LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement"), dated as of the 24th
day of March, 1997, is made and entered into on the terms and conditions
hereinafter set forth, by and between INTERACTIVE MAGIC, INC., a Maryland
corporation ("Borrower"), and PETRA CAPITAL, LLC, a Georgia limited liability
company ("Lender").
RECITALS:
Borrower has requested that Lender make available to Borrower a loan in the
amount of Three Million and No/100 Dollars ($3,000,000.00), upon the terms and
conditions hereinafter set forth, and for the purposes hereinafter set forth
(the "Loan").
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1 - THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and
conditions set forth herein, Lender hereby agrees to make the Loan to Borrower.
The Loan shall be evidenced by a Secured Promissory Note substantially in the
form attached hereto as Exhibit A (the "Note"), executed by Borrower in favor of
Lender. The Loan shall be in the original principal amount indicated in the
Note, shall be payable in accordance with the terms of the Note, and shall be
prepayable at any time without penalty or premium. The proceeds of the Loan
shall be disbursed by Lender on the date hereof (the "Closing Date") by wire
transfer of immediately available funds in accordance with the written
instructions of Borrower.
1.2 Processing Fee. In connection with the making of the Loan, Borrower
shall pay to Lender a processing fee in the amount of $60,000 (the "Processing
Fee"). Lender hereby acknowledges that Borrower has prepaid one-half (1/2) of
the Processing Fee ($30,000). The balance of the Processing Fee is due and
payable on the Closing Date, and Borrower hereby authorizes and directs Lender
to deduct and retain for its account the sum of $30,000 as payment of the
outstanding balance of the Processing Fee.
1.3 Stock Purchase Warrants. In consideration for Lender's entering into
this Agreement and for making the Loan contemplated herein, Borrower shall
deliver to Lender a
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Stock Purchase Warrant substantially in the form attached hereto as Exhibit B
(the "Warrant"), executed by Borrower in favor of Lender.
1.4 Investment Representations. Lender represents and warrants that it is
purchasing the Warrant and any shares of common stock issuable upon exercise of
the Warrant for its own account, for investment purposes and not with a view to
the distribution thereof. The foregoing representations and warranties shall not
be construed as imposing any limitation on Lender's right to transfer the
Warrant or any of the shares of common stock issuable upon the exercise of the
Warrant that is not otherwise expressly set forth herein or in the Warrant or
required under applicable law.
1.5 Subordination. The obligations evidenced by the Note shall be
subordinate to "Senior Debt", as such term is defined in each of the
Subordination Agreements in the form attached hereto as Exhibits C-1 and C-2
(the "Subordination Agreements").
ARTICLE 2 - SECURITY
2.1 Security. As security for the Secured Obligations (as defined in
Section 2.2), Borrower hereby grants to Lender a security interest in the
following described property, and any and all proceeds and products thereof
(collectively, the "Collateral"):
(a) Equipment. All machinery and equipment, all data processing and
office equipment, all computer equipment, hardware, firmware and software,
all furniture, fixtures, appliances and all other goods of every type and
description, whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all replacements
thereof and additions thereto; and
(b) Inventory. All inventory and goods, whether held for lease, sale
or furnishing under contracts of service, all agreements for lease of same
and rentals therefrom, whether now in existence or owned or hereafter
acquired and wherever located; and
(c) General Intangibles. All rights, interests, choses in action,
causes of action, claims and all other intangible property of every kind
and nature, in each instance whether now owned or hereafter acquired but
not limited to, all corporate and business records; all loans, royalties,
and other obligations receivable; all trade secrets, inventions, designs,
patents, patent applications, registered or unregistered service marks,
trade names, trademarks, copyrights and the goodwill associated therewith
and incorporated therein, and all registrations and applications for
registration related thereto; all goodwill, licenses, permits, franchises,
customer lists and credit files; all customer and supplier contracts, firm
sale orders, rights under license and franchise agreements, and other
contracts and contract rights; all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real
or personal
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property and any security agreements relating thereto; all rights to
indemnification; all proceeds of insurance of which Borrower is
beneficiary; all letters of credit, guarantees, liens, security interests
and other security held by or granted to Borrower; and all other intangible
property, whether or not similar to the foregoing; and
(d) Accounts, Chattel Paper, Instruments and Documents. All accounts,
accounts receivable, chattel paper, instruments and documents, whether now
in existence or owned or hereafter acquired, entered into, created or
arising, and wherever located; and
(e) Other Property. All other personal property or interests in
property now owned or hereafter acquired.
2.2 Secured Obligations. Without limiting any of the provisions thereof,
the Security Instruments (as defined in Section 2.3) shall secure the following
indebtedness and other obligations (the "Secured Obligations"):
(a) the full and timely payment of the indebtedness evidenced by the
Note, together with interest thereon, and any extensions, modifications,
consolidations or renewals thereof, and any notes given in payment thereof;
(b) the full and prompt performance of all of the obligations of
Borrower to Lender under the Loan Documents (as defined in Section 2.3) to
which Borrower is a party; and
(c) the full and prompt payment of all court costs and other
reasonable costs and expenses of whatever kind incident to the collection
of the indebtedness evidenced by the Note, the enforcement or protection of
the security interests of the Security Instruments or the exercise of any
rights or remedies of Lender with respect to the indebtedness evidenced by
the Note, including without limitation the reasonable attorney and
paralegal fees and costs incurred by Lender, all of which Borrower agrees
to pay to Lender upon demand.
2.3 Security Instruments. The Secured Obligations shall be further secured
by the Trademark and Patent Security Agreement in substantially the form
attached hereto as Exhibit D (the "Trademark and Patent Security Agreement").
This Agreement, the Trademark and Patent Security Agreement, and any other
instruments, documents or agreements now or hereafter securing the Secured
Obligations are herein collectively referred to as the "Security Instruments".
The Security Instruments, together with the Note and any other instruments and
documents now or hereafter evidencing, securing or in any way related to the
indebtedness evidenced by the Note are herein individually referred to as a
"Loan Document" and collectively referred to as the "Loan Documents".
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ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants to Lender as follows:
3.1 Corporate Status.
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, and has the
corporate power to own and operate its properties, to carry on its business
as now conducted and to enter into and to perform its obligations under
this Agreement and the other Loan Documents to which it is a party.
Borrower is duly qualified to do business and is in good standing in each
state or other jurisdiction in which a failure to be so qualified could
give rise to a Material Adverse Event, as hereinafter defined. The states
or other jurisdictions in which Borrower is so qualified are set forth on
Schedule 3.1(a). For purposes of this Agreement, "Material Adverse Event"
means any event or circumstance, or set of events or circumstances,
individually or collectively, that reasonably could be expected to result
in (i) an adverse effect upon the validity or enforceability of any Loan
Document or (ii) a material and adverse effect on the condition (financial
or otherwise), business, operations, properties or prospects of Borrower.
