LOAN AGREEMENT
Dated as of August 10, 1999
by and between
COMC, Inc.,
Borrower,
and
Xxxxxxx X. Xxxxxxx,
Lender
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") dated as of August 10, 1999, by
and between COMC, INC., an Illinois corporation ("Borrower"), and Xxxxxxx X.
Xxxxxxx, an individual residing in Alamo, California ("Lender"), is made with
reference to the following facts:
RECITALS
A. WHEREAS, Borrower, Lender, ICF Communication Solutions, Inc., (f/k/a
COMC Acquisition Corp. and a wholly owned subsidiary of Borrower)("ICF"), ICF
Communication Systems, Inc. ("Systems"), and Xxxxxxx X. Xxxxx are parties to
that certain Agreement and Plan of Merger dated July 24, 1998 (the "Merger
Agreement"), pursuant to which Systems merged into and with ICF.
B. WHEREAS, pursuant to the Merger Agreement, Lender agreed to exchange
all of Lender's outstanding shares of stock in Systems for shares of Borrower's
common stock and other good and valuable consideration specified in the Merger
Agreement.
C. WHEREAS, a portion of the consideration Lender received in exchange
for Lender's shares of common stock in Systems consisted of three (3) separate
promissory notes executed by Borrower in favor of Lender as of August 5, 1998,
for a combined total of $1,750,000.00 (collectively the "Promissory Notes").
D. WHEREAS, the first of the Promissory Notes is in the original
principal amount of $500,000, and became due and payable in full on January 4,
1999; the second of the Promissory Notes is in the original principal amount of
$750,000, and became due and payable in full on January 5, 1999; and the third
of the Promissory Notes is in the original principal amount of $500,000, and is
due and payable in full on August 17, 1999.
D. WHEREAS, Borrower has been unable to meet its re-payment obligations
under the first two Promissory Notes, which became due and payable in full on
January 4, 1999, and January 5, 1999, respectively.
E. WHEREAS, certain individuals and entities ("Investors") have entered
into negotiations with Xxxx Xxxxxxxx concerning the acquisition of shares of
Borrower's common stock.
F. WHEREAS, Investors have conditioned their acquisition of shares of
Borrower's common stock upon the restructuring and consolidation of the
Promissory Notes into a single promissory note (the "Subordinated Note") in
accordance with the terms and conditions set forth in this Agreement.
G. WHEREAS, in connection with Investor's acquisition of Borrower's
common stock, and as consideration for the restructuring of the Promissory
Notes, Borrower has agreed to grant Lender options to purchase additional shares
of common stock in Borrower, thereby increasing Lender's percentage interest in
Borrower.
NOW, THEREFORE, in consideration of the foregoing, and to secure the
payment by Borrower of all principal and interest due under the Promissory
Notes, and the performance and observance by Borrower of all the agreements,
covenants and provisions contained herein or in any other of the Loan Documents,
as defined below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. Unless the context shall otherwise require,
the capitalized terms used herein shall for all purposes hereof have the
respective meanings as set forth in this Section 1.01 (such definitions to be
equally applicable to both the singular and plural forms of the terms defined):
"Agreement" shall mean this Loan Agreement, to be effective as
of the date stated at the top of the first page.
"Closing Date" shall mean August 10, 1999, the date on which
the closing of the Loan Documents shall occur.
"Guarantor" shall mean ICF.
"Guaranty" shall mean the Guaranty Agreement (the "Guaranty")
executed by Guarantor in favor of Lender, which shall guaranty Borrower's
obligations and full performance under the Subordinated Note. A copy of the
Guaranty is attached hereto as Exhibit B.
"Loan Documents" shall mean this Agreement, the Subordinated
Note, and the Guaranty.
"Subordinated Note" shall mean the promissory note described
in Article II, below, and to be delivered by Borrower to Lender at the Closing
in substantially the form attached hereto as Exhibit A.
ARTICLE II
THE SUBORDINATED NOTE
SECTION 2.01. Form of Subordinated Note. The Subordinated Note shall be
in substantially the same form as set forth in Exhibit A attached hereto.
SECTION 2.02. Effective Date of Subordinated Note. Borrower shall
execute and deliver the Subordinated Note to Lender on or before the Closing
Date.
SECTION 2.03. Effect of Subordinated Note. The Subordinated Note is
being issued to Lender in connection with the restructuring and consolidation of
Borrower's existing debt to Lender, as evidenced by the Promissory Notes. The
Subordinated Note shall indicate that it supersedes and cancels the Promissory
Notes and all obligations thereunder. Upon the Closing Date, and the
satisfaction of all conditions hereunder, Borrower shall surrender the original
executed Promissory Notes to Lender in exchange for the Subordinated Note, which
shall thereafter evidence Borrower's obligation to Lender for the Principal
Amount.
SECTION 2.04. Principal Amount of Subordinated Note. The principal
amount of the Subordinated Note shall equal ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND DOLLARS AND No/100ths (US$ 1,750,000.00) (the "Principal Amount").
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SECTION 2.05. Payment and Term of Subordinated Note. No principal
payments shall be due under the Subordinated Note until the third anniversary of
the Closing Date, at which time all principal and interest then accrued shall be
due and payable to Lender in full.
