EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
BY
AND BETWEEN
COMPUTER MOTION, INC.,
AND
AGILITY CAPITAL, LLC
DATED AS OF FEBRUARY 13, 2003
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS............................................................... 1
1.1 DEFINED TERMS............................................................. 1
1.2 OTHER DEFINITIONAL PROVISIONS............................................. 7
SECTION 2. AMOUNT OF LOAN............................................................ 8
2.1 LOAN...................................................................... 8
2.2 NOTES..................................................................... 8
2.3 MAKING OF LOAN............................................................ 8
2.4 REPAYMENT OF LOAN......................................................... 8
2.5 COLLATERAL................................................................ 8
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOAN..................................... 9
3.1 INTEREST RATE AND PAYMENTS................................................ 9
3.2 PREPAYMENT................................................................ 9
3.3 ISSUANCE OF WARRANT....................................................... 10
SECTION 4. COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS......................... 10
4.1 EXISTENCE................................................................. 10
4.2 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS............................. 10
4.3 NO LEGAL BAR.............................................................. 11
4.4 SUBSIDIARIES.............................................................. 11
4.5 CAPITALIZATION............................................................ 11
4.6 MATERIAL ADVERSE FACTS.................................................... 11
4.7 PURPOSE OF LOAN........................................................... 12
4.8 LIABILITIES............................................................... 12
4.9 TITLE TO PROPERTY AND ASSETS.............................................. 12
4.10 INTELLECTUAL PROPERTY..................................................... 12
4.11 ERISA..................................................................... 12
4.12 BROKERS................................................................... 13
4.13 USE OF CREDIT............................................................. 13
4.14 INDEBTEDNESS.............................................................. 13
4.15 LITIGATION................................................................ 13
4.16 FINANCIAL CONDITION; UNKNOWN LIABILITIES.................................. 13
4.17 TAXES..................................................................... 14
4.18 CERTAIN REGULATIONS....................................................... 14
4.19 ENVIRONMENTAL MATTERS..................................................... 14
4.20 ACCOUNTS RECEIVABLE....................................................... 14
4.21 SEC DOCUMENTS; FINANCIAL STATEMENTS AND NO MATERIAL CHANGES............... 14
4.22 OWNERSHIP OF XXX.XXXXXX, INC.............................................. 15
4.23 DISCLOSURE................................................................ 15
i
SECTION 5. CONDITIONS OF LENDING..................................................... 16
5.1 LOAN DOCUMENTS............................................................ 16
5.2 PROCEEDINGS............................................................... 16
5.3 INCUMBENCY CERTIFICATES................................................... 16
5.4 ORGANIZATION DOCUMENTS.................................................... 16
5.5 REPRESENTATIONS AND WARRANTIES; NO DEFAULT................................ 16
5.6 SECURITY INTEREST......................................................... 17
5.7 INTELLECTUAL PROPERTY SECURITY INTEREST................................... 17
5.8 DUE DILIGENCE............................................................. 17
5.9 LOCK BOX AGREEMENT........................................................ 17
5.10 DEPOSIT ACCOUNT CONTROL AGREEMENTS........................................ 17
5.11 ISSUANCE OF WARRANT....................................................... 17
SECTION 6. AFFIRMATIVE COVENANTS..................................................... 17
6.1 PAYMENT OF OBLIGATIONS.................................................... 17
6.2 MAINTENANCE OF ACCOUNTS RECEIVABLE........................................ 18
6.3 CONDUCT OF BUSINESS; MAINTENANCE OF EXISTENCE; AND COMPLIANCE WITH LAWS... 18
6.4 MAINTENANCE OF INSURANCE.................................................. 18
6.5 TAXES..................................................................... 18
6.6 MAINTENANCE OF PROPERTIES................................................. 18
6.7 INFORMATION RIGHTS........................................................ 18
6.8 BOARD OBSERVATION RIGHTS.................................................. 19
6.9 EVENT OF PREPAYMENT....................................................... 19
6.10 LOCK BOX INSTRUCTIONS..................................................... 19
SECTION 7. NEGATIVE COVENANTS........................................................ 20
7.1 LIMITATION ON INDEBTEDNESS................................................ 20
7.2 LIMITATION ON LIENS....................................................... 21
7.3 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES............................... 21
7.4 RESTRICTIONS ON TRANSACTIONS AND FUNDAMENTAL CHANGES...................... 22
7.5 SALE OF ASSETS; TRANSFER TO SUBSIDIARY.................................... 22
7.6 REPURCHASE OF SECURITIES.................................................. 22
7.7 CORPORATE GOVERNANCE...................................................... 23
7.8 BANK ACCOUNTS............................................................. 23
SECTION 8. EVENTS OF DEFAULT......................................................... 23
8.1 EVENT OF DEFAULT.......................................................... 23
8.2 USE OF COLLATERAL......................................................... 25
8.3 CREDIT PARTIES TO HOLD IN TRUST........................................... 25
8.4 COLLECTIONS, ETC.......................................................... 25
8.5 POSSESSION, SALE OF COLLATERAL, ETC....................................... 26
8.6 APPLICATION OF PROCEEDS ON DEFAULT........................................ 27
8.7 POWER OF ATTORNEY......................................................... 27
8.8 TERMINATION AND RELEASE................................................... 28
8.9 REMEDIES NOT EXCLUSIVE.................................................... 28
ii
SECTION 9. MISCELLANEOUS............................................................. 28
9.1 PROMOTIONAL MATERIALS..................................................... 28
9.2 INDEMNIFICATION........................................................... 28
9.3 ENTIRE AGREEMENT; AMENDMENTS.............................................. 29
9.4 WAIVERS................................................................... 29
9.5 NOTICES................................................................... 29
9.6 SUCCESSORS AND ASSIGNS.................................................... 30
9.7 INTEREST DEFICIT.......................................................... 30
9.8 CONFIDENTIALITY........................................................... 30
9.9 PAYMENT OF EXPENSES....................................................... 31
9.10 CAPTIONS.................................................................. 31
9.11 COUNTERPARTS.............................................................. 31
9.12 SEVERABILITY; REFORMATION................................................. 31
9.13 WAIVER OF JURY TRIAL...................................................... 31
9.14 GOVERNING LAW............................................................. 32
SCHEDULES
---------
Schedule 4.1 State of Incorporation
Schedule 4.4 Subsidiaries
Schedule 4.5 Capitalization
Schedule 4.10 Intellectual Property
Schedule 4.15 Litigation
Schedule 4.16 Financial Statements
Schedule 7.1(b) Limitation on Indebtedness
Schedule 7.2(f) Limitation on Liens
Schedule 7.8 Bank Accounts
EXHIBITS
--------
Exhibit A Description of Collateral
Exhibit B Form of Intellectual Property Security Agreement
Exhibit C Form of Note
Exhibit D Form of Warrant
Exhibit E Form of Accounts Receivable Certificate
iii
LOAN AND SECURITY AGREEMENT, dated as of February 13, 2003, by and
between Computer Motion, Inc., a Delaware corporation (the "Borrower") and
Agility Capital, LLC, a California limited liability company (the "Lender").
WHEREAS, the Borrower has requested a short-term secured bridge loan
from the Lender in an aggregate principal amount not to exceed $2,300,000;
WHEREAS, the Borrower has agreed to issue to the Lender a warrant to
acquire shares of Stock (as defined below); and
WHEREAS, the Lender is willing to make such loan to the Borrower upon
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Acceptable Accounts" shall mean accounts receivable of the
Borrower that originate in the United States or Canada: (i) which
constitute legal, valid and binding obligations arising from bona fide
transactions in the ordinary course of business consistent with past
practices of the Borrower, (ii) against which there are no contests,
claims, counterclaims, defenses, contra accounts or other rights of
set-off, other than returns in the ordinary course consistent with past
practices of the Borrower, (iii) not to exceed one hundred twenty (120)
days in age from the applicable invoice date, and (iv) with
creditworthiness acceptable to Lender in its discretion.
Creditworthiness may include, without limitation, the following
factors: customer creditworthiness, credit concentrations, credit
cross-agings, contra accounts and dilution. Accounts receivable that
originate outside of the United States or Canada may be considered
Acceptable Accounts as determined on a case-by-case basis by Lender in
its sole discretion.
"Affiliate" shall mean any other Person controlling or
controlled by or under common control with such specified Person.
"Agreement" shall mean this Loan and Security Agreement, as
amended, supplemented, waived or otherwise modified from time to time
pursuant to the terms hereof.
"Borrower" shall have the meaning set forth in the preamble
hereto.
"Business Day" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in Santa Barbara, California are
authorized or required by law to close.
"Closing Date" shall mean the date on which all the conditions
precedent set forth in Section 5 shall be satisfied or waived pursuant
to the terms hereof. The original Closing Date shall occur on such
date, on or prior to February 13, 2003, as the Borrower and the Lender
agree, failing which this Agreement shall be of no further force or
effect.
"Collateral" shall have the meaning set forth in Exhibit A
hereto.
"Common Stock" shall mean shares of the Borrower's common
stock, par value $0.001 per share.
"Contractual Obligation" shall mean, as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument, document or other undertaking to which such Person is a
party or by which it or any of its property is bound.
"Control" (including, with correlative meaning, the terms
"controlling", "controlled by," "under common control with" and similar
phrases) shall mean with respect to any Person, the possession,
directly or indirectly, of the power to direct, or cause the direction
of, the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Default" shall mean any event, act or condition which with or
without notice or lapse of time, or both, could constitute an Event of
Default.
"Deposit Account Control Agreements" shall mean deposit
account control agreements on commercially reasonable terms and
conditions in which all of the Borrower's accounts with any financial
institution shall be subject to Lender's right upon the occurrence and
during the continuance of an Event of Default to restrict the use of
such accounts and to turn over the proceeds from such accounts to
Lender, in form and substance reasonably satisfactory to the Lender;
provided that the Borrower shall be required to enter into a Deposit
Account Control Agreement with respect to accounts maintained at
Xxxxxxx Xxxxx Xxxxxx but such agreement shall not be implemented unless
and until there has occurred an Event of Default.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor or similar statute and the rules and
regulations of the SEC promulgated thereunder as in effect from time to
time.
"Event of Default" shall mean the occurrence of any of the
events specified in Section 8.