(b) Except as set forth on Schedule 3.1(b), Borrower does not own,
directly or indirectly, any capital stock or other equity interest of any
corporation, partnership, joint venture, limited liability company or other
business organization in which Borrower holds or owns, directly or
indirectly, 50% or more of the outstanding shares of capital stock or other
equity interest having ordinary voting power for the election of directors
(or others performing similar functions) or, in the case of a partnership,
joint venture, limited liability company or similar entity, which has the
power, directly or indirectly, to effect the management or policies thereof
(any such corporation, partnership, joint venture, limited liability
company or other business organization, a "Subsidiary").
(c) The authorized capital stock of Borrower consists solely of
25,000,000 shares of common stock, $ 0.10 par value, of which 5,158,614
shares (the "Shares") are issued and outstanding in the following amounts,
and to the following shareholders:
--------------------------------------------------------------------------------
Shareholders # of Shares % Ownership
--------------------------------------------------------------------------------
Xxxx X. Xxxxxxx 4,688,000 90.88
--------------------------------------------------------------------------------
Southeast Interactive 165,114 3.20
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxx 120,000 2.33
--------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxx 72,000 1.40
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
Shareholders # of Shares % Ownership
--------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxxx 50,000 0.97
--------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxx 40,000 0.76
--------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxxx 10,000 0.19
Xxxxx X. Xxxxxxxx 6,000 0.12
--------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxxx 5,000 0.10
--------------------------------------------------------------------------------
Xxxx X. Xxxxxxx 2,500 0.05
--------------------------------------------------------------------------------
TOTAL 5,158,614 100%
--------------------------------------------------------------------------------
In addition, there are 3,490,548 shares of such common stock reserved for
issuance upon exercise of the Warrant and the Additional Warrants; provided
that the number of shares so reserved shall be increased in accordance with
the terms of the Warrant and the Additional Warrants. Except for the
Shares, there are no shares of capital stock or other securities of
Borrower issued or outstanding. Except as specified in Schedule 3.1(c),
there are no outstanding options, warrants or rights to purchase or acquire
from Borrower any securities of Borrower, and there are no contracts,
commitments, agreements, understandings, arrangements or restrictions
relating to any shares of capital stock or other securities of Borrower,
whether or not outstanding, to which Borrower is a party or by which it is
bound or, to the best knowledge of Borrower, to which any of its
shareholders is a party or by which any such shareholder is bound. All of
the Shares are validly issued, fully paid and non-assessable and were not
issued in violation of any preemptive rights, rights of first refusal,
anti-dilution rights or any similar rights held by any party. Borrower has
not violated any federal or state securities laws in connection with the
issuance of any securities.
(d) The issuance of the Warrant has been duly authorized and, upon
delivery to Lender, will be validly issued, fully paid and nonassessable,
free and clear of all liens and other encumbrances. Except as set forth in
Schedule 3.1(d), there are no statutory or contractual preemptive rights,
rights of first refusal, anti-dilution rights or any similar rights held by
any party with respect to the issuance of the Warrant or the issuance of
common stock upon exercise of the Warrant. The issuance of shares of common
stock upon exercise of the Warrant has been duly authorized and, when
issued upon exercise of the Warrant in accordance with the terms thereof,
such shares of common stock will be validly issued, fully paid and
nonassessable. The offer, sale and issuance of the Warrant do not require
registration under the Securities Act of 1933, as amended, or any
applicable state securities laws.
3.2 Authorization. Borrower has full legal right, power and authority to
enter into and perform its obligations under the Loan Documents, without the
consent or approval of any
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other person, firm, governmental agency or other legal entity, other than
consents listed on Schedule 3.2, which consents have previously been obtained.
Borrower has all necessary right, power and authority to grant to Lender a valid
and enforceable security interest in the Collateral. The execution and delivery
of this Agreement, the borrowing hereunder, the execution and delivery of each
Loan Document to which Borrower is a party, and the performance by Borrower of
its obligations hereunder and thereunder are within the corporate powers of
Borrower and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental approvals, if any were
required, and do not and will not contravene or conflict with the articles of
incorporation or bylaws of Borrower or any material agreement binding upon
Borrower or its properties or any provision of law, any applicable judgment,
ordinance, regulation or order of any court or governmental agency. The
officer(s) executing this Agreement, the Note and all of the other Loan
Documents to which Borrower is a party, are duly authorized to act on behalf of
Borrower.
3.3 Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of Borrower, enforceable
in accordance with their respective terms, subject to limitations imposed by
bankruptcy, insolvency, moratorium, or similar laws or provisions affecting the
rights of creditors generally and further subject to the discretion of the court
in the exercise of equitable remedies.
3.4 Priority of Liens; Title to Property. Except as disclosed on Schedule
3.4, there are no outstanding loans, liens, pledges, security interests,
agreements or other financings which provide any third person with a lien
against any of the collateral securing the Secured Obligations, whether such
collateral is pledged pursuant to this Agreement or any other Security
Instruments. Borrower has good and marketable title to all of its real and
personal property, free and clear of any and all claims, liens, encumbrances,
equities and restrictions of every kind and nature whatsoever, except as
disclosed on Schedule 3.4.
3.5 Location of Collateral. The records with respect to all intangible
personal property constituting the collateral security for the Secured
Obligations are maintained at one or more of the addresses set forth on Schedule
3.5. None of the Collateral comprised of tangible personal property is located
at any address other than at one of the addresses set forth on Schedule 3.5.
3.6 Litigation. Except as set forth on Schedule 3.6, there are no actions,
suits or proceedings pending, or, to the knowledge of Borrower, threatened,
against or affecting Borrower or involving the validity or enforceability of any
of the Loan Documents or the priority of the liens thereof, at law or in equity,
or before any governmental or administrative agency, except actions, suits and
proceedings that are fully covered by insurance and that, if adversely
determined, would not impair materially the ability of Borrower to perform each
and every one of its obligations under and by virtue of the Loan Documents; and
to Borrower's knowledge, Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or any governmental authority.
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3.7 Financial Statements. The financial statements of Borrower heretofore
delivered to Lender are true and correct in all material respects, have been
prepared on the basis of generally accepted accounting principles ("GAAP")
consistently applied (except that the unaudited financial statements do not
include footnotes and are subject to normal year-end adjustments), and fairly
present the financial condition of the subjects thereof as of the date(s)
thereof. No material adverse change has occurred in the condition (financial or
otherwise), business, operations, properties or, to the best of Borrower's
knowledge, prospects of Borrower since the date(s) thereof, and no additional
Debt as defined in Section 4.4 has been incurred by Borrower since the date(s)
thereof.
3.8 No Defaults. Consummation of the transactions hereby contemplated and
the performance of the obligations of Borrower under and by virtue of the Loan
Documents will not result in any breach of, or constitute a default under, the
charter documents or bylaws of Borrower or any mortgage, security deed or
agreement, deed of trust, lease, loan or credit agreement, partnership
agreement, license, franchise or any other material instrument or agreement to
which Borrower is a party or by which Borrower or its properties may be bound
or, to the knowledge of Borrower, affected.
3.9 Compliance With Law. Borrower is in compliance with all laws,
regulations, decrees and orders applicable to it (including but not limited to
laws, regulations, decrees and orders relating to environmental, occupational
and health standards and controls, antitrust, monopoly, restraint of trade or
unfair competition).
