Exhibit 2.1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
between:
CLARENT CORPORATION
a Delaware corporation;
and
VERSO TECHNOLOGIES, INC.
a Minnesota corporation
Dated as of December 13, 2002
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is being entered into as of December 13,
2002, by and between CLARENT CORPORATION, a Delaware corporation ("SELLER"), and
VERSO TECHNOLOGIES, INC., a Minnesota corporation ("PURCHASER"). Seller and
Purchaser are referred to collectively in this Agreement as the "PARTIES."
Certain other capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
1. Seller is engaged in the business of providing softswitch and Voice over
Internet Protocol solutions for next generation networks and enterprise
convergent solutions (the "BUSINESS").
2. Seller intends to file a Bankruptcy Case with the Bankruptcy Court under the
Bankruptcy Code.
3. Purchaser desires to purchase and obtain the assignment from Seller, and
Seller desires to sell and transfer to Purchaser substantially all of the assets
of Seller relating to the Business together with certain obligations and
liabilities relating thereto, all in the manner and subject to the terms and
conditions set forth herein and in the Ancillary Agreements.
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
1. SALE AND PURCHASE OF ASSETS; RELATED TRANSACTIONS.
1.1 SALE AND PURCHASE OF ASSETS. On the terms and subject to the
conditions and other provisions set forth in this Agreement and in the Ancillary
Agreements, at the Closing Seller shall cause to be sold and transferred to
Purchaser, pursuant to Section 363 of the Bankruptcy Code, all of Seller's
right, title and interest in and to the Assets, including all assets,
properties, rights of Seller, and claims of Seller related to the Business
(other than the Excluded Assets), wherever located, whether tangible or
intangible, as the same shall exist at the Closing (such right, title and
interest in and to all such assets, properties, rights, contracts and claims
being collectively referred to here in as the "ASSETS"). For purposes of this
Agreement, and other than Excluded Assets, "ASSETS" shall include Seller's
right, title and interest in and to the assets, properties, rights, contracts
and claims described in clauses (a) through (m) below:
(a) all of Seller's rights and interests as of the Closing
Date in and to all trade accounts receivable, notes receivable (i.e. equipment
leases) and other receivables of Seller, including any credits directly
offsetting any trade accounts receivable debit but only if the trade accounts
receivable is a debit balance (excluding any accounts receivable, notes
receivable and other receivables that were fully reserved and/or written off as
part of the financial restatement) (collectively, the "RECEIVABLES");
1.
(b) all of Seller's rights and interests as of the Closing
Date in and to all intellectual property and related assets, including (i)
telephone and telecopier numbers, e-mail addresses and all internet domain names
(including such domain names as set forth on Schedule 1), (ii) all foreign and
domestic patents, patent rights, patent disclosures, and statutory invention
registrations, including all reissues, divisions, continuations, continuations
in part, extensions and reexaminations thereof, and all improvements thereto,
including the Specified Patents, (iii) all service marks, trademarks (including
the Specified Trademarks), tradenames, trade dress, all product names, all
assumed or fictitious names and the logos associated therewith, copyrights
(whether registered or unregistered), applications for and renewals of all of
the foregoing, (iv) other such property and intangible rights owned by Seller,
including financial and marketing business data, pricing and cost information,
business and marketing plans and subject to applicable privacy laws, customer
and supplier lists, together with the goodwill associated with which such
trademarks, tradenames, product names and service marks, and (v) all computer
software, including source code, object code, comments, user interfaces, menus,
buttons and icons, and all files, data, manuals, design notes and other items
and documentation related thereto and associated therewith owned by Seller
(collectively, the "INTELLECTUAL PROPERTY");
(c) all of Seller's rights and interests as of the Closing
Date in and to all technology, including all formulae, processes, procedures,
designs, ideas, research records, inventions (whether or not patentable),
records of inventions, test information, technical information, engineering
data, proprietary information, manufacturing information, know-how, and trade
secrets and all related manuals, books, files, journals, models, instructions,
patterns, drawings, blueprints, plans, designs specifications, equipment lists,
parts lists, descriptions, data and art work owned by Seller (collectively, the
"TECHNOLOGY");
(d) all of Seller's rights and interests as of the Closing
Date in and to all warranties, representations and guarantees made by suppliers,
manufacturers and contractors in connection with the operation of the Business;
(e) all of Seller's rights and interests as of the Closing
Date in and to all Seller Permits held by Seller (or, to the extent any such
Seller Permit is not freely transferable, all right, title and interest of
Seller in such Seller Permit to the full extent of such right, title and
interest may be transferred);
(f) all of Seller's rights and interests (A) as of the Closing
Date in and to any and all agreements set forth on Schedule 2 (collectively
referred to as the "ASSIGNED CONTRACTS") and (B) as of the date of execution and
delivery by Seller and Purchaser of a Xxxx of Sale, Assignment and Assumption
Agreement in the form of Exhibit F relating thereto, in and to any other
agreements, contracts, purchase orders and purchase contracts, sales orders and
sales contracts, quotations and bids, distribution agreements, licenses
(including licenses to software), non-disclosure or confidentiality agreements,
arrangements and installation and service agreements and any amendments,
notices, letters or other agreements related thereto that Purchaser notifies
Seller at any time prior to the date 30 days after the Closing that it wants to
acquire (the "ADDITIONAL AGREEMENTS") (it being understood that such Additional
Agreements shall not be included in the term "Assets" until Purchaser notifies
Seller of its intent to acquire such Additional Agreements and that no such
Additional Agreement shall be sold, transferred or assigned by Seller to
Purchaser until a Xxxx of Sale, Assignment and Assumption Agreement in
2.
the form of Exhibit F related thereto is executed and delivered by Seller and
Purchaser), said Assigned Contracts and Additional Agreements to be assumed and
assigned pursuant to Section 365 of the Bankruptcy Code;
(g) all of Seller's rights and interests as of the Closing
Date in and to all equipment, materials, prototypes, tools, supplies, vehicles,
furniture, fixtures, improvements and other tangible assets owned by Seller;
(h) copies of records relating to the Assets, excluding
records which are attorney-client privileged or considered attorney work
product;
(i) all of Seller's rights and interests as of the Closing
Date in and to the deposit for the Xxxxxxxxx Facility;
(j) all of Seller's rights and interests as of the Closing
Date in and to all raw materials, finished product inventories, work-in-process
inventories, product-in-transit inventories and other inventories of Seller
("INVENTORY");
(k) all of Seller's rights and interests as of the Closing
Date in and to all goodwill relating to the Assets;
(l) as determined in accordance with Section 4.9, all of
Seller's rights and interests as of the Closing Date in and to either (i) all of
the outstanding capital stock of the Canadian Subsidiary or (ii) all the assets
of the Canadian Subsidiary which would be considered Assets pursuant to this
Agreement if owned by Seller (excluding assets which would be considered
Excluded Assets pursuant to this Agreement if owned by Seller) (the "CANADIAN
ASSETS"); and
(m) all of Seller's rights and interests as of the Closing
Date in and to all leases set forth in Schedule 3 (the "ASSUMED LEASES"), said
leases to be assumed and assigned pursuant to Section 365 of the Bankruptcy
Code.
1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary contained
in Section 1.1, Seller will not be required to sell or transfer to Purchaser,
and the Assets will not be deemed to include, any of the following, or any right
or interest in or to any of the following (collectively referred to as the
"EXCLUDED ASSETS"):
(a) any Assigned Contract, Additional Agreement or Assumed
Lease if (i) a Consent is required to be obtained from any Person in order to
permit the sale or transfer to Purchaser of Seller's rights under such Assigned
Contract, Additional Agreement or Assumed Lease and (ii) such Consent shall not
have been obtained prior to the Closing;
(b) all cash, cash equivalents (including deposits (other than
the deposit under the lease for the Xxxxxxxxx Facility), pre-paid expenses,
subject to Section 4.10, pre-paid amounts received by Seller under the Customer
Care Maintenance Contracts and securities in entities other than Seller owned by
Seller;
3.
(c) all of Seller's books, records, ledgers, files and
documents, (except that Purchaser may obtain copies of certain records described
in Section 1.1(h));
(d) any asset relating to or arising out of Seller's financial
restatement or any financial irregularities associated therewith, including
claims or counterclaims;
(e) if the Canadian Assets are sold in accordance with Section
4.9, all of Seller's rights and interests as of the Closing Date in and to all
of the outstanding capital stock of the Canadian Subsidiary;
(f) Seller's formal corporate records, including its
certificate of incorporation, bylaws, minute books, corporate books, stock
transfer records and other records having to do with the corporate organization
of Seller;
(g) any non-trade, non-ordinary course receivables or any
accounts receivable, notes receivable and other receivables that were fully
reserved and/or written off as part of the financial restatement; and
(h) any asset identified on Schedule 4.
1.3 PURCHASE PRICE. As consideration for the sale of the Assets to
Purchaser:
(a) at the Closing, Purchaser will either (i) in the event
either a Qualified Financing has been consummated by Purchaser prior to the
Closing or Purchaser has decided to pay the Initial Cash Consideration (defined
below) (without deduction or setoff of any nature), pay to Seller by wire
transfer of immediately available funds, the sum of $5,000,000 (the "INITIAL
CASH CONSIDERATION"), (ii) in the event neither an Unqualified Financing nor a
Qualified Financing has been consummated by Purchaser prior to the Closing,
issue and deliver to Seller (without deduction or setoff of any nature) a
secured promissory note in the form attached hereto as Exhibit B in the
principal amount of $5,000,000 pursuant to the Loan and Security Agreement in
the form attached thereto as Exhibit C (the "LOAN AND SECURITY AGREEMENT") or
(iii) in the event Purchaser consummates one or more Unqualified Financing(s)
prior to the Closing, (A) pay to Seller by wire transfer of immediately
available funds, an amount equal to the aggregate amount of cash received by
Purchaser in all of the Unqualified Financing(s) (net of offering expenses not
to exceed $500,000) and (B) issue and deliver to Seller (without deduction or
setoff of any nature) a secured promissory note pursuant to the Loan and
Security Agreement in the form attached hereto as Exhibit B in the principal
amount equal to the amount by which $5,000,000 exceeds the consideration
referred to in Section 1.3(a)(iii)(A) (any such note issued pursuant to Section
1.3(a)(ii) or 1.3(a)(iii), the "PRIMARY NOTE");
(b) at the Closing, Purchaser will enter into the Loan and
Security Agreement and pursuant thereto will issue and deliver to Seller
(without deduction or setoff of any nature) either (i) in the event Purchaser
issues the Primary Note, a secured promissory note in the original principal
amount of $3,000,000 in the form attached hereto as Exhibit D (the "SECURED $3
MILLION NOTE") or (ii) in the event Purchaser pays the Initial Cash
Consideration, an unsecured promissory note in the original principal amount of
$3,000,000 in the form attached hereto as Exhibit E (the "UNSECURED $3 MILLION
NOTE");
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(c) at the Closing, Purchaser will assume the Assumed
Liabilities by delivering to Seller a Xxxx of Sale, Assignment and Assumption
Agreement substantially in the form of Exhibit F (the "XXXX OF SALE, ASSIGNMENT
AND ASSUMPTION AGREEMENT"); and
(d) at the Closing Purchaser will issue and deliver to Seller
(without deduction or setoff of any nature) either (i) an unsecured promissory
note pursuant to the Loan and Security Agreement in the form attached hereto as
Exhibit G in the principal amount equal to $1,800,000 or (ii) in the event that
(A) Purchaser, after using its reasonable best efforts to obtain a Qualified
Financing, is not able to obtain the Qualified Financing (such that upon the
Closing, Seller would have to execute and deliver the Primary Note in the
principal amount of $5,000,000), (B) such inability to obtain the Qualified
Financing is principally related to a material adverse effect on Seller's
Business that occurred between the date hereof and the date 3 business days
before the date of the Sale Auction, and (C) Purchaser notified Seller, in
writing, of the material adverse effect 3 business days before the date of the
Sale Auction, a secured promissory note pursuant to the Loan and Security
Agreement attached hereto as Exhibit H in the principal amount equal to
$1,800,000 (any such note issued pursuant to Section 1.3(d)(i) or 1.3(d)(ii),
referred to as the "INVENTORY NOTE"). For purposes of Section 1.3(d)(ii), none
of the following (individually or in combination) shall be deemed to constitute,
or shall be taken into account in determining whether there has been a material
adverse effect on Seller's Business: (A) any adverse change, effect or
circumstance resulting from general business or economic conditions to the
extent such change, effect or circumstance in each case does not
disproportionately affect Seller; (B) any adverse change, effect or circumstance
resulting from conditions generally affecting the industry in which Seller
competes to the extent such change, effect or circumstance in each case does not
disproportionately affect Seller; (C) any decline in Seller's stock price; and
(D) the filing of the Bankruptcy Case.
