EXHIBIT 10.52
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement"), dated November
21, 2000, between Interactive Telesis Inc., a Delaware corporation, having a
mailing address of 00000 Xxxx Xxxxx Xxxxx, 0xx Xxxxx, Xxx Xxxxx, XX
00000-0000 ("The Borrower"), and XXXXXXXXX & XXXXX GUARANTY FINANCE, LLC, a
California limited liability company, having a mailing address at Xxx Xxxx
Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 ("Secured Lender) is made and
executed on the following terms and conditions. Borrower has applied to
Secured Lender for a loan or loans and other financial accommodations.
Borrower understands and agrees that: (a) in granting, renewing, or extending
any Loan, as defined in Section 1.16 herein, Secured Lender is relying upon
Borrower's representations, warranties and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan after the
initial Loan hereunder by Secured Lender at all times shall be subject to
Secured Lender's sole judgement and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement. The Schedule to this Agreement being executed concurrently
herewith (the "Schedule") is an integral part of this Agreement.
SECTION 1. CERTAIN DEFINITIONS.
The following words shall have the following meanings when used in this
Agreement. Terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the California Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
SECTION 1.1 "AFFILIATE" shall mean, with respect to any Person, a
relative, partner, shareholder holding 25% or more of the voting capital stock
of such Person, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
SECTION 1.2 "AGREEMENT" shall mean this Loan and Security Agreement,
as it may be modified from time to time, together with the Schedule and all
exhibits and other schedules attached to or forming a part of this Loan and
Security Agreement from time to time.
SECTION 1.3 "BORROWER" shall mean Interactive Telesis Inc.
SECTION 1.4 "BORROWER'S LOCATION" shall mean 00000 Xxxx Xxxxx Xxxxx,
0xx Xxxxx, Xxx Xxxxx, XX 00000-0000 or as amended from time to time.
SECTION 1.5 "BUSINESS DAY" means a day on which Secured Lender is open
for business.
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SECTION 1.6 "CHANGE OF CONTROL" shall mean (a) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities and Exchange Act of 1934 and the
rules of the Securities and Exchange Commission thereunder as in effect on the
date hereof) of shares representing more than 40% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of the
Borrower; or (b) occupation of a majority of the seats (other than vacant seats)
on the board of directors of the Borrower by Persons who were neither (i)
nominated by the board of directors of the Borrower nor (ii) appointed by
directors so nominated.
SECTION 1.7 "COLLATERAL" shall mean all right, title and interest of
Borrower now owned or hereafter acquired in and to all of its tangible and
intangible personal property including without limitation all of the following:
(a) all equipment and fixtures (including, without limitation, furniture,
vehicles and other machinery and office equipment), together with all additions
and accessions thereto and replacements therefor (other than leased equipment
and fixtures, the lease of which prohibits Borrower from granting a security
interest therein); (b) all inventory (including, without limitation, (i) raw
materials, work in process and finished goods, and (ii) all packaging and
shipping materials and supplies and (iii) all such inventory which is returned
to or repossessed by Borrower), and (iv) all additions and accessions thereto,
replacements therefor, products thereof and documents therefor; (c) all
accounts, chattel paper, and contract rights to the payment of money; (d) all
general intangibles, including, without limitation, customer and supplier lists
and contracts, insurance policies and rights thereunder (including without
limitation life insurance, key man insurance, credit insurance, liability
insurance, property insurance and other insurance and all rights to unpaid or
unearned premiums relating thereto), tax refunds and claims, contracts for the
purchase of real or personal property, goodwill of Borrower, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, and all claims of Borrower against Secured Lender (but excluding
general intangibles consisting of licenses and agreements in favor of Borrower,
where the license or agreement granting rights in the general intangible
prohibits the Borrower from granting a security interest in the general
intangible); (e) deposit accounts, money, instruments and documents; (f)
Intellectual Property, as defined below (but excluding Intellectual Property,
where the license or agreement granting rights in the Intellectual Property to
Borrower prohibits the Borrower from granting a security interest in the
Intellectual Property, and the license or agreement, involves the aggregate
payment of less than $20,000); (g) Investment Property (as defined below), and
(h) proceeds and products of the foregoing (including, without limitation,
whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged, returned, substituted or otherwise disposed of, whether
such disposition is voluntary or involuntary, including rights to payment and
return premiums and insurance proceeds under insurance with respect to any
Collateral, and all rights to payment with respect to any cause of action
affecting or relating to the Collateral), and (i) all books and records relating
to any of the foregoing or Borrower.
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SECTION 1.8 "CONTINGENT OBLIGATION" shall mean, as applied to any
Person, without duplication, any direct or indirect liability, contingent or
otherwise, of that Person with respect to (i) any Indebtedness, as defined
below, of another, directly or indirectly guaranteed, endorsed, co-made or
discounted or sold with recourse by that Person, or in respect of which that
Person is otherwise directly or indirectly liable (other than endorsements of
negotiable instruments), or in respect of which that Person's assets are pledged
(valued, in the case of non-recourse assets pledged, at the lesser of the fair
market value of the encumbered assets or the amount of Indebtedness so secured);
(ii) any obligations with respect to undrawn letters of credit issued for the
account of that Person; and (iii) the aggregate net obligations arising under
any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices.
SECTION 1.9 "EVENT OF DEFAULT" shall mean and include any of the
Events of Default set forth below in the section titled "Events of Default."
SECTION 1.10 "GAAP" shall mean generally accepted accounting
principles.
SECTION 1.11 "INDEBTEDNESS" shall mean all items of indebtedness that,
in accordance with generally accepted accounting principles and practices
consistently applied, would be deemed a liability of such Person as of the date
as of which indebtedness is to be determined and shall also include all
indebtedness and liabilities of others assumed or guaranteed by such Person or
in respect of which such Person is secondarily or contingently liable (other
than by endorsement of instruments in the course of collection) whether by
reason of any agreement to acquire such indebtedness, to supply or advance sums,
or otherwise.
SECTION 1.12 "INTELLECTUAL PROPERTY" shall mean all right, title and
interest of Borrower now owned or hereafter acquired in and to all of its
copyrights, patents and trademarks whether registered or unregistered, foreign
or domestic, and all applications and recordings in the United States Copyright
Office, the United States Patent and Trademark Office or any similar office or
agency of the United States, any state thereof or any other country, and all
continuations, renewals or extensions of the same, and (as to any trademarks,
the goodwill of the business symbolized thereby, and all trade secrets,
inventions (whether or not patentable), scientific processes, technologies,
procedures, models and designs (in whatever form maintained or recorded,
including, without limitation, computer software and programs), and licenses
thereof to or by Borrower, and all books relating thereto, and any and all
contracts, including rights to payment thereunder including accounts receivable,
deposit accounts, reserves, refunds, deposits, and all royalties, distributions,
fees, payments and other monetary obligations owing to Borrower and arising out
of the sale, transfer or licensing of goods and/or services, whether or not
earned by
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performance, and whether now existing or hereinafter arising, including, without
limitation, license agreements, joint venture agreements and other collaborative
agreements, in each case providing for the use or license of any of the
foregoing.
SECTION 1.13 "INVESTMENT" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
SECTION 1.14 "INVESTMENT PROPERTY" means any and all investment
property of Borrower, including all securities, whether certificated or
uncertificated, security entitlements, securities accounts, commodity contracts
and commodity accounts, and all financial assets held in any securities account
or otherwise, wherever located, and whether now existing or hereafter acquired
or arising.
SECTION 1.15 "LIEN" shall mean any mortgage, lien, deed of trust,
charge, pledge, title retention arrangement, capital lease, security interest or
other encumbrance upon or with respect to any property of any kind, real or
personal, movable or immovable, now owned or hereafter acquired.
SECTION 1.16 "LOAN" OR "LOANS" shall mean and include any and all
loans and financial accommodations from Secured Lender to Borrower, whether now
or hereafter existing, and however evidenced, including without limitation those
loans and financial accommodations described herein or described the Schedule
attached to this Agreement, or any exhibit or other schedule relating to this
Agreement from time to time.
SECTION 1.17 "MAE" shall mean (i) a material adverse effect on the
assets, financial condition, business affairs or prospects of Borrower and its
Subsidiaries taken as a whole, (ii) a material adverse effect on the ability of
Borrower to repay the Obligations or otherwise perform its Obligations, or (iii)
a material impairment of the value or priority of Secured Lender's security
interests in any of the collateral pledged as security for the Obligations.
SECTION 1.18 "MATURITY DATE" shall mean the earlier of (i) November
____, 2003, or (ii) the date Borrower has exercised its Call Option in full as
defined in the Schedule attached hereto, or (iii) the date Secured Lender has
exercised its Conversion Option in full, as defined in the Schedule attached
hereto, or (iv) a combination of events (ii) and (iii) have occurred such that
Obligations under this Agreement have been fulfilled in full.
SECTION 1.19 "OBLIGATIONS" shall mean all present and future Loans,
advances, debts, liabilities, obligations, guaranties, covenants, duties and
indebtedness at any time owing by Borrower to Secured Lender, whether arising
under this Agreement or any Related Document or any note or any other
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instrument, document or agreement (whether or not relating hereto), whether
arising from an extension of credit, opening of a letter of credit, banker's
acceptance, loan, guaranty, indemnification or otherwise, whether direct or
indirect (including, without limitation, those acquired by assignment and any
participation by Secured Lender in Borrower's debts owing to others), absolute
or contingent, monetary or non-monetary, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney's fees,
accountants' fees, expert witness fees, letter of credit fees, loan fees,
termination fees, and any other sums chargeable to Borrower under this Agreement
or under any other present or future instrument or agreement between Borrower
and Secured Lender.