3.10 Environmental Matters. Borrower has no actual knowledge of (i) the
presence of any Hazardous Substances (as defined below) on any property owned,
leased or otherwise controlled by Borrower (collectively, the "Property"); (ii)
any spills, releases, discharges, or disposal of Hazardous Substances that have
occurred or are presently occurring on or onto any of the Property; (iii) the
presence on any of the Property of underground or above-ground storage tanks or
pipelines which are required to be licensed by any local, state or federal
agency; (iv) any spills or disposal of Hazardous Substances that have occurred
or are occurring off the Property as a result of any construction on or
operation and use of the Property; (v) any failure by Borrower to comply with
any Applicable Environmental Laws (as defined below); (vi) any notices related
to Borrower or any of the Property claiming a violation of any Applicable
Environmental Laws, or the commencement of any action or proceeding against
Borrower or related to any of the Property alleging a violation of Applicable
Environmental Laws; (vii) any notices related to Borrower or any of the Property
requiring compliance with Applicable Environmental Laws, or demanding payment or
contribution for injury to the environment or human health; or (viii) any
outstanding notices or citations relating to violations by any former owner or
operator of any of the Property. For the purposes of this Agreement, "Hazardous
Substances" means any substance or material defined or designated as a hazardous
or toxic waste, material or substance, or other similar term, by any federal,
state, or local environmental statute, regulation, or ordinance presently in
effect, including, without limitation, asbestos in any form, urea formaldehyde
foam
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insulation, petroleum products, and polychlorinated biphenyls. For the purposes
of this Agreement, "Applicable Environmental Laws" means any and all applicable
local, state, and federal environmental laws, regulations, ordinances, and
administrative and judicial orders relating to the generation, recycling, reuse,
sale, storage, handling, transport, or disposal of any Hazardous Substances.
3.11 Taxes. Borrower has filed or caused to be filed all tax returns
required to be filed (except for returns that have been appropriately extended),
and has paid all taxes shown to be due and payable on said returns and all other
taxes, impositions, assessments, fees or other charges imposed on it by any
governmental authority, agency or instrumentality, prior to any delinquency with
respect thereto (other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved). No tax liens have been filed against
Borrower or any of its properties.
3.12 Certain Transactions. Except as set forth on Schedule 3.12(a), (i)
Borrower is not indebted, directly or indirectly, to any of its respective
officers or directors, or to their respective spouses or children, and (ii) none
of said officers or directors or any members of their immediate families are
indebted to Borrower or have any direct or indirect ownership interest in any
firm or corporation with which Borrower is affiliated or with which Borrower has
a business relationship, or any firm or corporation which competes with
Borrower, except that officers and directors of Borrower may own no more than 1%
of the outstanding stock of any publicly traded company which competes directly
with Borrower. Except as set forth on Schedule 3.12(b), no officer or director
or any member of their immediate families is, directly or indirectly, interested
in any material contract with Borrower and each such contract has been fully
disclosed to and approved by the Board of Directors of Borrower and is on arm's
length terms. Except as set forth on Schedule 3.12(c), Borrower is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.13 Intellectual Property. Borrower is the lawful owner of or has the
lawful right to use all of its proprietary information free and clear of any
claim, right, trademark, patent or copyright protection of any third party. As
used herein, "proprietary information" includes without limitation (i) any
computer software and related documentation, inventions, technical data and
nontechnical data related thereto, and (ii) other documentation, inventions and
data related to patterns, plans, methods, techniques, drawings, finances,
customer lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned or used by
Borrower or marketing studies conducted by Borrower, all of which is
commercially important and competitively sensitive and which generally has not
been disclosed to third parties other than customers in the ordinary course of
business. Borrower has good and valid title to or has a valid and subsisting
license to use all patents, trademarks, trade names, service marks, copyrights
or other intangible property rights, and registrations or applications for
registration thereof, owned by Borrower or used or required by Borrower in the
operation of its business as presently being conducted. To the actual knowledge
of Borrower, there is no
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infringement or conflict with rights of others with respect to copyrights,
patents, trademarks, service marks, trade names, trade secrets or other
intangible property rights or know-how utilized by Borrower. To the actual
knowledge of Borrower, no products or processes of Borrower infringe or conflict
with any rights of patent or copyright, or any discovery, invention, product or
process, that is the subject of a patent or copyright application or
registration. Borrower follows such procedures as are necessary or appropriate
to provide reasonable protection of Borrower's trade secrets and proprietary
rights in intellectual property of all kinds. To the actual knowledge of
Borrower, no person employed by or affiliated with Borrower has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer and, to the knowledge of Borrower, no person
employed by or affiliated with Borrower has violated any confidential
relationship that such person may have had with any third person, in connection
with the development, manufacture, sale or lease of any product or proposed
product or the development or sale of any service or proposed service of
Borrower.
3.14 Regulatory Compliance. Borrower possesses all licenses, permits and
other authorizations from federal, state or local regulatory bodies necessary
for the conduct of its business and for the ownership, maintenance and operation
of its properties and assets. All such licenses, permits and authorizations are
in full force and effect.
3.15 ERISA. With respect to the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder ("ERISA"):
(a) Plans. Schedule 3.15 sets forth any and all "employee benefit
plans" maintained by or on behalf of Borrower or any ERISA Affiliate as
defined in Section 3(3) of ERISA (a "Plan"), including, but not limited to,
any defined benefit pension plan, profit sharing plan, money purchase
pension plan, savings or thrift plan, stock bonus plan, employee stock
ownership plan, Multiemployer Plan, or any plan, fund, program, arrangement
or practice providing for medical (including post-retirement medical),
hospitalization, accident, sickness, disability, or life insurance
benefits. For purposes of this Agreement, "ERISA Affiliate" shall mean each
trade or business (whether or not incorporated) which, together with
Borrower, is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated and the rulings issued thereunder (the "Code");
and "Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA. Neither Borrower nor any ERISA Affiliate
maintains or contributes to, or has maintained or contributed to, any
defined benefit pension plan or Multiemployer Plan.
(b) Compliance. Each Plan has at all times been maintained, by its
terms and in operation, in accordance in all material respects with all
applicable laws.
(c) Liabilities. Except for liabilities and expenses which become
payable and
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are timely paid pursuant to the terms and usual operations of the Plans,
Borrower is not currently and, to the best of its knowledge, will not
become subject to any material liability (including withdrawal liability),
tax or penalty whatsoever to any person whomsoever with respect to any Plan
including, but not limited to, any material tax, penalty or liability
arising under Title I or Title IV of ERISA or Chapter 43 of the Code.
(d) Funding. Borrower and each ERISA Affiliate has made full and
timely payment of all amounts (i) required to be contributed under the
terms of each Plan and applicable law and (ii) required to be paid as
expenses of each Plan. No Plan or Plans have an "amount of unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA) which, in the
aggregate, exceed $100,000.
3.16 Regulations G, T, U and X. Borrower is not engaged in the business of
extending credit for the purposes of purchasing or carrying margin stock, and no
proceeds of the Loan will be used for a purpose which violates, or would be
inconsistent with, Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
3.17 Government Regulation. Borrower is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended, or subject to regulation under the Federal Power Act, the
Interstate Commerce Act or any other federal law or state laws limiting its
ability to incur indebtedness or to execute, deliver or perform the Loan
Documents.