SECTION 2.06. Interest. The principal amount of the Subordinated Note
outstanding from time to time shall bear interest at the rate of ten percent
(10%) per annum, calculated on the basis of a 360 day year. All interest under
the Subordinated Note shall be payable in areas in monthly installments on the
first day of each calendar month (or if such day is not a business day, on the
next business day). Interest shall accrue from the Closing Date until all
amounts owed under the Subordinated Note are paid in full.
SECTION 2.07. Security. The Subordinated Note shall be unsecured.
SECTION 2.08. Recourse. The Subordinated Note shall be fully recourse
against Borrower, and Lender shall have full recourse to all property and assets
of Borrower for the obligations of Borrower under the Subordinated Note.
SECTION 2.09. Guaranty. The Subordinated Note shall be fully guaranteed
by Guarantor pursuant to the Guaranty Agreement.
SECTION 2.10. Subordination. The Subordinated Note shall be subordinate
to all amounts hereafter owed by Borrower and/or ICF under the following lines
of credit: (i) a working Line of Credit to be extended to ICF that shall not
exceed $3,000,000.00 (the "Working Capital Line of Credit"); and (ii) an
acquisition line of credit to be extended to Borrower that shall not exceed
$25,000,000.00 (the "Acquisition Line of Credit").
SECTION 2.11. Method of Payment. The principal of and interest on all
amounts due under the Subordinated Note will be payable in immediately available
funds to Lender at 0000 Xxxx Xxxx, Xxxxx X, Xxxxxxxx, Xxxxxxxxxx, or at such
other place as Lender shall designate to Borrower in writing.
SECTION 2.12. Applications of Payments. Each payment received by Lender
under Subordinated Note shall be applied, first, to the payment of accrued
interest on the Subordinated Note to the date of such payment (as well as any
interest on overdue principal or, to the extent permitted by law, interest and
other amounts thereunder), second, to the payment of the principal amount of the
Subordinated Note remaining unpaid.
SECTION 2.13. Prepayment of the Subordinated Note. At any time, upon at
least five business days' prior written notice to Lender, Borrower may prepay
the outstanding principal balance of the Subordinated Note, or any portion
thereof (together with interest accrued thereon to the date of prepayment).
SECTION 2.14. Conversion Upon Event of Default. Upon the occurrence of
an Event of Default under Section 7.01(a), and the expiration of all applicable
cure periods as set forth herein, Lender may, at Lender's sole and absolute
discretion, convert all or any portion of the outstanding principal balance of
the Subordinated Note, and all or any portion of the accrued but unpaid interest
thereon, into Borrower's common stock ("Common Stock"). Lender shall exercise
its conversion rights hereunder by giving Borrower written notice of its intent
to covert at any time after an Event of Default has occurred, which notice shall
specify the total dollar value of the amount to be converted into Common Stock
(the
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"Conversion Notice"). For purposes of Lender's conversion rights hereunder, the
Common Stock shall be valued at $0.50 per share. Provided that any cure period
applicable to the Event of Default has lapsed, Borrower shall issue to Lender
the number of shares specified in Lender's Conversion Notice immediately. The
total value of all Common Stock issued to Lender pursuant to this Section shall
be applied towards the outstanding principal balance of the Subordinated Note.
In the event of a stock split or other type of corporate reorganization, the
value of the Common Stock to be issued hereunder shall be adjusted accordingly.
Any Common Stock issued under this Section shall be included in the Registration
Statement (as this term is defined in the Merger Agreement). In the event that
Borrower shall have filed the Registration Statement prior to an Event of
Default, and Lender elects to receive Common Stock in accordance with this
Section, Borrower shall, prior to the effective date of the Registration
Statement, file an amendment to the Registration Statement to include the Common
Stock to be issued in accordance with this Section. If the Registration
Statement shall become effective prior to an Event of Default, and upon the
occurrence of such Event of Default Lender elects to receive Common Stock in
accordance with this Section, the Borrower shall, as soon as possible, file a
new registration statement with respect to the Common Stock to be issued
pursuant to this section under the same terms (other than the time period to
allow registration) set forth in the Merger Agreement. Borrower shall pay all
expenses of the registration hereunder. In no event, however, shall Borrower be
liable for Lender's underwriting discounts or the fees of Lender's counsel. If
Borrower at any time proposes to register any of its securities under the
Securities Act of 1933, as amended, for sale to the public, whether for its own
account or for the account of other security holders, or both (except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Common Stock for sale to the public), Borrower
will give written notice to Lender of its intention to do so. Upon the written
request of Lender, Borrower will use its best efforts to cause any Common Stock
to be issued pursuant to this Section to be included in the securities to be
covered by the registration statement proposed to be filed by Borrower.