SECTION 1.20 "PERMITTED INDEBTEDNESS" shall mean (a) Obligations, (b)
Indebtedness existing on the date of this Agreement and disclosed in writing to
Secured Lender, inclusive of those obligations under the Xxxxxxxxx Transaction
(c) Indebtedness to trade creditors and with respect to surety bonds and similar
obligations incurred in the ordinary course of business, (d) capital leases and
indebtedness incurred solely to purchase capital assets which is secured in
accordance with clause (c) of "Permitted Liens" below and is not in excess of
the lesser of the purchase price of such equipment or the fair market value of
such equipment on the date of acquisition and not to exceed Five Million Dollars
($5,000,000) outstanding in the aggregate at any one time; (e) other
Indebtedness, not exceeding Five Million Dollars ($5,000,000) in the aggregate
outstanding at any time, (f) extensions, refinancings, modifications, amendments
and restatements of any of items of Permitted Indebtedness (a) through (e)
above, provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be; (g) Indebtedness incurred to finance the
premiums on insurance policies
SECTION 1.21 "PERMITTED INVESTMENT" shall mean: (a) Investments
existing on the date of this Agreement and disclosed to Secured Lender in
writing; (b) marketable direct obligations issued or unconditionally guaranteed
by the United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof, (c) commercial paper
maturing no more than one (1) year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Corporation ("S&P") or Xxxxx'x Investors Service, Inc., ("Moody's"), (d)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by a bank or financial institution whose short term
debt is rated "A-I" (or higher) by S&P or "P-1" (or higher) by Moody's, (e) any
Investments within normal and acceptable limits of Borrower's informal
investment policy, as discussed on November 17, 2000 and outlined in
correspondence of same date, and as amended from time to time, provided that any
amendment after the date hereof to such investment policy has been approved in
writing by Secured Lender; (f) overnight Investments in a "sweep account"
provided by a commercial BANK ORGANIZED UNDER THE laws of the United States or
any political subdivision thereof and having a combined capital and surplus of
at least $250 million; (f) Investments consisting of the
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ENDORSEMENT OF NEGOTIABLE INSTRUMENT for deposit or collection or similar
transaction in the ordinary course of business; (g) Investments consisting of
(i) compensation of employees, officers and directors of Borrower or its
Subsidiaries so long as the Board of Directors of Borrower determines that such
compensation is in the best interests of Borrower, (ii) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, and (iii) loans to employees, officers or directors relating
to the purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans approved by Borrower's Board of Directors; (h)
Investments pursuant to or arising under currency agreements or interest rate
agreements entered into in the ordinary course of business; (i) depository and
draft accounts maintained by Borrower in the ordinary course of its business; j)
Investments by one Borrower in another Borrower; (k) other Investments not
exceeding Five Million Dollars ($5,000,000) in the aggregate outstanding at any
time, and (1) any Investment approved in writing by Secured Lender in its sole
discretion.
SECTION 1.22 "PERMITTED LIENS" shall mean the following: (a) any Liens
existing on the date of this Agreement and disclosed in writing to Secured
Lender (other than liens securing Indebtedness being repaid concurrently
herewith, with proceeds of the Loans); (b) Liens for taxes, fees, assessments or
other governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings, provided the same have no priority
over any of Secured Lender's security interests and provided that, as to any
federal tax liens, no notice of such lien has been filed of record; (c) Liens
(i) upon or in any capital assets acquired or held by Borrower or any of its
Subsidiaries to secure the purchase price of such capital assets or indebtedness
incurred solely for the purpose of financing the acquisition or construction of
such capital assets, or (ii) existing on such capital assets at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, accessions thereto and the proceeds thereof;
(d) Liens on equipment leased by Borrower or any Subsidiary pursuant to an
operating lease in the ordinary course of business (including proceeds thereof
and accessions thereto); (e) easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances affecting real property not resulting in an MAE; (f) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payments of customs duties in connection with the importation of goods; (g)
mechanics', materialmen's, warehousemen's, courier's and similar Liens incurred
in the ordinary course of Borrower's business securing obligations not more than
45 days past due; (h) deposits made in connection with indemnity, performance or
other similar bonds in the ordinary course of business in an aggregate amount
not to exceed Five Million Dollars $5,000,000 (i) banker's liens, rights of
setoff and similar liens on deposits made in the ordinary course of business;
(j) judgment, attachment or similar liens, unless the same have not been
discharged or fully bonded against within 20 days after the date arising; (k)
Liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a), (c) and (d)
above, provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount of the
indebtedness
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being extended, renewed or refinanced does not increase, and (l) Liens on
insurance policies and the proceeds thereof, securing the payment of the
premiums with respect thereto.
SECTION 1.23 "PERSON" shall mean any natural person, corporation,
partnership, joint venture, firm, association, trust, limited liability company,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.
SECTION 1.24 "REGISTRATION STATEMENT" shall mean a registration
statement on Form SB-2 filed by the Company and maintained in full force and
effect during the life of and up until and including the one-year anniversary of
the expiration of the Equity Line of Credit Agreement and as defined therein.
SECTION 1.25 "XXXXXXXXX TRANSACTION" shall mean that transaction among
BH Capital and Excalibur ("Xxxxxxxxx") and Borrower, pursuant to an agreement
among the aforementioned parties dated June 12, 2000, as amended up to
$1,000,000 in additional financing and for which prospectus Form SB-2 numbered
Z63592A2 was filed with the SEC and dated October 6, 2000.
SECTION 1.26 "RELATED DOCUMENTS" shall mean and include without
limitation, all other credit agreements, loan agreements, guaranties, security
agreements, mortgages, deeds of trust, all written representations and
warranties made by Borrower, and all other instruments and documents, whether
now or hereafter existing, executed in connection with this Loan and Security
Agreement, the Equity Line of Credit Agreement, the Registration Rights
Agreement, the Warrant Purchase Agreement, and the Warrant between Secured
Lender and the Borrower.
SECTION 1.27 "INTELLECTUAL PROPERTY SECURITY AGREEMENT" shall mean
that certain Intellectual Property Security Agreement between Borrower and
Secured Lender dated as of even date herewith, and attached hereto in form of
Exhibit A as amended, modified and supplemented from time to time.
SECTION 1.28 "SECURED LENDER" shall mean Xxxxxxxxx & Xxxxx Guaranty
Finance, LLC, its successors and assigns.
SECTION 1.29 "SUBSIDIARY" means, with respect to any Person, a
corporation, association or other business entity (i) of which outstanding
capital stock having at least the majority of votes entitled to be cast in the
election of directors is owned, directly or indirectly, by such Person and/or
any one or more Subsidiaries of such Person, or (ii) of which at least a
majority of voting interest is owned, directly or indirectly, by such Person
and/or one or more Subsidiaries of such Person.
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SECTION 2. LOANS, TERM.
This Agreement shall be effective as of the day this Agreement is
executed and shall continue thereafter until all Obligations of Borrower to
Secured Lender have been performed in full.
SECTION 2.1 LOANS. Secured Lender shall make Loans to the Borrower in
accordance with the Schedule.
SECTION 2.2 INTEREST. All Loans and all other monetary Obligations
shall bear interest at the rate shown on the Schedule, except where expressly
set forth to the contrary in this Agreement or in another written agreement
signed by Secured Lender and Borrower. Interest shall be payable monthly, on the
last day of the month. Interest shall be computed on the basis of a 365-day year
for the actual number of days elapsed.
SECTION 2.3 FEES. Borrower shall pay Secured Lender a one-time
transaction fee of $10,000 payable in two equal payments of $5,000 each: (i) the
first payment will occur upon execution of this Agreement and (ii) the second
and final payment will occur on the 6th month anniversary of execution of this
Agreement, which are in addition to all interest and other sums payable to
Secured Lender and are not refundable.
SECTION 2.4 MATURITY DATE. All Obligations under this Loan and
Security Agreement (other than Obligations under any stock purchase warrants)
shall be due, payable and performable on the earlier of the Maturity Date or the
date or dates set forth in the Schedule. On the Maturity Date (or on any earlier
date set forth in the Schedule), all obligations of Secured Lender to provide
Loans or other financing shall terminate. This Agreement shall be effective on
the date hereof and shall continue in full force and effect until all
Obligations of Borrower to Secured Lender (other than Obligations under the
Equity Line of Credit Agreement and any stock purchase warrants) have been paid
and performed in full and all obligations of Secured Lender to provide Loans or
other financing have terminated.
SECTION 3. SECURITY
SECTION 3.1 GRANT OF SECURITY INTEREST. Borrower grants to Secured
Lender a security interest in and to the Collateral to secure the payment and
performance of all of the Obligations of Borrower to Secured Lender, however and
whenever arising, including the Obligations.
SECTION 3.2 SECURITY INTEREST ABSOLUTE. All rights of Secured Lender
and security interests granted hereunder, and all obligations of Borrower
hereunder, shall be absolute and unconditional,
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irrespective of: (i) any lack of validity or enforceability of this Agreement or
any of the other Related Documents; (ii) any change in the time, manner or place
of payment of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from this Agreement
or any other of the Related Documents, including, without limitation, any
increase in the Obligations resulting from the extension of additional credit to
Borrower, or any of its Affiliates, or otherwise; (iii) subject to compliance
with applicable laws, any manner of application of Collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Obligations or any other
assets of Borrower or any of its Affiliates; and (iv) any change, restructuring
or termination of the corporate structure or existence of Borrower or any of its
Affiliates.
SECTION 3.3 CONTINUING SECURITY INTEREST. This Agreement shall create
a continuing security interest in the Collateral which shall remain in full
force and effect until this Loan Agreement and all Related Documents (other than
any stock purchase warrants) have been terminated and all of the Obligations
(other than Obligations under stock purchase warrants held by Secured Lender)
have been paid and performed in full. Upon termination of this Agreement and all
Related Documents (other than any stock purchase warrants), and payment and
performance in full of the Obligations (other than Obligations under stock
purchase warrants held by Secured Lender), the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Borrower. Upon
any such termination, Secured Lender shall, upon written request of Borrower,
execute and deliver to Borrower a release or releases (including, without
limitation, Uniform Commercial Code termination statements and instruments of
satisfaction, discharge, or reconveyance) to release any liens under this Loan
and Security Agreement and any Related Document with respect to such released
Collateral.