3.18 Statements Not False or Misleading. No representation or warranty
given as of the date hereof by Borrower contained in this Agreement or any
schedule attached hereto or any statement in any document, certificate or other
instrument furnished or to be furnished to Lender pursuant hereto, taken as a
whole, contains or will (as of the time so furnished) contain any untrue
statement of a material fact, or omits or will (as of the time so furnished)
omit to state any material fact which is necessary in order to make the
statements contained therein not misleading.
3.19 Survival. The representations and warranties of Borrower contained in
this Agreement or any schedule attached hereto or any statement in any document,
certificate or other instrument furnished or to be furnished to Lender pursuant
hereto, shall survive until this Agreement terminates in accordance with Article
7 hereof.
ARTICLE 4 - COVENANTS AND AGREEMENTS OF BORROWER
Until payment in full of the Loan, Borrower covenants and agrees as
follows:
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4.1 Sales of and Encumbrances on Collateral. Borrower will not sell,
exchange, lease, negotiate, pledge, assign or grant any security interest in or
otherwise dispose of any Collateral, nor will Borrower permit any other lien of
any kind to attach thereto, except that (i) Borrower may sell or lease inventory
in the ordinary course of business, (ii) Borrower may sell or otherwise dispose
of obsolete or retired equipment in the ordinary course of business, (iii)
Borrower may grant security interests to secure "Senior Debt" as such term is
defined in the Subordination Agreements, (iv) Borrower may grant to Branch
Banking & Trust Company a security interest in certain of its assets pursuant to
the Promissory Note dated January 24, 1995, and (v) Borrower may grant security
interests to Lender.
4.2 Use of Proceeds. Borrower shall use the proceeds of the Loan to finance
expansion of the Borrower's existing business and for general operating
expenditures.
4.3 Further Assurances. Borrower will take all actions reasonably requested
by Lender to create and maintain in Lender's favor valid liens upon and
perfected security interests in any Collateral secured pursuant to this
Agreement or the other Security Instruments and all other security for the
Secured Obligations now or hereafter held by or for Lender. Without limiting the
foregoing, Borrower agrees to execute such further instruments (including
financing statements and continuation statements) as may be required or
permitted by any law relating to notices of, or affidavits in connection with,
the perfection of Lender's liens and security interests, and to cooperate with
Lender in the filing or recording and renewal thereof.
4.4 Limitations on Debt and Obligations. Borrower shall not incur, assume
or otherwise suffer to exist any Debt except (i) Debt reflected on Borrower's
balance sheet dated as of December 31, 1996 and delivered to Lender in
connection with the making of the Loan, (ii) "Senior Debt" as such term is
defined in the Subordination Agreements, and (iii) Debt incurred pursuant to
this Agreement and evidenced by the Note. For purposes of this Agreement, "Debt"
of any person means, without duplication, (a) all obligations of such person for
borrowed money and all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments on which interest charges are
customarily paid, (b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such person, (c) all capitalized lease
obligations of such person (to the extent required by generally accepted
accounting principles to be included on the balance sheet of such person) and
(d) all obligations of such person (contingent or otherwise) to guarantee,
purchase or otherwise acquire, or otherwise assure a creditor against loss in
respect of, Debt of another person.
4.5 Financial Statements and Reports. Borrower shall furnish to Lender the
following financial information:
(i) within one hundred and twenty (120) days after the end of each
fiscal year of Borrower, audited consolidated financial statements of
Borrower, including a balance
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sheet as of the close of such fiscal year, an income statement and
statements of changes in stockholders' equity, and of cash flows for such
fiscal year, all in reasonable detail, prepared in accordance with GAAP
consistently applied, and with the report thereon of independent public
accountants acceptable to Lender (provided any "Big 6" accounting firm
shall be deemed acceptable);
(ii) within one hundred and twenty (120) days after the end of each
fiscal year of Borrower, a certificate of the chief executive or chief
financial officer of Borrower stating that to the best knowledge of such
officer, (A) Borrower has kept, observed, performed and fulfilled each
covenant, term and condition of this Agreement and the other Loan Documents
during the preceding fiscal year and (B) no Event of Default hereunder has
occurred and is continuing (or if such officer has knowledge that an Event
of Default has occurred and is continuing, specifying the nature of same,
the period of existence of same and the action Borrower proposes to take in
connection therewith);
(iii) within forty-five (45) days after the end of each calendar month
ending on or before September 30, 1997, a consolidated balance sheet of
Borrower as of the close of such month and consolidated statements of
earnings and retained earnings of Borrower for such month and for the prior
months of the current fiscal year (on a year to date basis), all in
reasonable detail and unaudited but prepared on the basis of GAAP
consistently applied (except for the absence of footnotes and subject to
year-end adjustments), together with a report of Borrower's management with
respect to such financial statements;
(iv) within thirty (30) days after the end of each calendar month
ending after September 30, 1997, a consolidated balance sheet of Borrower
as of the close of such month and consolidated statements of earnings and
retained earnings of Borrower for such month and for the prior months of
the current fiscal year (on a year to day basis), each compared to the same
period in the previous fiscal year, all in reasonable detail, and unaudited
but prepared on the basis of GAAP consistently applied (except for the
absence of footnotes and subject to year-end adjustments), together with a
report of Borrower's management with respect to such financial statements;
and
(v) with reasonable promptness, such other financial data as Lender
may reasonably request.
4.6 Maintenance of Books and Records; Inspection. Borrower shall maintain
its books, accounts and records on the basis of GAAP consistently applied, and
permit a representative of Lender to visit and inspect any of its properties
(including but not limited to the collateral security described in Section 2.1
or the Security Instruments), corporate books and financial records, and to
discuss its accounts, affairs and finances with Borrower or the principal
officers of Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided, however, should there exist no Event of
Default, Lender shall
12
provide reasonable notice to the Borrower and will conduct such visits and
inspections without material interruption of the business of the Borrower.
4.7 Insurance. Without limiting any of the requirements of any of the other
Loan Documents, Borrower shall maintain, in amounts customary for entities
engaged in comparable business activities, fire, liability and other forms of
insurance on its properties (including but not limited to the collateral now or
hereafter securing payment and performance of the Secured Obligations), against
such hazards and in at least such amounts as is customary in Borrower's
business. Lender shall be named as an additional insured with respect to
liability insurance and an additional loss payee with respect to hazard
insurance (subject to the interests of any holder of "Senior Debt" as such term
is defined in the Subordination Agreements). Each such insurance policy shall
require the insurer to notify Lender in writing at least thirty (30) days prior
to any cancellation or material reduction or limitation of such policy. At the
request of Lender, Borrower will deliver forthwith a certificate specifying the
details of such insurance in effect.
4.8 Taxes and Assessments. Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided that Borrower shall have the right to
contest in good faith and by appropriate proceedings the applicability or
validity of any such tax, assessment, charge or levy without paying such tax,
assessment, charge or levy so long as adequate reserves with respect thereto are
maintained in accordance with generally accepted accounting principles.