SECTION 2.15. Mutilated, Destroyed, Lost or Stolen Notes. If the
Subordinated Note, or any promissory note issued by Lender to Borrower in
replacement thereof, shall become mutilated or shall be destroyed, lost or
stolen, Borrower shall, upon the written request of Lender or the holder of the
Note, execute and deliver in replacement thereof, a new promissory note, payable
in the same original principal amount and dated the same date as the promissory
note so mutilated, destroyed, lost or stolen ("Replacement Note"). Borrower and
Lender shall make a notation on the Replacement Note of the amount of all
payments of principal theretofore made, or the date to which such payments have
been made, on the promissory note so mutilated, destroyed, lost or stolen and
the date to which interest on such old note has been paid. If the note being
replaced has been mutilated, such note shall be delivered to Borrower and shall
be canceled by it. If the note being replaced has been destroyed, lost or
stolen, any holder of a note shall furnish to Borrower the indemnity agreement
of Lender as shall be satisfactory to Borrower to save Borrower and hold
Borrower harmless from any loss, however remote, including claims for principal
of and interest on the purportedly destroyed, lost or stolen note, together with
evidence satisfactory to Borrower of the destruction, loss or theft of such note
and of the ownership thereof.
SECTION 2.16. Modification. The Subordinated Note may not be amended or
modified except by written agreement signed by Borrower and Lender.
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ARTICLE III
LENDER'S EXPENSES
SECTION 3.01. Expenses and Costs. Borrower shall pay any and all costs
and expenses reasonably incurred by Lender in connection with the preparation
and execution of the Loan Documents, and in the exercise of any of Lender's
rights or remedies under the Loan Documents. Such costs and expenses may
include, but are not limited to, reasonable accounting and attorneys' fees, as
well as Lender's due diligence and documentation expenses.
ARTICLE IV
CONDITIONS TO CLOSING
SECTION 4.01. Borrower's Deliveries At Closing. As a condition
precedent to the Closing, and Lender's obligation to consummate the transactions
contemplated hereunder, Borrower shall deliver the following items to Lender at
the Closing, in a form and content that is acceptable to Lender:
(a) Authorization of Loan Documents. Evidence that the
execution, delivery and performance of the Loan Documents by Borrower and
Guarantor has been duly authorized and approved.
(b) Good Standing Certificates. Certificates of Good Standing
issued by the state where Borrower and Guarantor were formed, as well as all
other states in which Borrower and/or Guarantor are required to qualify to
conduct business.
(c) The Loan Documents. The Loan Documents, including the
Guaranty, fully executed by an authorized representative of Borrower or
Guarantor.
(d) Payment of Fees. Payment of all expenses incurred by
Lender, in accordance with Section 3.01, above.
(e) Other Items. Any other documents and/or other items that
Lender may reasonably require as a condition precedent to this Agreement,
including, but not limited to evidence that all of the transactions referenced
in that certain Letter of Intent by and between Xxxxxxxxxxx Xxxxx, Xxxxxxx X.
Xxxxx, Xxxxxxx X. Xxxxxxx and Xxxx Xxxxxxxx dated March 31, 1999, together with
all amendments thereto, have been consummated.
SECTION 4.02 Lender's Deliveries At Closing. As a condition precedent
to the Closing, and Borrower's obligation to consummate the transactions
contemplated hereunder, Lender shall deliver the following items to Borrower at
the Closing:
(a) The original signed Promissory Notes; and
(b) A UCC-3 Termination Statement fully executed by Lender,
terminating any and all security interests ICF has granted to Lender.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 Borrower hereby represents and warrants to Lender that the
statements contained in this Article V are correct and complete as of the
Closing Date, except as set forth on the Disclosure Schedules attached hereto
and incorporated herein by this reference, which Disclosure Schedules shall be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Article V:
(a) Organization of Borrower; Good Standing. Borrower is a
corporation duly organized and validly existing under the laws of the State of
Illinois. In each state in which Borrower does business or owns assets, it is
properly licensed, in good standing, and, where required, in compliance with any
qualification and fictitious name statutes.
(b) Authorization; Enforceable Agreement. The Loan Documents
are within Borrower's powers, have been duly authorized, and do not conflict
with any of Borrower's organizational documents. The Loan Documents do not
conflict with any law, agreement, or obligation by which Borrower is bound. The
Loan Documents are legal, valid and binding agreements of Borrower, enforceable
against Borrower in accordance with their terms, and any instrument or document
required hereunder, when executed and delivered, will be similarly legal, valid,
binding and enforceable.
(c) Financial Information.
(i) The un-audited balance sheet of Borrower as of
March 31, 1999, and the related profit and loss statement for the period ended
on that date, copies of which have been previously delivered to Lender by
Borrower, and all other financial statements and data submitted in writing by
Borrower to Lender in connection with the Subordinated Note are true and
correct, and said balance sheet and profit and loss statement present fairly the
financial condition of Borrower as of the date thereof and the results of the
operations of Borrower for the period covered thereby, and have been prepared in
accordance with generally accepted accounting principles on a basis consistently
applied ("GAAP"). Borrower has no knowledge of any liabilities, contingent or
otherwise, at said date not reflected in said balance sheet and Borrower has not
entered into any material commitments or material contracts which are not
reflected in said balance sheet which may have a materially adverse effect upon
its financial condition, operations or business as now conducted. Since said
date there have been no changes in the assets or liabilities or financial
condition of Borrower other than changes in the ordinary course of business, and
no such changes have been materially adverse changes.