"Event of Prepayment" shall mean (i) the sale, lease, license,
exchange, transfer or similar transaction involving all or
substantially all of the assets of the Borrower, other than inventory
in the ordinary course of business, in one or more transactions after
the Closing Date; (ii) the closing date of a recapitalization,
reorganization, merger, consolidation or other transaction or
transactions (whether
2
by sale, gift or other transfer or disposition), which transaction or
transactions result in the transfer of control of the Borrower
excluding any securities under any option plan of the Borrower (which
plan, type of securities and amount of securities are approved by
Lender in writing) which have not been granted, or which have been
granted but have not yet vested, in each case on or prior to the date
in question) on a fully-diluted basis; (iii) any action (voluntary or
involuntary) to liquidate, dissolve and/or wind down the Business of
the Borrower, (iv) the sale, lease, license, exchange, transfer or
similar transaction of any division or business of the Borrower in one
or more transactions after the Closing Date in which the aggregate
gross proceeds to the Borrower in connection with such transactions
are at least $2,500,000 (or, in the event of a transaction in which
the Borrower receives or is deemed to receive consideration other than
cash, the Borrower receives, or is deemed to have received, value (as
determined by the Lender) in the form of cash, marketable securities,
assets, contract rights, otherwise or a combination thereof of at
least $2,500,000) or (v) the sale, issuance, exchange, Transfer or
similar transaction involving any debt (other than Subordinated Debt
otherwise permitted in accordance with Section 7.1(f)) and the
securitization of receivables in one or more transactions in which the
aggregate gross proceeds received by the Borrower in connection with
such transaction are at least $2,500,000 (or, in the event of a
transaction in which the Borrower receives or is deemed to receive
consideration other than cash, the Borrower receives, or is deemed to
have received, value (as determined by the Lender) in the form of
cash, marketable securities, assets, contract rights, otherwise or a
combination thereof of at least $2,500,000). Notwithstanding anything
to the contrary in the foregoing, in the event the Borrower sells or
otherwise disposes of its "Hermes" line of business in one or more
transactions, Borrower shall pay to Lender: (i) in the event the
proceeds (whether cash or other consideration) of such sale or other
disposition are $2,500,000 or less, 100% of such proceeds (up to the
amount of the Secured Obligations), (ii) in the event the proceeds
(whether cash or other consideration) of such sale or other
disposition are greater than $2,500,000 but less that $6,000,000, 50%
of such proceeds (up to the amount of the Secured Obligations) and
(iii) in the event the proceeds (whether cash or other consideration)
of such sale or other disposition are greater than $6,000,000, 15% of
such proceeds (up to the amount of the Secured Obligations).
"GAAP" shall mean the generally accepted accounting principles
in the United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any Person
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Indebtedness" shall mean (without double counting), at any
time and with respect to any Person, (i) indebtedness of such Person
for borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase price of property or services
purchased (other than amounts constituting
3
trade payables (payable within 45 days) arising in the ordinary course
of business); (ii) obligations of such Person in respect of letters of
credit, acceptance facilities, or drafts or similar instruments issued
or accepted by banks and other financial institutions for the account
of such Person; (iii) obligations of such Person under capital leases
and any financing lease involving substantially the same economic
effect; (iv) deferred payment obligations of such Person resulting
from the adjudication or settlement of any litigation or claim to the
extent not already reflected as a current liability on the balance
sheet of such Person; (v) trade debt not incurred in the ordinary
course of business or trade debt in excess of $150,000 as to any
single creditor or in excess of $150,000 in the aggregate; or (vi)
indebtedness of others of the type described in clauses (i) through
(v) which such Person has (a) directly or indirectly assumed or
guaranteed in connection with a guaranty, or (b) secured by a Lien on
any of the assets of such Person whether or not such Person has
assumed or guaranteed such indebtedness.
"Intellectual Property" shall have the meaning set forth in
Section 4.10.
"Intellectual Property Security Agreement" shall mean the
Intellectual Property Security Agreement, dated as of the date hereof,
by and between the Lender and the Borrower, in substantially the form
attached hereto as Exhibit B.
"Interest Rate" shall have the meaning set forth in Section
3.1.
"Interest Deficit" shall have the meaning set forth in Section
9.7.
"Lender" shall have the meaning set forth in the preamble
hereto.
"Lien" shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, encroachment, lien
(statutory or otherwise), claim, option, reservation, priority,
preferential arrangement, easement or other encumbrance of any kind.
"Loan" or "Loans" shall have the meaning set forth in Section
2.1.
"Loan Availability" shall mean $2,300,000, fully available
upon Closing.
"Loan Documents" shall mean this Agreement, the Note, the
Intellectual Property Security Agreement, the Warrant, the Deposit
Account Control Agreement and any and all other agreements,
certificates, instruments or documents made, given or delivered in
connection with the consummation of any transaction contemplated by a
Loan Document.
"Lock Box Account" shall mean any checking or other demand
depository account maintained by the Borrower into which the contents
of any other checking, demand or other depository account of the
Borrower is transferred pursuant to the applicable Lock Box Agreement.
4
"Lock Box Agreements" shall mean each of the Lock Box
Agreements on commercially reasonable terms and conditions, by and
among the Lender, the Borrower and the applicable financial institution
that recognizes the Lender's security interest in the contents of the
checking, demand or other depository account which is the subject of
such agreement and provides that such contents shall be transferred
only to the applicable Lock Box Account or as otherwise instructed by
Lender.
"Material Adverse Change" shall mean an event, act, condition
or change which had, has or could have a material adverse effect on (a)
the business, operations, results of operations, properties, assets,
condition (financial or otherwise) or prospects of the Borrower or (b)
any right or remedy of the Lender under any Loan Document.
"Maturity Date" shall mean November 12, 2003.
"Note" shall have the meaning set forth in Section 2.2.
"Person" shall mean an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Proceeds" shall mean whatever is received when Collateral or
Proceeds are sold, exchanged, collected or otherwise disposed of, both
cash and non-cash, including the proceeds of insurance payable by
reason of loss of or damage to Collateral or Proceeds and any license
fees, royalties and other similar items received in connection with
Collateral.
"Requirement of Law" shall mean as to any Person, the articles
or certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, statute, treaty,
ordinance, rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which such Person
or any of its property is subject.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Secured Obligations" shall mean all money, debts, obligations
and liabilities which now are or have been or at any time hereafter may
be or become due, owing or incurred by the Borrower to the Lender,
whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with any Loan Document or any transaction
contemplated by any Loan Document, whether on account of principal,
interest (including, without limitation, interest accruing after the
Maturity Date on the Note and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like
5
proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding),
royalties, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor or similar statute and the rules and
regulations of the SEC promulgated thereunder as in effect from time to
time.
"Stock" shall mean shares of Common Stock.
"Subordinated Debt" shall mean unsecured Indebtedness
subordinated to the Loan on terms and conditions satisfactory to
lender, evidenced by a subordination agreement in form and substance
satisfactory to lender which by its terms does not permit the payment
of all or any portion of any principal, interest or any other amounts
until the indefeasible payment in full of all Secured Obligations.
"Subsidiary" shall have the meaning set forth in Section 4.4.
"Tax Return" shall mean any return, declaration, report, claim
for refund, information return or statement, estimated return or
statement or other document (including, without limitation, any related
or supporting estimates, elections, schedules, statements or
information) filed or required to be filed in connection with the
determination, assessment or collection of any Tax or the
administration of any laws, statutes, treaties, regulations or
administrative requirements relating to any Tax.
"Tax" or "Taxes" shall mean (i) any and all taxes (whether
federal, state and local, domestic or foreign) including, without
limitation, income, gross receipts, profits, property, sales, use,
capital stock, net worth, occupation, value added, ad valorem,
transfer, franchise, recapture, excise, windfall, withholding, payroll,
social security, workers' compensation, unemployment compensation or
employment taxes, tariffs, imposts, duties, levies, fees or
governmental charges of any nature whatsoever, together with any
interest, penalties or additions to tax imposed with respect to any of
the foregoing, and (ii) any obligations under any agreements or
arrangements with respect to any tax or taxes described in clause (i)
above.
"UCC" shall mean the Uniform Commercial Code of the State of
California as in effect on the date hereof and as amended from time to
time hereafter or, when used in relation to a specific filing or
termination, the Uniform Commercial Code of the State wherein such
filing or termination statement is made.
"Warrant" shall have the meaning set forth in Section 3.3 (a).
"Warrant Shares" shall have the meaning set forth in Section
3.3 (b).
6
1.2 Other Definitional Provisions.
(a) Unless otherwise specified therein, all terms defined
in this Agreement shall have the defined meanings when used in the Note or any
agreement, instrument, certificate or other document made, given or delivered
pursuant hereto.
(b) Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the part includes the whole, the terms "include"
and "including" are not limiting, and the term "or" has the inclusive meaning
represented by the phrase "and/or."
(c) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section, subsection, Exhibit and Schedule references are to this Agreement
unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(e) Any reference in this Agreement to any of the Loan
Documents includes any and all alterations, amendments, extensions,
modifications, renewals, restatements, or supplements thereto or thereof, as
applicable.
(f) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender or the
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by the Borrower, the Lender, and their
respective counsel, and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of the Lender and the Borrower.
SECTION 2. AMOUNT OF LOAN
2.1 Loan. Subject to the terms and conditions hereof, the Lender
agrees to make a Loan to the Borrower in a single draw on the Closing Date in an
aggregate principal amount which shall not exceed the Loan Availability.
Concurrently with the Closing, the Borrower shall pay to Lender the Loan fee of
$46,000 plus an amount (provided by Lender to Borrower as soon as reasonably
practicable before the Closing) sufficient to pay costs, fees and expenses
(including, without limitation, legal fees and expenses) of the Lender. As used
herein, the term "Loan" shall mean the loan made by the Lender in accordance
with this Section 2.1.
2.2 Notes. In order to evidence the Loan, the Borrower will
execute and deliver to the Lender on the initial Closing Date a secured
promissory note substantially in the form of Exhibit C attached hereto, payable
to the order of the Lender and in a principal amount equal to $2,300,000. The
Note: (a) shall be dated the Closing Date; (b) shall be payable as provided in
Section 2.4; (c) shall provide for the payment of interest in accordance with
Section 3.1; and (d) shall be subject to mandatory prepayment in accordance with
Section 3.2(b).
7
2.3 Making of Loan. The Lender shall have no obligation to make
the Loan hereunder unless the Lender, in its sole discretion, determines that
the Loan Documents are in full force and effect, and the Borrower is in full
compliance with all the terms of this Agreement, the Note, the Intellectual
Property Security Agreement and the other Loan Documents.
2.4 Repayment of Loan.
(a) Except as set forth below, the aggregate amount of
the Loan shall be payable, together with all accrued and unpaid interest thereon
and all other Secured Obligations, on the Maturity Date.
(b) The Borrower shall not be obligated to make any
principal payments on the Loan other than upon the Maturity Date or as otherwise
required pursuant to the provisions of Section 3.2(b).