SECTION 3.4 LIMITED AUTHORIZATION. Borrower hereby authorizes Secured
Lender to file one or more financing statements, filings, reports, security
agreements or continuation statements in respect thereof, and amendments
thereto, relating to all or any part of the Collateral without the signature of
Borrower where permitted by law, and names Secured Lender as its
attorney-in-fact and authorizes it to execute any and all financing statements
on Borrower's behalf solely to the extent necessary or advisable to perfect,
continue or give notice of the security interest granted to Security Lender
hereunder in any of the Collateral. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
SECTION 3.5 BORROWER REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Borrower shall remain liable under the Contracts and
Agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Secured Lender of any of
the rights hereunder
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shall not release Borrower from any of its duties or obligations under the
contracts or agreements included in the Collateral, and Secured Lender shall
have not obligation or liability under the contracts and agreements included in
the Collateral by reason of this Agreement, nor shall Secured Lender be
obligated to perform any of the obligations or duties of Borrower thereunder.
SECTION 3.6 FURTHER ASSURANCES.
(a) Borrower agrees that from time to time, at the expense of
Borrower, Borrower will promptly execute and deliver all further
instruments and documents, and take all further action, that may
be necessary or that Secured Lender may reasonably request, in
order to perfect and protect the security interests granted
hereby or to enable Secured Lender to exercise and enforce its
rights and remedies hereunder with respect to any Collateral
and/or the Contracts and Agreements. Without limited the
generality of the foregoing, Borrower will upon Secured Lender's
request execute and file such Financing Statements or
continuation statements in respect thereof, or amendments
thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Lender may request, in
order to perfect, preserve, and enhance the security interests
granted or purported to be granted hereby.
(b) Borrower will furnish to Secured Lender from time to time
statements and schedules further identifying and describing the
Collateral and such other reports in connection with the
Collateral as Secured Lender may reasonably request, all in
reasonable detail and in form and substance reasonably
satisfactory to Secured Lender.
(c) Borrower agrees to give Secured Lender at least thirty (30) days
prior written notice before changing its name from that set forth
on the signature page hereof, before moving its chief executive
office or principal place of business from the address set forth
on the signature page hereof, or before using any trade names or
styles in its business in California other than those trade names
and styles listed in Exhibit A hereof.
(d) Notwithstanding the foregoing, Borrower shall not be required to
file or pay for the filing of any contingent assignments or
similar documents with respect to trademark rights in any
jurisdiction outside of the United States.
SECTION 3.7 COVENANT REGARDING USE OF COLLATERAL. Except as otherwise
provided herein, Borrower shall cause the Collateral defined in Section 1.7(a)
and 1.7(g) to be maintained and preserved in the same condition, repair, and
working order as when new, ordinary wear and tear excepted, and in accordance
with any manufacturer's manual, and shall forthwith, on in the case or any loss
or damage to any of such Collateral as quickly as practicable after the
occurrence thereof, make or cause to be made all
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repairs, replacements, and other improvements in connection therewith which are
necessary or desirable to such end. Borrower shall promptly furnish to Secured
Lender a statement respecting any material loss or damage to any of the
Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Secured Lender as of the date of this
Agreement the following:
SECTION 4.1. CAPACITY. Borrower is duly organized, validly existing
and in good standing under the laws of the State of Delaware, and in every other
state in which the nature of its business requires it to be so authorized.
Borrower has full power, authority, and legal right to own its properties and
assets and to conduct its business as presently conducted.
SECTION 4.2. AUTHORITY. Borrower has full power, authority and legal
right to execute and deliver, and to perform and observe the provisions of this
Agreement and the Related Documents. Borrower's execution, delivery and
performance of this Agreement and the Related Documents have been duly
authorized by all necessary corporate action. This Agreement and (when duly
executed) the Related Documents are and will be legal, valid, and binding
obligations of Borrower enforceable in accordance with their respective terms,
except as enforceability may be limited by the United States Bankruptcy Code, or
other statutes affecting creditor's rights generally or by general principles of
equity.
SECTION 4.3. COMPLIANCE. Borrower is not in violation of, conflict
with, or default under (i) any provision of its certificate of incorporation,
articles of incorporation, or bylaws, or (ii) any contract, instrument,
indenture, judgment, order, writ or decree to which it or any of its
Subsidiaries is a party or by which it or any of them is bound, or, to the best
of its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Borrower or any of its Subsidiaries, where, in the
instance of a violation, conflict or default of any such federal or state
statute, rule or regulation, such violation, conflict or default could
reasonable be expected to result in an MAE. Other than as set forth in the
preceding sentence, the execution, delivery, and performance of this Agreement
and the Related Documents will not, with or without the passage of time or
giving of notice, or both, result in any such material violation, conflict or
default, or an event that results in the creation of any Lien (other than a
Permitted Lien), charge or encumbrance upon any assets of the Borrower or any of
its Subsidiaries or the suspension, revocation, impairment or forfeiture of any
material permit, license, authorization, or approval applicable to the Borrower
or any of its Subsidiaries.
SECTION 4.4. FINANCIAL STATEMENTS. The financial statements of
Borrower supplied to Secured Lender are true and complete in all material
respects and fairly present Borrower's financial condition as of
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the date of the statements. Such financial statements have been prepared in
accordance with GAAP, subject, in the case of unaudited financials, to year-end
audit adjustments and footnotes.
SECTION 4.5. MATERIAL ADVERSE EVENTS. Since the most recent financial
statements provided to Secured Lender by Borrower there has been no event or
condition constituting a MAE.
SECTION 4.6. TAXES. Borrower and its Subsidiaries has filed or caused
to be filed all tax returns which are required to be filed by it. Borrower and
its Subsidiaries has paid all taxes which have or may have become due pursuant
to said returns or otherwise or pursuant to an assessment received by Borrower,
except such taxes, if any, as are being contested in good faith and as to which
reserves have been created on the books of Borrower in accordance with GAAP. The
charges, accruals, and reserves in respect of income taxes on the books of
Borrower are adequate. Borrower knows of no proposed tax assessment against it
or any of its Subsidiaries and no extension of time for the assessment of
federal, state, or local taxes of Borrower or any of its Subsidiaries is in
effect or has been requested, except as disclosed in the financial statements
furnished to Secured Lender.
SECTION 4.7. PATENTS AND TRADEMARKS. To the best of its knowledge,
Borrower has sufficient title and ownership of all patents, copyrights, trade
secrets, information, proprietary rights and processes necessary for its
business as now conducted without any conflict with or infringement of the
rights of others, except that no representations are made with respect to
noninfringement of patents not issued as of the date hereof or to any exclusive
rights to trade secrets or know-how of the Borrower. Except as disclosed in the
audited financial statements for Borrower supplied to Secured Lender, other than
such matters as have been settled, the Borrower has not received any
communications alleging that the Borrower has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, tradenames, copyrights or trade secrets or other proprietary rights of
any other Person or entity.
SECTION 4.8. PRIORITY INTEREST IN COLLATERAL. Borrower is the legal
and beneficial owner of the Collateral free and clear of any Lien, except for
Permitted Liens. This Agreement together with the filing of financing statements
creates a valid perfected, first-priority security interest in the Collateral
subject only to Section 1.22 (d) Permitted Liens.
SECTION 4.9. LOCATION OF COLLATERAL. All of the Collateral of Borrower
is located at the Borrower's Locations, except moveable Collateral that is in
transit in the ordinary course of business.
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SECTION 4.10. TITLE TO COLLATERAL/PROPERTY. Immediately prior to the
grant of a security interest to Secured Lender of the Collateral by the
Borrower, Borrower owned the Collateral free and clear of all encumbrances,
except Permitted Liens.
SECTION 4.11. HAZARDOUS SUBSTANCES. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any hazardous waste or hazardous substance
other than in accordance with applicable law; to the best knowledge of Borrower
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; no Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower; and Borrower has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
SECTION 4.12. LITIGATION; COMPLIANCE WITH LAWS AND AGREEMENTS. There
are no actions or proceedings pending, or to the knowledge of Borrower
threatened, against or affecting Borrower which, if determined adversely to
Borrower, could have an MAE. Borrower is not in default with respect to any
writ, the breach of which may have an MAE.
SECTION 4.13. FULL DISCLOSURE. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Secured Lender contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading in the context made.
SECTION 4.14. DEFAULTS. Borrower is not in default in the payment of
principal or interest of any Indebtedness and is not in default under any
instrument or agreement under or subject to which any Indebtedness has been
issued, and no event has occurred and is continuing which, with or without the
lapse of time or the giving of notice, or both, constitutes or would constitute
a default under any such instrument or agreement or any Event of Default
hereunder.
SECTION 4.15. SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower
understands and agrees that Secured Lender is relying upon the above
representations and warranties in extending Loan advances to Borrower and each
of the above representations and warranties shall be true and correct as of the
date of each such extension.
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SECTION 5 CONDITIONS TO LOANS
SECTION 5.1 CONDITIONS PRECEDENT TO LOANS. The obligation of
Secured Lender to lend to the Borrower Six Hundred and Fifty Thousand Dollars
($650,000), of which the amount of One Hundred Fifty-Five Thousand Five
Hundred Thirteen Dollars and Eleven cents ($155,513.11) will be delivered
directly to, in method of payment acceptable by, City National Bank, having a
location of 0000 Xx Xxxxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000 in
payment in full of Loan Number 644799 and Note Number 70393, and the net
amount shall be delivered directly to, in method of payment acceptable by
Borrower upon execution of this Agreement is subject to the condition
precedent that Secured Lender shall have received, in form and substance
satisfactory to H&QGF, the following:
(a) this Agreement and all Related Documents contemplated hereby; and
(b) a certificate of the Secretary of Borrower with respect to
bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement and the Related Documents, including a
Warrant Purchase Agreement dated as of even date herewith; and
(c) one or more financing statements (Form UCC- 1) and a UCC-2
Change Form for the assignment of the blanket lien on Borrower's
assets by City National Bank; and
(d) an insurance certificate evidencing Borrower's compliance with
Section 6.13 of this Agreement; and
(e) the Intellectual Property Security Agreement attached hereto in
form of Exhibit A; and
(f) such other documents, and completion of such other matters, as
H&QGF may deem necessary or appropriate; and
(g) UCC searches in appropriate jurisdictions with respect to
Borrower showing no Liens of record with respect to Borrower other
than Permitted Liens and Liens being discharged concurrently herewith;
and
(h) Opinion of Borrower's Counsel in form and substance satisfactory
to Secured Lender in its discretion.