The consideration described in subparagraphs (a), (b), (c) and (d) of
this Section 1.3 shall be collectively referred to as the "CONSIDERATION." The
Parties acknowledge that Purchaser will not be assuming any liabilities of
Seller other than the Assumed Liabilities, and that Seller will remain
responsible for all liabilities of Seller other than the Assumed Liabilities.
1.4 SALES AND TRANSFER TAXES. Purchaser and Seller will equally bear
and pay up to an aggregate of $50,000, any sales taxes, use taxes, transfer
taxes, documentary charges, recording fees, filing fees or similar taxes,
charges, fees or expenses that may become payable by Purchaser or Seller in
connection with the sale of the Assets to Purchaser, the assumption by Purchaser
of the Assumed Liabilities or any of the other transactions contemplated by this
Agreement or the Ancillary Agreements (the "CHARGES"). Purchaser will solely
bear and pay any Charges in excess of $50,000. In the event Seller bears and
pays any Charges in excess of $25,000, Purchaser will reimburse Seller for the
amount greater than $25,000. In the event that Purchaser bears and pays the
Charges that Seller has agreed to pay pursuant to this Section 1.4, then Seller
will reimburse Purchaser for such amount. Seller and Purchaser agree to use
their commercially reasonable efforts to minimize, and to cooperate with and
assist the other in, minimizing the Charges.
5.
1.5 ALLOCATION OF PURCHASE PRICE.
(a) The Parties will use commercially reasonable efforts to
agree upon an allocation of the Consideration among the Assets and, to the
extent appropriate, the Ancillary Agreements (the "ALLOCATION") as soon as
possible after the Closing Date. The Allocation will be determined in a manner
consistent with this Section 1.5 and Section 1060 of the Internal Revenue Code
and the Treasury Regulations thereunder. Purchaser will provide a proposed
allocation to Seller within 45 days after the Closing Date, and Seller will
deliver to Purchaser a notice setting forth any proposed changes to such
allocation within 15 days after the delivery of such proposed allocation to
Seller, together with a reasonably detailed explanation of the reasons for such
proposed changes. The Parties will negotiate in good faith to resolve any
disputed items, and if the Parties are unable to agree on the Allocation within
15 days after delivery of such notice to Purchaser, then the dispute will be
arbitrated by a accounting firm of national reputation mutually acceptable to
the Parties, whose determination will be conclusive and binding upon the Parties
for tax purposes.
(b) The Allocation will be conclusive and binding upon the
Parties for tax purposes, and neither Party will make any statement or
declaration to any taxing authority that is inconsistent with the Allocation,
except as provided below. Neither Party will take or permit any of its
Affiliates or representatives to take any position on any tax return, with any
taxing authority or in any judicial tax proceeding that is inconsistent with the
Allocation except as required by a final determination within the meaning of
Section 1313(a) of the Internal Revenue Code or any equivalent provision of any
applicable state or local law. Each Party will promptly provide the other Party
with any additional information required to complete Form 8594 if the filing of
such form is required. Each Party will timely notify the other Party, and will
timely provide the other Party with assistance, in the event of an examination,
audit or other proceeding regarding the Allocation.
1.6 ANCILLARY AGREEMENTS. At the Closing, the Parties will enter into
the following additional agreements (the "ANCILLARY AGREEMENTS"):
(a) the Xxxx of Sale, Assignment and Assumption Agreement;
(b) a Patent Assignment substantially in the form of Exhibit I;
(c) a Trademark Assignment substantially in the form of Exhibit J;
(d) the Loan and Security Agreement (including documents and
agreements deliverable thereunder) ; and
(e) the Primary Note, if applicable pursuant to Section 1.3(a), and
the Secured $3 Million Note or the Unsecured $3 Million Note, as applicable,
pursuant to Section 1.3(b) and the Inventory Note.
1.7 CLOSING. The closing of the purchase of the Assets by Purchaser (the
"CLOSING") will take place at the offices of Xxxxxx Godward LLP in Palo Alto,
California on the first business day after the entry by the Bankruptcy Court of
a final Sale Order (as defined in Section 9.2(b)), or such other date, place or
time as may be agreed upon between the Parties after
6.
the satisfaction or waiver of the last to be satisfied or waived of the
conditions set forth in Sections 6 and 7 (other than those conditions that by
their nature are to be satisfied at the Closing). For purposes of this
Agreement, "CLOSING DATE" means the date as of which the Closing actually takes
place.
1.8 ASSUMPTION AND ASSIGNMENT OF ASSIGNED CONTRACTS AND ASSUMED LEASES.
Seller agrees to use commercially reasonable efforts to assign the Assigned
Contracts, Additional Agreements and Assumed Leases to Purchaser pursuant to
Bankruptcy Code Section 365. Concurrently herewith, Seller shall identify any
defaults and arrearages, known to Seller as of such date, under all Assigned
Contracts, Additional Agreements and Assumed Leases and shall provide Purchaser
with a schedule identifying the amounts or actions necessary to cure any such
Seller defaults under the Assigned Contracts, Additional Agreements or Assumed
Leases or any amounts required by the other party to an Assigned Contract,
Additional Agreement or an Assumed Lease to assign such Assigned Contract,
Additional Agreement or Assumed Lease to Purchaser (collectively, the "CURE
PAYMENTS"), and Seller shall provide Purchaser an update to such schedule prior
to the Sale Hearing. Seller shall notify Purchaser of any other defaults and
arrearages as soon as reasonably practicable after receiving notice of them.
Subject to Section 1.9 and 4.8, all such Cure Payments shall be the
responsibility of Seller.
1.9 ASSIGNED CONTRACTS AND ASSUMED LEASES. Within the time period
permitted by the rules of bankruptcy procedure or as ordered by the Bankruptcy
Court, Seller shall file a Sale Motion (as defined in Section 9.2(b)) and an
accompanying "Notice of Proposed Assumption, Assignment and Cure Amounts for
Assigned Contracts" (the "ASSUMPTION NOTICE") and serve such notice on all
necessary parties to the Assigned Contracts and Assumed Leases. The Sale Motion
shall provide for the assumption and assignment of the Assigned Contracts and
Assumed Leases pursuant to Sections 365(a), 365(b) and 365(f) of the Bankruptcy
Code. The Sale Motion shall further contain and represent that Seller intends to
assign all contracts and leases identified in Schedule 2 and Schedule 3,
regardless of the type of contract. The Sale Motion shall provide that absent
any objection, the consent by each necessary party to the assignment and
assumption of any such contract will be implied by the Bankruptcy Court and said
contracts will be deemed to be assumed and assigned. If necessary, pursuant to
Section 1.1(f), Seller will file an additional motion to provide for the
assumption and assignment of the Additional Agreements pursuant to Sections
365(a), 365(b) and 365(f) of the Bankruptcy Code.
1.10 ASSUMED LIABILITIES; NON-ASSUMED LIABILITIES.
(a) From and after the Closing, Purchaser agrees to assume and
discharge or perform when due the Assumed Liabilities.
(b) Other than the Assumed Liabilities, Purchaser shall not
assume or be bound by or obligated or responsible for any duties,
responsibilities, commitments, expenses, obligations or liabilities of Seller or
relating to the Assets (or which may be asserted against or imposed upon
Purchaser as a successor or transferee of Seller as an acquirer of the Assets or
otherwise as a matter of law) of any kind or nature (fixed or contingent, known
or unknown, warranties, employee benefit plan obligations or claims) (the
"NON-ASSUMED LIABILITIES").
7.
1.11 GRANT-BACK LICENSE OF "CLARENT" NAME. Effective immediately after
the Closing, Purchaser hereby grants to Seller a non-exclusive license to use
the name "Clarent" and logo solely for the purpose of completing the bankruptcy
process.
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Purchaser that, except as set forth
in the Disclosure Schedule:
2.1 TITLE TO ASSETS. Assuming the Closing takes place after the Sale
Order, as of the Closing Date, Seller will have good and valid title to the
Assets.
2.2 SPECIFIED PATENTS.
(a) Seller has made available to Purchaser copies of the
Specified Patents, and has supplied to Purchaser copies of the patent
applications included in the Specified Patents that are not publicly available
as of the date of this Agreement.
(b) Seller has not granted any Person a license that is
currently in effect under any of the Specified Patents, Specified Trademarks or
any copyrights for any purpose other than licenses granted in the ordinary
course of business.
(c) None of the Specified Patents is involved in any
interference or opposition proceeding, and, to Seller's knowledge, no such
proceeding is being threatened with respect to any of the Specified Patents.
2.3 ASSIGNED CONTRACTS; ASSUMED LEASES. Each Assigned Contract and
Assumed Lease is valid and in full force and effect in accordance with its
terms.
2.4 REAL PROPERTY. Seller does not own any real property.
2.5 COMPLIANCE WITH LEGAL REQUIREMENTS. Seller is in substantial
compliance with all Legal Requirements relating to the use of the Assets.
2.6 AUTHORITY; BINDING NATURE OF AGREEMENT. Assuming the Closing takes
place after the Sale Order, Seller has all necessary corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to perform its obligations under this Agreement and the Ancillary Agreements;
and the execution, delivery and performance by Seller of this Agreement and the
Ancillary Agreements have been duly authorized by all necessary action on the
part of Seller and its board of directors. Assuming the Closing takes place
after the Sale Order, this Agreement constitutes, and, upon execution thereof,
each of the Ancillary Agreements will constitute, the valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
8.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Seller as follows:
3.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) All reports, statements and other documents required to
have been filed by Purchaser with the SEC pursuant to the Securities Act or the
Exchange Act since January 1, 2000 (the "PURCHASER SEC DOCUMENTS") have been so
filed on a timely basis. As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Purchaser SEC Documents complied in
all material respects with the applicable requirements of the Securities Act or
the Exchange Act (as the case may be); and (ii) none of the Purchaser SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the
Purchaser SEC Documents: (i) complied as to form in all material respects with
the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except as may be indicated in
the notes to such financial statements and, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end audit adjustments which will not, individually or in the aggregate, be
material in amount); and (iii) fairly present the consolidated financial
position of Purchaser and its subsidiaries (the "PURCHASER CORPORATIONS") as of
the respective dates thereof and the consolidated results of operations and cash
flows of the Purchaser Corporations for the periods covered thereby.
3.2 ABSENCE OF CHANGES. Since September 30, 2002, there has not been
any material adverse change in the business, capitalization, assets (tangible or
intangible), liabilities or operations of the Purchaser Corporations, and no
event has occurred or circumstance exists that could reasonably be expected to
result in such a material adverse change.
3.3 NO UNDISCLOSED LIABILITIES. None of the Purchaser Corporations has
any material accrued, contingent or other liabilities of any nature, except for
(i) liabilities reflected in the consolidated balance sheet (or notes thereto)
of the Purchaser Corporations as of September 30, 2002, contained in Purchaser's
Report on Form 10-Q as filed with the SEC for the quarter ended September 30,
2002, (ii) liabilities otherwise described in the Purchaser SEC Documents or
(iii) liabilities incurred by the Purchaser Corporations in the ordinary course
of business since September 30, 2002.
3.4 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Purchaser
Corporations is in substantial compliance with all applicable Legal
Requirements.
3.5 LEGAL PROCEEDINGS. Except as disclosed in the Purchaser SEC
Documents filed with the SEC before the date of this Agreement, there is no
material pending or, to
9.
Purchaser's knowledge, threatened lawsuit or other legal proceeding that
involves any of the Purchaser Corporations or any of the assets owned or used by
any of the Purchaser Corporations.