2.5 Collateral.
(a) Security Interest. This Agreement constitutes a
"security agreement" within the meaning of the UCC. In order to secure payment
and performance of all present and future Secured Obligations, the Borrower
hereby grants, assigns, transfers, pledges, and sets over to the Lender a
first-priority security interest in and Lien on all of the Collateral (subject
to Liens expressly permitted under Sections 7.2(a) and (e) hereof and those
other Liens set forth in Section 7.2 required as a matter of law to have
priority over the Secured Obligations; provided that, with respect to such other
security interests and other Liens, such security interests and Liens shall not
be with respect to claimed amounts in excess of $100,000 in the aggregate).
Lender agrees to execute and deliver to the Borrower, at the sole cost of the
Borrower, from time to time such Lien releases as the Borrower may reasonably
request and as are necessary to give to other lenders which finance equipment
for the Borrower a first priority security interest in the equipment financed so
long as the Indebtedness and Liens incurred with respect to such equipment
financing are expressly permitted under Sections 7.1(d) and (e) and 7.2(a) and
(e) hereto, respectively.
(b) Further Assurances. The Borrower agrees that at any
time and from time to time, at its expense, the Borrower will promptly execute
and deliver all further agreements, certificates, instruments and documents
(including, without limitation, financing statements and continuation
statements), and take all further action that the Lender may reasonably request
(including obtaining any control agreements or bailee acknowledgments required
by Lender), in order to perfect and protect the security interests granted or
purported to be granted hereby and to enable the Lender to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. The Borrower
agrees that it will not take any action intended or reasonably likely to
negatively impact or question the security interest granted herein. Without
limiting any rights of the Lender under the UCC, the Borrower authorizes the
Lender to file UCC financing statements with any filing office deemed
appropriate by the Lender designating the Collateral as "all present and future
assets" of the Borrower.
8
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOAN
3.1 Interest Rate and Payments. The outstanding principal of the
Loan shall accrue interest from the date such Loan is disbursed pursuant to the
terms hereunder until and including the date paid in full at a rate per annum
(computed on the basis of a 360-day year of twelve 30-day months, provided,
however, that per diem interest shall be calculated on the basis of the actual
number of days elapsed over a year of 365 days) of nine percent (9%) per annum
(the "Interest Rate"). Interest on the Loan shall be payable monthly in arrears
on the first day of each calendar month following the Closing Date, with all
interest due and payable on the Maturity Date or such earlier date upon which
the Loan shall be due and payable in accordance with the terms hereof, in each
case with interest to accrue and be due and payable through and including the
applicable date of payment. Without duplication of any interest payable under
this Section 3.1, the Borrower hereby unconditionally promises to pay to the
Lender interest on any Secured Obligations payable by the Borrower under any
Loan Document that shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and including the
due date of such payment to and including the date the same is paid in full, at
a rate per annum equal to the Interest Rate plus 600 basis points, which
interest shall be payable from time to time on demand of the Lender.
3.2 Prepayment.
(a) Optional. The Borrower shall be permitted to prepay
the Loan, or any portion thereof, at any time without penalty or premium; in
each case all payments shall be applied first against any Secured Obligation
(other than interest and principal), then against accrued and unpaid interest
through and including the date of payment and then against principal.
(b) Mandatory. Upon an Event of Prepayment all Secured
Obligations (or the portion thereof described in the definition of "Event of
Prepayment" contained in Section 1.1 hereof) shall immediately become due and
payable; provided that upon a sale, lease, license, exchange, transfer or other
disposition of the Borrower's Hermes line of business such mandatory prepayment
shall be at Lender's sole discretion.
3.3 Issuance of Warrant.
As part of execution of this Agreement by the Borrower, the Borrower
shall issue and deliver to the Lender a duly and validly issued, fully paid and
nonassessable warrant to purchase Stock in substantially the form attached
hereto as Exhibit D (the "Warrant").
SECTION 4. COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS
The Borrower represents, warrants and covenants, as of the Closing
Date, that:
4.1 Existence. The Borrower (a) is duly organized and validly
existing under the laws of the State of Delaware, (b) is duly qualified to do
business and is in good standing in all other jurisdictions in which the nature
of its business or the ownership or leasing of its properties makes such
authorization or qualification necessary except for such jurisdictions where the
failure to be so authorized or qualified could not result in a Material Adverse
Change and (c) has
9
the power and authority, and the legal right, to own and operate its property,
to lease the property it operates as lessee or lessor and to conduct the
business in which it is presently engaged and presently proposes to engage.
4.2 Power; Authorization; Enforceable Obligations. The Borrower
has the power and authority, and the legal right, to make, execute, deliver and
perform the Loan Documents, borrow the Loan hereunder, and to issue and deliver
the Warrant and the Warrant Shares, and to consummate the transactions
contemplated hereby and thereby and the Borrower has taken all necessary action
to authorize the execution, delivery and performance of the Loan Documents, the
borrowing of the Loan on the terms and conditions of this Agreement, and the
issuance and delivery of the Warrant and the reservation for issuance, issuance
and delivery of the Warrant Shares, and the consummation of the transactions
contemplated hereby and thereby. No consent or authorization of, filing with,
notice to or other similar act by or in respect of, any Governmental Authority
or any other Person is required to be obtained or made by or on behalf of the
Borrower in connection with the execution, delivery, performance, validity or
enforceability of the Loan Documents to which it is a party, the borrowing of
the Loan hereunder, the issuance and delivery of the Warrant, the reservation
for issuance and the issuance and delivery of the Warrant Shares, or the
consummation of the transactions contemplated hereby and thereby. Each of the
Loan Documents has been duly executed and delivered by the Borrower. Each of the
Loan Documents constitutes a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its respective terms.
4.3 No Legal Bar. The execution, delivery and performance of the
Loan Documents by the Borrower, the borrowing of the Loan hereunder, the use of
the proceeds thereof, and the issuance and delivery of the Warrant and the
reservation for issuance, issuance and delivery of the Warrant Shares, (a) will
not violate any Requirement of Law, which violation could result in a Material
Adverse Change, or Contractual Obligation of the Borrower and (b) will not
result in, or require, the creation or imposition of any Lien on any of its
properties, assets or revenues pursuant to any such Requirement of Law, which
violation could result in a Material Adverse Change or the default or breach of
any Contractual Obligation.
4.4 Subsidiaries. Except as set forth on Schedule 4.4 hereto, the
Borrower has no, and never has had any, Subsidiaries. For purposes hereof,
"Subsidiary" shall mean, for any Person, any corporation, partnership, limited
liability company or other entity of which at least a majority of the securities
or other ownership interests having by their terms ordinary voting power (or
otherwise) to elect a majority of the board of directors or other Persons
performing similar functions of such corporation, partnership, limited liability
company or other entity (irrespective of whether or not at the time securities
or other ownership interests of any other class or classes of such corporation,
partnership, limited liability company or other entity shall have or might have
voting power by reason of the happening of any contingency) are at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person.
4.5 Capitalization. The authorized capital stock of the Borrower
is as set forth on Schedule 4.5 hereto: All such issued and outstanding shares
and warrants have been duly authorized and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable state and
federal laws concerning issuance of securities. Other than as set
10
forth on Schedule 4.5(a) hereto, there are no other rights, plans, options,
warrants, agreements or other rights of any Person to purchase or acquire from
the Borrower or any owner of any such item any shares of its capital stock. The
Borrower has no obligation to repurchase, redeem or otherwise acquire any
security or other right of the Borrower. The Warrant and the Warrant Shares will
be, when issued in accordance with the terms and conditions hereof and the
Warrant, duly and validly issued, fully paid and nonassessable and free and
clear from all Liens, stock purchase rights and preemptive rights.
4.6 Material Adverse Facts. The Borrower has no knowledge of any
fact that could materially adversely affect the ability of the Borrower to
perform its obligations under this Agreement, the Note or the other Loan
Documents or which could result in a Material Adverse Change.
4.7 Purpose of Loan. The proceeds of the Loan shall be used by the
Borrower to provide funds for the issuance of a letter of credit to support the
issuance of a bond as required by the court order described on Schedule 4.15
hereto.
4.8 Liabilities. Other than with respect to the Loan and
Indebtedness expressly permitted under Section 7.1 and described in Schedule
7.1(b) hereto, the Borrower does not have any Indebtedness in excess of $50,000
in the aggregate that the Borrower has directly or indirectly created, incurred,
assumed, or guaranteed, or with respect to which the Borrower has otherwise
become directly or indirectly liable. Schedule 7.1(b) sets forth a true,
complete and correct description of all Indebtedness of the Borrower on the
Closing Date.
4.9 Title to Property and Assets. The Borrower has good and
marketable title to, or a valid leasehold in, all of the Borrower's tangible and
intangible properties and assets (including, without limitation, Intellectual
Property), in each case free and clear of all Liens other than (a) Liens for
taxes not yet due or other statutory liens relating to obligations to any
Governmental Authority which are not yet due, (b) statutory Liens arising in the
ordinary course of business, in each case, which do not interfere with the use
of the properties and assets to which they relate for the purposes for which
those properties and assets were acquired and (c) Liens in favor of the Lender
and other Liens expressly permitted under Section 7.2 hereof. Schedule 7.2(f)
sets forth a true, complete and correct description of all Liens on the Borrower
or its properties or assets on the Closing Date.
4.10 Intellectual Property. The Borrower possesses all licenses,
permits, franchises, authorizations, patents, copyrights, trademarks, trade
secrets and trade names and any other tangible, intangible or intellectual
property rights, or rights thereto, required to conduct its business as
presently conducted and as presently proposed to be conducted, without any known
conflict with the rights of others. A true, correct and complete list of the
Borrower's licenses, permits, franchises, authorizations, patents, copyrights,
trademarks, trade secrets, trade names, inventions, discoveries, designs,
patentable technology and art, methodologies, trade secrets, know how, service
marks, Internet domain names and any other tangible, intangible or intellectual
property rights (the "Intellectual Property") is attached as Schedule 4.10
hereto. No claim of infringement has been made or threatened in writing or
otherwise with respect to any such Intellectual Property. Except as set forth on
Schedule 4.15, the Borrower has not directly or indirectly created, incurred,
assumed or permitted to exist any Lien on any such Intellectual
11
Property, other than Liens granted to the Lender to secure the Secured
Obligations and liens expressly permitted under Section 7.2 hereof.
4.11 ERISA. No employee benefit plan established or maintained by
the Borrower or to which the Borrower has made contributions or is liable is
subject to Part 3 of Subtitle B of Title 1 of the Employee Retirement Income
Security Act of 1974, as amended, or Section 412 of the Internal Revenue Code of
1954, as amended.
4.12 Brokers. No broker or finder has acted for the Borrower in
connection with the Loan Documents or the transactions contemplated hereby or
thereby, and no broker finder or other Person is entitled to any brokerage or
finder's fees or other commission or payment in respect of such transaction
based in any way on agreements, arrangements or understandings made by or on
behalf of the Borrower.