(ii) All financial and other information that has
been or will be supplied to Lender, including the financial statements of
Borrower (and of Guarantor), is:
(1) Sufficiently complete to give Lender
accurate knowledge of the subject's financial condition, including all material
contingent liabilities; and
(2) Does not fail to state any material
facts necessary to make the information contained therein not misleading.
All such information was and will be prepared in accordance with GAAP, unless
otherwise noted. Since the dates of the financial information specified above,
there has been no material adverse change in the business
7
condition (financial or otherwise), operations, properties or prospects of
Borrower or any other subject thereof.
(d) Lawsuits. There is no lawsuit, arbitration, claim or other
dispute pending or threatened against Borrower or Guarantor which, if lost,
would impair Borrower's or Guarantor's financial condition or ability to repay
the amounts owed under the Subordinated Note.
(e) Title to Assets. Borrower and Guarantor have good and
clear title to all of their assets, and the same are not subject to any
mortgages, deeds of trust, pledges, security interests or other encumbrances.
(f) Permits, Franchises. Borrower and Guarantor possess all
permits, franchises, contracts and licenses required and all trademark rights,
trade name rights, and fictitious name rights necessary to enable them to
conduct the business in which Borrower and Guarantor are now engaged.
(g) Income Tax Returns. Borrower and Guarantor have filed all
tax returns and reports required to be filed and have paid all applicable
federal, state and local franchise, income and property taxes which are due and
payable. Borrower has no knowledge of any pending assessments or adjustments of
its income taxes or property taxes for any year, except as have been disclosed
in writing to Lender. Borrower is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended.
(h) ERISA Plans.
(i) The following terms have the meanings indicated
for purposes of this Agreement:
(1) "Code" means the Internal Revenue Code
of 1986, as amended from time to time;
(2) "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended from time to time;
(3) "ERISA Affiliate" means any trade or
business (whether or not incorporated) under common control with Borrower within
the meaning of Section 414(b) or (c) of the Code;
(4) "PBGC" means the Pension Benefit
Guaranty Corporation; and
(5) "Plan" means a pension, profit-sharing
or stock bonus plan intended to qualify under Section 401(a) of the Code,
maintained or contributed to by Borrower, Guarantor or any ERISA Affiliate,
including any multi-employer plan within the meaning of Section 4001(a)(3) of
ERISA.
(ii) Each Plan (other than a multi-employer plan) is
in compliance in all material respects with the applicable provisions of ERISA,
the Code and other federal or state law. Each Plan has received a favorable
determination letter from the IRS and to the best knowledge of Borrower, nothing
has occurred which would cause the loss of such qualification. Borrower has
fulfilled its obligations, if any, under the minimum funding standards of ERISA
and the Code with respect to each Plan,
8
and has not incurred any liability with respect to any Plan under Title IV of
ERISA.
(iii) There are no claims, lawsuits or actions
(including by any governmental authority), and there has been no prohibited
transaction or violation of the fiduciary responsibility rules, with respect to
any Plan which has resulted or could reasonably be expected to result in a
material adverse effect.
(iv) With respect to any Plan subject to Title IV of
ERISA:
(1) No reportable event has occurred under
Section 4043(c) of ERISA for which the PBGC requires 30 day notice;
(2) No action by Borrower or any ERISA
Affiliate to terminate or withdraw from any Plan has been taken and no notice of
intent to terminate a Plan has been filed under Section 4041 of ERISA; and
(3) No termination proceeding has been
commenced with respect to a Plan under Section 4042 of ERISA, and no event has
occurred or condition exists which might constitute grounds for the commencement
of such a proceeding.
(i) Other Obligations. Neither Borrower nor Guarantor is in
default on any obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or obligation.
(j) No Event of Default. There is no event which is, or with
notice or lapse of time or both would be, a default under the Loan Documents.
(k) Year 2000 Compliance.
(i) Borrower and Guarantor have (a) conducted a
comprehensive review and assessment of all areas of their businesses that could
be adversely affected by the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999), (b) developed a detailed plan and timeline
for addressing the year 2000 problem on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Borrower reasonably
anticipates that all computer applications that are material to its business and
Guarantor's business will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (i.e.,
be "year 2000 compliant").
(ii) Borrower and Guarantor have made inquiry of each
of their key suppliers, vendors, and customers with respect to the year 2000
problem and, based on that inquiry, believes that each of them will on a timely
basis be year 2000 compliant in all material respects. For the purposes of this
Section, "key suppliers, vendors, and customers" refers to those suppliers,
vendors and customers of Borrower and/or Guarantor the business failure of which
would with reasonable probability result in a material adverse change in
Borrower's or Guarantor's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the Subordinated Note.
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ARTICLE VI
COVENANTS
SECTION 6.01. Until all amounts owed to Lender under the Subordinated
Note are repaid in full, Borrower shall fully comply with the following
conditions and covenants:
(a) Financial Information. Borrower shall provide the
following financial information and statements and such additional information
as requested by Lender from time to time:
(i) As soon as available but not later than one
hundred twenty (120) days after Borrower's fiscal year end, Borrower's annual
financial statements including balance sheet, income statement and source and
use of funds statement. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to Lender.
(ii) As soon as available but not later than
forty-five (45) days after the period's end, Borrower's quarterly financial
statements, including balance sheet, income statement and source and use of
funds statement. These financial statements may be Borrower prepared and
certified by its chief financial officer.