3.6 AUTHORITY; BINDING NATURE OF AGREEMENT. Purchaser has all necessary
power and authority to execute and deliver this Agreement and the Ancillary
Agreements, and to perform its obligations hereunder and thereunder; and the
execution, delivery and performance by Purchaser of this Agreement and the
Ancillary Agreements have been duly authorized by all necessary action on the
part of Purchaser and its board of directors. Purchaser has provided to Seller a
copy of the resolutions of the board of directors of Purchaser authorizing the
execution, delivery and performance by Purchaser of this Agreement and the
Ancillary Agreements. No vote of the holders of Purchaser Common Stock is
required to authorize the purchase by Purchaser of the Assets or any of the
other transactions contemplated by this Agreement. This Agreement constitutes,
and, upon execution thereof, each of the Ancillary Agreements will constitute,
the valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.7 DEBT. Schedule 5 (i) provides a summary of each obligation of
Indebtedness of Purchaser which is greater than $100,000 in the aggregate, (ii)
to the extent any Indebtedness was not incurred in the ordinary course of
business, the names of the parties to whom such debt is owed, the name and date
of the agreement giving rise to such Indebtedness, the current outstanding
amount of such Indebtedness and the maturity date of such Indebtedness, (iii)
indicates whether such Indebtedness is secured and (iv) to the extent such
Indebtedness is secured, provides a reasonably detailed description of the
assets that secure such Indebtedness and, to the best of Purchaser's knowledge,
the order of such secured creditors' lien priority over such assets.
3.8 NON-CONTRAVENTION; CONSENTS. Neither the execution, delivery or
performance of this Agreement or any of the Ancillary Agreements, nor the
consummation of any of the transactions contemplated by this Agreement or any of
the Ancillary Agreements, will (i) conflict with or result in any violation of
any provision of the certificate of incorporation, bylaws or other charter or
organizational documents of any of the Purchaser Corporations or (ii) result in
a violation of any Legal Requirement or order to which any of the Purchaser
Corporations is subject. Purchaser is not and will not be required to obtain any
Consent from any Person, in connection with the execution, delivery or
performance of this Agreement or any of the Ancillary Agreements or the
consummation of any of the transactions contemplated hereby or thereby.
3.9 Solvency.
(a) Purchaser has no reason to believe that, after giving
effect to this Agreement and the Ancillary Agreements, Purchaser will be unable
to meet any of its obligations hereunder or thereunder, including, its payment
obligations.
(b) Purchaser is able to pay its debts (including trade debts)
as they mature; the fair value of Purchaser's assets (including goodwill minus
disposition costs) exceeds the fair
10.
value of its liabilities; and Purchaser will not be left with
unreasonably small capital after the transactions contemplated by this
Agreement.
4. PRE-CLOSING COVENANTS OF SELLER.
4.1 ACCESS. Subject to the provisions of the Confidentiality Agreements
and to applicable Legal Requirements, during the period from the date of this
Agreement through the Closing Date (the "PRE-CLOSING PERIOD"), Seller will,
after receiving reasonable advance notice from Purchaser, give Purchaser
reasonable access (during normal business hours) to Seller's books and records
relating to the Assets, and will provide Purchaser with such information
regarding the Assets and any other appropriate matters germane to the subject
matter of this Agreement and the Ancillary Agreements as Purchaser may
reasonably request, for the sole purposes of enabling Purchaser (i) to further
investigate, at Purchaser's sole expense, the Assets and any other appropriate
matters germane to the subject matter of this Agreement and the Ancillary
Agreements and (ii) to verify the accuracy of the representations and warranties
set forth in Section 2.
4.2 CONDUCT OF BUSINESS. Except (i) as contemplated or permitted by
this Agreement or the Disclosure Schedule, (ii) as contemplated by any of the
Ancillary Agreements, (iii) as may be necessary to carry out any of the
transactions contemplated by this Agreement or the Ancillary Agreements, (iv) as
may be necessary to facilitate compliance with any Legal Requirement or the
requirements of any Assigned Contract or Assumed Lease or (v) as approved by
Purchaser, during the Pre-Closing Period:
(a) Seller, subject to Bankruptcy Court jurisdiction, will conduct
its operations at the Littleton Facility and the Xxxxxxxxx Facility in the
ordinary course; and
(b) Seller, subject to Bankruptcy Court jurisdiction, will not (i)
license, sell or dispose of any Assets (including Inventory) other than in the
ordinary course of business consistent with past practices and credit and price
terms, (ii) change or modify in any material respect existing inventory
management (except that Seller may move Inventory from the facility located in
Redwood City, California to the Littleton Facility) or credit and collection
policies, procedures and practices with respect to accounts receivable, (iii)
prematurely terminate or materially amend, grant a sublicense under or assign
any of the Assigned Contracts or Assumed Leases or (iv) commit a material breach
of any Assigned Contract or Assumed Lease entered into after the date of this
Agreement.
If Seller requests Purchaser's approval of a proposed action that would
otherwise result in a breach by Seller of this Section 4.2, Purchaser will
respond promptly to Seller's request and will not unreasonably withhold its
approval of the proposed action.
4.3 CONSENTS. Seller will use commercially reasonable efforts during
the Pre-Closing Period to obtain the Consents identified in Schedule 6.
4.4 CONDITIONS. Seller will use commercially reasonable efforts (i) to
cause the conditions set forth in Section 6 to be satisfied on a timely basis
and (ii) otherwise to cause the Closing to take place as soon as reasonably
practicable.
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4.5 EMPLOYEES. Seller will permit Purchaser to offer employment to
none, some or all of Seller's employees prior to the Closing Date, in
Purchaser's sole and absolute discretion; provided, however, it shall be a
condition precedent to each such offer of employment that the Closing shall have
occurred. The offers of employment to Seller's employees must be made in
coordination with Seller. Purchaser shall have full and absolute discretion in
determining the terms, conditions and benefits relating to such employment, and
nothing contained in this Agreement shall obligate Purchaser to employ any
employee of Seller. Nothing in this Section 4.5 is intended to create any claim
or right against Purchaser on the part of any employee of Seller, and no such
employee shall be entitled to assert any claim or right hereunder.
4.6 BANKRUPTCY CASE. Seller covenants to file the Bankruptcy Case and
cooperate fully with the Bankruptcy Court and with Purchaser to expedite the
Bankruptcy Case and to obtain orders as described in Section 9.
4.7 BANKRUPTCY COURT APPROVAL AND NOTICES. Seller covenants and agrees
that it shall as soon as practicable after execution of this Agreement use
commercially reasonable efforts to obtain the Procedures Order and the Sale
Order (as such terms are hereafter defined) and to obtain any and all other
corporate or regulatory approvals necessary for this Agreement and the
transaction contemplated hereby and thereby to comply with all applicable laws,
rules and regulations.
4.8 CURE PAYMENTS. Subject to the prior approval of the Bankruptcy
Court, Seller will, on or prior to the Closing, make Cure Payments, as are
necessary up to an aggregate of $100,000, under any Assumed Leases, Additional
Agreements (to the extent such Additional Agreements are identified prior to the
Closing) or Assigned Contracts in order that such Assumed Lease, Additional
Agreement or Assigned Contract may be assigned to and assumed by Purchaser in
accordance with the provisions of Section 365 of the Bankruptcy Code and this
Agreement. Seller and Purchaser agree to use their commercially reasonable
efforts to minimize, and to cooperate with and assist the other in, minimizing
the Cure Payments.
4.9 LIABILITIES OF CANADIAN SUBSIDIARY. Between the date hereof and the
date that is the earlier of (A) the 45th day after the date hereof or (B) 5 days
before the Sale Auction, Seller and Purchaser will each use their commercially
reasonable efforts to agree on the amount of cash or assets necessary to pay all
of the known liabilities (including any severance or other payments required by
contract or law to be paid to Canadian Subsidiary employees) of the Canadian
Subsidiary (the "LIABILITIES AMOUNT"). If Seller and Purchaser agree on the
Liabilities Amount, then for purposes of Section 1.1(l), Purchaser will purchase
all of the outstanding capital stock of the Canadian Subsidiary, and immediately
prior to the Closing, Seller will fund the Canadian Subsidiary with such agreed
Liabilities Amount. If Seller and Purchaser are unable to agree on the
Liabilities Amount, then on or before the earlier of (A) the 45th day after the
date hereof or (B) 5 days before the date of the Sale Auction, Purchaser will
notify Seller whether Purchaser elects to purchase either (i) all of the
outstanding capital stock of the Canadian Subsidiary or (ii) the Canadian Assets
(such election being determinative for purposes of Section 1.1(l)). If Purchaser
elects to purchase the Canadian Assets, then (i) Purchaser and Seller will
equally bear and pay any and all costs and expenses relating to severance or
other payments required by contract or law to be paid to the Canadian Subsidiary
employees up to $250,000 incurred by Seller as a result of Purchaser purchasing
the Canadian Assets in lieu of purchasing
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all of the outstanding capital stock of the Canadian Subsidiary, (ii) Seller
will bear and pay legal fees incurred by Seller as a result of Purchaser
purchasing the Canadian Assets in lieu of purchasing all of the outstanding
capital stock of the Canadian Subsidiary up to $50,000 in the aggregate, (iii)
Purchaser and Seller will equally bear and pay legal fees incurred by Seller as
a result of Purchaser purchasing the Canadian Assets in lieu of purchasing all
of the outstanding capital stock of the Canadian Subsidiary which exceed $50,000
in the aggregate but which are less than $150,000 in the aggregate, (iv) Seller
will bear and pay any other costs, expenses and liabilities incurred by Seller
as a result of Purchaser purchasing the Canadian Assets in lieu of purchasing
all of the outstanding capital stock of the Canadian Subsidiary and (v)
Purchaser and Seller will negotiate in good faith for Purchaser to purchase and
the Canadian Subsidiary to sell the Canadian Assets, and such sale will be
consummated on or prior to the Closing.
4.10 CUSTOMER CARE MAINTENANCE CONTRACTS. If at any time after the date
hereof, but prior to the Closing, Seller actually collects any prepayment amount
for services and maintenance to be performed under a Customer Care Maintenance
Contract, then Seller shall pay to Purchaser at the Closing, an amount equal to
the product obtained by multiplying (i) the amount prepaid by (ii) the amount
equal to one minus a fraction (rounded up to the nearest ten-thousandth) with a
numerator equal to the number of weeks prior to Closing (rounded up to the
nearest week) that the prepaid amount was collected by Seller and a denominator
equal to the number of weeks of maintenance and services paid for by the
customer. All such amounts to be paid at the Closing shall be aggregated and
paid on the Closing Date.
4.11 YEAR-END AUDITS. Seller shall execute such management
representation letters as the independent auditor retained to perform the audit
for Seller's consolidated financial statements for the year-ended December 31,
2001 (the "2001 AUDIT") and Seller's audit for the consolidated financial
statements for the year-ending December 31, 2002 (if such audit is necessary)
(the "2002 AUDIT") shall reasonably request, and shall cooperate with such
auditor, and give such auditor reasonable access to such financial records
(including financial statements prepared in accordance with GAAP for the
year-ended December 31, 2001 and for either the nine months ended September 30,
2002 or the year-ending December 31, 2002, as determined by Purchaser), files,
personnel and advisors as may be reasonably necessary to permit such auditor to
perform the 2001 Audit and (if necessary) the 2002 Audit and to issue its audit
report(s) thereon.
5. PRE-CLOSING COVENANTS OF PURCHASER.
5.1 CONSENTS; RELEASES. Purchaser will cooperate with Seller, and will
provide Seller with such assistance as Seller may reasonably request, for the
purpose of (i) attempting to obtain the Consents identified in Schedule 6 and
(ii) arranging for Seller to be released and discharged from its obligations and
other liabilities under the Assigned Contracts, Additional Agreements and
Assumed Leases.
5.2 CONDITIONS. Purchaser will use commercially reasonable efforts (i)
to cause the conditions set forth in Section 7 to be satisfied on a timely basis
and (ii) otherwise to cause the Closing to take place as soon as reasonably
practicable.
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5.3 BANKRUPTCY CASE. Purchaser will cooperate fully with the Bankruptcy
Court and with Seller to expedite the Bankruptcy Case and to obtain orders as
described in Section 9.
5.4 QUALIFIED FINANCING. Purchaser will use its reasonable best efforts
to consummate a Qualified Financing prior to Closing.
5.5 POSSESSION OF THE ASSETS. Purchaser will make all necessary
arrangements for Purchaser to take possession of the Assets (other than
intangible assets), and, at Purchaser's expense, to transfer same to a location
operated by Purchaser, promptly, but in no event later than 30 days following
the Closing.
6. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE.