4.9 Corporate Existence. Borrower shall maintain its corporate existence in
the state indicated in Section 3.1 hereof, and its qualification and good
standing as a foreign corporation in each jurisdiction in which such
qualification is required by applicable law; provided, however, that Borrower
shall be permitted to merge with and into a Delaware or North Carolina
corporation for the sole purpose of changing its state of incorporation to the
State of Delaware or the State of North Carolina provided that (i) the
shareholders of the surviving corporation immediately prior to such merger are
the sole shareholders of Borrower immediately after to such merger, (ii) the
number of authorized and issued and authorized and unissued shares, and the
respective classes and series, of capital stock of the surviving corporation
shall be the same as the number of authorized and issued and authorized and
unissued shares, and the respective classes and series of capital stock of
Borrower immediately prior to such merger, (iii) the voting powers,
designations, preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions of all classes and
series of capital stock of the surviving corporation shall be identical to the
voting powers, designations, preferences and relative, participating, optional
and other special rights, qualifications, limitations and restrictions of the
respective classes and series of capital stock of Borrower as in effect
immediately prior to such merger, (iv) Lender shall have received (A) an
assumption agreement in form and substance
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satisfactory to Lender, duly executed by the surviving corporation and pursuant
to which the surviving corporation shall expressly assume all of the obligations
of Borrower under this Agreement and the other Loan Documents, and (B) such
acknowledgments, certificates, instruments and legal opinions relating to such
merger and assumption agreement as the Lender shall reasonably request, and (v)
the provisions of Section 203 of the Delaware General Corporation Law or [insert
any similarly North Carolina provision] would not apply to Borrower or the
authorization or issuance of the shares of capital stock to be issued pursuant
to the Warrant.
4.10 Compliance with Law and Agreements. Except where failure to do so does
not and would not constitute a Material Adverse Event, Borrower shall maintain
its business operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances, and such laws, regulations and ordinances of foreign
jurisdictions, governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which Borrower is a party or by which Borrower or any of its
properties is bound. Without limiting the foregoing, Borrower shall pay all of
its indebtedness promptly and substantially in accordance with the terms
thereof.
4.11 Environmental Requirements. In addition to, and not in derogation of,
the requirements of Section 4.10, Borrower will comply with all laws,
governmental standards and regulations applicable to Borrower or to properties
owned or leased by Borrower, in respect of occupational health and safety and
Applicable Environmental Laws (unless such laws, standards or regulations are
being contested in good faith by appropriate proceedings and adequate reserves
therefor have been established), promptly notify Lender of its receipt of any
notice of a violation of any such law, standard or regulation, and indemnify and
hold Lender harmless from all loss, cost, damage, liability, claim and expense
incurred by or imposed upon Lender on account of Borrower's failure to perform
its obligations under this Section 4.11.
4.12 Notice of Default. Borrower shall give written notice to Lender of the
occurrence of any default or Event of Default under this Agreement or default or
event of default under any other Loan Document promptly upon knowledge of the
occurrence thereof. Borrower shall give written notice to Lender of the
occurrence of any default under any of the documents evidencing, governing or
otherwise relating to "Senior Debt" as such term is defined in the Subordination
Agreements (the "Senior Debt Documents").
4.13 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings instituted by any persons
whomsoever against Borrower or materially affecting any of the assets of
Borrower, and (ii) any dispute between Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might interfere
with the normal operations of Borrower, except where such actions, suits,
proceedings and disputes do not and would not reasonably be expected to
constitute a Material Adverse Event.
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4.14 ERISA. If Borrower has in effect, or hereafter institutes, a Plan,
then the following warranty and covenants shall be applicable during such period
as any such Plan shall be in effect: (i) Borrower hereby warrants that no fact
that might constitute grounds for the involuntary termination of the Plan, or
for the appointment by the appropriate United States District Court of a trustee
to administer the Plan, exists at the time of execution of this Agreement; (ii)
Borrower hereby covenants that throughout the existence of the Plan, Borrower's
contributions under the Plan will meet the minimum funding standards required by
ERISA and Borrower will not institute a distress termination of the Plan; and
(iii) Borrower hereby covenants that it will send to Lender a copy of any notice
of a reportable event (as defined in ERISA) required by ERISA to be filed with
the Labor Department or the Pension Benefit Guaranty Corporation, at the time
that such notice is so filed.
4.15 Key Man Insurance. Borrower will maintain in full force and effect, at
all times during the term of this Agreement and at its sole cost and expense, an
insurance policy in the amount of at least the amount of the Loan insuring the
life of X. X. Xxxxxxx, issued by an insurance company having an A.M. Best Rating
of "A" or better and a financial size category of not less than VIII, the
proceeds of which policy shall be assigned to Lender.
4.16 Name Change. Borrower will not change its name or conduct its business
under any name other than its legal name and any name set forth on Schedule
4.16, unless Borrower shall have given Lender thirty (30) days prior written
notice and delivered to Lender such executed Uniform Commercial Code financing
statements and financing statement amendments and opinions of counsel as Lender
shall reasonably request.
4.17 Merger, Consolidation and Sale of Assets. Borrower will not (a)
acquire the business of or a substantial portion of the assets of, or merge or
consolidate with any other person or entity or sell, lease or transfer or
otherwise dispose of all or a substantial portion of its assets to any person or
entity, other than sales or leases of inventory in the ordinary course of
business, or (b) acquire or create any Subsidiaries; provided, however, that
Borrower may acquire the business of or a substantial portion of the assets of,
any other person or entity or acquire a Subsidiary provided that the value of
the aggregate consideration paid by Borrower therefor (whether in cash,
securities or other property) for all such acquisitions made during the term of
this Agreement shall not exceed $500,000.
4.18 Liability for Other Parties. Borrower will not become liable, directly
or indirectly, for any obligation of any other person, by guaranty, endorsement,
or otherwise, except by endorsement in the ordinary course of business of
negotiable instruments payable at sight for deposit or collection, and except
for those guarantees set forth on Schedule 3.12(c).
4.19 Dividends; Redemptions. Borrower will not (i) declare, set aside, or
pay any dividend or make any other distribution, whether in cash, in kind, or
otherwise, on account of or with respect to, or (ii) apply any of its funds,
property or assets to the purchase, redemption or other retirement of, any class
of its capital stock or any warrants, options or other rights with
15
respect to any class of its capital stock; provided, however, that Borrower may
apply its funds to the purchase, redemption or other retirement of its capital
stock held by former employees of Borrower or options to purchase its capital
stock held by former employees of Borrower provided the aggregate amount of
funds applied to all such purchases, redemptions and other retirements during
the term of this Agreement does not exceed $100,000.
4.20 Liquidation. Borrower will not permit the dissolution or liquidation
of Borrower.
4.21 Loans and Investments. Borrower will not (i) make any loans other than
deposits required by government agencies or public utilities, or (ii) make any
investments (which term shall include the purchase of any ownership or similar
interest in any corporation, partnership, joint venture, limited liability
company or other business organization or the purchase of any debt or equity
securities or instruments issued by any such entity) other than cash equivalent
investments; provided, however, that Borrower may make any such investments
provided that the aggregate consideration paid by Borrower in respect of all
such investments (whether in cash, securities or other property) made during the
term of this Agreement shall not exceed $250,000.