4.13 Use of Credit. No part of the proceeds from the Loan extended
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any "margin stock" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Borrower in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). The assets of the Borrower do not include any margin stock, and
the Borrower does not have any present intention of acquiring any margin stock.
4.14 Indebtedness. The Note will be the senior obligation of the
Borrower, and will be secured by first priority liens on all of the Collateral
subject to Liens expressly permitted under Sections 7.2(a) and (e) hereof and
those other Liens set forth in Section 7.2 required as a matter of law to have
priority over the Secured Obligations; provided that, with respect to such other
security interests and other Liens, such security interests and Liens shall not
be with respect to claimed amounts in excess of $100,000 in the aggregate.
4.15 Litigation. Except as set forth on Schedule 4.15 hereto, there
are no (i) actions, suits or legal, equitable, arbitrative or administrative
proceedings pending, or, to the best knowledge of the Borrower after reasonable
review and due inquiry, threatened against the Borrower or any of its properties
or assets or (ii) judgments, injunctions, writs, rulings or orders by any
Governmental Authority against the Borrower or applicable to any of its
properties or assets.
4.16 Financial Condition; Unknown Liabilities. The Borrower has
previously furnished to the Lender the unaudited pro forma balance sheet of the
Borrower as of the Closing Date and the related unaudited financial statements
for the period from the date of the Borrower's audited financial statements for
the fiscal year ended December 31, 2001 attached hereto as Schedule 4.16. There
are no liabilities, obligations or commitments of any nature (whether accrued,
absolute, contingent or otherwise) matured or unmatured of the Borrower, except
as provided for in unaudited proforma the balance sheet referred to above as of
the Closing Date. Since January 1, 2002, there has been no Material Adverse
Change as to the Borrower.
12
4.17 Taxes. The Borrower has filed all federal, state and local,
domestic or foreign Tax Returns and all other Tax Returns that are required to
be filed by it and it has paid all Taxes due pursuant to such returns or
pursuant to any deficiency, notice of proposed assessment, audit, assessment or
other similar notice received by it in writing other than those being contested
in good faith in appropriate proceedings and for which reserves have been
established in the financial statements described in Section 4.16. There are no
audits, assessments or claim for assessments, and no basis upon which such a
claim can be made to the best knowledge of the Borrower after reasonable review
and due inquiry. The charges, accrual and reserves on its books and records in
respect of Taxes are adequate. The Borrower has not given or been requested to
give a waiver of the statute of limitations relating to the payment of Federal
or other taxes or the audit of any tax period.
4.18 Certain Regulations. The Borrower is not (a) an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940; (b) a "holding company," or an
"affiliate" of a "holding company" or a "Subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935;
or (c) to the knowledge of the Borrower, subject to any other Requirement of
Law, restricting its ability to incur debt or to grant Liens.
4.19 Environmental Matters. The Borrower has obtained all approvals
required by any Governmental Authority to carry on its business as presently
being conducted or as presently proposed to be conducted. Each of such approvals
is in full force and effect and the Borrower is in compliance in all respects
with the terms and conditions of such approvals, and is also in compliance in
all respects with all other provisions of any applicable environmental law, rule
or regulation.
4.20 Accounts Receivable. The accounts receivable set forth in the
unaudited balance sheet delivered to the Lender pursuant to Section 4.16 and set
forth in reasonable detail on Schedule 4.20, net of applicable reserves set
forth in such unaudited balance sheet and on such schedule, are collectible in
the amounts shown therein. All such accounts receivable represent legal, valid
and binding obligations arising from bona fide business transactions in the
ordinary course of business consistent with past practices of the Borrower.
There is no contest, claim, counterclaim, defense, contra account or other right
of set-off, other than returns in the ordinary course consistent with the past
practices of the Borrower.
4.21 SEC Documents; Financial Statements and No Material Changes.
Borrower has made available to Lender through the SEC's XXXXX database ("XXXXX")
a true, complete and correct copy of each publicly available statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Borrower since December 31, 2001, and, prior to the
Closing Date, Borrower will have made available to Lender true, complete and
correct copies of any additional publicly available documents filed with the SEC
by Borrower after the date hereof but prior to the Closing Date (collectively,
the "Borrower SEC Documents"). All documents required to be filed as exhibits to
the Borrower SEC Documents have been so filed, and all Borrower Material
Contracts (as defined below) so filed as exhibits are in full force and effect
as of the date hereof, except those that have expired in accordance with their
terms and those that failure to be in full force and effect would not have a
Material Adverse Change. As
13
used in this Agreement, "Borrower Material Contracts" means all contracts
required to be filed as exhibits to the Borrower SEC Documents pursuant to Item
601 of Regulation S-K. As of their respective filing dates, the Borrower SEC
Documents complied in all material respects with the applicable requirements of
the Exchange Act and the Securities Act, and none of the Borrower SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein, in light of the circumstance under which
they were made or necessary to make the statements made therein not misleading,
except to the extent corrected by a subsequently filed Borrower SEC Document.
The consolidated financial statements of Borrower, including the notes thereto,
included in the Borrower SEC Documents (the "Borrower SEC Financial Statements")
fairly present (or will fairly present) the consolidated financial condition and
the related consolidated statements of operations, of stockholder's equity, and
of cash flows of Borrower at the dates and during the periods indicated therein
in accordance with GAAP (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments), complied (or will comply) as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared (or will be prepared) in accordance
with generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be expressly indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Forms 10-Q, as permitted by Form
10-Q of the SEC).
4.22 Ownership of XXX.XXXXXX, Inc. XXX.XXXXXX, Inc. was formed
solely for the purpose of engaging in the transactions contemplated by Schedule
4.4. XXX.XXXXXX, Inc. (i) has not conducted, and will not prior to the date
thereof conduct, any business and (ii) has no, and prior to the date thereof
will have no, assets or liabilities. As of the date hereof, only shares of
XXX.XXXXXX, Inc. common stock will be issued and outstanding and all of such
shares shall be owned directly by Borrower.
4.23 Disclosure. No representation or warranty by the Borrower in
this Agreement or any of the other Loan Documents contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they are made, not misleading.
If, prior to the Closing Date, the Borrower becomes aware of any fact or
circumstance that could change a representation or warranty of the Borrower in
this Agreement, then the Borrower shall immediately give notice of such fact or
circumstance to the Lender.
SECTION 5. CONDITIONS OF LENDING
The obligation of the Lender to make the Loan hereunder is subject to
the following conditions precedent:
5.1 Loan Documents. Lender shall have received (a) this Agreement,
(b) the Note, (c) the Intellectual Property Security Agreement, (d) the Warrant,
(e) the Lock Box Agreement, the Deposit Account Control Agreements and (f) each
of the other Loan Documents to which the Borrower is a party, in each case
executed and delivered by duly authorized officers of the Borrower.
14
5.2 Proceedings. The Lender shall have received a copy of the
resolutions, in form and substance reasonably satisfactory to it, of the board
of directors of the Borrower authorizing (i) the execution, delivery and
performance of this Agreement and the other Loan Documents, (ii) the Loan
contemplated hereunder, (iii) the issuance and delivery of the Warrant, and the
reservation for issuance, issuance and delivery of the Warrant Shares and (iv)
the other transactions contemplated hereby and thereby, certified by the
Secretary or an Assistant Secretary of the Borrower as of the Closing Date,
which certificate shall be in form and substance reasonably satisfactory to the
Lender and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded and are in full force and effect.
5.3 Incumbency Certificates. The Lender shall have received a
certificate of the Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of the Borrower executing any Loan Document,
reasonably satisfactory in form and substance to the Lender, executed by the
Secretary or any Assistant Secretary of the Borrower.
5.4 Organization Documents. The Lender shall have received copies
of the articles of incorporation and bylaws of the Borrower, certified as of the
Closing Date as true, complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Borrower.
5.5 Representations and Warranties; No Default. Each of the
representations and warranties made by the Borrower pursuant to this Agreement
or any other Loan Document (or in any amendment, modification or supplement
hereto or thereto) and each of the representations and warranties contained in
any certificate or statement furnished at any time by or on behalf of the
Borrower pursuant to this Agreement or any other Loan Document or certificate or
other document delivered herewith or therewith, shall, except to the extent that
they relate to a particular date, be true, complete and correct in all respects
on and as of the date it was made and on and as of such date as if made on and
as of such date. The Borrower shall have complied with each and every covenant
and agreement contained herein, no Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the Loan, and
no Material Adverse Change shall have occurred. The Borrower shall have
delivered a certificate of the Chief Executive Officer or President of the
Borrower, dated as of the applicable Closing Date hereunder, to the foregoing
effect.
5.6 Security Interest. The Lender shall have received evidence
satisfactory to it of a valid and perfected first priority Lien and security
interest in the Collateral and no other Liens on the Collateral exist, except as
expressly permitted hereunder.
5.7 Intellectual Property Security Interest. The Lender shall have
received evidence satisfactory to it of a valid and perfected first priority
Lien and security interest in the Intellectual Property.
5.8 Due Diligence. With respect to the Closing Date only, the
Lender shall have completed a due diligence investigation of the Borrower
satisfactory to the Lender.
5.9 Lock Box Agreement. The Lender shall have received
satisfactory evidence that the Lock Box Agreement is in full force and effect.
15
5.10 Deposit Account Control Agreements. The Lender shall have
received satisfactory evidence that each Deposit Account Control Agreement is in
full force and effect.
5.11 Issuance of Warrant. The Lender shall have received the
Warrant in accordance with the provisions of Section 3.3.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, from and after the original Closing
Date and through the indefeasible payment in full of the Loan and the Secured
Obligations then due and owing to the Lender hereunder, the Borrower shall:
6.1 Payment of Obligations. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings diligently
conducted and which are reserved against on the Borrower's books and records.
6.2 Maintenance of Accounts Receivable. The Borrower shall
maintain at least $3,500,000 of Acceptable Accounts, net of any applicable
reserves and net of the amount of any Subordinated Debt, all of which Acceptable
Accounts shall be timely paid in accordance with their respective terms.
6.3 Conduct of Business; Maintenance of Existence; and Compliance
with Laws. Continue to engage in business of the same general type as conducted
by the Borrower on the Closing Date, and preserve, renew and keep in full force
and effect its corporate existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or desirable in the normal
conduct of the business of the Borrower. The Borrower shall do or cause to be
done all things necessary to ensure compliance by the Borrower in all material
respects with all Requirements of Law and all applicable restrictions imposed by
any Governmental Authority.
6.4 Maintenance of Insurance. Maintain insurance with responsible
and reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by companies of similar size engaged in similar
businesses and owning similar properties and assets in the same general areas in
which the Borrower operates and reasonably acceptable to the Lender, including,
without limitation, primary, all risk, physical damage, property damage, and
bodily injury with appropriate loss payee and additional insured endorsements in
favor of the Lender.