Purchaser's obligation to purchase the Assets and to take the other
actions required to be taken by Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Purchaser, in whole or in part, in writing):
6.1 ACCURACY OF REPRESENTATIONS. Those representations and warranties
of Seller set forth in Section 2 that refer specifically to and are made as of
the date of this Agreement shall have been accurate as of the date of this
Agreement, and all other representations and warranties of Seller set forth in
Section 2 (and any representations and warranties of Seller set forth in the
Ancillary Agreements) shall be accurate as of the Closing Date as if made on and
as of the Closing Date; provided, however, that, for purposes of this Section
6.1, any inaccuracies in the representations and warranties of Seller will be
disregarded unless all such inaccuracies, considered collectively, have a
material adverse effect on the value of the Assets taken as a whole.
6.2 PERFORMANCE OF COVENANTS. Seller shall have performed, in all
material respects, all covenants required by this Agreement and the Ancillary
Agreements to be performed by Seller on or before the Closing Date.
6.3 ADDITIONAL DOCUMENTS. Each of the Ancillary Agreements to be
executed by Seller shall have been executed on behalf of Seller and delivered to
Purchaser, and each of the following additional documents shall have been
delivered to Purchaser:
(a) a certificate, executed by the Chief Executive Officer and Chief
Financial Officer of Seller, confirming that, to the actual knowledge of such
executive officer, in his or her capacity as such, the conditions set forth in
Sections 6.1 have been satisfied (the "SELLER CLOSING CERTIFICATE");
(b) such bills of sale, assignments and other instruments as Seller
may be required to execute in order to evidence and effectuate the transfer of
the Assets to Purchaser; and
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(c) such good standing certificates and other similar documents as
Purchaser may reasonably request to ensure that the actions required to be taken
by Seller at the Closing have been properly authorized.
6.4 NO RESTRAINTS. No injunction or other order preventing the
consummation of the transactions contemplated by this Agreement shall have been
issued by any United States federal or state court of competent jurisdiction and
shall remain in effect; and no United States federal or state Legal Requirement
that makes consummation of the transactions contemplated by this Agreement
illegal shall have been enacted or adopted since the date of this Agreement and
shall remain in effect.
6.5 BANKRUPTCY CASE. All agreements, documents, pleadings, notices and
orders in connection with the sale of the Assets (including, approval of the bid
procedures described in Section 9.2) shall be in form and substance reasonably
satisfactory to Purchaser. The obligations of each of Purchaser and Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the Bankruptcy Court entering the Sale Order, which Sale Order shall not have
been reversed, rescinded, stayed, modified or amended prior to the Closing Date.
7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell and transfer the Assets to Purchaser and to
take the other actions required to be taken by Seller at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Seller, in whole or in part, in
writing):
7.1 ACCURACY OF REPRESENTATIONS. Those representations and warranties
of Purchaser set forth in Section 3 that refer specifically to and are made as
of the date of this Agreement shall have been accurate as of the date of this
Agreement, and all other representations and warranties of Purchaser set forth
in Section 3 (and any representations and warranties of Purchaser set forth in
the Ancillary Agreements) shall be accurate as of the Closing Date as if made on
and as of the Closing Date; provided, however, that, for purposes of this
Section 7.1, any inaccuracies in the representations and warranties of Purchaser
will be disregarded unless all such inaccuracies, considered collectively, have
a material adverse effect on the business, assets (tangible or intangible),
liabilities or operations of the Purchaser Corporations.
7.2 PERFORMANCE OF COVENANTS. Purchaser shall have performed, in all
material respects, all covenants required by this Agreement and by the Ancillary
Agreements to be performed by Purchaser on or before the Closing Date.
7.3 DELIVERY OF CONSIDERATION. Purchaser shall have executed the Loan
and Security Agreement and such Loan and Security Agreement shall be in full
force and effect (and the conditions precedent thereto shall have been
satisfied) and shall have either (i) initiated the wire transfer contemplated by
Section 1.3(a)(i) and executed and delivered to Seller the Unsecured $3 Million
Note and the Inventory Note or (ii) initiated the wire transfer contemplated by
Section 1.3(a)(iii), if applicable, and executed and delivered to Seller the
Primary Note, the
15.
Secured $3 Million Note and the Inventory Note, and each of the Notes shall be
in full force and effect.
7.4 ADDITIONAL DOCUMENTS. Each of the Ancillary Agreements (other than
the Loan and Security Agreement and the Notes, which are addressed in Section
7.3) shall have been executed on behalf of Purchaser and delivered to Seller,
and each of the following additional documents shall have been delivered to
Seller:
(a) a certificate, executed by the Chief Executive Officer and
the Chief Financial Officer of Purchaser, confirming that, to the actual
knowledge of such executive officer, in his or her capacity as such, the
conditions set forth in Sections 7.1 have been satisfied (the "PURCHASER CLOSING
CERTIFICATE"); and
(b) such good standing certificates and other similar
documents as Seller may reasonably request to ensure that the actions required
to be taken by Purchaser at the Closing have been properly authorized.
7.5 NO MATERIAL ADVERSE EFFECT. No event shall have occurred or
circumstance shall exist that, in combination with any other events or
circumstances, has had or could reasonably be expected to have a material
adverse effect on Purchaser's ability to (i) perform its obligations under the
Loan and Security Agreement, either the Secured $3 Million Note or the Unsecured
$3 Million Note, as applicable, the Inventory Note, or, if applicable, the
Primary Note or (ii) pay when due the Secured $3 Million Note or the Unsecured
$3 Million Note, as applicable, the Inventory Note or, if applicable, the
Primary Note.
7.6 BANKRUPTCY CASE. All agreements, documents, pleadings, notices and
orders in connection with the sale of the Assets (including, approval of the bid
procedures described in Section 9.2) shall be in form and substance reasonably
satisfactory to Purchaser. The obligations of each of Purchaser and Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the Bankruptcy Court entering the Sale Order, which Sale Order shall not have
been reversed, rescinded, stayed, modified or amended prior to the Closing Date.
7.7 NO RESTRAINTS. No injunction or other order preventing the
consummation of the transactions contemplated by this Agreement shall have been
issued since the date of this Agreement by any United States federal or state
court of competent jurisdiction and shall remain in effect; and no United States
federal or state Legal Requirement that makes consummation of the transactions
contemplated by this Agreement illegal shall have been enacted or adopted since
the date of this Agreement and shall remain in effect.
8. TERMINATION.
8.1 RIGHT TO TERMINATE AGREEMENT. This Agreement may be terminated
prior to the Closing:
(a) by the mutual written consent of the Parties;
16.
(b) by either Party if the Sale Procedure Motion is not
approved by the Bankruptcy Court on substantially similar terms as contained in
Section 9.2 or in the event that a stay pending appeal or a writ of mandate of
the Sale Order is granted on behalf of any party;
(c) by either Party if a third party purchaser for the Assets
or any material portion thereof is approved by the Court at the Sale Hearing;
(d) by Seller (by delivery of a written termination
notification in accordance with Section 8.2) if (i) there shall have been a
material breach on the part of Purchaser of any of its representations,
warranties or covenants such that the condition set forth in Section 7.1 would
not be satisfied as of the time of such breach, (ii) Seller shall have given
written notice of such breach to Purchaser, (iii) at least twenty days shall
have elapsed since the delivery of such written notice to Purchaser and (iv)
such breach shall not have been cured; or
(e) by Purchaser (by delivery of a written termination
notification in accordance with Section 8.2) if (i) there shall have been a
material breach on the part of Seller of any of its representations, warranties
or covenants such that the condition set forth in Section 6.1 would not be
satisfied as of the time of such breach, (ii) Purchaser shall have given written
notice of such breach to Seller, (iii) at least twenty days shall have elapsed
since the delivery of such written notice to Seller and (iv) such breach shall
not have been cured.
8.2 TERMINATION PROCEDURES. If either Party wishes to terminate this
Agreement pursuant to Section 8.1, such Party will deliver to the other Party a
written termination notification stating that such Party is terminating this
Agreement and setting forth a brief statement of the basis on which such Party
is terminating this Agreement.
8.3 EFFECT OF TERMINATION. Upon the termination of this Agreement
pursuant to Section 8.1, neither Party will have any obligation or other
liability to the other Party, except that (i) the Parties will remain bound by
the provisions of the Confidentiality Agreements (ii) neither Party will be
relieved of any liability for any breach of its obligation to consummate the
transactions contemplated by this Agreement or its obligation to take any other
action required to be taken by such Party at or before the Closing, and (iii)
the obligation to pay the Break-Up Fee shall survive any termination except for
a termination pursuant to Sections 8.1(a), (b) and (d); provided, that the
conditions to payment of such Break-Up Fee as set forth in Section 9.1(a)(i) are
satisfied.
9. AS-IS OFFER AND BANKRUPTCY APPROVALS.
9.1 AS-IS TRANSACTION. Whether as of the date hereof or as of the
Closing, Purchaser hereby acknowledges and agrees that, Seller makes no
representations or warranties whatsoever, express or implied, with respect to
any matter relating to the Assets (including, income to be derived or expenses
to be incurred in connection with the Assets, the physical condition of any
personal property or any tangible or intangible personal property comprising a
part of the property or assets which are the subject of any Assigned Contract,
Additional Agreement or Assumed Lease to be assumed by Purchaser at or after the
Closing; the environmental condition or other matter relating to the physical
condition of any property or improvements (or any portion thereof); the
merchantability or fitness of the Assets for any
17.
particular purpose; or any other matter or thing relating to the Assets (or any
portion thereof). Without in any way limiting the foregoing, Seller hereby
disclaims any warranty (express or implied) of merchantability or fitness for
any particular purpose as to any portion of the Assets. Purchaser further
acknowledges that Purchaser has conducted an independent inspection and
investigation of the physical condition of all portions of the Assets and all
such other matters relating to or affecting the Assets as Purchaser deemed
necessary or appropriate and that in proceeding with this Agreement, Purchaser
is and will do so based solely upon such independent inspections and
investigations. Accordingly, Purchaser will accept the Assets at the Closing
"AS-IS," "WHERE IS" AND "WITH ALL FAULTS."
9.2 BANKRUPTCY COURT APPROVALS.
(a) BANKRUPTCY COURT APPROVAL OF SALES PROCEDURES. Promptly
following the execution of this Agreement, Seller will make a motion (the "SALE
PROCEDURE MOTION") for an order (the "PROCEDURE ORDER") from the Bankruptcy
Court which provides that (i) Purchaser will be entitled to receive from Seller
a fee of actual and reasonable expenses up to $550,000 provided that of those
expenses only $200,000 can relate to the 2001 Audit (the "BREAK-UP FEE") in the
event that the Assets are sold to any third party within twelve (12) months
after the date hereof for consideration in excess of the Consideration or for a
Cash Bid (as hereinafter defined) notwithstanding Purchaser's willingness and
ability to consummate the transactions contemplated by this Agreement, which
payment shall be made to Purchaser concurrently with and conditioned upon the
consummation of such third party sale, (ii) Purchaser's right to receive the
Break-up Fee as provided above shall be Purchaser's sole and exclusive remedy
against Seller in the event the transaction contemplated herein fails to close,
(iii) all third party offers to be entered at the auction (the "SALE AUCTION")
shall be in writing and delivered to Seller no later than seventy-two (72) hours
prior to the date of such Sale Auction, together with satisfactory evidence of
such third party's financial ability to perform its obligations under such
offer, (iv) no prospective purchaser will be permitted to bid at the Sale
Auction unless such party has been deemed "financially qualified" by Seller, (v)
no prospective purchaser who bids for the Assets at the Sale Auction shall be
entitled to purchase the Assets unless such prospective purchaser offers to
purchase the Assets for consideration which is at least $600,000 greater than
the Consideration (including all cash, non-cash consideration and assumed
liabilities) and otherwise on terms no less favorable to Seller (as determined
in good faith by Seller) than those set forth in this Agreement, and (vi) after
any initial overbid, all further overbids must be in increments of at least
$100,000. Notwithstanding the foregoing, Seller may, in its sole discretion,
determine that an all cash bid that represents less total consideration than any
bid or overbid, is a higher and better offer (a "CASH BID"), and may seek
approval thereof. Should overbidding take place at the Sale Auction, Purchaser
shall have the right, but not the obligation, to participate in the overbidding
at the Sale Auction and to be approved as the over bidder at the Sale Hearing
based upon any such overbid; provided, however, that Purchaser shall receive a
credit for the Break-Up Fee in connection with any subsequent bids. Should an
overbidder prevail at the Sale Auction and be approved at the Sale Hearing,
Purchaser shall immediately deliver to such approved overbidder (at no charge
and without representation or warranty) the report on the 2001 Audit, if
completed, or any information relating thereto if not completed and all other
third party reports and studies to the extent that Purchaser is not
contractually restricted from providing such reports and studies to third
parties. Following the filing of the Sale Procedure Motion, Seller shall use
commercially reasonable efforts to obtain the Procedure Order (the date on which
the Procedure Order is entered and becomes final is referred to
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herein as the "SALE PROCEDURE DATE"). If the Bankruptcy Court refuses to issue
the Procedure Order, then in such event, Purchaser shall have the right, upon
written notice delivered to Seller not later than three (3) business days
following the Sale Hearing, to terminate this transaction. In the event
Purchaser delivers such written notice to Seller within such three (3) business
day period, the transaction contemplated herein shall terminate and Purchaser
and Seller shall be relieved of any further liability or obligation hereunder.