4.22 Notice of Issuance of Stock. Upon the issuance of additional shares of
capital stock of Borrower, Borrower shall promptly disclose to Lender, in
writing, the number of shares issued, the price therefor, and such other
information as Lender may from time to time reasonably request.
4.23 Change in Business. Borrower will not engage in any line of business
other than the business conducted by Borrower as of the date of this Agreement
or such related or incidental lines of business as its Board of Directors shall
approve.
4.24 Location of Business and Collateral. Borrower shall give written
notice to Lender (i) thirty (30) days prior to the opening of any new business
office, setting forth the address (including county) of such new location, (ii)
thirty (30) days prior to changing the location of records with respect to
intangible personal property constituting collateral security for the Secured
Obligations and (iii) whenever any Collateral comprised of tangible personal
property will be located in a county or state that is not set forth on Schedule
3.5 hereof for a period of four months or longer. Prior to establishing any new
business office location or locating any collateral in a county or state that is
not set forth on Schedule 3.5 hereof for a period of four months or longer,
Borrower shall have (i) executed and delivered to Lender all financing
statements and financing statement amendments which Lender may reasonably
request in connection therewith in order to perfect and protect the security
interests and priority of Lender in such Collateral, (ii) paid in full all
filing fees and taxes, if any, payable in connection with such filings and (iii)
complied with any other requirement in this Agreement or any other Loan Document
relating to the location of any Collateral.
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4.25 The Interactive Creations Incorporated Merger. Upon consummation of
the merger by and among ICI Acquisition Corp., a North Carolina corporation and
wholly-owned subsidiary of Borrower and Interactive Creations Incorporated, a
Texas corporation, Borrower will (a) cause the surviving corporation to execute
a subsidiary guaranty and security agreement, in each case in form and substance
satisfactory to Lender, guaranteeing on an unconditional basis the due and
punctual payment of all Secured Obligations and granting a security interest in
substantially all of the assets of the surviving corporation, (b) pledge the
surviving corporation's stock to Lender as security for the Secured Obligations
pursuant to a pledge agreement in form and substance satisfactory to Lender, and
(c) provide such opinions of Borrower's counsel as Lender shall reasonably
request.
4.26 Information; Post-Closing Review. Borrower will furnish to Lender such
financial data and other information relating to the business of Borrower as
Lender may from time to time reasonably request. In addition to the foregoing,
at Lender's request, no later than ninety (90) days after the Loan is advanced,
Borrower shall furnish Lender a certificate executed by the president itemizing
the use of proceeds from the Loan, and, at Lender's request, Borrower shall
cooperate with Lender in connection with a post-closing review with respect to
the use of the proceeds of the Loan and such other matters relating to the Loan
as Lender shall reasonably request.
ARTICLE 5 - CONDITIONS TO CLOSING
5.1 Deliveries. The obligation of Lender to make the Loan is subject to the
receipt by Lender of the following documents, each of which shall be reasonably
satisfactory to Lender in form and substance:
(a) Corporate Documents. A copy of the Articles of Incorporation of
Borrower, as certified by the Secretary of State of Maryland, and a
certificate of existence or good standing from the Secretary of State of
Maryland and each other State in which Borrower is legally required to
qualify to transact business as a foreign corporation, each as of a recent
date.
(b) Security Instruments. Each of the Security Instruments, duly
executed by Borrower.
(c) Officer's Certificate. A certificate of the President of Borrower
to the effect set forth in Exhibit E.
(d) Opinion of Counsel. The favorable written opinion of Smith,
Anderson, Blount, Dorsett, Xxxxxxxx & Xxxxxxxx, L.L.P., counsel to
Borrower, in form reasonably satisfactory to King & Spalding, counsel to
Lender, and substantially in the form of
17
Exhibit F hereto.
(e) The Note. The Note, duly completed and executed by Borrower.
(f) UCC-1 Financing Statements. Financing statements on Form UCC-1,
duly completed and executed by Borrower.
(g) Stock Purchase Warrant. The Warrant duly completed and executed by
Borrower.
(h) Subordination Agreements. The Subordination Agreements, duly
executed by Borrower and each of High Point Capital, LLC and Cupertino
National Bank and Trust.
(i) Consents and Approvals. True copies of all consents and required
governmental approvals, if any, necessary to the execution, delivery and
performance of the Loan Documents and the transactions contemplated hereby
and thereby.
(j) Closing Certificate. A certificate of a duly authorized officer of
Borrower, substantially in the form of Exhibit G hereto, certifying that,
after giving effect to this Agreement, all representations and warranties
herein are true and correct and there is no default or Event of Default in
existence as of such date, nor any event which, given the passage of time,
would constitute an Event of Default.
(k) Shareholder Subordination Agreements. Shareholder Subordination
Agreements, duly executed by Borrower, X.X. Xxxxxxx, Xxxxxx X. Xxxxxxx,
Xxxxx X. Xxxxxxx and any other holder of capital stock of Borrower that has
extended credit to Borrower.
(l) Additional Deliveries. Such additional documents, certificates and
instruments as are deemed reasonably necessary or appropriate by Lender.
5.2 Other Conditions to Lender's Obligation to make Loan. The obligation of
the Lender to make the Loan is subject to the satisfaction of each of the
additional conditions precedent set forth in this Section 5.2:
(a) Compliance with Warranties, No Default, etc. The representations
and warranties set forth in this Agreement and the Security Instruments
shall have been true and correct in all material respects, both before and
after giving effect to the making of the Loan.
(b) No Default. No Event of Default shall have occurred and be
continuing, and no event shall have occurred that with the giving of notice
or the passage of time or
18
both would constitute an Event of Default.
(c) Material Adverse Event. In the reasonable judgment of Lender, no
Material Adverse Event shall have occurred.