6.5 Taxes. Timely pay all Taxes except Taxes being contested in
good faith by appropriate proceedings (which shall be reserved against on the
Borrower's books and records); provided that it shall pay any contested Taxes
upon commencement of proceedings to foreclose upon any property or assets of the
Borrower to pay such Taxes.
6.6 Maintenance of Properties. Maintain, preserve, protect and
keep its properties in good repair, working order and condition (ordinary wear
and tear excepted), and make reasonable, necessary and proper repairs, renewals
and replacements so that its business carried
16
on in connection therewith may be properly conducted at all times consistent
with past practices of the Borrower.
6.7 Information Rights. The Borrower shall deliver the following
to the Lender:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each calendar year (i) consolidated income
statement and statement of cash flows for such year and a balance sheet as of
the end of such year, prepared in accordance with GAAP, and audited and
certified by independent public accountants of nationally recognized standing
selected by the Borrower and reasonably acceptable to the Lender and (ii) annual
sales forecasts and budgets for the then next two years in form and substance
reasonably satisfactory to the Lender;
(b) as soon as practicable, (i) but in any event within
thirty (30) days after the end of each calendar month an unaudited income
statement and statement of cash flows for such month and an unaudited balance
sheet as of the end of such month, (ii) but in any event within thirty (30) days
after the end of each calendar month, monthly sales forecasts, (iii) but in any
event within fifteen (15) days of the end of such month, accounts payable and
accounts receivable agings together with an Accounts Receivable Certificate in
substantially the form of Exhibit E hereto signed by the Borrower's Chief
Financing Officer, and (iv) but in any event within thirty (30) days, monthly,
quarterly and annual budgets (including variance reports) in form and substance
reasonably satisfactory to the Lender; and
(c) as soon as reasonably practicable after requested by
Lender, such other reports as Lender may request in connection with the
Borrower.
6.8 Board Observation Rights. Until the later of such time as all
Secured Obligations are indefeasibly repaid in full and the Commitment
Termination Date, the Lender shall have the right to have a representative
attend all meetings of the Borrower's Board of Directors or any such committee
thereof, in a nonvoting, observer capacity, the cost of which attendance shall
be paid by the Borrower, including travel and related costs and expenses. The
Borrower shall provide the Lender notice of such meetings at the same time and
in the same manner as such notice is provided to the Board of Directors and the
Borrower shall provide the Lender copies of all minutes, consents, and other
materials the Borrower provides to its directors in conjunction with said
meetings.
6.9 Event of Prepayment. Except as otherwise provided in the
definition of "Event of Prepayment," upon any Event of Prepayment of the
Borrower, then in connection therewith, the Lender shall be entitled to one
hundred percent (100%) of the proceeds from the sale of the Borrower and/or its
assets in an orderly liquidation (after deducting the reasonable, non-operating
out-of-pocket costs of sale paid to an independent third Person) until such time
as all Secured Obligations are repaid indefeasibly in full, including, without
limitation, the Loan, all accrued interest due thereon, fees and other costs.
6.10 Lock Box Instructions. Upon the occurrence of an Event of
Default, permit Lender, in Lender's sole discretion, to instruct each of the
Borrower's customers and any other
17
Persons with amounts owing to the Borrower to send all future payments to a
designated Lock Box Account pursuant to instructions determined by the Lender in
its sole discretion.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, from and after the original Closing
Date and thereafter until payment in full of all Secured Obligations, the
Borrower shall not, without the Lender's prior written consent:
7.1 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) other Indebtedness (including accrued interest
thereon) outstanding on the original Closing Date and listed on Schedule 7.1(b)
(none of which is secured) and any refinancings, refundings, renewals or
extensions thereof, provided that the amount of such Indebtedness is not
increased at the time of such refinancing, refunding, renewal or extension over
the amount thereof outstanding on the original Closing Date and the due date of
such Indebtedness is not shortened;
(c) unsecured Indebtedness of any Person acquired by the
Borrower after the date hereof, provided that such Indebtedness was not incurred
in contemplation of such acquisition and provided that, at the time of such
acquisition, the aggregate amount of such Indebtedness does not exceed the fair
market value of the assets of such Person, and any refinancings, refundings,
renewals or extensions thereof, provided that the amount of such Indebtedness is
not increased at the time of such refinancing, refunding, renewal or extension
over the amount thereof outstanding at the time of such acquisition and the due
date of such Indebtedness is not shortened;
(d) Indebtedness of up to $100,000 in the aggregate
(including all Indebtedness incurred under Section 7.1(e) below) in respect of
any lease of any property by the Borrower as lessee which, in accordance with
GAAP, is accounted for as a capital lease on the Borrower's balance sheet,
provided that, at the time of the inception of such lease, the aggregate amount
of such Indebtedness does not exceed the fair market value of such property;
(e) Indebtedness of up to $100,000 in the aggregate
(including all Indebtedness incurred under Section 7.1(d) above) in respect of
purchase money financing, provided that, at the time the Borrower becomes
obligated with respect to such financing, the aggregate amount of such
Indebtedness does not exceed the fair market value of the property financed with
such Indebtedness; and
(f) Subordinated Debt on terms and conditions
substantially similar to those that the Borrower would have received in an
"arm's length" transaction with an independent third party, in an aggregate
amount not to exceed $2,500,000 in the aggregate; provided that prior to or
concurrently with the Borrower incurring such indebtedness, the Person providing
or issuing such Indebtedness to the Borrower shall enter into a subordination
agreement satisfactory
18
in form and substance to the Lender, an executed copy of which shall be
delivered to the Lender at such time.
7.2 Limitation on Liens. Create, incur, assume or suffer to exist
any Liens on any properties or assets of the Borrower other than:
(a) Liens incurred in connection with Indebtedness
permitted to be incurred or permitted to exist pursuant to Section 7.1(a), (d)
or (e); provided that, with respect to Indebtedness permitted under Sections
7.1(d) or (e), the Liens cover only the assets of the property leased or
purchased (including proceeds thereof and accessions thereto), as applicable;
(b) deposits under worker's compensation, unemployment
insurance and Social Security laws or to secure statutory obligations or surety
or appeal bonds or performance or other similar bonds in the ordinary course of
business consistent with past practice;
(c) Liens for taxes, assessments or other governmental
charges or levies due and payable, the validity or amount of which is currently
being contested in good faith by appropriate proceedings and which have been
reserved for on the Borrower's books and records;
(d) Except as set forth on Schedule 4.15, Liens arising
out of attachments, judgments or awards as to which an appeal or other
appropriate proceedings for contest or review are promptly commenced (and as to
which foreclosure and other enforcement proceedings shall not have been
commenced (unless fully bonded or otherwise effectively stayed)) and as to which
reserves have been established, provided that the assets or property subject to
such lien do not have a value in the aggregate greater than $50,000; or
(e) Liens upon property, which property was acquired
after the Closing Date (by purchase or otherwise) by the Borrower, each of which
Liens existed on such property before the time of its acquisition and was not
created in anticipation thereof; provided, however, that no such Lien shall
extend to or cover any property of the Borrower other than the respective
property so acquired.
(f) Liens existing on the Closing Date and described on
Schedule 7.2(f);
(g) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting, or not possible of
resulting in, a Material Adverse Change;
(h) Liens incurred in connection with the extension,
renewal or refinancing of the Indebtedness secured by Liens permitted pursuant
to clauses (a) through (g) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the Lien prior
to such extension, renewal or refinancing and the Indebtedness being extended,
renewed or refinanced is permitted pursuant to Section 7.1.
7.3 Limitations on Transactions with Affiliates. Make any payment
to or investment in, or enter into any transaction with, any Affiliate,
including, without limitation, the purchase, sale or exchange of property or
assets or the rendering of any service, except transactions entered into with
Affiliates (a) in the ordinary course of business consistent with past practice,
(b) on
19
terms and conditions substantially similar to those that the Borrower
would have received in an "arm's length" transaction with an independent third
party and (c) related to the Borrower's principal activities; provided, however,
that no payments shall be made (i) to pay any deferred compensation to any
officer, director, employee, insider or Affiliate or (ii) to reduce, retire or
otherwise repay any note, Indebtedness or other debt or obligation of any
officer, director, employee, insider or Affiliate (including, without
limitation, any Subordinated Debt) or (iii) to reduce any single account payable
of the Borrower by more than $50,000 or more than $150,000 in the aggregate, in
each case, without the prior written approval of the Lender.
7.4 Restrictions on Transactions and Fundamental Changes. Alter
the Borrower's capital or legal structure, or enter into any transaction of
merger, recapitalization, restructuring, consolidation or similar transaction,
or liquidate, wind-up or dissolve the Borrower (or suffer any liquidation or
dissolution), or convey, sell, lease, sub-lease, license, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any part of
the Borrower's business, property or assets, whether now owned or hereafter
acquired, or enter into any management contract permitting third-party
management rights with respect to the Borrower's business, or declare or pay any
dividends or make any other distribution to its shareholders, or make any
investments, or make any loans, advances or other extensions of credit to any
Person; provided, that (i) the Borrower may declare and make any dividend
payment or other distribution payable in its equity securities; and (ii) the
Borrower may make travel advances in the ordinary course of business consistent
with past practice in an aggregate amount of up to $25,000 per month, with an
aggregate amount per employee of up to $3,000 per month.
7.5 Sale of Assets; Transfer to Subsidiary. Sell, lease,
sub-lease, license, transfer or otherwise dispose of any of the Borrower's
interest in its respective properties or assets, whether real, personal or
mixed, or tangible or intangible, other than inventory in the ordinary course of
business consistent with past practice. Borrower shall not sell, lease,
sublease, license, transfer or otherwise dispose of any properties or assets to
any subsidiary, including, without limitation, the sale, lease, sublease,
license, transfer or other disposition of the Hermes line to XXX.XXXXXX, Inc.
without Lender's prior written consent, which consent shall not be unreasonably
withheld in the event that Lender has a first priority security interest in all
such properties and assets and such transaction is undertaken as part of the
closing of a sale of the Hermes line. Borrower shall, however, have the right to
sell its Hermes line of business; provided that the proceeds of any such sale
are applied in accordance with the definition of "Event of Prepayment" contained
in Section 1.1 hereof; provided further that Borrower complies with the
immediately preceding sentence.