Should Purchaser fail to deliver to Seller written notice disapproving this
condition within such three (3) business day period, Purchaser shall
conclusively be deemed to have waived such condition. Upon the timely entry of
the Procedure Order, the condition set forth in this Section 9.2(a) shall be
deemed satisfied.
(b) BANKRUPTCY COURT'S APPROVAL OF SALE. Seller shall also
promptly make a motion (the "SALE MOTION") for an order (the "SALE ORDER") from
the Bankruptcy Court which (i) approves the sale of the Assets to Purchaser on
the terms and conditions set forth in this Agreement and authorizes Seller to
proceed with this transaction, (ii) includes a specific finding that Purchaser
is a good faith purchaser of the Assets, (iii) states that the sale of the
Assets to Purchaser shall be free and clear of all liens, claims, interests and
encumbrances of parties that have notice of the Sale Motion, (iv) approves
Purchaser's assumption and assignment of the pre-petition Assigned Contracts and
Assumed Leases pursuant to Section 365 of the Bankruptcy Code and orders Seller
to pay any Cure Payments up to $100,000 and Purchaser to pay any Cure Payments
over $100,000 as a condition to such assumption and assignment; provided,
however, that in no event shall Purchaser have the right to disapprove the Sale
Order or terminate this transaction by reason of (A) the failure to assign all
of the Assigned Contracts and Assumed Leases or (B) Seller's inability to assign
any or all of the Assigned Contracts or Assumed Leases by reason of the
Bankruptcy Court's determination that Purchaser has failed to provide adequate
assurance of future performance to the counter party and (v) provides that the
sale of the Assets and assignment of the pre-petition Assigned Contracts and the
Assumed Leases is not stayed pursuant to Federal Rules of Bankruptcy Procedure
Rule 6004(g) and 6006(d). Following the filing of the Sale Motion, Seller shall
use commercially reasonable efforts to obtain the Sale Order. If (xx) the
Bankruptcy Court refuses to issue the Sale Order (except as otherwise provided
in clause (iv) above) or (yy) a third party purchaser for the Assets or any
material portion thereof is approved by the Court at the Sale Hearing, then in
any such event, this transaction shall automatically terminate and Seller and
Purchaser shall be relieved of any further liability or obligation hereunder;
provided, however, in the event a third party purchaser for the Assets or any
material portion thereof is approved by the Court at the Sale Hearing, and
Purchaser is otherwise entitled to the Break-up Fee then such obligation on the
part of Seller to pay the Break-up Fee shall survive. Upon timely entry of the
Sale Order (such entry date being referred to herein as the "SALE APPROVAL
DATE"), the condition set forth in this Section 9.2(b) shall conclusively be
deemed satisfied.
9.3 NOTICE. Except as otherwise required by the Bankruptcy Court, at
Seller's sole expense, Seller shall cause the Sale Motion (or a Notice thereof)
to be served upon (i) all parties requesting notices in the Bankruptcy Case,
(ii) all parties asserting liens on the Assets, (iii) the 20 largest creditors
in the Bankruptcy Case for all debtors on a consolidated basis, (iv) taxing
authorities in all jurisdictions in which Seller maintains a physical location,
(v) the U.S. Trustee, (vi) Attorney General for the State of California, and
(vii) those additional parties as required by the Bankruptcy Court and
Bankruptcy Rules 2002, 6004 and 6006.
10. MISCELLANEOUS.
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10.1 TIME OF ESSENCE. Time is of the essence of this Agreement.
10.2 NO OTHER REPRESENTATIONS. The Parties acknowledge that, except as
expressly set forth in this Agreement or the Ancillary Agreements, neither Party
has made or is making any representations or warranties whatsoever to the other,
implied or otherwise.
10.3 ACCESS OF SELLER TO BOOKS AND RECORDS. At all times after the
Closing Date, Purchaser will give Seller and Seller's advisors and
representatives reasonable access to any books and records of Seller that are
included in the Assets (to the extent such books and records relate to any
period prior to the Closing Date).
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of Seller's
representations, warranties and pre-closing covenants contained in this
Agreement, the Ancillary Agreements, the Seller Closing Certificate or in any
other agreement, document or certificate delivered pursuant to this Agreement
shall survive the Closing. All representations, warranties and covenants of
Purchaser contained in this Agreement, the Ancillary Agreements and the
Purchaser Closing Certificate or in any other agreement, document or certificate
delivered pursuant to this Agreement shall survive the Closing until the latest
to occur of the payment in full of (a) the Secured $3 Million Note or the
Unsecured $3 Million Note, as applicable, (b) the Inventory Note and (c) if
applicable, the Primary Note.
10.5 GOVERNING LAW. This Agreement will be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of law).
10.6 VENUE AND JURISDICTION. If any legal proceeding or other legal
action relating to this Agreement is brought or otherwise initiated, the venue
therefor will be the Bankruptcy Court. Purchaser and Seller hereby expressly and
irrevocably consent and submit to the jurisdiction of the Bankruptcy Court.
10.7 NOTICES. Any notice or other communication required or permitted
to be delivered to either Party under this Agreement must be in writing and will
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such Party
below (or to such other address or facsimile telephone number as such Party
shall have specified in a written notice given to the other Party):
if to Purchaser:
Verso Technologies, Inc.
000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
20.
with a copy to:
Xxxxxx & Hardin LLP
2700 International Tower
000 Xxxxxxxxx Xxxxxx XX
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxx and Xxxxxx X. Hussle
Facsimile: (000) 000-0000
if to Seller:
Clarent Corporation
000 Xxxxxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attention: Legal Department
Facsimile: (000) 000-0000
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx and
Xxxxxxxx Xxxxxx XxXxxxx
Facsimile: (000) 000-0000
10.8 ASSIGNMENT. Neither Party may assign any of its rights or delegate
any of its obligations under this Agreement (whether voluntarily, involuntarily,
by way of merger or otherwise) to any other Person without the prior written
consent of the other Party except that Seller may assign without the prior
written consent of Purchaser (i) its rights to receive the Initial Cash
Consideration and (ii) the Loan and Security Agreement, the Secured $3 Million
Note or the Unsecured $3 Million Note, as applicable, the Inventory Note and, if
applicable, the Primary Note pursuant to their respective terms.
10.9 PARTIES IN INTEREST. Nothing in this Agreement is intended to
provide any rights or remedies to any employee of Seller or to any other Person
other than the Parties.
10.10 SEVERABILITY. In the event that any provision of this Agreement,
or the application of such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, will not be affected and will continue
to be valid and enforceable to the fullest extent permitted by law.
10.11 ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreements
(which remain in full force and effect) and the Ancillary Agreements set forth
the entire
21.
understanding of the Parties and supersede all other agreements and
understandings between the Parties relating to the subject matter hereof and
thereof.
10.12 CONFIDENTIALITY. On and at all times from the date hereof the
Parties shall not use or disclose to any other Person any non-public document or
other non-public information in such Party's possession as it relates to the
business of the other Party and each Party shall continue to keep the terms of
this Agreement (including the Schedules attached hereto) and the other
agreements, documents and instruments referred to in or contemplated by this
Agreement or the Ancillary Agreements strictly confidential. This Section 10.12
will not prohibit either Party from disclosing information: (i) to the extent
they are required by law, rule or regulation to do so, (ii) that becomes
generally available to the public other than as a result of a disclosure by that
Party or (iii) that is necessary to disclose in connection with the Bankruptcy
Case.
10.13 DEDUCTION OR SETOFF. Purchaser shall fulfill all of its
obligations under this Agreement and the Ancillary Agreements without any
deductions or setoffs of any nature.
10.14 WAIVER. No failure on the part of either Party to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of either Party in exercising any power, right, privilege or remedy under this
Agreement, will operate as a waiver thereof; and no single or partial exercise
of any such power, right, privilege or remedy will preclude any other or further
exercise thereof or of any other power, right, privilege or remedy.
10.15 ORDINARY COURSE OF BUSINESS. The Parties acknowledge that the
phrases "ordinary course" or the "ordinary course of business" when used to
describe the conduct of Seller shall contemplate and include the filing of the
Bankruptcy Case and the effect such filing has on the Assets.
10.16 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented except by means of a written instrument executed on behalf of
both Parties.
10.17 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will constitute an original and all of which, when
taken together, will constitute one agreement.
10.18 INTERPRETATION OF AGREEMENT.
(a) Each Party acknowledges that it has participated in the
drafting of this Agreement, and any applicable rule of construction to the
effect that ambiguities are to be resolved against the drafting party will not
be applied in connection with the construction or interpretation of this
Agreement.
(b) Whenever required by the context hereof, the singular
number will include the plural, and vice versa; the masculine gender will
include the feminine and neuter genders; and the neuter gender will include the
masculine and feminine genders.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, will not be deemed to be terms of
limitation, and will be deemed to be followed by the words "without limitation."
22.
(d) Unless the context otherwise requires, references in this
Agreement to "Sections," "Schedules" and "Exhibits" are intended to refer to
Sections of and Schedules and Exhibits to this Agreement.
(e) The table of contents of this Agreement and the bold-faced
headings contained in this Agreement are for convenience of reference only, will
not be deemed to be a part of this Agreement and will not be referred to in
connection with the construction or interpretation of this Agreement.
10.19 FURTHER ASSURANCES.
(a) Each Party will, to the extent reasonably requested by the
other Party and at such other Party's sole expense, execute and deliver such
documents and instruments and take such other actions as such other Party may
reasonably request in order to consummate and make effective the transactions
contemplated by this Agreement.
(b) Purchaser will return any records Seller inadvertently
delivers to Purchaser that are or are reasonably like to be attorney client
privileged or considered attorney work product or which Purchaser realizes are
or are likely to be attorney client privileged or considered attorney work
product.
(c) Each Party will use commercially reasonable efforts to
assign the non-U.S. patents, patent applications, trademarks and trademark
applications pursuant to this Agreement.
(d) After the Closing, if Seller files additional motions to
provide for the assumption and assignment of Additional Agreements pursuant to
Sections 365(a), 365(b) and 365(f) of the Bankruptcy Code, then Purchaser and
Seller shall execute Xxxx of Sale, Assignment and Assumption Agreement(s)
covering such Additional Agreements in the form attached hereto as Exhibit F.
(e) Purchaser agrees that should Purchaser receive a subpoena
to provide to a third party copies of records relating to the Assets at any time
after the Closing Date, Purchaser shall within 3 business days of the receipt of
the subpoena, provide written notice to Seller of the receipt of such subpoena
so that Seller may seek a protective order or an appropriate remedy. Purchaser
will cooperate with Seller to obtain such protective order or other remedy. If
Seller elects not to seek, or is unsuccessful in obtaining, any such protective
order or other remedy in connection with any requirement that Purchaser provide
certain records, then Purchaser may provide to the third party the records
requested in the subpoena.
(f) After the Closing and at Purchaser's expense, Seller shall
promptly transfer and deliver to Purchaser any cash, checks or other property
which Seller may receive as payment on account of any Receivable.
(g) After the Closing, Seller shall execute any powers of
attorney necessary to assign the Intellectual Property.