(iii) Promptly, upon sending or receipt, copies of
any management letters and correspondence relating to management letters, sent
or received by Borrower to or from Borrower's auditor.
(iv) Every six (6) months, a statement of cash flow
projections for at least the next twenty-four (24) months for Borrower on an
unconsolidated basis.
(v) Copies of Borrower's federal income tax returns
(with all forms attached), within fifteen (15) days of filing.
(vi) Copies of Borrower's Form 10-K Annual Report,
Form 10-Q Quarterly Report and Form 8-K Current Report within fifteen (15) days
after the date of filing with the Securities and Exchange Commission.
(vii) Guarantor's quarterly, and annual financial
statements, including balance sheet and income statement, in form satisfactory
to Lender within thirty (30) days of period end.
(b) Other Information. Borrower shall provide to Lender:
(i) Promptly after the same are received, copies of
all reports which Borrower's CPA delivers to it.
(ii) Such additional financial and other information
as Lender may reasonably request from time to time.
(c) Financial Covenants. Unless the context otherwise clearly
requires, all accounting
10
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP.
(i) Senior Debt to Adjusted EBITDA. Borrower shall
maintain on a consolidated basis, a ratio of Senior Debt to Adjusted EBITDA of
less than 4.0 to 1.0.
"Senior Debt" is defined as all
interest-bearing debt to which the Lender is Subordinated.
"Adjusted EBITDA" is defined as net income,
plus interest expense, income taxes, depreciation, amortization, extraordinary
losses, other non-cash charges, and Transaction Expense, less extraordinary
gains or income, all as determined in accordance with GAAP.
"Transaction Expense" is defined as expenses
related to the issuance of debt or equity capital or the purchase of, investment
in or joint venture with any other company, whether consummated or not,
including, but not limited to legal, accounting, due diligence, travel and
brokers expenses.
(ii) Borrower's Total Borrowings. Borrower shall
limit Borrower's total borrowings on a consolidated basis to less than five
times Borrower's Adjusted EBITDA on a consolidated basis.
(iii) Dividends. Borrower shall not pay any dividends
to owners, principal officers, partners, or stockholders of Borrower.
(iv) Capital Expenditures. Borrower shall not spend
or incur obligations (including the total amount of any capital leases) for more
than One Million Dollars and no/100ths ($1,000,000.00) in total principal amount
in any single fiscal year to acquire fixed or capital assets or to undertake any
major construction or renovation.
(v) Working Capital. Borrower shall maintain on a
consolidated basis a positive working capital balance (excluding income taxes
owed from current liabilities).
(d) Taxes and Other Liabilities. Borrower shall pay and
discharge, before the same become delinquent and before penalties accrue
thereon, all taxes, assessments and governmental charges upon or against
Borrower or any of its properties, and all its other debts, liabilities and
obligations, including all liabilities and debts of Guarantor, and those
described in sub-paragraph (e), below, at any time existing, except to the
extent and so long as:
(i) The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any materially adverse
effect to Borrower's financial condition or the loss of any right of redemption
from any sale thereunder; and
(ii) Borrower shall have set aside on its books
reserves (segregated to the extent required by GAAP) adequate with respect
thereto.
(e) Other Debts. Borrower shall not have or incur, directly or
indirectly through any of its subsidiaries, any direct or contingent debts or
lease obligations, or become liable for the debts of others
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without Lender's written consent. This requirement does not apply to or
prohibit:
(i) Borrower's debt to Lender as evidenced by the
Subordinated Note;
(ii) Borrower's debt to Xxxxxxx X. Xxxxx in the
amount of $1,750,000.00
(iii) The Acquisition Line of Credit;
(iv) The Working Capital Line of Credit;
(v) Acquiring goods, supplies, or merchandise on
normal trade credit;
(vi) Current account payables and liabilities
incurred by Borrower and/or Guarantor in the normal course of business; or
(vii) Any additional debt incurred or assumed by
Borrower or Guarantor in the course of acquisitions which is subordinate to all
amounts owed to Lender under the Subordinated Note in accordance with Section
6.01(c) (i).
(f) Liens. Borrower shall not create, assume, or allow any
security interest or lien (including judicial liens) on property that Borrower
and/or Guarantor now or later own, except:
(i) Liens for property taxes not yet due;
(ii) Liens outstanding on the date of this Agreement
as fully disclosed in Section 6.01(f)(ii) of the Disclosure Schedules and
permitted by Lender;
(iv) Liens which secure obligations under the Working
Capital Line of Credit; and
(v) Liens which secure obligations under the
Acquisition Line of Credit.
(g) Loans to Officers. Borrower shall not make or permit any
loans, advances or other extensions of credit to any of Borrower's or
Guarantor's executives, officers, directors, shareholders or partners (or any
relatives of any of the foregoing).
(h) Change of Ownership. Borrower shall not cause, permit, or
suffer any change, direct or indirect, in Borrower's or Guarantor's capital
ownership in excess of fifty percent (50%).