7.6 Repurchase of Securities. Repurchase, redeem or otherwise
acquire or retire any of the Borrower's securities or obligation evidencing the
right of any holder thereof to purchase any of the Borrower's securities without
the prior written consent of the Lender, other than under the terms and
conditions of stock option, stock purchase, profit sharing or similar plans
approved by the Borrower's Board of Directors; provided that: (i) the shares of
common stock or other securities of the Borrower issued or issuable pursuant
thereto do not constitute in the aggregate more than ten percent (10%) of the
Borrower's total outstanding capital stock on a fully diluted basis; (ii) in no
event shall the Borrower repurchase, redeem or otherwise acquire or retire
shares that constitute in the aggregate more than (A) ten percent (10%) of the
Borrower's total outstanding capital stock on a fully diluted basis or (B) more
than two percent (2%) of the
20
Borrower's total outstanding capital stock on a fully diluted basis from any
Person or their respective Affiliates (the securities of which Affiliates shall
be deemed aggregated with such Person for such purpose); and (iii) any
repurchase, redemption or other acquisition or retirement by the Borrower of
securities acquired by an employee pursuant to any such plan shall be at a price
not greater than the actual, cash price that such employee paid to acquire such
securities.
7.7 Corporate Governance. Enter into one or more mortgage,
indenture, agreement, contract, commitment, lease, plan, or other instrument,
document or understanding, oral or written, with any Person in which (i) the
Borrower is obligated to pay in excess of $50,000 in the aggregate within 12
months of the date hereof without obtaining the approval of the Board of
Directors of the Borrower, and (ii) the Lender does not have a first-priority
security interest as to payment or liquidation or otherwise.
7.8 Bank Accounts. Attached hereto as Schedule 7.8 is a list of
all of the Borrower's present accounts at any bank or other financial
institution which includes, (i) the name and address of the applicable bank or
financial institution, (ii) the account number and (iii) a contact person at
such bank or financial institution responsible for the operation of such account
(collectively, the "Bank Accounts"). The Borrower shall not establish any
accounts other than the Bank Accounts, except upon not less than fifteen (15)
days' prior written notice to Lender and delivery to Lender of an appropriate
deposit account control agreement in form and substance satisfactory to the
Lender. The borrower shall not maintain or permit to exist any deposits or other
funds of whatever nature outside of Montecito Bank & Trust in excess of the
amounts and in the Bank Accounts set forth on Schedule 7.8.
SECTION 8. EVENTS OF DEFAULT
8.1 Event of Default. If any of the following events shall occur
and be continuing:
(a) the Borrower shall fail to pay any principal of or
any interest on the Loan or any other amount payable hereunder when due in
accordance with the terms hereof; or
(b) the Borrower shall default in the observance or
performance of any covenant, agreement or other obligation contained in this
Agreement or any other Loan Document, and such default continues for five (5)
Business Days; or
(c) default shall be made with respect to any payment of
any Indebtedness of the Borrower in excess of $25,000 when due or the
performance of any covenant, agreement or other obligation incurred in
connection with any such Indebtedness, if the effect of such default is to
permit the acceleration of the maturity of such Indebtedness and such default
shall not be remedied, cured, waived or consented to by the holder of such
Indebtedness within the applicable grace period, or any other circumstance arise
(other than the mere passage of time) by reason of which the Borrower is
required to repurchase or offer to holders of Indebtedness of any such Person,
the opportunity to have purchased, any such Indebtedness; or
(d) (i) the Borrower shall commence any case, proceeding
or other action (A) under any existing or future law or statute of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking
21
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the
Borrower shall make a general assignment for the benefit of its creditors; (ii)
there shall be commenced against the Borrower any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged, unstayed or unbonded for a period of 30 days;
(iii) there shall be commenced against the Borrower any case, proceeding or
other action seeking issuance of a warrant or writ of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for such relief which shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; (iv) the Borrower shall take any corporate action in furtherance
of, or indicating its consent to, approval of or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower shall be
generally unable to, or shall admit its general inability to, pay its debts as
they become due; or
(e) final judgment for the payment of money shall be
rendered by a court of competent jurisdiction against the Borrower and the
Borrower shall not discharge the same or provide for its discharge in accordance
with its terms, or procure a stay of execution thereof within ten (10) calendar
days from the date of entry thereof and within a period of thirty (30) days, or
such longer period during which execution of such judgment shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed during
such appeal, and such judgment together with all other such judgments of the
Borrower shall exceed in the aggregate $50,000; or
(f) any representation or warranty made by the Borrower
in this Agreement, or any other Loan Document shall be false or incorrect on any
date on which such representation or warranty was made; or
(g) any Loan Document shall cease for any reason to be in
full force and effect (other than pursuant to the express terms hereof or
thereof), the Loan Documents shall, for any reason, not give or shall cease to
give the Lender a perfected Lien in all of the Collateral with the priority
contemplated by such Loan Documents and subject to no other Liens (except to the
extent expressly permitted herein or therein) other than by actions of the
Lender, or the Borrower shall so assert; or
(h) any Material Adverse Change shall have occurred; or
(i) at any time there shall fail to be a current and
effective registration statement in accordance with the provisions of Section 6
of the Warrant with respect to all of the Registrable Securities (as defined in
the Warrant);
then, and in each such event, (A) if such event is an Event of Default specified
in clauses (i) or (ii) of paragraph (d) above with respect to the Borrower
automatically the Loan hereunder (with accrued interest thereon) and all other
Secured Obligations shall immediately become due and payable, and (B) if such
event is any other Event of Default, the Lender may, by notice to the Borrower,
declare the Loan hereunder (with accrued but unpaid interest thereon including
such
22
interest accruing at the Default Rate) and all other Secured Obligations to be
due and payable forthwith, whereupon the same shall immediately become due and
payable.
8.2 Use of Collateral. So long as no Event of Default shall have
occurred and be continuing, and subject to the various provisions of this
Agreement and the other Loan Documents, the Borrower may use the Collateral in
any lawful manner except as otherwise prohibited hereunder or thereunder.
8.3 Credit Parties to Hold in Trust. Upon the occurrence and
during the continuance of an Event of Default, the Borrower will, upon receipt
by it of any revenue, income, profits or other sums in which a security interest
is granted hereunder, payable pursuant to any agreement or otherwise, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the sum or instrument in trust for the
Lender, segregate such sum or instrument from their own assets and forthwith,
without any notice, demand or other action whatsoever (all notices, demands, or
other actions on the part of the Lender being expressly waived), endorse,
transfer and deliver any such sums or instruments or both, to the Lender to be
applied to the repayment of the Loan in accordance with the provisions of this
Agreement.
8.4 Collections, etc. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, in its sole discretion, xxx
for, collect or receive any money or property at any time payable or receivable
on account of or in exchange for, or make any commercially reasonable compromise
or settlement deemed desirable with respect to, any of the Collateral, but shall
be under no obligation so to do, or the Lender may extend the time of payment,
arrange for payment in installments, or otherwise modify the terms of, or
release, any of the Collateral, without thereby incurring responsibility to, or
discharging or otherwise affecting any liability of the Borrower. The Lender
will not be required to take any steps to preserve any rights against prior
parties to the Collateral. If the Borrower fails to make any payment or take any
action required hereunder, the Lender may make such payments and take all such
actions as the Lender reasonably deems necessary to protect the Lender's
security interests in the Collateral and/or the value thereof, and the Lender is
hereby authorized (without limiting the general nature of the authority
hereinabove conferred) to pay, purchase, contest and/or compromise any Liens
that in the judgment of the Lender appear to be equal to, prior to or superior
to the security interests of the Lender in the Collateral (other than those
permitted hereunder) and any Liens not expressly permitted by this Agreement.
8.5 Possession, Sale of Collateral, etc. Upon the occurrence and
during the continuance of an Event of Default, the Lender may enter upon the
premises of the Borrower or wherever the Collateral may be, and take possession
of the Collateral, and may demand and receive such possession from any Person
who has possession thereof, and the Lender may take such measures as it deems
necessary or proper for the care or protection thereof, including the right to
remove all or any portion of the Collateral, and with or without taking such
possession may sell or cause to be sold, whenever the Lender shall decide, in
one or more sales or parcels, at such prices as the Lender may deem appropriate,
and for cash or on credit or for future delivery, without assumption of any
credit risk, all or any portion of the Collateral, at any broker's board or at
public or private sale, without demand of performance but within 10 days'
written notice to the Borrower of the time and place of any such public sale or
sales (which notice the Borrower
23
hereby agrees is reasonable) and with such other notices as may be required by
applicable law and cannot be waived, and the Lender shall have no liability
should the proceeds resulting from a private sale be less than the proceeds
realizable from a public sale, and the Lender or any other Person may be the
purchaser of all or any portion of the Collateral so sold and thereafter hold
the same absolutely, free (to the fullest extent permitted by applicable law)
from any claim or right of whatever kind, including any equity of redemption, of
the Borrower, any such demand, notice, claim, right or equity being hereby
expressly waived and released by the Borrower. At any sale or sales made
pursuant to this Section 8, the Lender may bid for or purchase, free (to the
fullest extent permitted by applicable law) from any claim or right of whatever
kind, including any equity of redemption, without demand therefore or notice to
the Borrower, any such demand, notice, claim, right or equity being hereby
expressly waived and released, any part of or all of the Collateral offered for
sale, and may make any payment on account thereof by using any claim for moneys
then due and payable to the Lender by the Borrower hereunder as a credit against
the purchase price. The Lender shall in any such sale make no representations or
warranties with respect to the Collateral or any part thereof, and the Lender
shall not be chargeable with any of the obligations or liabilities of the
Borrower. The Borrower hereby agrees (i) that it will indemnify and hold the
Lender harmless from and against any and all claims with respect to the
Collateral asserted before the taking of actual possession or control of the
relevant Collateral by the Lender pursuant to this Section 8, or arising out of
any act of, or omission to act on the part of, any Person prior to such taking
of actual possession or control by the Lender (whether asserted before or after
such taking of possession or control), or arising out of any act on the part of
the Borrower or its Affiliates or agents before or after the commencement of
such actual possession or control by the Lender, but excluding therefrom all
claims with respect to the Collateral resulting from the gross negligence or
willful misconduct of the Lender; and (ii) the Lender shall not have liability
or obligation to the Borrower arising out of any such claim except for acts of
gross negligence or willful misconduct of the Lender. Subject only to the lawful
rights of third parties, any Person that has possession of any of the Collateral
is hereby constituted and appointed by the Borrower as pledgeholder for the
Lender and, upon the occurrence of an Event of Default, each such pledgeholder
is hereby authorized (to the fullest extent permitted by applicable law) to sell
all or any portion of the Collateral upon the order and direction of the Lender,
and the Borrower hereby waives any and all claims, for damages or otherwise, for
any action taken by such pledgeholder in accordance with the terms of the UCC
not otherwise waived hereunder. In any action hereunder, the Lender shall be
entitled, if permitted by applicable law, to the appointment of a receiver
without notice, to take possession of all or any portion of the Collateral and
to exercise such powers as the court shall confer upon the receiver.