ARTICLE 6 - DEFAULT AND REMEDIES
6.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) default in the punctual payment of any portion of the principal
amount of the indebtedness evidenced by the Note, or default in the payment
of any interest on the indebtedness evidenced by the Note which is not
cured within five (5) days;
(b) any representation by Borrower hereunder or under any of the other
Loan Documents, or delivery by Borrower of any schedule, statement,
resolution, report, certificate, notice or writing to Lender, is untrue in
any material respect on the date as of which made, stated or certified;
(c) a default or event of default (not covered by Section 6.1(a) or
(b)) shall occur under, or there shall occur such other failure by Borrower
to perform its obligations under, any of the Loan Documents and such
default or event of default shall not be cured within thirty (30) days;
(d) Borrower (i) shall admit in writing its inability to pay its debts
generally as they become due; or (ii) shall make an assignment for the
benefit of creditors or petition or apply to any tribunal for the
appointment of a custodian, receiver or trustee for it or a substantial
part of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or (iv) shall have had any such petition or application filed or
any such proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made that remains undismissed
for sixty (60) days; or (v) shall indicate, by any act or omission, its
consent to, approval of, or acquiescence in any such petition, application,
proceeding or order for relief or the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (vi) shall suffer
any such custodianship, receivership or trusteeship to continue
undischarged for a period of thirty (30) days or more;
(e) Borrower shall be liquidated, dissolved, partitioned or
terminated, or the articles or certificate of incorporation of Borrower
shall expire or be revoked;
19
(f) Borrower shall default in the timely payment or performance of any
obligation now or hereafter owed to Lender in connection with any
indebtedness of Borrower now or hereafter owed to Lender, other than the
Loan, subject to any applicable grace period; or
(g) (i) Borrower shall fail to pay any principal of or premium or
interest on any Debt owed by Borrower (other than the Loan), which is
outstanding in a principal amount of at least $100,000 in the aggregate,
when the same becomes due and payable (whether by scheduled maturity,
acceleration, demand or otherwise), and such failure shall continue after
any cure period applicable thereto; or (ii) any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such indebtedness and shall continue after any applicable cure period, if
the effect of such event or condition is to accelerate or permit the
acceleration of such indebtedness; or (iii) any such indebtedness shall be
accelerated or otherwise declared to be due and payable prior to the stated
maturity thereof; or (iv) any such indebtedness shall be required to be
prepaid, redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such indebtedness shall be required to be made, in each
case prior to the stated maturity thereof;
(h) the occurrence of any default or event of default under the Senior
Debt Documents which is not cured within any applicable grace period;
(i) any person set forth on Schedule 6.1(i) shall have sold,
transferred or otherwise disposed of record or beneficial ownership of more
than ten percent (10%) of the shares of common stock of Borrower held by
such person on the date hereof;
(j) any person set forth on Schedule 6.1(j) attached hereto shall
cease to hold the office of Borrower set forth opposite such person's name
on said Schedule; or
(k) Borrower shall fail to provide the documents required under
Section 4.25 of this Agreement within 30 days of consummation of the merger
by and among ICI Acquisition Corp., a North Carolina corporation and
wholly-owned subsidiary of Borrower and Interactive Creations Incorporated,
a Texas corporation.
6.2 Acceleration of Maturity; Remedies. Upon the occurrence of any Event of
Default described in Section 6.1(d), the indebtedness evidenced by the Note as
well as any and all other indebtedness of Borrower to Lender shall be
immediately due and payable in full; and upon the occurrence of any other Event
of Default described in Section 6.1, Lender at any time thereafter while such
Event of Default is continuing may at its option accelerate the maturity of the
indebtedness evidenced by the Note, whereupon such indebtedness shall be and
become immediately due and payable; all without notice of any kind. Upon the
occurrence of any such Event of Default and the acceleration of the maturity of
the indebtedness evidenced by the Note:
20
(a) Lender shall be immediately entitled to exercise any and all
rights and remedies possessed by Lender pursuant to the terms of this
Agreement (including without limitation, those remedies set forth in
Sections 6.3 and 6.4), the Security Instruments and all of the other Loan
Documents;
(b) Lender shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code as in effect in any applicable
jurisdiction (the "UCC"); and
(c) Lender shall have any and all other rights and remedies that
Lender may now or hereafter possess at law, in equity or by statute.
6.3 Lender's Rights.
(a) Power of Attorney. Borrower hereby irrevocably constitutes and
appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Borrower and in the name of
Borrower or in its own name, from time to time after the occurrence, and
during the continuation of, an Event of Default, in Lender's discretion,
for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes
of this Agreement, and, without limiting the generality of the foregoing,
Borrower hereby gives Lender the power and right, on behalf of Borrower,
without notice to or assent by Borrower, to do the following:
(i) in the name of Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under,
or with respect to, any Collateral and to file any claim or to take
any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Lender for the purpose of collecting
any and all such moneys due with respect to such Collateral whenever
payable;
(ii)to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Agreement and to pay all or
part of the premiums therefor and the reasonable costs thereof; and
(iii) to direct any party liable for any payment under any of the
Collateral to make payment of any and all monies due or to become due
thereunder directly to Lender or as Lender shall direct, to ask or
demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral, to sign and endorse any
invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts
21
against debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral, to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral, to defend any suit,
action or proceeding brought against Lender with respect to any Collateral,
to settle, compromise or adjust any suit, action or proceeding described in
the preceding clause and, in connection therewith, to give such discharges
or releases as Lender may deem appropriate, to assign any trademark (along
with goodwill of the business to which such trademark pertains), throughout
the world for such term or terms, on such conditions, and in such manner,
as Lender shall in its sole discretion determine, and generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Lender were
the absolute owner thereof for all purposes, and to do, at Lender's option
and Lender's expense, at any time, or from time to time, all acts and
things which Lender deems necessary to protect, preserve or realize upon
the Collateral and the liens of Lender thereon and to effect the intent of
this Agreement, all as fully and effectively as Borrower might do.
Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with
an interest and shall be irrevocable, except upon repayment in full of all
Secured Obligations, at which time this power of attorney shall terminate
without further action of Borrower or Lender.
(b) Other Powers. Borrower also authorizes Lender, at any time and
from time to time, to execute, in connection with any sale provided for in
Section 6.4, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
(c) No Duty on the Part of Lender. The powers conferred on Lender
hereunder are solely to protect the interests of Lender in the Collateral
and shall not impose any duty upon Lender to exercise any such powers.
Lender shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither it nor any of its
partners, officers, directors, employees or agents shall be responsible to
Borrower for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct.
6.4 Remedies with respect to Collateral. If an Event of Default shall occur
and be continuing, Lender may exercise, in addition to all other rights and
remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Lender without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon Borrower or any other
person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith
22
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, assign, give an option or options to
purchase, or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any office of Lender or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or on future delivery without assumption of any credit risk.
Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, at any private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
Borrower, which right of equity is hereby waived or released. Borrower further
agrees, at Lender's request, to assemble the Collateral and make it available to
Lender at places which Lender shall reasonably select, whether at Borrower's
premises or elsewhere. Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of Lender hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Secured Obligations, in such order as Lender may elect,
and only after such application and after the payment by Lender of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the UCC, need Lender account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, Borrower waives all claims,
damages and demands it may acquire against Lender arising out of the exercise by
Lender of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least five days before such sale or other
disposition. Borrower shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to pay the
Secured Obligations and the reasonable fees and expenses of any attorneys
employed by Lender to collect such deficiency.
6.5 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
6.6 Proceeds of Remedies. Any or all proceeds resulting from the exercise
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
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(a) First, to the costs and expenses, including reasonable attorney
and paralegal fees and costs, incurred by Lender in connection with the
exercise of its remedies;
(b) Second, to the expenses of curing the default that has occurred,
in the event that Lender elects, in its sole discretion, to cure the
default that has occurred;
(c) Third, to the payment of accrued and unpaid interest on the
indebtedness evidenced by the Note;
(d) Fourth, to the payment of the unpaid principal of the Note;
(e) Fifth, to the payment of all other Secured Obligations that are
due and payable; and
(f) Sixth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
ARTICLE 7 - TERMINATION
This Agreement shall remain in full force and effect until the payment in
full by Borrower of all amounts owed to Lender under the Loan Documents, at
which time Borrower will prepare all documents necessary to release Lender's
security interest in the Collateral, including appropriate UCC-3 termination
statements. Within thirty (30) days after receipt by Lender of all such
documents, Lender will execute and deliver to Borrower all such documents to
release its security interests in the Collateral.