(i) Notices to Lender. Borrower shall promptly notify Lender
in writing of:
(i) Any Event of Default hereunder or any event which
would become an Event of Default hereunder upon the giving of notice, the lapse
of time, or both;
(ii) Any lawsuit or arbitration award of over Fifty
Thousand Dollars ($50,000) against Borrower (or any Guarantor);
(iii) Any significant dispute between Borrower or
Guarantor and any
12
government authority;
(iv) Any failure to comply with this Agreement;
(v) Any material adverse change in Borrower's or any
Guarantor's business condition (financial or otherwise), operations, properties
or prospects, or ability to repay the amount owing under the Subordinated Note;
and
(vi) The occurrence or reasonable likelihood of
occurrence of any material adverse change in Borrower's or any Guarantor's
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the line of credit; and
(vii) Any change in Borrower's name or trade name,
legal structure, or place of business, (or chief executive office if Borrower
has more than one place of business).
(j) Audits; Books and Records. Borrower and Guarantor shall
maintain adequate books and records and to allow Lender and its agents to
inspect Borrower's and/or Guarantor's properties and examine, audit and make
copies of books and records at any reasonable time. If any of Borrower's and/or
Guarantor's properties, books or records are in the possession of a third party,
Borrower hereby authorizes that third party to permit Lender or its agents to
have access to perform inspections or audits and to respond to Lender's requests
for information concerning such properties, books and records. Lender has no
duty to inspect Borrower's and/or Guarantor's properties or to examine, audit,
or copy books and records and Lender shall not incur any obligation or liability
by reason of not making any such inspection or inquiry. In the event that Lender
inspects Borrower's and/or Guarantor's properties or examines, audits, or copies
books and records, Lender will be acting solely for the purposes of protecting
Lender's security and preserving Lender's rights under this Agreement. Neither
Borrower nor any other party is entitled to rely on any inspection or other
inquiry by Lender. Lender owes no duty of care to protect Borrower or any other
party against, or to inform Borrower or any other party of, any adverse
condition that may be observed as affecting Borrower's properties or premises,
or Borrower's business. Lender may in its discretion disclose to Borrower or any
other party any findings made as a result of, or in connection with, any
inspection of Borrower's and/or Guarantor's properties.
(k) Compliance with Laws. Borrower shall comply with the laws
(including any fictitious name statute), regulations, and orders of any
government body with authority over Borrower's business.
(l) Preservation of Rights. Borrower shall maintain and
preserve all rights, privileges, and franchises Borrower and/or Guarantor now
has or subsequently obtain.
(m) Maintenance of Properties. Borrower shall make repairs,
renewals, or replacements to keep Borrower's and Guarantor's properties in good
working condition.
(n) Insurance. Borrower shall maintain the following
insurance:
(i) Liability Insurance. Commercial general liability
coverage with such limits as Lender may require. This policy shall name Lender
as an additional insured. Coverage shall be written on an occurrence basis, not
claims made.
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(ii) Property Damage Insurance. Property damage
insurance in nonreporting form on Borrower's property, with a policy limit in an
amount not less than the full insurable value of the property on a replacement
cost basis. The policy shall include a business interruption (or rent loss, if
more appropriate) endorsement in the amount of twelve (12) months' principal and
interest payments, taxes and insurance premiums, a lender's loss payable
endorsement in favor of Lender, and any other endorsements reasonably required
by Lender.
(o) ERISA Plans. With respect to a Plan subject to ERISA,
Borrower shall give prompt written notice to Lender of:
(i) The occurrence of any reportable event under
Section 4043(c) of ERISA for which the PBGC requires 30 day notice;
(ii) Any action by Borrower or any ERISA Affiliate to
terminate or withdraw from a Plan or the filing of any notice of intent to
terminate under Section 4041 of ERISA; and
(iii) The commencement of any proceeding with respect
to a Plan under Section 4042 of ERISA.
(p) Additional Negative Covenants. Borrower shall not take or
permit Guarantor to take any of the following actions, without Lender's prior
written consent:
(i) Engage in any business activities substantially
different from Borrower's or Guarantor's present business;
(ii) Liquidate, dissolve or cease Borrower's or
Guarantor's business, or terminate Borrower's or Guarantor's existence;
(iii) Enter into any consolidation, merger, or other
combination, or become a partner in a partnership, a member of a joint venture,
or a member of a limited liability company;
(iv) Sell, assign, lease, transfer or otherwise
dispose of all or a substantial part of Borrower's or Guarantor's business or
Borrower's or Guarantor's assets; or
(v) Sell, assign, lease, transfer or otherwise
dispose of any assets for less than fair market value or enter into any
agreement to do so or any sale and leaseback agreement covering any of its fixed
or capital assets.
(q) Cooperation. Borrower shall take any action reasonably
requested by Lender to carry out the intent of the Loan Documents.
ARTICLE VII
DEFAULT
SECTION 7.01 Events Of Default. Each of the following events shall
constitute an event of default ("Event of Default") under the Subordinated Note,
and shall entitle Lender to all of the rights and
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remedies specified in Section 7.02, below.
(a) Failure to Pay. Borrower fails to make a payment of
interest or principal as required under the Loan Documents within three (3) days
after the date when due.
(b) False Information. Borrower has given or gives false or
misleading information to Lender, or any representation or warranty made
hereunder proves to be false or misleading.