SECTION 5.2 FORWARD COMMITMENT TO PROVIDE ADDITIONAL FINANCING.
Subject to the terms of this Agreement, Secured Lender will make an additional
Loan within five (5) days following Borrower's
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request, in the amount of Five Hundred Thousand Dollars ($500,000). In no event
shall Secured Lender be obligated to make such additional Loan unless the
following conditions have been satisfied:
(a) Borrower shall execute and deliver to Secured Lender this
Agreement and all Related Documents contemplated hereby; and
(b) Borrower shall deliver to Secured Lender proof of an effective
Registration Statement as defined herein and in compliance with
Related Documents; and
(c) An Event of Default shall not have occurred and be continuing.
SECTION 5.3 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of
Secured Lender to make each Loan, including the initial Loan, is further subject
to the condition precedent that the representations and warranties contained in
this Agreement and the Related Documents shall be true and correct on the date
of each such Loan as though made at and as of each such date, and no Event of
Default (or event that with the passage of time or the giving of notice or both
would result in an Event of Default) shall have occurred and be continuing, or
would result from such Loan. The making of each Loan shall be deemed to be a
representation and warranty by Borrower on the date of such Loan as to the
accuracy of the representations and warranties set forth in this Agreement and
the facts referred to in this Section 5.2.
SECTION 6. AFFIRMATIVE COVENANTS.
SECTION 6.1 FINANCIAL STATEMENTS, REPORTS AND CERTIFICATIONS. Borrower
will furnish to Secured Lender, in form and substance satisfactory to Secured
Lender:
(a) As soon as possible after the end of each fiscal year of
Borrower, and in any event within ninety (90) days after the end of
each fiscal year, a complete copy of its audited year-end financial
statements which shall include the balance sheet of Borrower as of the
close of the fiscal year, an income statement and a statement of cash
flows for such year, audited by certified public accountants selected
by Borrower and satisfactory to Secured Lender.
(b) No later than thirty (30) days after the end of each month,
Borrower's balance sheet as of the close of that month and its income
statement and cash flow statement for that month certified as being
prepared in accordance with generally accepted accounting principles
by the chief financial officer of Borrower.
Page 15 of 51
(c) No later than ninety (90) days after the end of each fiscal
year, Borrower's new budget or operating plan for the then current
fiscal year.
(d) No later than thirty (30) days after the end of each fiscal
quarter, a certificate of the Borrower's chief financial officer, or
other equivalent officer, stating that there are no defaults by the
Borrower under any of its agreements with Secured Lender or describing
any existing default(s) and specific action being taken to cure such
default(s). The Borrower's chief financial officer, or other
equivalent officer, will, within five days after Borrower's obtaining
knowledge of the occurrence of an event of default under any of the
foregoing, issue a statement describing the default, and specific
action being taken to cure the default.
(e) Promptly after receipt thereof provide all audit reports
prepared by the Borrower's independent accountants, notice of any
action or proceeding before any court or governmental agency, copies
of all federal and state patent, trademark or copy right applications
and registrations of the same, notice of any circumstance which may
reasonably be expected to have a MAE on the Borrower, and promptly
after request therefor such other information as Secured Lender may
reasonably request.
(f) Borrower shall also provide Secured Lender with copies of
all press releases as soon as reasonably practicable after they are
published.
(g) For so long as Borrower is a company the stock of which is
traded on a nationally recognized public stock exchange, unless
otherwise requested by Secured Lender, Borrower's obligations under
this Section 6.1 shall be satisfied by Borrower providing Secured
Lender with all financial information filed with the Securities and
Exchange Commission within five (5) days after each filing is made or
is required to be made, and by providing Secured Lender with copies of
all press releases as soon as reasonably practicable after they are
published.
SECTION 6.2 OTHER INFORMATION. Borrower will (a) maintain books and
records concerning its business that are complete and accurate in all material
respects, (b) upon request, furnish to Secured Lender such information,
statements, lists of property and accounts, lists of assets and liabilities,
agings of receivables and payables, inventory schedules, insurance certificates
or reports, budgets, forecasts, and such other reports and information as
Secured Lender may reasonably request with respect to the business, affairs, and
financial condition of Borrower, and (c) permit Secured Lender or its
representatives, subject to the confidentiality provisions of Section 10.10,
with reasonable notice to Borrower during Borrower's regular business hours, to
inspect the Collateral and the properties of Borrower and any of its
Subsidiaries and to inspect, audit, make copies of, and make extracts from, the
books or accounts of Borrower and any of its Subsidiaries.
Page 16 of 51
SECTION 6.3 EXPENSES. Borrower will pay all reasonable out-of-pocket
expenses of Secured Lender (including, but not limited to, reasonable fees and
disbursements of Secured Lender's counsel incident to (a) preparation and
negotiation of this Agreement and the Related Documents, including, but not
limited to, the perfection of Secured Lender's Lien in the Collateral and any
amendments, extensions and renewals thereof, (b) the protection of the rights of
Secured Lender under this Agreement and the Related Documents, or at law or in
equity, or (c) defense by Secured Lender against all claims against Secured
Lender relating to any of its acts of commission or omission directly or
indirectly relating to this Agreement and the Related Documents, all whether by
judicial proceedings or otherwise (other than claims which are (i) sustained by
a court of competent jurisdiction, (ii) non-appealable and (iii) predicated on
Secured Lender's gross negligence or willful misconduct); or (d) otherwise
incurred in connection with Borrower, this Agreement, or any Related Document.
Without limiting the generality of the foregoing, Borrower shall reimburse
Secured Lender for all reasonable attorneys' fees and all other reasonable costs
incurred by Secured Lender in order to do the following; commence, intervene in,
or defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any bankruptcy claim,
third-party claim, or other claim; examine, audit, copy and inspect any of the
Collateral or any of Borrower's books and records; protect, obtain possession
of, lease, dispose of, or otherwise enforce Secured Lender's security interest
in, the Collateral; and otherwise represent Secured Lender in any litigation
relating to Borrower. If either Secured Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing
party, as designated by a court of competent jurisdiction, in such action shall
be entitled to recover its reasonable costs and attorneys' fees including (but
not limited to) reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree award or judgment. All
attorneys' fees and costs to which Secured Lender may be entitled pursuant to
this Paragraph shall be part of Borrower's Obligations and shall bear interest
at a rate equal to the highest interest rate applicable to the Obligations.
Borrower will also pay and save Secured Lender harmless from any and all
liability with respect to any stamp or other taxes (other than income taxes
based on Secured Lender's income) which may be determined to be payable in
connection with the making of Loans, the entering into of this Agreement and the
Related Documents or any action of Secured Lender with respect to the
Collateral, including, without limitation, transfer of the Collateral to Secured
Lender's name or that of its nominee or a purchaser at a foreclosure sale.
SECTION 6.4 NOTICE OF LITIGATION. Borrower will promptly give notice
to Secured Lender in writing of any proceedings, claim, or dispute which may
exist between Borrower and any Person, and which, if adjudicated adversely to
Borrower, could reasonably be expected to result in a MAE, or any labor
controversy resulting in or threatening to result in a strike against Borrower,
or proposal by any public authority to acquire a material portion of the assets
or business of Borrower.
Page 17 of 51
SECTION 6.5 MAINTENANCE OF EXISTENCE. Subject to Section 7.3 hereof,
Borrower will preserve and maintain its legal existence and all rights,
privileges and franchises of it or any of its Subsidiaries necessary or
desirable in the normal conduct of its or their business, will conduct its or
their business in an orderly, efficient and regular manner, and will comply with
all applicable laws and regulations and the terms of any indenture, note,
agreement, contract or other instrument to which it or any of its Subsidiaries
may be a party or under which it or any of its Subsidiaries or its or their
properties may be bound, the noncompliance with which could reasonably be
expected to result in a MAE.
SECTION 6.6 MAINTENANCE OF PROPERTIES, ETC. Borrower shall maintain
and preserve all of its properties and all of its Subsidiaries' properties,
necessary or useful in the proper conduct of its or their business in good
working order and condition, ordinary wear and tear and dispositions of obsolete
equipment and other dispositions in the ordinary course of business excepted.
SECTION 6.7 MATERIAL ADVERSE CHANGE. Borrower shall promptly inform
Secured Lender in writing of an event or condition constituting an MAE.
SECTION 6.8 OTHER AGREEMENTS. Other than as otherwise allowed under
this Agreement, Borrower shall comply (and cause each of its Subsidiaries to
comply) with all material terms and conditions of all material agreements,
whether now or hereafter existing, between Borrower (and each of its
Subsidiaries) and any other party, where the failure to do so could reasonably
be expected to result in a MAE.
SECTION 6.9 OTHER DEBT. Borrower will promptly pay and discharge when
due any and all Indebtedness and obligations, including, without limitation, all
assessments, taxes, governmental charges, levies and liens of every kind and
nature, imposed upon Borrower or any of its subsidiaries or its or their
properties, income, or profits, prior to the date on which penalties would
attach, and lawful claims that, if unpaid, might become a lien or charge upon
the property of Borrower or any of its subsidiaries, except such as may in good
faith be contested or disputed or for which arrangements for deferred payment
have been made, provided appropriate reserves are maintained to the satisfaction
of Secured Lender for the eventual payment thereof in the event it is found that
such Indebtedness is an Indebtedness payable by Borrower or any of its
subsidiaries, and when such dispute or contest is settled and determined, will
promptly pay the full amount then due.
SECTION 6.10 LOAN PROCEEDS. Borrower shall use all Loan proceeds
solely for Borrower's business operations, working capital and general corporate
purposes and to make Permitted Investments.
Page 18 of 51
SECTION 6.11 FURTHER ASSURANCES. Borrower shall make, execute and
deliver to Secured Lender such promissory notes, mortgages, deed of trust,
security agreements, financing statements, instruments, documents and other
agreements as Secured Lender or its attorneys may reasonably request to evidence
and secure the Loan and to perfect Secured Lender's Liens.
