

	 	vii)	 	provide to Montcap proof of payment of the
following obligations as soon as payments are due:

	 		 	1.     all rental obligations with respect to
the premises occupied by the Borrowers.
	 
	 		 	2.     The remittances for deductions at
source concerning the employees.
	 
	 		 	3.     The remittances for GST and PST.

	13.	 	Location Visits
	 
	13.1	 	Montcap shall have the right to inspect any and all of the places of
business of each Borrower as well as the contents thereof at any time but
Montcap undertakes to endeavour to conduct such inspections during normal
business hours.

 

	14.	 	Legal and Other Expenses
	 
	14.1	 	Each Borrower shall pay all legal fees and disbursements in respect of
this credit facility, the preparation and issue of the security documents,
the enforcement and preservation of Montcap’s rights and remedies, all
appraisals and consultants, insurance consultation and similar fees and
all other fees and disbursements of Montcap, whether or not the
documentation is completed or any funds are advanced under this agreement.
	 
	15.	 	Montcap’s Attorneys
	 
	15.1	 	Legal work and documentation is to be performed on behalf of Montcap by
Messrs. Goldstein, Flanz & Fishman, Barristers and Solicitors, 1250
René-Lévesque Blvd. West, Suite 4100, Montreal, Quebec, H3B 4W8 and local
counsel as may be required.
	 
	16.	 	Lapse and Cancellation Annual Review
	 
	16.1	 	If, in the opinion of Montcap, a material adverse change in risk occurs
at any time, at the option of Montcap, this credit facility may be
cancelled or disbursement withheld. This credit facility will lapse and
the obligations of Montcap hereunder will end at the option of Montcap, if
the conditions of disbursement have not been met by September 1st, 2001.
The availability of this credit facility and its terms and conditions
shall be subject to periodic review by Montcap.
	 
	17.	 	Credit Reporting
	 
	17.1	 	Each Borrower consents (i) to the obtaining from any credit reporting
agency or from any person, such information as Montcap may require at any
time, and (ii) to the disclosure at any time of any information concerning
the Borrower to any credit grantor with whom each Borrower has financial
relations or to any credit reporting agency.
	 
	18.	 	Non-Merger and Non-Assignment
	 
	18.1	 	The terms and conditions of this credit facility shall not be merged by,
and shall survive, the execution of the security documents, and the
benefits conferred hereby may not be assigned by any Borrower.
	 
	19.	 	Authorization
	 
	19.1	 	Each Borrower authorizes Montcap to accept telex and facsimile
communications on its behalf as full and sufficient authority to act in
accordance with the communications, as received by Montcap.
	 
	19.2	 	Each Borrower shall be bound by all such telex and facsimile
communications from itself in the same manner and extent as if such
communications were originally handwritten and signed by each Borrower,
and each Borrower shall hold Montcap at all times fully indemnified from
all claims and demands in respect of all such instructions, in the event
such telex and facsimile communications were made without authority or
otherwise.
	 
	20.	 	Entire Agreement

 

	20.1	 	With respect to all matters herein mentioned, this agreement supercedes
and replaces the Offer Letter of August 16, 2001.
	 
	21.	 	Language
	 
	21.1	 	The parties acknowledge that they have required that this agreement and
all related documents be drawn up in English. Les parties reconnaissent
avoir exigé que la présente convention et tous les documents connexes
soient rédigés en anglais.

SIGNED AT MONTREAL, THIS 21ST DAY OF AUGUST, 2001,

	 	 
	MONTCAP FINANCIAL CORPORATION

	 
	Per:_____________________________________________________

	
Fred Moss, President

	 
	GRAND TOYS LTD.

	 
	Per:_____________________________________________________

	Ian R. Bradley, President

	 	 	 
	GRAND CONCEPTS LTD.

	 	GRAND TOYS INTERNATIONAL INC.
	 
	Per:_____________________________________________________
	 	Per:_____________________________________________________

	Ian R. Bradley, President

	 	Ian R. Bradley, President

 

You guarantee to us that discount revenue generated from this contract for us
will be no less than SIXTY THOUSAND DOLLARS ($60,000.00). In the event that the
discount revenue earned is less when this agreement is terminated, then you
will pay us, on demand, the difference between SIXTY THOUSAND DOLLARS
($60,000.00) and the discount revenue actually generated during the period that
this agreement was in force. The aforesaid minimum discount fee shall be
payable to us as liquidated damages and will be validly due and owing to us
even if you should seek the protection of any insolvency legislation, go into
liquidation or may otherwise cease to carry on business.

	24.	 	You hereby agree that we may use your name and other information
pertaining to our financial arrangements including, without limitation,
the amount of the facility, for marketing and advertising purposes and you
hereby agree not to invoke the confidentiality of the financing
arrangements entered into between us, provided said information is being
used for said purposes. We agree to keep confidential the terms of our
financing arrangements and your financial information, except to the
extent permitted in the previous sentence and as regard disclosures in the
ordinary course of our business.
	 
	25.	 	Time, wherever material, shall be of the essence. This Agreement shall
be governed by the laws of Quebec. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction will not invalidate the
remaining provisions, nor will it invalidate or render unenforceable such
provision in any other jurisdiction.
	 
	26.	 	Upon every reasonable request from us, you will sign such further
documents and do such further acts as may be required in order to give
effect to the purpose and intent of this Agreement.
	 
	27.	 	This agreement may be referred to as bearing formal date of June 18,
2001, notwithstanding the actual date of its execution.
	 
	28.	 	The parties acknowledge that they have required that this agreement and
all related documents be drawn up in English.
	 
	 	 	Les parties reconnaissent avoir exigé que la présente convention et tous
les documents connexes soient rédigés en anglais.

MONTCAP FINANCIAL CORPORATION

Per: ______________________________

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