(c) Breach of Covenant. Borrower breaches or fails to fully
perform any of the covenants contained herein.
(d) Change of Management. Dissolution, termination or
liquidation of Borrower, Guarantor, or any executive officer or majority
stockholder of the same, or Borrower's chief executive officer ceases for any
reason to act in said capacity; and said person is not replaced within thirty
(30) days by someone satisfactory to Lender as being a comparable substitute.
(e) Bankruptcy. Borrower or Guarantor files a bankruptcy
petition or makes a general assignment for the benefit of creditors, or a
bankruptcy petition is filed against Borrower or Guarantor. The default will be
deemed cured if any bankruptcy petition filed against Borrower or Guarantor is
dismissed within a period of forty-five (45) days after the filing.
(f) Receivers. A receiver or similar official is appointed for
Borrower's business, or the business is terminated.
(g) Judgments. Any judgment or arbitration award is entered
against Borrower or Guarantor, or Borrower or Guarantor enters into any
settlement agreement with respect to any litigation, claim or arbitration, in an
aggregate amount of Fifty Thousand Dollars ($50,000) or more.
(h) ERISA Plans. Any one or more of the following events
occurs with respect to a Plan subject to Title IV of ERISA, provided such event
or events could reasonably be expected, in the judgment of Lender, to subject
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of Borrower:
(i) A reportable event occurs under Section 4043(c)
of ERISA with respect to a Plan; or
(ii) Any Plan terminates (or proceedings are
commenced to terminate a Plan) or Borrower or any ERISA Affiliate withdraws from
a Plan, whether in full or in part.
(i) Government Action. Any government authority takes action
that materially adversely affects Borrower's or Guarantor's financial condition
or ability to repay the Subordinated Note.
(j) Material Adverse Change. A material adverse change occurs,
or is reasonably likely to occur, in Borrower's or Guarantor's business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the amounts outstanding under the Subordinated Note.
(k) Default Under Related Documents. Any breach, violation,
termination,
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invalidation of, or event of default under, any of the other Loan Documents, or
Lender's employment agreement with Borrower.
(l) Other Breach Under This Agreement. Borrower fails to meet
any of the conditions of or fails to perform any obligation under any term of
this Agreement not specifically referred to in this Article. If, in Lender's
opinion, the breach is capable of being remedied, the breach will not be
considered an Event of Default under this Agreement for a period of thirty (30)
days after the date on which Lender gives written notice of the breach to
Borrower.
SECTION 7.02. Borrower's Right To Cure. Upon the occurrence of an Event
of Default, Lender shall promptly give Borrower written notice thereof. Borrower
shall then have a period of thirty (30) days from the date of receipt of
Lender's written notice to cure said Event of Default. If after the expiration
of thirty (30) days Lender has not cured such Event of Default, Lender shall be
entitled to the rights and remedies described in Section 8.01, below.
ARTICLE VIII
ENFORCING THIS AGREEMENT; MISCELLANEOUS
SECTION 8.01. Remedies. If an Event of Default occurs, and Borrower
fails to cure such Event of Default within the time period provided above,
Lender may, at Lender's sole and absolute discretion, exercise any and all
rights or remedies that it has under any of the Loan Documents, or which are
otherwise available to Lender at law or in equity, including, without
limitation, the following:
(a) Lender may declare Borrower in default, and require
Borrower to repay all principal outstanding under the Subordinated Note,
together with all interest that has accrued thereon, immediately and without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor, or any other notices or demands of any kind.
(b) If the Event of Default involves a Failure to Pay, as
described under Section 7.01(a), above, Lender may, in accordance with Section
2.14, exercise its conversion rights with respect to all or any portion of the
principal outstanding under the Subordinated Note, together with all interest
that has accrued thereon, immediately and without prior notice.
All of Lender's rights and remedies hereunder shall be cumulative.
SECTION 8.02. California Law. This Agreement shall be governed by
California law, without regard to principles of conflicts of law.
SECTION 8.03. Arbitration.
(a) Mandatory Arbitration. Except as provided below, any
controversy or claim between or among the parties, including those arising out
of or relating to this Agreement or the other Loan Documents and any claim based
on or arising from an alleged tort, shall at the request of any party be
determined by arbitration. The arbitration shall be conducted in accordance with
the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is
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arbitrable shall be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered into any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) Provisional Remedies and Self-Help. No provision of this
Agreement shall limit the right of any party to this Agreement to exercise
self-help remedies such as setoff, or obtaining provisional or ancillary
remedies from a court of competent jurisdiction before, after, or during the
pendency of any arbitration or other proceeding. The exercise of a remedy does
not waive the right of either party to resort to arbitration.
SECTION 8.04. Waiver of Jury Trial. Borrower and Lender hereby waive to
the fullest extent permitted by law, trial by jury in any court proceedings
brought under or in connection with this Loan Agreement.
SECTION 8.05. Presentment, Demands and Notice. Lender shall be under no
duty or obligation to make or give any presentment, demands for performances,
notices of nonperformance, protests, notices of protest or notices of dishonor
in connection with any obligation or indebtedness under the Loan Documents.