SECTION 6.12 USE OF COLLATERAL; NOTICES OF CHANGES. Borrower shall
keep the Collateral located at the Borrower's Location, other than in ordinary
course of Borrower's business. Borrower agrees to give Secured Lender written
notice (i) at least thirty (30) days prior written notice before changing its
name from that set forth on the signature page hereof, before moving its chief
executive office or principal place of business from the address set forth
herein, or before using any trade names or styles in its business other than the
use of those trade names and styles identified to Secured Lender in writing
prior to the date of this Agreement, (ii) at least ten days prior written notice
of the opening of any new deposit account or securities or investment account,
and (iii) of any change in Borrower's executive officers, within ten days after
the date the change occurs.
SECTION 6.13 INSURANCE. Borrower shall, at its own cost and expense,
maintain insurance with respect to the Collateral against loss or damage by
fire, theft, explosion and all other hazards and risks ordinarily insured
against by other owners or users of such properties in similar business and
comparable size for the full insurable value of the Collateral. All such
policies of insurance shall be in form and substance reasonably satisfactory to,
and shall be with insurers reasonably acceptable to Secured Lender, and shall
include a lender's loss payable endorsement naming Secured Lender loss payee, as
its interests may appear, all in form and substance reasonably satisfactory to
Secured Lender, except in respect of equipment financed or leased by third
parties. Upon each renewal of such insurance, Borrower shall, if so requested by
Secured Lender, deliver to Secured Lender, original or duplicate policies of
such insurance and a report of a reputable insurance broker with respect to such
insurance.
SECTION 6.14 GOVERNMENT COMPLIANCE. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which would reasonably be expected to result in a MAE.
SECTION 6.15 PERFECTION AND PRIORITY OF SECURITY INTEREST, LANDLORD
WAIVERS. Borrower shall cause Secured Lender at all times to have a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens. Borrower shall at all times
defend Secured Lender and the Collateral against all claims of others (except
for holders of Permitted Liens). Borrower is not and will not become a lessee
under any real property lease pursuant to which the lessor or any other person
may obtain any rights in any of the Collateral, and no such lease now prohibits,
restrains, impairs or will prohibit, restrain or impair Borrower's right to
remove any Collateral from the leased premises. Whenever
Page 19 of 51
any Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, if requested by Secured Lender, use its best efforts
to cause such third party to execute and deliver to Secured Lender, in form
acceptable to Secured Lender, such waivers, consents, agreements and
subordination's as Secured Lender shall specify. Borrower will keep in full
force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
SECTION 6.16 INVESTMENT PROPERTY. Upon the request of Secured Lender,
Borrower shall deliver to Secured Lender all certificated securities included in
Investment Property, with all necessary endorsements, and obtain such account
control agreements with securities intermediaries and take such other action
with respect to any Investment Property, as Secured Lender shall request, in
form and substance satisfactory to Secured Lender. Borrower shall have the right
to retain all Investment Property payments and distributions, unless and until
an Event of Default has occurred and is continuing, or unless and until an event
which, with the notice or passage of time or both, would constitute an Event of
Default has occurred and is continuing. If an Event of Default or event which,
with notice or passage of time or both, would constitute an Event of Default,
has occurred and is continuing, Borrower shall hold all payments on, and
proceeds of, and distributions with respect to, Investment Property in trust for
Secured Lender, and Borrower shall deliver all such payments, proceeds and
distributions to Secured Lender, immediately upon receipt, in their original
form, duly endorsed, to be applied to the Obligations in such order as Secured
Lender shall determine. Upon the request of Secured Lender, any such
distributions and payments with respect to any Investment Property held in any
securities account shall be held and retained in such securities account as part
of the Collateral.
SECTION 7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, without the prior written consent of Secured
Lender, which may be withheld in Secured Lender's sole discretion, Borrower
shall not do any of the following:
SECTION 7.1 INDEBTEDNESS. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
SECTION 7.2 LIENS. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
SECTION 7.3 MERGERS OR ACQUISITIONS. Merge or consolidate with or into
any other business organization, or acquire, or permit any of its Subsidiaries
to acquire, all or substantially all of the capital stock or property of another
Person; provided that this Section 7.3 shall not apply to (i) transactions
Page 20 of 51
among Borrower and its Subsidiaries in which the Borrower is the surviving
entity, or adequate provision is made to Secured Lender's reasonable
satisfaction for repayment in full of all Borrower's Obligations under this
Agreement as of or immediately following the closing of such transaction, or
(ii) mergers and acquisitions entered into for the purpose of changing the
Borrower's or any Subsidiary's jurisdiction of incorporation, or (iii) mergers
and acquisitions in which Borrower is the surviving entity and such merger or
acquisition shall not, immediately, or with the passage of time cause a MAE, but
Borrower shall give Secured Lender at least 20 days advance written notice of
any transaction referred to in clause (i) or (ii) or (iii) above and shall
execute and deliver all such documents and instruments and take all such actions
as are necessary to continue in effect Secured Lender's first-priority,
perfected security interest in the Collateral.
SECTION 7.4 CHANGE IN BUSINESS. Engage in any business, or permit any
of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and its Subsidiaries and any business
substantially similar, related or ancillary thereto, which Borrower's Board of
Directors determines in good faith.
SECTION 7.5 DISTRIBUTIONS. Except for dividends and other
distributions from one Borrower to another, pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock; provided, that (i) Borrower may declare and make any
dividend payment or other distribution payable in its equity securities, (ii)
Borrower may convert any of its convertible securities into other securities
pursuant to the terms of such convertible securities or otherwise in exchange
therefor, and (iii) provided no Event of Default and no event which, with notice
or passage of time or both, would constitute an Event of Default, has occurred
and is continuing, Borrower may repurchase stock from former employees of
Borrower in accordance with the terms of its employee stock ownership plans.
SECTION 7.6 DISPOSITIONS. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of inventory in the ordinary course of business or otherwise; (ii) Transfers of
non-exclusive licenses and similar arrangements for the use of the Intellectual
Property of Borrower or its Subsidiaries; (iii) Transfers of worn-out or
obsolete equipment, or equipment financed by other vendors in the ordinary
course of business; and (iv) Transfers of other assets in an amount not to
exceed $500,000 in the aggregate since the date of this Agreement.
SECTION 7.7 INVESTMENTS. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
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SECTION 7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
SECTION 7.9 TRANSACTIONS WITH SECURED LENDER'S AFFILIATES. Engage an
Affiliate of Secured Lender's to sell Borrower's securities in an underwritten
offering within one year of the date hereof, unless approved in writing by
Secured Lender in its sole discretion.
SECTION 8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an "Event of Default"
under this Agreement:
(a) Borrower shall fail to pay principal or interest on any Loan
when due, or
(b) Borrower shall fail to pay any other monetary Obligation
when due and such failure shall continue for 3 Business Days; or
(c) Any representation or warranty made by Borrower in, or
pursuant to, this Agreement or any Related Document shall prove to
have been incorrect or misleading in any material respect when made or
deemed made; or
(c) Borrower shall fail to comply with any term, or provision of
Section 7; or
(e) any breach of any of the provisions of Section 6.1, 6.2, or
6.10, which is not cured within 10 days following such breach; or
(f) There shall be a default in any agreement to which Borrower
is a party with a third party or parties of which Borrower has
received written notice resulting in a right by such third party or
parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that would reasonably be expected to have a MAE, unless
waived in writing by such third party or cured; or
(g) An order for relief shall be entered against Borrower by any
United States Bankruptcy Court; or Borrower shall generally not pay
its debts as they become due (within the meaning of 11 U.S.C. Section
303(h) as at any time amended or any successor statute thereto) or
make an assignment for the benefit of creditors; or Borrower shall
apply for or consent to the appointment of a custodian, receiver,
trustee, or similar officer for it or for all or any substantial
Page 22 of 51
part of its property; or such custodian, receiver, trustee, or similar
officer shall be appointed without the application or consent of
Borrower and such appointment shall continue undischarged for a period
of sixty (60) days; or Borrower shall institute (by petition,
application, answer, consent, or otherwise) any bankruptcy,
insolvency, reorganization, moratorium, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application, or otherwise) against Borrower
and shall remain undismissed for a period of sixty (60) days; or
Borrower institutes any proceeding for its dissolution; or any
proceeding is brought against Borrower for its dissolution which shall
remain undismissed for a period of sixty (60) days; or
(h) This Agreement or any of the Related Documents ceases to be
in full force and effect (including failure of this Agreement or any
Related Document to create a valid and perfected first priority
security interest or lien, other than due to action or inaction by
Secured Lender that causes a failure to create a valid and perfected
security interest or lien, subject to Permitted Liens, in all the
Collateral at any time and for any reason, or
(i) Commencement of foreclosure, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of
Borrower against any Collateral, or any creditor takes, attempts to
take or gives written or oral notice to Borrower of its intent to take
any action against the property of Borrower or any of its subsidiaries
on or in which Secured Lender has a lien or security interest. This
includes a garnishment, attachment, or levy on or of any of Borrower's
deposit accounts; or
(j) There shall occur a MAE; or
(k) There shall occur a Change of Control; or
(l) A judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of $ 100,000 or more in
excess of any insurance coverage as may apply to such judgment or
judgments shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days; or
(m) Except for the events described in 8(a) through 8(l) above,
Borrower shall be in default in the performance of, or Borrower fails
or neglects to perform, keep, or observe, any Obligation (including
without limitation, any term, provision, condition, covenant, or
agreement contained in this Agreement, or in any of the Related
Documents), and Borrower has failed to cure such default within ten
(10) days after notice thereof to Borrower; or
Page 23 of 51
(n) Any guarantor of any of the Obligations shall revoke its
guaranty or deny or contest liability thereunder.
Secured Lender shall have the right to cease making any Loans hereunder during
any of the above cure periods, and thereafter if an Event of Default has
occurred and is continuing.