Notwithstanding the foregoing, upon the occurrence of an Event of Default, and
during the continuation of such Event of Default, the Lender shall be entitled
to apply, without prior notice to the Borrower, any cash or cash items
constituting Collateral in the possession of the Lender to payment of the
Secured Obligations.
8.6 Application of Proceeds on Default. Upon the occurrence and
during the continuance of an Event of Default, the balances in any account of
the Borrower which constitutes part of the Collateral, all other income on the
Collateral, and all proceeds from any sale of the Collateral pursuant hereto
shall be applied first toward payment of the costs and expenses paid or incurred
by the Lender in enforcing this Agreement, in realizing on or protecting any
Collateral and in enforcing or collecting any Secured Obligations, including,
without limitation, court costs and the attorney's fees and expenses incurred by
the Lender, then
24
to satisfy or provide cash Collateral for all obligations relating to Secured
Obligations, and then the indefeasible payment in full of the Secured
Obligations in accordance with this Agreement. Any amounts remaining after such
indefeasible payment in full shall be remitted to the Borrower or as a court of
competent jurisdiction may otherwise direct.
8.7 Power of Attorney. Upon the occurrence and during the
continuance of an Event of Default which is not waived in writing by the Lender,
(a) the Borrower does hereby irrevocably make, constitute and appoint the Lender
or any of its officers or designees the Borrower's true and lawful
attorney-in-fact with full power in the name of the Lender or such other Person
to receive, open and dispose of all mail addressed to the Borrower, and to
endorse any notes, checks, drafts, money orders or other evidences of payment
relating to the Collateral that may come into the possession of the Lender with
full power and right to cause the mail of such Persons to be transferred to the
Lender's own offices or otherwise, and to do any and all other acts necessary or
proper to carry out the intent of this Agreement and the grant of the security
interests hereunder and under the Loan Documents, and the Borrower hereby
ratifies and confirms all that the Lender or its substitutes shall properly do
by virtue hereof; (b) the Borrower does hereby further irrevocably make,
constitute and appoint the Lender or any of its officers or designees its true
and lawful attorney-in-fact in the name of the Lender or the Borrower (i) to
enforce all of the Borrower's rights under and pursuant to all agreements with
respect to the Collateral, all for the sole benefit of the Lender and to enter
into such other agreements (as may be lawful and without breach of contract) as
may be necessary, desirable or appropriate in the judgment of the Lender to
complete the production, distribution or exploitation of any Collateral, (ii) to
enter into and perform such agreements as may be necessary, desirable or
appropriate in the judgment of the Lender in order to carry out the terms,
covenants and conditions of the Loan Documents that are required to be observed
or performed by the Borrower, (iii) to execute such other and further mortgages,
pledges and assignments of the Collateral, and related instruments or
agreements, as the Lender may reasonably require for the purpose of perfecting,
protecting, maintaining or enforcing the security interests granted to the
Lender hereunder, and under the other Loan Documents, and (iv) to do any and all
other things necessary, desirable or appropriate in the judgment of the Lender
to carry out the intention of this Agreement and the grant of the security
interests hereunder and under the other Loan Documents. The Borrower hereby
ratifies and confirms in advance all that the Lender as such attorney-in-fact or
its substitutes shall properly do by virtue of this power of attorney.
8.8 Termination and Release. The security interests granted under
this Agreement shall terminate when all the Secured Obligations have been
indefeasibly paid in full and performed and the commitments pursuant to this
Agreement shall have terminated. Upon request by the Borrower (and at the sole
expense of the Borrower) after such termination, the Lender will take all
reasonable action and do all things reasonably necessary, including executing
UCC termination statements, termination letters to account debtors and copyright
and trademark releases, to terminate the security interest granted to it
hereunder.
8.9 Remedies Not Exclusive. The remedies conferred upon or
reserved to the Lender in this Section 8 are intended to be in addition to, and
not in limitation of, any other remedy or remedies available to the Lender.
Without limiting the generality of the foregoing, the Lender shall have all
rights and remedies of a secured creditor under Article 9 of the UCC and other
applicable law.
25
SECTION 9. MISCELLANEOUS
9.1 Promotional Materials. The Borrower agrees to provide
camera-ready artwork of its typestyles and logos for use in promotional material
by the Lender, which use shall be subject to the Borrower's prior approval, not
to be unreasonably withheld or delayed.
9.2 Indemnification. The Borrower agrees to indemnify, defend and
hold harmless the Lender and each of its successors, assigns, heirs,
Subsidiaries, Affiliates and all of the officers, directors, employees,
partners, members, representatives, advisors and agents (including, without
limitation, attorneys and accountants) of each of the aforementioned Persons,
and each of them, from and against any and all losses, claims, damages,
liabilities, expenses, demands, causes of action, suits, debts, obligations,
rights, promises, acts, agreements and damages of any kind or nature whatsoever,
whether at law or in equity, whether known or unknown, foreseen or unforeseen,
heretofore or hereafter arising out of, relating to, connected with or
incidental to the failure of any representation or warranty made by the Borrower
in this Agreement, the other Loan Documents or in any other documents or
agreements contemplated hereby or thereby or the failure of the Borrower to
comply with the covenants, agreements or other obligations contained in this
Agreement or the other Loan Documents (but excluding (i) any such losses,
claims, damages, liabilities, expenses, demands, causes of action, suits, debts,
obligations, rights, promises, acts, agreements and damages of the Lender to the
extent incurred solely by reason of the gross negligence or willful misconduct
of the Lender or (ii) litigation solely between the Borrower, on the one hand,
and the Lender, on the other hand, in connection with this Agreement or the
other Loan Documents or relating to the transactions contemplated hereby or
thereby if, after final non-appealable judgment, the Lender is not the
prevailing party in such litigation). The agreements in this Section 9.2 shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated hereby or
thereby.
9.3 Entire Agreement; Amendments. This Agreement and the other
Loan Documents constitute the entire agreement between the Lender and the
Borrower pertaining to the subject matter contained herein and therein. Neither
this Agreement nor any other Loan Document, nor any terms hereof or thereof, may
be amended, supplemented or modified, nor may the obligations of the parties
hereto or thereto be waived, except pursuant to a writing signed by both the
Lender and the Borrower.
9.4 Waivers. The Lender shall not be deemed, by any act or
omission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by the Lender and then only to the extent
specifically set forth in such writing. A waiver with reference to one event
shall not be construed as continuing or as a bar to or waiver of any right or
remedy as to a subsequent event. No delay or omission of the Lender to exercise
any right, whether before or after a default hereunder, shall impair any such
right or shall be construed to be a waiver of any right or default, and the
acceptance at any time by the Lender of any past-due amount shall not be deemed
to be a waiver of the right to require prompt payment when due of any other
amounts then or thereafter due and payable.
9.5 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly
26
provided herein, shall be deemed to have been duly given or made when delivered
by hand, or three days after being deposited in the mail, postage prepaid, or,
in the case of a telecopy notice, when received (provided an original copy of
such notice is mailed, postage pre-paid within the next business day after such
notice is sent by telecopy), or, in the case of delivery by a nationally
recognized overnight courier, when received, addressed as follows, or to such
other address as may be hereafter notified by the respective parties hereto:
The Borrower: Computer Motion, Inc.
000-X Xxxxxxx Xxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx, Chief Executive Officer
Fax: (000) 000-0000
with a copy to: Stradling, Yocca, Xxxxxxx & Xxxxx
000 Xxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
The Lender: Agility Capital, LLC
000 Xxxx Xxxxx Xxxxxxx, Xxxxx X
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxx, Esq. and Xxxxxxx Xxxxxxx
Fax: (000) 000-0000
with a copy to: Xxxx Xxxxxxx LLP
1999 Avenue of the Stars, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
9.6 Successors and Assigns. The Borrower may not assign its rights
or obligations under this Agreement or the Note without the written consent of
the Lender. This Agreement shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and permitted assigns.
9.7 Interest Deficit. If the provisions of this Agreement or the
Note would at any time require payment by the Borrower to the Lender of any
amount of interest in excess of the maximum amount then permitted by applicable
law, the interest payments to the Lender shall be reduced but only to the extent
necessary so that the Lender shall not receive interest in excess of such
maximum amount. If, as a result of the foregoing, the Lender shall receive
interest payments under the Note in an amount less than the amount otherwise
provided hereunder, such deficit (hereinafter called the "Interest Deficit")
will, to the fullest extent permitted by applicable law, cumulate and will be
carried forward (without interest) until the payment in full of the Note or such
earlier time as it may be paid. Interest otherwise payable to the Lender for any
subsequent period shall be increased by the maximum amount of the Interest
Deficit that may be so added without causing the Lender to receive interest in
excess of the maximum amount then
27
permitted by the law applicable thereto. The amount of any Interest Deficit
shall be treated as a prepayment penalty and shall, to the fullest extent
permitted by applicable law, be paid in full at the time of any prepayment by
the Borrower to the Lender. The amount of any Interest Deficit at the time of
any complete payment of the Loan (if any) (other than an optional prepayment
thereof) shall, except to the full extent then permitted to be paid under
applicable law, be canceled and not paid.
9.8 Confidentiality. In handling any confidential information of
the Borrower, the Lender shall exercise the same degree of care that it
exercises with respect to its own proprietary information of the same types to
maintain the confidentiality of any non-public information thereby received or
received pursuant to this Agreement, except that disclosure of such information
may be made (i) to the Subsidiaries or Affiliates of the Lender in connection
with their present or prospective business relations with the Borrower, (ii) to
prospective transferees or purchasers of any interest in the Loan, provided that
they have entered into a comparable confidentiality agreement in favor of the
Borrower and have delivered a copy to the Borrower, (iii) under any Requirement
of Law, (iv) as may be required in connection with the examination, audit or
similar investigation of the Lender, and (v) as the Lender may deem appropriate
in connection with the exercise of any remedies hereunder. Confidential
information hereunder shall not include information that either (a) is in the
public domain or in the knowledge or possession of the Lender when disclosed to
the Lender by the Borrower, or becomes part of the public domain after
disclosure to the Lender through no fault of the Lender; or (b) is disclosed to
the Lender by a third party, provided the Lender does not have actual knowledge
that such third party is prohibited from disclosing such information.
9.9 Payment of Expenses. The Borrower agrees to pay or reimburse
the Lender for all of its out-of-pocket costs and expenses incurred in
connection with its due diligence with respect to the Loan, the preparation,
execution, delivery and performance of this Agreement and the other Loan
Documents, the consummation of the transactions contemplated hereby and thereby
and the enforcement of its rights hereunder or thereunder, including, without
limitation, the fees and disbursements of Xxxx Xxxxxxx LLP.