ARTICLE 8 - MISCELLANEOUS
8.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
Lender may, at its option, pay, perform or observe the same, and all payments
made or costs or expenses reasonably incurred by Lender in connection therewith
(including but not limited to reasonable attorney and paralegal fees and costs),
with interest thereon at the highest default rate provided in the Note, shall be
immediately repaid to Lender by Borrower and shall constitute a part of the
Secured Obligations and be secured hereby until fully repaid. Lender, in its
sole and complete discretion and without any liability therefor, shall determine
the necessity for any such actions and of the amounts, if any, to be paid.
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8.2 Successors and Assigns Included in Parties. Whenever in this Agreement
one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
8.3 Costs and Expenses. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the making of the Loan, including but not
limited to filing fees, recording taxes and reasonable attorney and paralegal
fees and costs, promptly upon demand of Lender. Borrower further agrees to pay
all of the out-of-pocket costs and expenses incurred by Lender in connection
with the maintenance of its security interest in the Collateral, protection of
the Collateral, and collection of the Loan, including but not limited to
reasonable attorney and paralegal fees and costs related thereto (including any
such incurred in connection with any appellate litigation), promptly upon demand
of Lender.
8.4 Assignment. The Note, this Agreement and the other Loan Documents may
be endorsed, assigned and transferred in whole or in part by Lender and any such
subsequent holder or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in the Note, this Agreement and
the other Loan Documents (or any portion thereof). Lender shall notify Borrower
in writing of any such endorsement, assignment or transfer by Lender. Borrower
shall not assign any of its rights nor delegate any of its duties hereunder or
under any of the other Loan Documents without the prior express written consent
of Lender.
8.5 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation of Borrower hereunder and under all of
the other Loan Documents.
8.6 Severability. If any provisions of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby nor shall the
validity and enforceability thereof be affected.
8.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note, the Security Instruments or any of the
other Loan Documents to the contrary notwithstanding, in no event whatsoever,
whether by reason of advancement of proceeds of the Loan, acceleration of the
maturity of the unpaid balance of the Loan or otherwise, shall the interest and
other consideration agreed to be paid to Lender for the use of the money
advanced or to be advanced hereunder exceed the maximum amounts collectible
under applicable laws in effect from time to time. It is understood and agreed
by the parties that, if for any reason whatsoever the interest or other
consideration paid or contracted to be paid by Borrower in respect of the
indebtedness evidenced by the Note shall exceed the
25
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and other consideration
shall be reduced to the maximum amounts collectible under applicable laws in
effect from time to time, and any amounts collected by Lender that exceed such
maximum amounts shall be applied to the reduction of the principal balance of
the indebtedness evidenced by the Note or refunded to Borrower, in Lender's sole
discretion, so that at no time shall the interest and other consideration paid
or payable in respect of the indebtedness evidenced by the Note exceed the
maximum amounts permitted from time to time by applicable law.
8.8 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
8.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
or sent by certified mail or nationally recognized overnight courier service
(such as Federal Express) to the other party at the address set forth below, or
at such other address as may be supplied in writing and of which receipt has
been acknowledged in writing. The date of personal delivery, the third day after
the date of mailing, or the business day after the date of delivery to such
courier service, as the case may be, shall be the date of such notice, election
or demand. For the purposes of this Agreement, notices, elections or demands
made pursuant hereto shall be made to the following addresses:
If to Lender: Petra Capital, LLC
000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxx X. Xxxxx, III
with a copy to: King & Spalding
000 Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Fax: 000-000-0000
Attention: Xxxxxx X. Xxxxxxx, Xx.
If to Borrower: Interactive Magic, Inc.
000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxxxx X. Xxxxxx
with a copy to: Smith, Anderson, Blount, Dorsett,
Xxxxxxxx & Xxxxxxxx, L.L.P.
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0000 Xxxxx Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Fax: 919/000-0000
Attention: Xxxxxx X. Xxxxx
8.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender executed contemporaneously herewith represent the
entire agreement between the parties concerning the subject matter hereof, and
all oral discussions and prior agreements are merged herein.
8.11 Counterparts. This Agreement may be executed in multiple originals or
counterparts, each of which shall be deemed an original and all of which when
taken together shall constitute but one and the same instrument.
8.12 Governing Law. This Agreement shall be construed and enforced under
the internal laws of the State of Georgia, without reference to the conflict of
laws principles thereof.
8.13 Amendments; Incorporation. No amendment or modification hereof shall
be effective except in a writing executed by each of the parties hereto. All
schedules, exhibits, riders, and other documents and instruments referenced
herein shall be deemed to be incorporated herein and made a part hereof.
8.14 Waiver of Jury Trial. LENDER AND BORROWER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW)
ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER, RELATING TO, OR
CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR ANY OTHER AGREEMENT, INSTRUMENT
OR DOCUMENT CONTEMPLATED HEREBY OR DELIVERED IN CONNECTION HEREWITH AND AGREE
THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have executed this Loan and Security
Agreement, or have caused this Agreement to be executed by their duly authorized
officers, as of the day and year first above written.
BORROWER:
INTERACTIVE MAGIC, INC.
By: /s/X. X. Xxxxxxx, Xx.
-------------------------------------
Name: X. X. Xxxxxxx, Xx.
Title:
Attest:
--------------------------------
Name:
Title: Secretary
LENDER:
PETRA CAPITAL, LLC
By: Petra Capital Management, LLC,
-------------------------------------
Manager
By: /s/Xxxx X. Xxxxx, III
-------------------------------------
Name: Xxxx X. Xxxxx, III
Title: Member
[SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT]
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Index of Attachments
Exhibit A Form of Secured Promissory Note
Exhibit B Form of Stock Purchase Warrant
Exhibit C-1 Form of High Point Subordination Agreement
Exhibit C-2 Form of Cupertino Subordination Agreement
Exhibit D Form of Patent and Trademark Security Agreement
Exhibit E Form of Officer's Certificate
Exhibit F Form of Opinion of Borrower's Counsel
Exhibit G Form of Closing Certificate
Schedule 3.1(a) Jurisdictions in Which Borrower is Qualified
Schedule 3.1(b) Subsidiaries
Schedule 3.1(c) Options, Warrants, Etc.
Schedule 3.1(d) Preemptive Rights, Etc.
Schedule 3.2 Required Consents
Schedule 3.4 Outstanding Loans, Liens, Security Interests, Etc.
Schedule 3.5 Location of Collateral
Schedule 3.6 Litigation
Schedule 3.12(a) Insider Debt
Schedule 3.12(b) Insider Transactions
Schedule 3.12(c) Guarantees of Insider Debt
Schedule 3.15 ERISA
Schedule 4.16 Other Names
Schedule 6.1(i) Chance of Ownership
Schedule 6.1(j) Change of Management
-Index of Attachments-
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