SECTION 9 REMEDIES
SECTION 9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Secured Lender may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare, by written notice to Borrower, all Obligations,
whether evidenced by this Agreement, by any of the Related Documents,
or otherwise, immediately due and payable (provided that, upon the
occurrence of an Event of Default described in Section 8(g), all
Obligations shall become immediately due and payable without any
action by Secured Lender);
(b) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Secured
Lender reasonably considers advisable in the exercise of its
reasonable credit judgment;
(c) Make such payments and do such acts as Secured Lender
considers necessary or reasonable to protect its security interest in
the Collateral. Borrower agrees to assemble the Collateral if Secured
Lender so requests, and to make the Collateral available to Secured
Lender as Secured Lender may designate. Borrower authorizes Secured
Lender to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any Lien on any Collateral and to
pay all expenses incurred in connection therewith. With respect to any
of Borrower's premises, Borrower hereby grants Secured Lender a license
to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to
exercise any of Secured Lender's rights or remedies provided herein, at
law, in equity, or otherwise;
(d) Set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Secured Lender, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Secured Lender and Secured Lender shall give Borrower
prompt subsequent notice of any such set off to Borrower;
Page 24 of 51
(e) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Secured Lender is hereby granted a license
or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection
with Secured Lender's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements
shall inure to Secured Lender's benefit;
(f) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's
premises) as Secured Lender determines is commercially reasonable;
(g) Secured Lender may credit bid and purchase at any public
sale and (if permitted under applicable law) at any private sale; and
(h) Collect, receive, dispose of and realize upon any Investment
Property, including withdrawal of any and all funds from any
securities accounts; and
(i) Demand payment of, and collect any accounts and general
intangibles comprising Collateral and, in connection therewith,
Borrower irrevocably authorizes Secured Lender to endorse or sign
Borrower's name on all collections, receipts, instruments and other
documents.
Any deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Borrower; provided that nothing herein limits
Borrower's obligation to pay and perform in full all of the Obligations and
Secured Lender's right to proceed against Borrower for any breach of the same,
whether or not there has been a disposition of any or all of the Collateral.
Borrower recognizes that Secured Lender may be unable to make a public sale of
any or all of the Investment Property, by reasons of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to claiming possession of any Collateral; and (ii) any requirement that Secured
Lender retain possession of, and not dispose of, any Collateral until after
trial or final judgment in any action or proceeding. If Secured Lender enters
into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Secured Lender shall have the option, in its sole
discretion, of either reducing the Obligations by the
Page 25 of 51
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Secured Lender of the cash therefor.
SECTION 9.2 INCREASE INTEREST RATE; UNPAID OBLIGATIONS. Upon
expiration of the remedy period as defined herein pursuant to type of Event of
Default and during the continuance of an Event of Default, the interest rate on
the Obligations shall be increased to eighteen percent (18%) per annum. Without
limiting Secured Lender's other rights and remedies any sums due from Borrower
to Secured Lender which are not paid when due shall be added to the Obligations
and shall thereafter bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
SECTION 9.3 ADDITIONAL EXPENSES. Borrower will, upon demand, pay to
Secured Lender the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, that
Secured Lender may incur in respect of Borrower including without limitation
those incurred in connection with (i) the custody, preservation, use, or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (ii) the exercise or enforcement of any of the rights of Secured
Lender hereunder, at law or in equity, or (iii) the failure by Borrower to
perform or observe any of the provisions of this Agreement, (iv) any performance
by Secured Lender under Section 9.5.
SECTION 9.4 SECURED LENDER APPOINTED ATTORNEY-IN-FACT. So long as any
Event of Default is continuing, until the Obligations have been paid and
performed in full, Borrower hereby irrevocably appoints Secured Lender as
Borrower's attorney-in-fact, with full authority in the place and stead of
Borrower or otherwise, from time to time in Secured Lender's good-faith
discretion to take any action and to execute any instrument that Secured Lender
may reasonably deem necessary or advisable to accomplish the purposes of this
Agreement, in a manner consistent with the terms hereof, including, without
limitation:
(a) to obtain and adjust insurance required to be paid to
Secured Lender pursuant to Section 6.12 hereof; and
(b) to ask, demand, collect, xxx for, recover, compromise,
receive, and give acquittance and receipts for moneys due and to
become due under or in connection with the Collateral; and
(c) to file any claims or take any action or institute any
proceedings that Secured Lender may deem necessary or desirable for
the collection or perfection of a security interest in
Page 26 of 51
any of the Collateral or otherwise to enforce the rights of Secured
Lender with respect to any of the Collateral; and
(d) to execute any and all applications, documents, papers and
instruments for Secured Lender to use any of the Collateral, to grant
or issue any exclusive or nonexclusive license with respect to any of
the Collateral, and to assign, convey or otherwise transfer title to
or dispose of any of the Collateral; and
(e) to execute and deliver to any securities intermediary or
other Person any entitlement order, account control agreement or other
notice, document or instrument with respect to any Investment
Property.
SECTION 9.5 SECURED LENDER MAY PERFORM. If Borrower fails to perform
any obligation in this Agreement or any Related Document, Secured Lender may
itself perform, or cause the performance of, such obligation. Secured Lender and
any representatives of Secured Lender shall have, in addition to all its other
rights under this Agreement, the right to obtain access to Borrower's data
processing equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein in any
manner Secured Lender deems necessary for the purpose of effectuating its rights
under this Agreement and any other of the Related Documents. Borrower agrees
that Secured Lender has no obligation to preserve rights to the Collateral
against any other Person.
SECTION 9.6 SECURED LENDER'S DUTIES. The powers conferred on Secured
Lender hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon Secured Lender to exercise any such powers. Except for
the safe custody of any Collateral in the possession of Secured Lender, and the
accounting for moneys and for other properties actually received by Secured
Lender hereunder, Secured Lender shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining thereto.
SECTION 9.7 OTHER RIGHTS AND REMEDIES. Secured Lender may exercise in
respect of the Collateral, in addition to other rights and remedies provided for
herein, all the rights and remedies of a secured party on default under the
Uniform Commercial Code of the State of California (the "Code") in effect at
that time (whether or not the Code then applies to the affected Collateral), and
remedies granted to it under any of the other Related Documents, at law, in
equity or otherwise available.
SECTION 10. MISCELLANEOUS PROVISIONS.
Page 27 of 51
SECTION 10.1 AMENDMENTS. This Agreement, together with any Related
Documents, constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or amendment.
SECTION 10.2 APPLICABLE LAW, VENUE. This Agreement has been executed,
delivered and accepted by each party hereto in the State of California, and this
Agreement shall be governed by and construed in accordance with the laws of the
State of California. As a material part of the consideration to Secured Lender
to enter into this Agreement, Borrower (i) agrees that all actions and
proceedings relating directly or indirectly to this Agreement shall, at Secured
Lender's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be San Francisco County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
SECTION 10.3 CAPTION HEADINGS. Caption headings in this Agreement are
for convenience only and are not to be used to interpret or define the
provisions of this Agreement.
SECTION 10.4 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Secured Lender's prior written
consent, which consent may be granted or withheld in Secured Lender's sole
discretion. Secured Lender shall have the right at any time with or without the
consent of Borrower to sell, transfer, or negotiate all or any part of, or any
interest in the Obligations, this Agreement or any of the Related Agreements,
and upon any such sale, transfer or negotiation, the assignee thereof shall be
entitled to all of the right title and interest of Secured Lender so
transferred.
SECTION 10.5 CONSENT TO LOAN PARTICIPATION. Borrower agrees to and
consents to Secured Lender's sale, or transfer, whether now or later, of one or
more participation interest in the Loans to one or more purchasers, whether
related or unrelated to Secured Lender, provided that in no event shall Secured
Lender sell or transfer a participation to any competitor of Borrower. Secured
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Secured Lender
may have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters; provided such purchasers agree to the confidentiality provisions
hereof. Borrower additionally waives any and all notices of sale of
participation interest, as well as all notices of any repurchase or such
participation interest in the
Page 28 of 51
Loans. Borrower further waives all rights of offset or counterclaim that it may
have now or later against Secured Lender or against any purchaser of a
participation interest and unconditionally agrees that either Secured Lender or
such purchaser may enforce Borrower's obligation under the Loan irrespective of
the failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of a participation interest may enforce its
interest irrespective of any personal claims or defenses that Borrower may have
against Secured Lender. Any costs associated with the attempt to arrange any
such participation interest will be borne by Secured Lender.
SECTION 10.6 INDEMNIFICATION. Borrower hereby agrees to indemnify
Secured Lender and hold Secured Lender harmless from and against any and all
claims, debts, liabilities, demands, obligations, actions, causes of action,
penalties, costs and expenses (including attorneys' fees), of every nature,
character and description, excluding Secured Lender's own income tax, if any,
which Secured Lender may sustain or incur based upon or arising out of any of
the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Secured Lender and Borrower, any actual or alleged failure
of Secured Lender to comply with any writ of attachment or other legal process
relating to Borrower or any of its property, or any other matter, cause or thing
whatsoever occurred, done, omitted or suffered to be done by Secured Lender
relating to Borrower or the Obligations (except any such amounts sustained or
incurred as the result of the gross negligence or willful misconduct of Secured
Lender or any of its directors, officers, employees, agents, attorneys, or any
other person affiliated with or representing Secured Lender). Secured Lender
will give Borrower notice of any event requiring indemnification hereunder
within a reasonable time after receiving written notice of commencement of any
action or proceeding with respect to which indemnity is sought. Notwithstanding
any provision in this Agreement to the contrary, the indemnity agreement set
forth in this Section shall survive any termination of this Agreement and shall
for all purposes continue in full force and effect.
SECTION 10.7 NOTICES. All notices to be given under this Agreement
shall be in writing and shall be given either personally or by reputable private
delivery service or by regular first-class mail, or certified mail return
receipt requested, addressed to Secured Lender or Borrower at the addresses
shown in the heading to this Agreement, or at any other address designated in
writing by one party to the other party. All notices shall be deemed to have
been given upon delivery in the case of notices personally delivered, or at the
expiration of one business day following delivery to the private delivery
service, or two business days following the deposit thereof in the United States
mail, with postage prepaid. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. To the extent
permitted by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes, Borrower
agrees to keep Secured Lender informed at all times of Borrower's current
address(es).
Page 29 of 51
SECTION 10.8 SEVERABILITY. If a court of competent jurisdiction finds
any provision of this Agreement to be invalid or unenforceable as to any person
or circumstances, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
SECTION 10.9 WAIVER. Secured Lender shall not be deemed to have waived
any rights under this Agreement, unless such waiver is given in writing and
signed by Secured Lender. No delay or omission on the part of Secured Lender in
exercising any right shall operate as a waiver of such right or any other right.