(h) For a period of 90 days after the Closing, Seller shall
execute such management representation letters as the independent auditor
retained to perform the 2001 Audit
23.
and (if necessary) the 2002 Audit shall reasonably request, and for a period of
6 months after the Closing, Seller shall cooperate with such auditor, and give
such auditor reasonable access to such financial records (including financial
statements prepared in accordance with GAAP for the year-ended December 31, 2001
and for either the nine months ended September 30, 2002 or the year-ending
December 31, 2002, as determined by Purchaser), files, personnel and advisors as
may be reasonably necessary to permit such auditor to perform the 2001 Audit and
(if necessary) the 2002 Audit and to issue its audit report(s) thereon. In
addition, Seller shall use its commercially reasonable efforts to (i) make
available for at least 75 days following the Closing its current corporate
controller and (ii) instruct him to provide reasonable assistance and support to
the independent auditor retained to perform the 2001 Audit and (if necessary)
the 2002 Audit.
24.
The Parties have caused this Agreement to be executed as of the date hereof.
CLARENT CORPORATION
By:/s/Xxxxx X. Xxxx
-------------------------------------
Xxxxx X. Xxxx, President
VERSO TECHNOLOGIES, INC.
By:/s/ Xxxxxx X. Xxxx
---------------------------------------
Xxxxxx X. Xxxx, Chief Executive Officer
25.
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement:
"2001 AUDIT" has the meaning set forth in Section 4.11.
"2002 AUDIT" has the meaning set forth in Section 4.11.
"ADDITIONAL AGREEMENTS" has the meaning set forth in 1.1(f).
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly owns or controls such Person, any Person that directly or
indirectly controls or is controlled by or is under common control with such
Person, and each of such Person's senior executive officers, directors and
partners.
"AGREEMENT" means the Asset Purchase Agreement to which this Exhibit A
is attached, including the Disclosure Schedule.
"ALLOCATION" has the meaning set forth in Section 1.5.
"ANCILLARY AGREEMENTS" has the meaning set forth in Section 1.6.
"ASSETS" has the meaning set forth in Section 1.1.
"ASSIGNED CONTRACTS" has the meaning set forth in Section 1.1(f).
"ASSUMED LEASES" has the meaning set forth in Section 1.1(m).
"ASSUMED LIABILITIES" means the following obligations and other
liabilities (whether known, unknown, accrued, absolute, matured, unmatured,
contingent or otherwise, and whether arising before (only in the case of clauses
(i), (iv) and (v) below) or after (in the case of clauses (i) through (vi)
below) the Closing) as they may exist at and/or after the Closing: (i) all
obligations and other liabilities of Seller under or relating to the Assigned
Contracts, Additional Agreements and Assumed Leases; (ii) all obligations and
other liabilities of Seller relating to any of the taxes, charges, fees and
expenses that Purchaser is required to bear and pay pursuant to Section 1.4;
(iii) all costs and expenses related to Purchaser's taking possession and
control of the Assets; (iv) to the extent Purchaser elects to make Cure Payments
in excess of $100,000 pursuant to Section 9.2(b), any Cure Payments greater than
$100,000; (v) in the event Purchaser elects to purchase the Canadian Assets, any
and all costs, expenses and liabilities Purchaser is responsible to bear and pay
pursuant to Section 4.9 and (vi) each other obligation or other liability of
Seller relating to any of the Assets; it being understood by the Parties that
all liabilities of the Canadian Subsidiary will continue to be liabilities of
the Canadian Subsidiary.
"ASSUMPTION NOTICE" has the meaning set forth in Section 1.9.
A-1.
"BANKRUPTCY CASE" means the Chapter 11 bankruptcy case to be commenced
by Seller in the Bankruptcy Court.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, as amended
from time to time.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
Northern District of California, San Francisco Division.
"XXXX OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT" has the meaning set
forth in Section 1.3(c).
"BORROWING BASE" means an amount, determined on a quarterly basis,
equal to (i) (x) 50% of Purchaser's net accounts receivable for the quarter for
which the determination is being made as set forth on its unaudited quarterly
balance sheet if Purchaser's net accounts receivable are more than 90%
Purchaser's total revenue for such quarter, (y) 65% of Purchaser's net accounts
receivable for the quarter for which the determination is being made as set
forth on its unaudited quarterly balance sheet if Purchaser's net accounts
receivable are less than 90% but at least 75% of Purchaser's total revenue for
such quarter, or (z) 75% of Purchaser's net accounts receivable for the quarter
for which the determination is being made as set forth on its unaudited
quarterly balance sheet if Purchaser's net accounts receivable are less than 75%
of Purchaser's total revenue for such quarter; plus (ii) 10% of Purchaser's
inventory as set forth on its unaudited quarterly balance sheet for such
quarter.
"BREAK-UP FEE" has the meaning set forth in Section 9.2(a).
"XXXXXXXXX FACILITY" means the premises located at 0000 Xxxxx
Xxxxxxxxx, Xxxxxxxxx, Xxxxxx, Xxxxxx, that is being leased to Seller.
"BUSINESS" has the meaning set forth in the recitals to the Agreement.
"CANADIAN ASSETS" has the meaning set forth in Section 1.1(l).
"CANADIAN SUBSIDIARY" means Clarent Canada Ltd.
"CASH BID" has the meaning set forth in Section 9.1(a).
"CHARGES" has the meaning set forth in Section 1.4.
"CLOSING" has the meaning set forth in Section 1.7.
"CLOSING DATE" has the meaning set forth in Section 1.7.
"CONFIDENTIALITY AGREEMENTS" means the letter agreement between the
Parties, dated as of June 17, 2002 and the letter agreement between XX Xxxxx
Securities Corporation and Purchaser, dated as of June 14, 2002.
A-2.
"CONSENT" means any consent, approval or waiver required pursuant to
Section 365(c)(1) of the Bankruptcy Code.
"CONSIDERATION" has the meaning set forth in Section 1.3.
"CONSOLIDATED NET INCOME" means for any period, the net income (or
loss) of Purchaser and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period and determined in conformity with GAAP.
"CONTINGENT OBLIGATION" means any direct or indirect liability,
contingent or otherwise, with respect to any indebtedness, lease, dividend,
letter of credit or other obligation of another required to be reserved or
accrued in accordance with GAAP; provided, however, that in no event shall
Contingent Obligation mean any trade payables, accrued expenses, liability for
unearned revenue or customer deposits, in each case arising in the ordinary
course of business.
"CURE PAYMENTS" has the meaning set forth in Section 1.8.
"CUSTOMER CARE MAINTENANCE CONTRACTS" means any maintenance, support or
warranty commitments made by Seller to its customers.
"DISCLOSURE SCHEDULE" means the disclosure schedule delivered by Seller
to Purchaser contemporaneously with the execution and delivery of the Agreement.
"EBITDA" means for any period, Consolidated Net Income, PLUS the
following, to the extent deducted in calculating Consolidated Net Income: (i)
interest expense, (ii) taxes, (iii) depreciation expense, (iv) amortization
expense and (v) all extraordinary, non-recurring, non-cash or unusual losses;
MINUS all extraordinary, non-recurring, non-cash or unusual gains, to the extent
added in calculating Consolidated Net Income.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED ASSETS" has the meaning set forth in Section 1.2.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including reimbursement and
other obligations with respect to surety bonds and letters of credit, (b) all
capital lease obligations and (c) all Contingent Obligations.
"INITIAL CASH CONSIDERATION" has the meaning set forth in Section
1.3(a).
"INVENTORY" has the meaning set forth in Section 1.1(j).
"INVENTORY NOTE" has the meaning set forth in Section 1.3(d).
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 1.1(b).
"LEGAL REQUIREMENT" means any law, rule or regulation of any
governmental body.
A-3.
"LIABILITIES AMOUNT" has the meaning set forth in Section 4.9.
"LITTLETON FACILITY" means the premises located at 0000 X. Xxxxxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxx, that is being leased to Seller.
"LOAN AND SECURITY AGREEMENT" has the meaning set forth in Section
1.3(a).
"NON-ASSUMED LIABILITIES" has the meaning in Section 1.10(b).
"NOTES" means the Primary Note, if applicable, the Inventory Note and
either the Secured $3 Million Note or the Unsecured $3 Million Note, whichever
is applicable.
"PARTIES" has the meaning set forth in the introductory paragraph of
the Agreement.
"PERSON" means any individual, corporation, general partnership,
limited partnership, limited liability company, trust, association, firm,
organization, company, business, entity, union, society or governmental body.
"PRE-CLOSING PERIOD" has the meaning set forth in Section 4.1.
"PRIMARY LENDER" has the meaning set forth in the definition of Senior
Indebtedness.
"PRIMARY NOTE" has the meaning set forth in Section 1.3(a).
"PROCEDURE ORDER" has the meaning in Section 9.2(a).
"PURCHASER" has the meaning set forth in the introductory paragraph of
the Agreement.
"PURCHASER CLOSING CERTIFICATE" has the meaning set forth in Section
7.4(a).
"PURCHASER CORPORATIONS" has the meaning set forth in Section 3.1(b).
"PURCHASER SEC DOCUMENTS" has the meaning set forth in Section 3.1(a).
"QUALIFIED FINANCING" means a financing in which Purchaser receives
immediately upon the closing of such financing net cash funded proceeds of not
less than $5,000,000; it being understood that in no event shall the first
$5,000,000 in available Senior Indebtedness be deemed "net cash funded proceeds"
for purposes of this definition.
"RECEIVABLES" has the meaning set forth in 1.1(a).
"SALE APPROVAL DATE" has the meaning set forth in Section 9.2(b).
"SALE AUCTION" has the meaning set forth in Section 9.2(a).
"SALE HEARING" means the hearing before the Bankruptcy Court to
consider the Sale Motion.
"SALE MOTION" has the meaning set forth in 9.2(b).
A-4.
"SALE PROCEDURE DATE" has the meaning set forth in Section 9.2(a).
"SALE PROCEDURE MOTION" has the meaning set forth in Section 9.2(a).
"SALE ORDER" has the meaning set forth in Section 9.2(b).
"SEC" means the United States Securities and Exchange Commission.
"SECURED $3 MILLION NOTE" has the meaning set forth in Section 1.3(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" has the meaning set forth in the introductory paragraph of the
Agreement.
"SELLER CLOSING CERTIFICATE" has the meaning set forth in Section
6.3(a).
"SELLER PERMITS" means all permits (including franchises, approvals,
authorizations, licenses, orders, registrations, certificates, variances,
exemptions and other similar permits or rights) obtained from any governmental
entity relating to the Assets and all pending applications therefor.
"SENIOR INDEBTEDNESS" means (i) principal of, and premium, if any, and
interest on all Indebtedness of Purchaser for monies borrowed, including
commercial paper and accounts receivable sold or assigned by Purchaser, and (ii)
the principal of, and premium, if any, and interest on any indebtedness or
obligations of a Subsidiary of the kinds described in clause (i) which are
assumed or guaranteed in any manner by Purchaser, as any of such Indebtedness,
obligations or liabilities described in the foregoing clauses (i) or (ii) may be
amended, modified, restated, replaced, extended, refinanced, renewed or
supplemented from time to time, and "Senior Indebtedness" shall include all
Indebtedness, liabilities, debts and obligations of Purchaser to Silicon Valley
Bank (or such other bank or financial institution that may participate in or
provide financing in lieu of Silicon Valley Bank, "PRIMARY LENDER") under that
certain Loan and Security Agreement, dated as of December 14, 2001, among
Purchaser, Nact Telecommunications, Inc., Xxxxxxxx.Xxx Software, Inc. and the
Primary Lender, as amended, including all principal, interest, charges, fees and
other expenses due and owing thereunder; provided, that in no event shall
"Senior Indebtedness" ever exceed Senior Indebtedness Cap.
"SENIOR INDEBTEDNESS CAP" means $10,000,000
(a) MINUS the principal amount of the Primary Note then
outstanding,
(b) PLUS all interest, fees and expenses charged by
Purchaser's Primary Lender under any applicable agreement,
(c) PLUS on and after the later to occur of the payment in
full of (i) the Primary Note or (ii) the Inventory Note, an amount
equal to the greater of (A) four (4) times Purchaser's EBITDA,
calculated on a trailing 12-month basis, MINUS $10,000,000 or (B)
any increase in the Borrowing Base, in each of the foregoing
cases, measured at the end of each calendar quarter, beginning
with the
A-5.
quarter ending March 31, 2003; it being understood that no
increase to the Senior Indebtedness Cap shall take effect until
the end of the second calendar quarter, or June 30, 2003.