SECTION 8.06. Indemnification. Borrower shall indemnify, save, and hold
harmless Lender and all of Lender's employees, agents, successors, attorneys and
assigns (collectively, the "Indemnitees") for, from and against the following
matters (collectively, the "Indemnified Matters"):
(a) Any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, charges, expenses and
disbursements (including attorneys' fees, including the reasonable estimate of
the allocated cost of in-house counsel and staff) of any kind with respect to
the execution, delivery, enforcement, performance and administration of this
Agreement and the other Loan Documents, and the transactions contemplated
hereby, and with respect to any investigation, litigation or proceeding related
to this Agreement and the other Loan Documents.
(b) Any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, charges, expenses and
disbursements (including attorneys' fees, including the reasonable estimate of
the allocated cost of in-house counsel and staff) directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a "Hazardous Substance."
As used herein, "Hazardous Substance" means any substance, material or waste
that is or becomes designated or regulated as "toxic," "hazardous," "pollutant,"
"contaminant" or a similar designation or regulation under any federal, state or
local law (whether under common law, statute, regulation or otherwise) or
judicial or administrative interpretation of such law, including without
limitation petroleum or natural gas. This indemnity will apply whether the
Hazardous Substance is on, under or about Borrower's property or operations or
property leased to Borrower.
(c) Any and all writs, subpoenas, claims, demands, actions, or
causes of action that are served on or asserted against any Indemnitee (if
directly or indirectly related to a writ, subpoena, claim, demand, action, or
cause of action against Borrower or any affiliate of Borrower); and any and all
liabilities, losses, costs, or expenses (including attorneys' fees, including
the reasonable estimate of the allocated cost of in-house counsel and staff)
that any Indemnitee suffers or incurs as a result of any of such Indemnified
Matters.
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The obligations of Borrower under this Section shall survive
re-payment of all amounts due under the Note. The foregoing notwithstanding,
Borrower shall have no obligation hereunder to any Indemnitee with respect to
Indemnified Matters arising from the gross negligence or willful misconduct of
such Indemnitee.
SECTION 8.07. Attorneys' Fees. In the event of a lawsuit or arbitration
proceeding, including any tort proceeding, between or among the parties hereto,
the prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator.
SECTION 8.08. Notices. All notices required under this Agreement shall
be personally delivered or sent by registered or certified mail, postage
prepaid, or facsimile transmission (using facsimile equipment providing written
confirmation of receipt at the receiving facsimile number) to the parties at the
addresses set forth below, or to such other addresses as Lender and Borrower may
specify from time to time in writing. Notices shall be effective upon receipt or
when proper delivery is refused:
If to Lender:
Xxxxxxx X. Xxxxxxx
000 Xxxxx Xxxxx
Xxxxx, Xxxxxxxxxx 00000
Fax No.: ______________
If to Borrower:
COMC, Inc.,
000 X. Xxxxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: President
Fax No.: ________________
SECTION 8.09. Successors and Assigns. This Agreement is binding on
Borrower's and Lender's successors and assignees. Borrower and Lender agree that
neither party may assign this Agreement or the other Loan Documents without
prior written consent of the other.
SECTION 8.10. Integration; Headings. The Loan Documents (a) integrate
all the terms and conditions in or incidental to this Agreement, (b) supersede
all oral negotiations and prior writings with respect to their subject matter,
including any loan commitment to Borrower, and (c) are intended by the parties
as the final expression of the agreement with respect to the terms and
conditions set forth in those documents and as the complete and exclusive
statement of the terms agreed to by the parties. No representation,
understanding, promise or condition shall be enforceable against any party
unless it is contained in the Loan Documents. If there is any conflict between
the terms, conditions and provisions of this Agreement and those of any other
agreement or instrument, including any other Loan Document, the terms,
conditions and provisions of this Agreement shall prevail. Headings and captions
are for reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement. The exhibits to this Agreement are hereby
incorporated in this Agreement.
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SECTION 8.11. Interpretation. Time is of the essence in the performance
of this Agreement by Borrower. The word "include(s)" means "include(s), without
limitation," and the word "including" means "including but not limited to." No
listing of specific instances, items or matters in any way limits the scope or
generality of any language of this Agreement.
SECTION 8.12. Severability; Waivers; Amendments. This Agreement may not
be modified or amended except by a written agreement signed by the parties. Any
consent or waiver under this Agreement must be in writing. If any part of this
Agreement is not enforceable, the rest of the Agreement may be enforced. If
Lender waives a default, it may enforce a later default. No waiver shall be
construed as a continuing waiver. No waiver shall be implied from Lender's delay
in exercising or failure to exercise any right or remedy against Borrower.
Consent by Lender to any act or omission by Borrower shall not be construed as a
consent to any other or subsequent act or omission or as a waiver of the
requirement for Lender's consent to be obtained in any future or other instance.
SECTION 8.13. Counterparts. This Agreement may be executed in
counterparts each of which, when executed, shall be deemed an original, and all
such counterparts shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date stated at the top of the first page.
BORROWER:
COMC, Inc., an Illinois
Corporation
/s/ Xxxx Xxxxxxxx
----------------------------
Xxxx Xxxxxxxx, CEO
LENDER:
/s/ Xxxxxxx X. Xxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxx
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EXHIBIT A
21
EXHIBIT B
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