A waiver by Secured Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Secured Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Agreement. No
prior waiver by Secured Lender, nor any course of dealing between Secured Lender
and Borrower, shall constitute a waiver of any of Secured Lender's rights or of
any obligations of Borrower as to any future transactions. Whenever the consent
of Secured Lender is required under this Agreement, the granting of such consent
by Secured Lender in any instance shall not constitute continuing consent in
subsequent instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Secured Lender.
SECTION 10.10. CONFIDENTIALITY. In handling any confidential
information provided to Secured Lender by Borrower, Secured Lender shall
exercise the same degree of care that it exercises with respect to its own
confidential information of the same types to maintain the confidentiality of
any such non-public information except that disclosure of such information may
be made (i) to the Subsidiaries or Affiliates of Secured Lender in connection
with their present or prospective business relations with Borrower, provided
that they agree to comply with the confidentiality provisions in this Section
10.10, (ii) to prospective transferees or purchasers of any interest in the
Loans, provided that they provided that they agree to comply with the
confidentiality provisions in this Section 10.10, (iii) as required by law,
regulations, rule or order, subpoena, judicial order or similar order and (iv)
as may be required in connection with the examination, audit or similar
investigation of Secured Lender. Confidential information hereunder shall not
include information that either: (a) is in the public domain or in the knowledge
or possession of Secured Lender when disclosed to Secured Lender, or becomes
part of the public domain after disclosure to Secured Lender through no fault of
Secured Lender; or (b) is disclosed to Secured Lender by any third party,
provided Secured Lender does not have actual knowledge that such third party is
prohibited from disclosing such information.
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SECTION 10.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
SECTION 10.12 JOINT AND SEVERAL LIABILITY. If Borrower includes more
than one Person, their obligations hereunder shall be joint and several.
SECTION 10.13 WAIVER OF JURY TRIAL. BORROWER AND SECURED LENDER EACH
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SECURED LENDER AND BORROWER, OR ANY
CONDUCT, ACTS OR OMISSIONS OF SECURED LENDER OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH SECURED LENDER OR BORROWER, IN ALL OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. EACH OF BORROWER AND SECURED
LENDER HEREBY ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED
TO ENTER TO THIS AGREEMENT BY, AMONG OTHER THINGS, THE JURY TRIAL WAIVER
CONTAINED IN THIS SECTION.
BORROWER:
INTERACTIVE TELESIS INC.
By:
--------------------------------------------------
Name: Xxxxxxx X. Xxxxx
---------------------------------------
Title: Secretary and Chief Financial Officer
-----------------------------------------------
SECURED LENDER:
XXXXXXXXX & XXXXX GUARANTY FINANCE, LLC
By:
--------------------------------------------------
Name: Xxxxxx X. Xxxxxxxx
------------------------------------------------
Title: Chief Executive Officer
-----------------------------------------------
Page 31 of 51
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: Interactive Telesis Inc.
Date: November 21, 2000
This Schedule is an integral part of the Loan and Security Agreement between
Xxxxxxxxx & Xxxxx Guaranty Finance, LLC ("Secured Lender") and Interactive
Telesis Inc. (the "Borrower") of even date (the "Loan Agreement"). (Capitalized
terms used, but not defined, in this Schedule have the meanings set forth in the
Loan Agreement.)
1. LOANS (SECTION 2.1):
1.1 CONVERTIBLE NOTE. Subject to the provisions of Section 5.1 and
5.2 of the Loan Agreement, Secured Lender agrees to lend to
Borrower an aggregate of $1,150,000 (the "Loans").
1.2 INTEREST. The Loans shall bear interest at the rate of 7.5% per
annum, or, if lower, the maximum rate of interest allowed by
applicable law, computed and payable as provided in Section 2.2
of the Loan Agreement and Sections 1.2.1 and 1.2.2 below.
1.2.1 PAYMENT OF ACCRUED INTEREST. Beginning as of even date
herewith and first written above and continuing until
the outstanding principal balance is paid in full,
interest will accrue at an annual rate of Seven and One
Half Percent (7.5%). Interest will be computed on a
365-day year, compounding monthly, as set forth in
Section 2.2 of the Loan Agreement. That is, in each
month 1/365 of the Seven and One Half Percent (7.5%)
annual interest rate, will be multiplied by (a) the sum
of (I) the outstanding principal balance and (ii)
accumulated interest outstanding as of the end of the
prior month and (b) the actual number of days that the
principal was outstanding in such month.
1.2.2 INTEREST PAYMENTS. Beginning as of the Date of this
Schedule first written above and continuing up and
until the three year anniversary of even date herewith
or such earlier date as all principal has been repaid,
called, or converted, subject to the Call Option and to
the Conversion Option, as defined in Sections 2 and 3
herein. Borrower shall pay monthly all accrued interest
on the last day of each
Page 32 of 51
month up until and including the 20th monthly payment
on July 31, 2002. From the 21st month and until the
Loan is repaid, called or converted in full, pursuant
to Sections 2 and 3 below, accrued interest shall be
paid quarterly along with corresponding principal
repayment, as defined in Section 1.3.2.
1.3 PRINCIPAL. Subject to Borrower's right to pre-pay some of the
outstanding principal under the Loans pursuant to the Call
Option, as defined in Section 2, and subject to Secured Lender's
right to exercise its Conversion Option, as defined herein,
Borrower will make principal repayments to Secured Lender, as
follows:
1.3.1 AMORTIZATION. The Loans shall begin amortization on the
eighteenth (18th) month anniversary of even date
hereof.
1.3.2 REPAYMENTS. Beginning the twenty-first (21st) month
from the Date of this Schedule first written above,
which is August 2002, and continuing quarterly
thereafter through the thirty-sixth (36th) month from
Date of this Schedule first written above, which is
November 2003, or such earlier date as all principal
has been repaid, called or converted, and subject to
the Call Option and the Conversion Option, as defined
in Sections 2 and 3 herein, Borrower shall pay the
principal balance of the Loans in six (6) equal
installments of $191,666.67 and all accrued interest
pursuant to Section 1.2. On the three year anniversary
of the Date of this Schedule first written above, any
remaining unpaid principal balance of the Loans plus
all accrued and unpaid interest shall be paid in full.
1.4 SERVICE CHARGE. Since it would be impractical or extremely
difficult to fix Secured Lender's actual damages for collecting
and accounting for a late payment of any Obligations, and
accordingly, in the event any Obligation is not paid within ten
(10) Business Days after the date due, Borrower shall pay to
Secured Lender an amount equal to five percent (5%) of any such
late payment (but not less than ten dollars ($10) nor more than
two-hundred and fifty dollars ($250), as liquidated damages and
fair compensation to Secured Lender to compensate it for the
delinquency, but nothing herein shall be construed to obligate
Secured Lender to accept late payment or to limit any of Secured
Lender's rights and remedies as a result of the late payment.
2. CALL OPTION. Beginning on the latter of (i) the one year anniversary of
the Date of this Schedule first written above, or (ii) the termination of
all obligations under the Equity Line of Credit Agreement and any
amendments and extensions thereto, Borrower shall have the right to
pre-pay all or a portion,
Page 33 of 51
which portion must be equivalent to a minimum of $191,666.67, of the
outstanding principal of the Loans plus corresponding and unpaid accrued
interest payments. In order to effect this Call Option, Borrower must give
to Secured Lender written notice at least ten (10) days prior to the
desired effective date of this Call Option, notifying Secured Lender of
Borrower's decision to exercise the Call Option. The Call Option is subject
to the Secured Lender's Conversion Option as defined in Section 3 herein.
3. CONVERSION OPTION. Secured Lender shall have the right to convert all or
any part of the principal amount outstanding on, and accrued and unpaid
interest on the Loans into shares of the Borrower's Series A Convertible
Preferred Stock of the Borrower, as follows:
3.1 Each of the Secured Lender's two options in this Section 3.1
shall be referred to individually as a "Conversion Option" and
collectively as the "Conversion Options".
3.1.1 (i) At any time the Secured Lender receives from
Borrower a notice of an intent to exercise the Call
Option, Secured Lender has the right to convert up to
that amount of principal and interest that this subject
to the Call Option into shares of the Borrower's Series
A Convertible Preferred Stock, which number of shares
shall be equal to the quotient of (a) the principal and
interest amount subject to conversion divided by (b)
the applicable Conversion Price, as defined in Section
3.3 below, and (ii) Secured Lender has the right to
convert any principal and interest amount that Borrower
has not pre-paid pursuant to the Call Option, or has
not already been converted by Secured Lender after
receipt of the Call Option, into shares of the
Borrower's Series A Convertible Preferred Stock, which
number of shares shall be equal to the quotient of (a)
the unpaid principal and interest amount subject to
conversion divided by (b) the applicable Conversion
Price;
3.1.2 At any time during the term of the Loans and until all
outstanding principal and interest have been repaid in
full, Secured Lender has the right to convert all or a
portion of the outstanding principal and accrued
interest under this Schedule into shares of the
Borrower's Series A Convertible Preferred Stock, which
number of shares shall be equal to the quotient of (a)
the unpaid principal and interest amount subject to
conversion divided by (b) the applicable Conversion
Price.
3.2 CONVERSION NOTICE: shall mean a written notice given to Borrower
from Lender in which Lender notifies Borrower that Secured Lender
elects to exercise the Conversion Option.
Page 34 of 51
In order to effect this Conversion Option, Secured Lender must
give to Borrower written notice at least ten (10) days prior to
the desired effective date of this Conversion Option, notifying
Borrower of Secured Lender's decision to exercise the Conversion
Option. For each occasion the Conversion Notice is given,
Borrower will deliver to Secured Lender the required shares of
the Borrower's Series A Convertible Preferred Stock seven (7)
days after the Conversion Notice was given.
3.3 CONVERSION PRICES. Each of the three Conversion Prices in this
Section 3.3 shall be referred to individually as a "Conversion
Price" and collectively as the "Conversion Prices".