9.10 Captions. The captions of the Sections of this Agreement have
been inserted for convenience only and shall have no substantive effect.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts (including by telecopy), each of which when so executed shall be
deemed to be an original and all of which counterparts together shall constitute
one and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be delivered to the Borrower and the Lender.
9.12 Severability; Reformation. In case any provision of this
Agreement shall be held to be invalid, illegal or unenforceable, it shall, to
the extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and if
such modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement and the future application of such
provision shall not in any way be affected or impaired thereby.
28
9.13 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE BORROWER AND THE LENDER
HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT OR THE
SUBJECT MATTER THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH OF THE BORROWER AND THE
LENDER ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTY HERETO THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH
OTHER PARTY HAS RELIED, IS RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION 9.13 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE COMPANY AND THE LENDER TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
9.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAW PROVISIONS.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on their behalf as of the date first above written.
COMPUTER MOTION, INC.
By:
-----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
AGILITY CAPITAL, LLC
By:
-----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Executive Officer
30
SCHEDULE 4.1
STATE OF INCORPORATION
See Attached.
SCHEDULE 4.4
SUBSIDIARIES
See Attached.
SCHEDULE 4.5
CAPITALIZATION
See Attached.
SCHEDULE 4.5(a)
RIGHTS TO ACQUIRE CAPITAL STOCK
See Attached.
SCHEDULE 4.10
INTELLECTUAL PROPERTY
See Attached.
SCHEDULE 4.15
LITIGATION
See Attached.
SCHEDULE 4.16
FINANCIAL STATEMENTS
See Attached.
SCHEDULE 7.1(b)
LIMITATION ON INDEBTEDNESS
See Attached.
SCHEDULE 7.2(f)
LIMITATION ON LIENS
See Attached.
SCHEDULE 7.8
BANK ACCOUNTS
See Attached.
1
EXHIBIT A
COLLATERAL OF BORROWER
The Collateral shall consist of all right, title and interest of Borrower in and
to the following, in each case whether now owned or hereafter acquired by
Borrower:
(a) All present and future accounts, general intangibles and other
rights of Borrower to the payment of money no matter how evidenced, all
chattel paper, instruments and other writings evidencing any such
right, and all goods repossessed or returned in connection therewith;
(b) All inventory of Borrower, now owned or hereafter acquired,
and all raw materials, work in process, materials used or consumed in
Borrower's business and finished goods, together with all additions and
accessions thereto and replacements therefor, and products thereof;
(c) All equipment of Borrower, now owned or hereafter acquired,
including, without limitation, all vehicles (including motor vehicles
and trailers) machinery, tools, dies, blueprints, catalogues, computer
hardware and software, furniture, furnishings and fixtures and all
attachments, accessories, replacements, substitutions, additions, and
improvements to any of the foregoing;
(d) All documents, letters of credit and rights to proceeds of
letters of credit, instruments and investment property of Borrower, now
owned or hereafter acquired, and all new, substituted and additional
documents, securities and instruments issued with respect thereto, all
voting or other rights now or hereafter exercisable and all cash and
noncash dividends, interest and other property now or hereafter
receivable with respect to any of the foregoing, whether such
certificates, documents and instruments are in the possession of
Borrower or a financial intermediary on behalf of Borrower;
(e) All patents and patent applications of Borrower and all rights
corresponding thereto throughout the world, and all unpatented or
unpatentable developments and inventions and all license fees,
royalties and other similar items received in connection therewith;
(f) All trademarks, service marks and logos of Borrower, and all
United States, state and/or foreign applications for registration
thereof, all trade names, trade styles, designs, and the like, all
elements of package or trade dress of goods, the goodwill of Borrower's
business connected with the use of, and symbolized by any of the above,
and all property of Borrower necessary to produce any products sold
under any of the above;
(g) All copyrights and copyrighted works in which Borrower has any
right, title, or interest throughout the world, all derivative works
thereof, all copyright registrations and all applications therefor, and
United States and/or foreign applications for registration and
registrations thereof, and all accounts, accounts receivable and
contracts receivable generated by such copyrights;
A-1
(h) All computer software programs developed or to be developed by
Borrower or in which Borrower asserts or could assert a proprietary
interest; all personal property, including but not limited to source
codes, object codes or similar information, which is necessary to the
practical utilization of such programs; and all tangible property of
Borrower embodying or incorporating any such programs;
(i) All trade secrets, proprietary information, customer lists,
instructional materials, working drawings, manufacturing techniques,
process technology documentation, and product formulations of Borrower
and all property and assets of Borrower, whether tangible or
intangible, which are or a person may deem to be intellectual property
of Borrower;
(j) All rights under any agreement granting any right to use any
patent, trademark, copyright, computer software program or any other
property or right to property specified in paragraphs (e), (f), (g),
(h) or (i) above, whether Borrower is the grantor or the grantee under
such agreement;
(k) All rights to damages or profits due or accrued arising out of
past, present or future infringement of the Collateral or injury to
Borrower's good will connected with the use of the Collateral and the
right to xxx therefor;
(l) All renewals, modifications, amendments, re-issues, divisions,
continuations in whole or part, and extensions of any Collateral;
(m) All right, title and interest of Borrower in, to and under
each contract entered into or to be entered into by Borrower, together
with any purchase orders or other supplements thereto, as any such
contract may be modified, amended or restated from time to time, and
all right, title and interest of Borrower in and to all moneys and
claims for moneys due or to become due to Borrower under or arising out
of any such contract;
(n) All now existing and hereafter acquired books and records
relating to the foregoing Collateral and all equipment containing such
books and records; and
(o) All Proceeds of the foregoing Collateral; and
(p) Any and all claims, rights and interests in any of the
foregoing of the above and all substitutions for, additions and
accessions to and proceeds thereof.
A-2
EXHIBIT B
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT
B-1
EXHIBIT C
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR WITH THE SECURITIES COMMISSION OF ANY APPLICABLE STATE UNDER SUCH STATE'S
SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SUCH SECURITIES ACT AND THE APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
$2,300,000 February 13, 2003
Computer Motion, Inc., a Delaware corporation ("Borrower"),
for value received, hereby promises to pay to the order of Agility
Capital, LLC (the "Lender"), the aggregate principal amount of Two
Million Three Hundred Thousand Dollars ($2,300,000), or the aggregate
outstanding principal amount of all Loan made by the Lender to Borrower
pursuant to the Loan and Security Agreement (as defined below),
whichever is less (the "Principal Amount"), together with accrued and
unpaid interest on the Principal Amount, on Maturity Date, in such coin
or currency of the United States of America as at the time of payment
shall be legal tender therein for the payment of public and private
debts. Capitalized terms used herein and not otherwise defined shall
have the meanings given to such terms in that certain Loan and Security
Agreement of even date herewith, between Borrower and the Lender (the
"Loan Agreement").
This Note shall accrue interest at a fixed rate per annum of
nine percent (9%) (the "Interest Rate") with respect to the outstanding
unpaid Principal Amount plus any accrued but unpaid interest thereon
and on any other Secured Obligations compounding annually (the
"Interest") until and including the date the Principal Amount, such
interest and the other Secured Obligations are paid in full. Such
Interest shall accrue and be payable monthly in arrears, with all
accrued and unpaid interest due and payable, together with all
outstanding Principal Amount, on the Maturity Date (or such earlier
date as required under the Loan Agreement), in each case with interest
to accrue and be due and payable through and including the applicable
payment date. Interest shall be calculated on the basis of a 360-day
year of twelve 30-day months, provided, however, that per diem interest
shall be calculated on the basis of the actual number of days elapsed
over a year of 365 days. The Secured Obligations under this Note are
secured by the Collateral of Borrower pursuant to the Loan and Security
Agreement. Without duplication of any interest payable hereunder,
Borrower hereby unconditionally promises to pay to the Lender interest
on any principal, interest and any other Secured Obligations payable by
Borrower under this Loan that shall not be paid in full when due
(whether at the Maturity Date, by acceleration or otherwise), for the
period from and including the due date of such payment to and including
the date the same is paid in full, at a rate per annum equal to the
Interest Rate plus 600 basis points, which interest shall be payable
from time to time on demand of the Lender.
C-1
Borrower hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge
arising from any extension of time, discharge of a prior party, release
of any or all of any security given from time to time for this Note, or
other cause of release or discharge other than actual payment in full
hereof.
The Lender may, but is not obligated to, enter the amount of
each Loan and the amount of each payment or prepayment of principal or
interest thereon on the appropriate spaces on the last page of this
Note; provided, however, that the failure of the Lender to set forth
such Loan, principal payments, interest payments or other information
shall not in any manner affect the obligations of Borrower to repay
such Loan or any Secured Obligations.
The Lender shall not be deemed, by any act or omission, to
have waived any of its rights or remedies hereunder unless such waiver
is in writing and signed by the Lender and then only to the extent
specifically set forth in such writing. A waiver with reference to one
event shall not be construed as continuing or as a bar to or waiver of
any right or remedy as to a subsequent event. No delay or omission of
the Lender to exercise any right, whether before or after a default
hereunder, shall impair any such right or shall be construed to be a
waiver of any right or default, and the acceptance at any time by the
Lender of any past-due amount shall not be deemed to be a waiver of the
right to require prompt payment when due of any other amounts then or
thereafter due and payable.
Time is of the essence hereof. Upon any default hereunder, the
Lender may exercise all rights and remedies provided for herein and by
law or equity, including, without limitation, the right to immediate
payment in full of this Note.
The remedies of the Lender as provided herein or in law or in
equity, or any one or more of them, shall be cumulative and concurrent,
and may be pursued singularly, successively or together at Lender's
sole discretion, and may be exercised as often as occasion therefor
shall occur.
It is expressly agreed that if this Note is referred to an
attorney or if suit is brought to collect or interpret this Note or any
part hereof or to enforce or protect any rights conferred upon the
Lender by this Note or any other Document, then Borrower promises and
agrees to pay all costs, including, without limitation, attorneys'
fees, incurred by the Lender.
This Note and the rights and obligations of the parties
hereunder shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of California without
giving effect to any conflict of law provisions.
This is the Note referred to in the Loan and Security
Agreement and is subject to and entitled to the benefits of said
agreement, including, without limitation, acceleration and the right in
certain circumstances to require that this Note be prepaid prior to the
Maturity Date.
C-2
IN WITNESS WHEREOF, Borrower has duly executed and delivered this Note
as of the date first written above.
COMPUTER MOTION, INC.
By:___________________________________
Name:
Title:
C-3
LAST PAGE OF NOTE
Payments
Amount Unpaid Principal Name of Person
Date of Loan Principal Interest Balance of Note Making Notation
---- ------- --------- -------- --------------- ---------------
X-0
XXXXXXX X
XXXX XX XXXXXXX
X-0