"SPECIFIED PATENTS" means the patents identified on Schedule 7 and all
divisions, continuations, continuations-in-part, reissues, extensions,
reexaminations and renewals of such patents in the U.S. and al foreign
countries.
"SPECIFIED TRADEMARKS" means the trademarks identified on Schedule 8.
"SUBSIDIARY" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity, at the time as of which any determination is being made,
is owned by Purchaser, either directly or through an Affiliate, if any.
"TECHNOLOGY" has the meaning set forth in Section 1.1(c).
"UNQUALIFIED FINANCING" means any financing other than a Qualified
Financing; it being understood that in no event shall the first $5,000,000 of
Senior Indebtedness be deemed to comprise an Unqualified Financing for purposes
of this definition.
"UNSECURED $3 MILLION NOTE" has the meaning set forth in Section
1.3(b).
A-6.
EXHIBIT B
SECURED SUBORDINATED PROMISSORY NOTE
$[up to 5,000,000] __________________, 2003
__________, California
FOR VALUE RECEIVED, VERSO TECHNOLOGIES, INC., a Minnesota corporation
("BORROWER"), hereby unconditionally promises to pay to the order of CLARENT
CORPORATION, a Delaware corporation ("LENDER"), in lawful money of the United
States of America and in immediately available funds, the principal sum of
[_____________] Dollars ($[_______]) (the "LOAN") together with accrued and
unpaid interest thereon, on the dates and in the manner set forth below.
This Secured Subordinated Promissory Note (this "NOTE") is the Primary
Note referred to, and defined in, and is executed and delivered in connection
with, that certain Loan and Security Agreement dated as of the date hereof, by
and between Borrower and Lender (as the same may be amended, supplemented,
restated or otherwise modified from time to time, the "LOAN AGREEMENT").
Additional rights of Lender are set forth in the Loan Agreement. All capitalized
terms used herein and not otherwise defined herein shall have the meanings given
to such terms in the Loan Agreement.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan shall
be due and payable in the amounts set forth below, within three (3) business
days of the dates set forth below. Notwithstanding the foregoing, the total
amount outstanding hereunder shall be immediately due and payable upon the
occurrence of a Change in Control.
REPAYMENT DATE(1) REPAYMENT AMOUNT
March 15, 2003 $500,000
April 15, 2003 $250,000
May 15, 2003 $250,000
June 15, 2003 $250,000
July 15, 2003 $500,000
August 15, 2003 $500,000
September 15, 2003 $500,000
October 15, 2003 $750,000
November 15, 2003 $750,000
December 15, 2003 $750,000
(1) Actual payment dates subject to change. If closing occurs after 12/15/02,
then first repayment date shall be 90 days thereafter, and subsequent
repayment dates shall follow at regular monthly intervals.
B-1.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rate of ten percent (10%) per annum or
the maximum rate permissible by law (which, under the laws of the State of
California, shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less. Beginning thirty (30) days
after the date of this Note, interest shall be due and payable monthly not later
than the [15th] [___] day of each calendar month and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
Upon the occurrence and during the continuance of an Event of Default pursuant
to Section 6 below, all amounts owing hereunder shall bear interest at fifteen
percent (15%) per annum or the maximum amount permissible by law (which, under
the laws of the State of California, shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at
the office of Lender, 000 Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. SECURED NOTE. The full amount of this Note is secured by the
Collateral referred to and defined in the Loan Agreement. Borrower shall not,
directly or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on or in the Collateral, or on or in any portion thereof, except as
permitted pursuant to the Loan Agreement.
6. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
(a) Borrower fails to pay any of the principal amount due under
this Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note on the date the same becomes due and
payable;
(b) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(c) An involuntary petition is filed against Borrower (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Borrower.
(d) An "Event of Default" occurs under the Loan Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (B) or (C) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
the Loan Agreement and applicable law.
7. SUBORDINATION. The indebtedness evidenced by this Note is hereby
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness, but only to the extent and in the manner expressly hereinafter set
forth. Lender acknowledges and agrees that the indebtedness represented hereby
B-2.
and the exercise of Lender's rights and remedies under this Note shall be
subject to the terms and conditions of the Subordination Agreement.
7.1 INSOLVENCY PROCEEDINGS. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Borrower,
(a) no amount shall be paid by Borrower in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (b) no claim or proof of claim shall be
filed by or on behalf of Lender which shall assert any right to receive any
payments in respect of the principal of and interest on this Note, except that
Lender may file a claim or proof of claim asserting rights to receive principal
and interest subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding.
7.2 FURTHER ASSURANCES. By acceptance of this Note, Lender agrees to
execute and deliver customary forms of subordination agreements requested from
time to time by the Senior Creditors and Borrower may require that Lender
execute such forms of subordination agreement, provided that in each case, such
forms shall not impose on Lender terms less favorable than those provided in the
Subordination Agreement.
7.3 OTHER INDEBTEDNESS. Indebtedness of Borrower that does not
constitute Senior Indebtedness shall not be senior in any respect to the
indebtedness represented by this Note.
7.4 SUBROGATION. Subject to the payment in full of the Senior
Indebtedness, Lender shall be subrogated to the rights of the Senior Creditors
(to the extent of the payments or distributions made to such Senior Creditors
pursuant to the provisions of this Section 7) to receive payments and
distributions of assets of Borrower applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between Borrower and its creditors, other than the Senior Creditors and Lender,
be deemed to be a payment by Borrower to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the Senior
Creditors to which Lender would be entitled except for the provisions of this
Section 7 shall, as between Borrower and its creditors, other than the Senior
Creditors and Lender, be deemed to be a payment by Borrower to or on account of
the Senior Indebtedness.
7.5 LIEN SUBORDINATION. Any lien or security interest of Lender,
whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of Borrower or any proceeds or revenues
therefrom which Lender may have at any time as security for any amounts due and
obligations under this Note, shall be subordinate to all liens or security
interests previously granted to a Senior Creditor by Borrower or by law
notwithstanding the date, order or method of attachment or perfection of any
such lien or security interest or the provisions of any applicable law.
7.6 NO IMPAIRMENT. Subject to the rights, if any, of the Senior
Creditors under this Section 7 to receive payments otherwise payable or
deliverable to Lender, nothing contained in this Section 7 shall impair, as
between Borrower and Lender, the obligation of Borrower, subject to the terms
and conditions hereof, to pay to Lender the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent Lender, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law.
B-3.
7.7 APPLICABILITY OF PRIORITIES. The priority of the Senior Creditors
provided for herein with respect to security interests and liens are applicable
only to the extent that such security interests and liens are enforceable and
perfected and have not been avoided; if a security interest or lien is
judicially determined to be unenforceable or unperfected or is judicially
avoided with respect to any claim of the Senior Creditors or any part thereof,
the priority provided for herein shall not be available to such security
interest or lien to the extent that is avoided or determined to be unenforceable
or unperfected. The foregoing notwithstanding, Lender covenants and agrees that
it shall not challenge, attack or seek to avoid any security interest or lien to
the extent it secures any of the Senior Indebtedness.
7.8 RELIANCE OF THE SENIOR CREDITORS. Lender, by its acceptance hereof,
shall be deemed to acknowledge and agree that the foregoing subordination
provisions are, and are intended to be, an inducement to and a consideration of
each Senior Creditor, and each such Senior Creditor shall be deemed conclusively
to have relied on such subordination provisions in continuing to hold, such
Senior Indebtedness.
8. WAIVER. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses. The right to plead any and all statutes of
limitations as a defense to any demands hereunder is hereby waived to the full
extent permitted by law.
9. CHOICE OF LAW AND VENUE. This Note will be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of law). If any legal
proceeding or other legal action relating to this Note is brought or otherwise
initiated, the venue therefor will be the Bankruptcy Court. Borrower and Lender
hereby expressly and irrevocably consent and submit to the jurisdiction of the
Bankruptcy Court.
10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Borrower and shall extend to any
holder hereof; provided, however, that neither this Note nor any rights
hereunder may be assigned by Borrower. Lender may assign its rights under this
Note at any time, in whole or in part, to any third party, without consent from,
or notice to, Borrower.
[THE SIGNATURE PAGE FOLLOWS.]
B-4.
BORROWER: VERSO TECHNOLOGIES, INC.
By:
----------------------------
Printed Name:
-----------------
Title:
-------------------------
LENDER: CLARENT CORPORATION
By:
----------------------------
Printed Name:
------------------
Title:
-------------------------
B-5.
EXHIBIT C
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of ______________, 2003 (this
"AGREEMENT"), is entered into by and between CLARENT CORPORATION, a Delaware
corporation ("LENDER"), and VERSO TECHNOLOGIES, INC., a Minnesota corporation
("BORROWER").
RECITALS
A. Borrower and Lender entered into an Asset Purchase Agreement (the
"PURCHASE AGREEMENT"), dated as of December ___, 2002, pursuant to which
Borrower agreed to acquire from Lender the Assets, on the terms and
conditions set forth in the Purchase Agreement.
B. Borrower has requested certain loans from Lender to enable it to acquire
the Assets. Lender has agreed to provide to Borrower the following loans:
1. pursuant to Section 1.3(a) of the Purchase Agreement, a loan in the
maximum principal amount of $5,000,000 secured by the Assets (to the
extent such loan is made, the "PRIMARY LOAN"); and
2. pursuant to Section 1.3(d) of the Purchase Agreement, either (a) a
loan in the aggregate principal amount of $1,800,000 secured by the
Assets (the "SECURED INVENTORY LOAN") or (b) an unsecured loan in
the aggregate principal amount of $1,800,000 (the "UNSECURED
INVENTORY LOAN"); and
3. pursuant to Section 1.3(b) of the Purchase Agreement, either (a) a
loan in the original aggregate principal amount of $3,000,000
secured by the Assets (the "SECURED $3 MILLION LOAN") or (b) an
unsecured loan in the original aggregate principal amount of
$3,000,000 (the "UNSECURED $3 MILLION LOAN").
This Agreement contains the terms and conditions on which Lender shall
make the Loans.
C. Borrower acknowledges and understands that Lender is relying upon the
execution, delivery and performance of this Agreement by Borrower and upon
the representations, warranties and covenants of Borrower set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"$3 MILLION LOAN" means either the Secured $3 Million Loan or the
Unsecured $3 Million Loan, whichever is applicable.
"$3 MILLION NOTE" means either the Secured $3 Million Note or the
Unsecured $3 Million Note, whichever is applicable.
C-1.
"ACCOUNTS" means "accounts" as such term is defined in the Code, but only
to the extent that such Accounts constitute Collateral.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly owns or controls such Person, any Person that directly or
indirectly controls or is controlled by or is under common control with such
Person, and each of such Person's senior executive officers, directors and
partners.
"ASSETS" has the meaning set forth in the Purchase Agreement.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
Northern District of California, San Francisco Division.
"BORROWING BASE" means an amount, determined on a quarterly basis, equal
to (i) (x) 50% of Borrower's net accounts receivable for the quarter for which
the determination is being made as set forth on its unaudited quarterly balance
sheet if Borrower's net accounts receivable are more than 90% Borrower's total
revenue for such quarter, (y) 65% of Borrower's net accounts receivable for the
quarter for which the determination is being made as set forth on its unaudited
quarterly balance sheet if Borrower's net accounts receivable are less than 90%
but at least 75% of Borrower's total revenue for such quarter, or (z) 75% of
Borrower's net accounts receivable for the quarter for which the determination
is being made as set forth on its unaudited quarterly balance sheet if
Borrower's net accounts receivable are less than 75% of Borrower's total revenue
for such quarter; plus (ii) 10% of Borrower's inventory as set forth on its
unaudited quarterly balance sheet for such quarter.
"CHANGE IN CONTROL" shall mean a transaction in which any "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of a sufficient number of shares of all classes of stock then
outstanding of Borrower ordinarily entitled to vote in the election of
directors, empowering such "person" or "group" to elect a majority of the Board
of Directors of Borrower, who did not have such power before such transaction.
"CLOSING DATE" has the meaning set forth in the Purchase Agreement.
"CODE" means the Uniform Commercial Code as in effect in the State of
California. In the event that any or all of the attachment, perfection or
priority of Lender's security interest in any Collateral is governed by the
Commercial Code as in effect in a jurisdiction other than California, the term
"Code" shall mean the Uniform Commercial Code as in effect at such time in such
other jurisdiction.