3.3.1 YEAR ONE CONVERSION PRICE. As used herein shall mean
$1.10. The Year One Conversion Price as used herein
shall mean the Conversion Price during the first twelve
months of the term of the Loans, at which unpaid
accrued interest and outstanding principal pursuant to
the Conversion Option may be converted into shares of
the Borrower's Series A Convertible Preferred Stock
during the same twelve month period, as the Year One
Conversion Price may be adjusted pursuant to Section 4
hereof.
3.3.2 YEAR TWO CONVERSION PRICE. As used herein shall mean
$1.52. The Year Two Conversion Price as used herein
shall mean the Conversion Price during the second
twelve months of the term of the Loans, at which unpaid
accrued interest and outstanding principal pursuant to
the Conversion Option may be converted into shares of
the Borrower's Series A Convertible Preferred Stock
during the same twelve month period, as the Year Two
Conversion Price may be adjusted pursuant to Section 4
hereof.
3.3.3 YEAR THREE CONVERSION PRICE. As used herein shall mean
$2.00. The Year Three Conversion Price as used herein
shall mean the Conversion Price during the third twelve
month period of the term of the Loans, at which unpaid
accrued interest and outstanding principal pursuant to
the Conversion Option may be converted into shares of
the Borrower's Series A Convertible Preferred Stock
during the same twelve month period, as the Year Three
Conversion Price may be adjusted pursuant to Section 4
hereof.
4. ADJUSTMENT OF CONVERSION PRICE. The Secured Lender may choose to convert
principal and accrued interest into Borrower's Series A Convertible
Preferred Stock, pursuant to the Conversion Option. The
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aggregate dollar amounts that are subject to conversion at any given
time pursuant to the Conversion Option shall be referred to herein as the
"Convertible Amounts".
4.1 DEFINITIONS. As used in this Section 4 the following terms shall
have the following respective meanings:
4.1.1 "COMMON STOCK" shall mean the Company's common stock,
$0.01 par value per share.
4.1.2 "CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series A Convertible Preferred Stock having a
payment-in-kind dividend rate of 7.5% payable monthly,
in the same subseries and such other rights,
preferences and privileges as are specified in the form
of Certificate of Designation of Rights of the Series A
Convertible Preferred Stock and the Common Stock into
which such Convertible Preferred Stock may hereafter be
converted or exchanged.
4.1.3 "OPTIONS" shall mean the rights, options or warrants to
subscribe for, purchase or otherwise acquire shares of
Common Stock or Convertible Securities.
4.1.4 "COMMON STOCK EQUIVALENTS" shall mean any securities
that are convertible into or exchangeable for Common
Stock or any warrants, options or other rights to
subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
4.2 ADJUSTMENTS. The Conversion Prices shall be subject to adjustment
from time to time upon the occurrence of certain events, as
follows:
4.2.1 RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR
MERGER. In the case of any reclassification of the
Common Stock or Common Stock Equivalents, or any
reorganization, consolidation or merger of the Company
with or into another corporation (other than a merger
or reorganization with respect to which the Borrower is
the continuing corporation and which does not result in
any reclassification of the Common Stock or Common
Stock Equivalents) (a "Reclassification"), the
Borrower, or such successor corporation, as the case
may be, each share of Convertible Preferred Stock
theretofore issuable upon exercise of any Conversion
Option shall be properly adjusted as to the number and
kind of securities receivable upon the exercise of any
Conversion Option, such that
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Secured Lender shall receive the number and kind of
securities which a holder of shares of the Convertible
Preferred Stock would have been entitled to receive
after the happening of any of the events described in
this subsection 4.2.1 had the conversion pursuant to
any Conversion Option been made immediately prior to
the happening of such event or the record date for such
event, whichever is earlier. The provisions of this
subsection 4.2.1 shall similarly apply to successive
Reclassifications.
4.2.2 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If
Borrower at any time prior to Secured Lender's exercise
of any Conversion Option shall split, subdivide or
combine the Common Stock or Common Stock Equivalents of
the Borrower, the Conversion Price shall be decreased
in the case of a split or subdivision or increased in
the case of a combination. Any adjustment under this
subsection 4.2.2 shall become effective when the split,
subdivision or combination becomes effective.
4.2.3 STOCK DIVIDENDS. If Borrower at any time prior to
Secured Lender's exercise of any Conversion Option
shall pay a dividend with respect to the Common Stock
or Common Stock Equivalents of the Borrower payable in
shares of Common Stock, Convertible Preferred Stock,
Options, or Common Stock Equivalents, the Conversion
Price shall be adjusted, from and after the date of
determination of the shareholders entitled to receive
such dividend or distributions, to that price
determined by multiplying the Conversion Price in
effect immediately prior to such date of determination
by a fraction (i) the numerator of which shall be the
total number of shares of that Class of Stock
outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall
be the total number of shares of the same Class of
Stock outstanding immediately after such dividend or
distribution (including shares of Common Stock issuable
upon exercise, conversion or exchange of any Option or
Common Stock Equivalents issued as such dividend or
distribution). If the Options or Common Stock
Equivalents issued as such dividend or distribution by
their terms provide, with the passage of time or
otherwise, for any decrease in the consideration
payable to the Borrower, or any increase in the number
of shares issuable upon exercise, conversion or
exchange thereof (by change of rate or otherwise), the
Conversion Price shall, upon any such decrease or
increase becoming effective, be reduced to reflect such
decrease or increase as if such decrease or increase
became effective immediately prior to the issuance of
the Options or Common Stock
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Equivalents as the dividend or distribution. Any
adjustment under this subsection 4.2.3 shall become
effective on the record date.
4.2.4 OTHER SECURITIES. In the event the Borrower at any time
prior to Secured Lender's exercise of any Conversion
Option makes, or fixes a record date for the
determination of holders of Convertible Preferred Stock
entitled to receive, a dividend or other distribution
payable in securities of the Borrower other than shares
of Convertible Preferred Stock, then, and in each such
event, provision shall be made so that the Secured
Lender shall receive, upon exercise of any Conversion
Option, in addition to the number of shares of
Convertible Preferred Stock or (Common Stock)
receivable thereupon, the amount of securities of the
Borrower which the Secured Lender would have received
had the Convertible Amounts been exchangeable (assuming
conversion of the Class of Stock into Common Stock) on
the date of such event and had the Secured Lender
thereafter, during the period from the date of such
event to and including the date of exercise, retained
such securities receivable by Secured Lender as
aforesaid during such period, subject to all other
adjustments called for during such period under this
Section 4 with respect to the rights of the Secured
Lender.
4.3 FRACTIONAL SHARES. Pursuant to the Conversion Option, no
fractions of shares of Convertible Preferred Stock shall be
issued, but in lieu thereof Borrower shall pay a cash adjustment
to Secured Lender in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the then
applicable Conversion Price.
4.4 RESERVING SHARES. Borrower shall at all times reserve and keep
available out of its authorized and unissued Series A Convertible
Preferred Stock, solely for the purpose of effecting the
Converion Option of Secured Lender, as such number of Convertible
Preferred Stock as shall from time to time be adjusted pursuant
to this Section 4 hereof.
4.5 NOTICE OF ADJUSTMENTS. Whenever the Conversion Price is adjusted
pursuant to Section 4 hereof, Borrower shall promptly issue a
notice signed by its chief financial officer or chief executive
officer stating, in reasonable detail, the new Conversion Price
as a result of each adjustment, a brief statement of the facts
requiring such adjustments and the computation thereof, and the
date such adjustments became effective, and Borrower shall mail
(by first class mail, postage prepaid) to Secured Lender at
Secured Lender's address a copy of such notice.
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5. METHOD OF PAYMENT. Borrower will pay Secured Lender principal and accrued
interest that is not converted into shares of Borrower's common stock
pursuant to the Conversion Options and loan fees by check made payable to
Secured Lender drawn on a United States bank and for United States dollars,
or by wire transfer to an account of Secured Lender's at Secured Lender's
address shown above or at such other place as Secured Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to any remaining amount of any unpaid collection
costs and late charges, then to accrued unpaid interest and then to any
unpaid principal. Borrower will pay Lender principal and accrued interest
that is converted into shares of Borrower's Series A Convertible Preferred
Stock pursuant to a Conversion Option in shares of the Borrower's Series A
Convertible Preferred Stock at Secured Lender's address shown in Section 6
or at such other place as Secured Lender may designate in writing.
6. NOTICES. Any notice or other communication required or permitted under this
Schedule shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii) delivered by
reputable air courier service with charges prepaid, or (iv) transmitted by
hand delivery, telegram, or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by
written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or
(b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
IF TO THE BORROWER:
Xx. Xxxxxx X. Xxxxxxx, President and CEO
Interactive Telesis Inc.
00000 Xxxx Xxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxxx, XX 00000-0000
Telephone: 000-000-0000
Facsimile: 858-523-4001
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Xxxxx X. Xxxxxxx, esq.
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Rushall & XxXxxxxx, APC
0000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
IF TO THE SECURED PARTY:
Xxxxxxxxx & Xxxxx Guaranty Finance, LLC
Xxx Xxxx Xxxxxx Xxx Xxxxxxxxx, XX 00000
Attention: Xx. Xxxx Xxxxxxxx
Telephone: (000) 000 0000
Facsimile: (000) 000 0000
Any party may, by notice given in accordance with notice given in accordance
with this Section, designate another address or person for receipt or notices
hereunder.
7. SECURED LENDERS RIGHTS, GENERAL PROVISIONS, COLLATERAL, EXPENSES, LOAN
FEES, ETC. are subject to the provisions of the Loan Agreement of which
this Schedule is an integral part.
8. WARRANT. Borrower shall have sold and issued to Secured Lender the Warrant
Purchase Agreement and Warrant pursuant to that letter agreement attached
to Equity Line of Credit Agreement as Exhibit C.
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BORROWER:
INTERACTIVE TELESIS INC.
By:
--------------------------------------------------
Name: Xxxxxxx X. Xxxxx
---------------------------------------
Title: Secretary and Chief Financial Officer
-----------------------------------------------
SECURED LENDER:
XXXXXXXXX & XXXXX GUARANTY FINANCE, LLC
By:
--------------------------------------------------
Name: Xxxxxx X. Xxxxxxxx
------------------------------------------------
Title: Chief Executive Officer
-----------------------------------------------
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