"COLLATERAL" means the property described on EXHIBIT A attached hereto.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss)
of Borrower and its Subsidiaries on a consolidated basis for such period taken
as a single accounting period and determined in conformity with GAAP.
"CONTINGENT OBLIGATION" means any direct or indirect liability, contingent
or otherwise, with respect to any indebtedness, lease, dividend, letter of
credit or other obligation of another required to be reserved or accrued in
accordance with GAAP; provided, that in no event shall Contingent Obligation
mean any trade payables, accrued expenses, liability for unearned revenue or
customer deposits, in each case arising in the ordinary course of business.
C-2.
"COPYRIGHTS" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"EBITDA" means, for any period, Consolidated Net Income, PLUS the
following, to the extent deducted in calculating Consolidated Net Income: (i)
interest expense, (ii) taxes, (iii) depreciation expense, (iv) amortization
expense and (v) all extraordinary, non-recurring, non-cash or unusual losses;
MINUS all extraordinary, non-recurring, non-cash or unusual gains, to the extent
added in calculating Consolidated Net Income.
"EQUIPMENT" means all machinery, equipment, tenant improvements,
furniture, fixtures, vehicles, tools, parts and attachments in which Borrower
has any interest, but only to the extent that such Equipment constitutes
Collateral.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"EVENT OF DEFAULT" has the meaning assigned to such term in Section 8.
"FINANCING STATEMENT" means financing statements (forms UCC-1) naming
Borrower as debtor and Lender as secured party relating to the Secured
Obligations and filed in all appropriate jurisdictions.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including reimbursement and
other obligations with respect to surety bonds and letters of credit, (b) all
capital lease obligations and (c) all Contingent Obligations.
"INTELLECTUAL PROPERTY" means, collectively, all of Borrower's Copyrights,
Trademarks and Patents, but only to the extent that such Copyrights, Trademarks
and Patents constitute Collateral.
"INSOLVENCY PROCEEDING" means any action, suit, case or proceeding
commenced by or against Borrower or any Subsidiary for the appointment of a
receiver for Borrower, any Subsidiary, any of Borrower's property or any
property of any Subsidiary, for an order for relief under any chapter of the
United States bankruptcy code, as an assignment for the benefit of creditors or
for any relief under any other insolvency law relating to the readjustment,
reorganization, composition or extension of debts owed by Borrower or any
Subsidiary.
"INVENTORY" means "inventory" as such term is defined in the Code, but
only to the extent that such Inventory constitutes Collateral.
"INVENTORY LOAN" means either the Secured Inventory Loan or the Unsecured
Inventory Loan, whichever is applicable.
"INVENTORY NOTE" means either the Secured Inventory Note or the Unsecured
Inventory Note, whichever is applicable.
"INVESTMENT" means any beneficial ownership of less than all of the equity
interests of (including stock, partnership interest or other securities) any
Person, or any loan, advance or capital contribution to any Person.
C-3.
"IP SECURITY AGREEMENT" means that certain Intellectual Property Security
Agreement, dated as of the date hereof, by and between Lender and Borrower.
"LENDER EXPENSES" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
enforcement of the Loan Documents and all of Lender's reasonable attorneys' fees
and expenses incurred in amending, enforcing or defending the Loan Documents
(including reasonable fees and expenses of appeal or review, or those incurred
in any Insolvency Proceeding), whether or not a suit is brought.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOANS" means the $3 Million Loan, the Primary Loan and the Inventory
Loan.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the IP
Security Agreement, the Financing Statement and any other agreement entered into
between Borrower and Lender in connection with this Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
operations or condition (financial or otherwise) of Borrower and its
Subsidiaries, taken as a whole.
"NOTES" means, individually and collectively, the Inventory Note, the $3
Million Note and the Primary Note.
"OBLIGATIONS" means, individually and collectively, the Secured
Obligations and the Unsecured Obligations.
"PATENTS" means all patents, patent applications and like protections
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" means:
(a) All Senior Indebtedness;
(b) Trade debt incurred in the ordinary course of business;
(c) (i) While any of the Secured Obligations remain outstanding,
Indebtedness subordinated to the Secured Obligations on terms
satisfactory to Lender, in its reasonable discretion, and (ii)
upon the indefeasible payment in full of the Secured
Obligations, Indebtedness which, by its terms, is subordinated
to the Obligations, provided, that, at least 30 days prior to
the incurrence of such Indebtedness, Borrower provides Lender
with written notice thereof;
(d) Indebtedness existing on the date hereof and disclosed on the
Schedule; and
(e) On and after the later to occur of the payment in full of (i)
the Primary Note or (ii) the Inventory Note, Indebtedness of a
Person that becomes a Subsidiary after the date hereof,
provided that each of the following conditions is met: (i)
such Indebtedness will not cause Borrower to exceed the Senior
Indebtedness Cap,
C-4.
and (ii) immediately before and after giving effect to the
acquisition of such Person by Borrower, no Event of Default
shall have occurred and be continuing.
"PERMITTED LIENS" means:
(a) Liens that secure Senior Indebtedness;
(b) Liens that constitute purchase money security interests;
(c) Liens for taxes not yet payable or Liens for taxes being
contested in good faith by appropriate proceedings with
adequate reserves under GAAP;
(d) Liens of materialmen, mechanics, warehousemen, carriers and
other similar Liens arising in the ordinary course of
business;
(e) Liens incurred in connection with Senior Indebtedness;
(f) Liens incurred in connection with Indebtedness permitted
pursuant to clause (d) of the definition of "Permitted
Indebtedness";
(g) Liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation
of goods; and
(h) Liens consented to by Lender, which consent shall not be
unreasonably withheld, delayed or conditioned.
"PERSON" means any individual, corporation, general partnership, limited
partnership, limited liability company, trust, association, firm, organization,
company, business, entity, union, society or governmental body.
"PRIMARY LOAN" has the meaning set forth in Recital B.
"PRIMARY NOTE" means a promissory note evidencing the Primary Loan in
substantially the same form as EXHIBIT D attached hereto.
"PURCHASE AGREEMENT" has the meaning set forth in Recital A.
"QUALIFIED FINANCING" means a financing in which Borrower receives,
immediately upon the closing of such financing, net cash funded proceeds of not
less than $5,000,000; it being understood that in no event shall the first
$5,000,000 of Senior Indebtedness be deemed "net cash funded proceeds" for
purposes of this definition.
"SCHEDULE" means the Schedule of Exceptions attached hereto.
"SECURED $3 MILLION LOAN" has the meaning set forth in Recital B.
"SECURED $3 MILLION NOTE" means a promissory note evidencing the Secured
$3 Million Loan in substantially the same form as EXHIBIT B-1 attached hereto.
"SECURED INVENTORY LOAN" has the meaning set forth in Recital B.
C-5.
"SECURED INVENTORY NOTE" means a promissory note evidencing the Secured
Inventory Loan in substantially the same form as EXHIBIT C-1 attached hereto.
"SECURED LOANS" means, individually and collectively, (i) the Primary
Loan, (ii) the Secured $3 Million Loan and (iii) the Secured Inventory Note.
"SECURED NOTES" means, individually and collectively, the Primary Note,
the Secured Inventory Note, and, if applicable, the Secured $3 Million Note, to
the extent it is secured.
"SECURED OBLIGATIONS" means all debt, principal, interest, Lender Expenses
and other amounts owed to Lender by Borrower at any time in connection with the
applicable Secured Notes (with respect to the $3 Million Note only, to the
extent, and only to the extent, that the Secured $3 Million Note is secured in
accordance with this Agreement), including any interest that accrues after the
commencement of an Insolvency Proceeding.
"SENIOR CREDITOR" means any holder of any Senior Indebtedness.
"SENIOR INDEBTEDNESS" means (i) the principal of, and premium, if any, and
interest on all Indebtedness of Borrower for monies borrowed, including
commercial paper and accounts receivable sold or assigned by Borrower, and (ii)
the principal of, and premium, if any, and interest on any indebtedness or
obligations of a Subsidiary of the kinds described in clause (i), above, which
are assumed or guaranteed in any manner by Borrower, as any of such
Indebtedness, obligations or liabilities described in the foregoing clauses (i)
or (ii) may be amended, modified, restated, replaced, extended, refinanced,
renewed or supplemented from time to time, and "Senior Indebtedness" shall
include all Indebtedness, liabilities, debts and obligations of Borrower to
Silicon Valley Bank (or such other bank or financial institution that may
participate in or provide financing in lieu of Silicon Valley Bank, "PRIMARY
LENDER") under that certain Loan and Security Agreement, dated as of December
14, 2001, among Borrower, Nact Telecommunications, Inc., Xxxxxxxx.Xxx Software,
Inc. and the Primary Lender, as amended, including all principal, interest,
charges, fees and other expenses due and owing thereunder, provided, that in no
event shall "Senior Indebtedness" ever exceed the Senior Indebtedness Cap.
"SENIOR INDEBTEDNESS CAP" means $10,000,000
(a) MINUS the principal amount of the Primary Note then
outstanding,
(b) PLUS all interest, fees and expenses charged by Borrower's
Primary Lender under any applicable agreement,
(c) PLUS, on and after the later to occur of the payment in full
of (i) the Primary Note or (ii) the Inventory Note, an amount
equal to the greater of (A) four (4) times Borrower's EBITDA,
calculated on a trailing 12-month basis, minus $10,000,000, or
(B) any increase in the Borrowing Base, in each of the
foregoing cases, measured at the end of each calendar quarter,
beginning with the quarter ending March 31, 2003; it being
understood that no increase to the Senior Indebtedness Cap
shall take effect until the end of the second calendar
quarter, or June 30, 2003.
"SUBORDINATION AGREEMENT" has the meaning assigned to such term in Section
9.7.
"SUBSIDIARY" means any corporation or partnership in which (i) any general
partnership interest or (ii) more than 50% of the stock of which by the terms
thereof ordinary voting power to elect the Board
C-6.
of Directors, managers or trustees of the entity, at the time as of which any
determination is being made, is owned by Borrower, either directly or through an
Affiliate, if any.
"TRADEMARKS" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
"UNQUALIFIED FINANCING" means any financing other than a Qualified
Financing; it being understood that in no event shall the first $5,000,000 of
Senior Indebtedness be deemed to comprise an Unqualified Financing for purposes
of this definition.
"UNSECURED $3 MILLION LOAN" has the meaning set forth in Recital B.
"UNSECURED $3 MILLION NOTE" means a promissory note evidencing the
Unsecured $3 Million Loan in substantially the same form as EXHIBIT B-2 attached
hereto.
"UNSECURED INVENTORY LOAN" has the meaning set forth in Recital B.
"UNSECURED INVENTORY NOTE" means a promissory note evidencing the
Unsecured Inventory Loan in substantially the same form as EXHIBIT C-2 attached
hereto.
"UNSECURED LOANS" means, individually and collectively, the Unsecured $3
Million Loan and the Unsecured Inventory Loan.
"UNSECURED NOTES" means, individually and collectively, the Unsecured $3
Million Note and the Unsecured Inventory Note.
"UNSECURED OBLIGATIONS" means all debt, principal, interest, Lender
Expenses and other amounts owed to Lender by Borrower at any time in connection
with the applicable Unsecured Notes, including any interest that accrues after
the commencement of an Insolvency Proceeding.
2. LOANS.
2.1 AMOUNT AND MATURITY. Subject to the terms and conditions set
forth herein, Lender shall advance to Borrower the Primary Loan, the Inventory
Loan and the $3 Million Loan in accordance with the terms and conditions set
forth in the Primary Note, the Inventory Note and the $3 Million Note,
respectively. The aggregate outstanding principal balance of the Primary Loan,
the Inventory Loan and the $3 Million Loan, plus all accrued and unpaid interest
thereon, shall be due and payable in full in immediately available funds on the
maturity dates set forth in the Primary Note, the Inventory Note and the $3
Million Loan, respectively.
2.2 INTEREST. The Primary Loan, the Inventory Loan and the $3
Million Loan shall bear interest on the sum of the unpaid principal balance
thereof on each day until such Loan shall have been fully repaid at the per
annum rates and to the extent set forth in the Primary Note, Inventory Note and
$3 Million Note, respectively.
2.3 PRINCIPAL REPAYMENT. Principal and interest on the Primary Loan,
the Inventory Loan and the $3 Million Loan shall be due and payable in
accordance with the terms and conditions set forth in the Primary Note,
Inventory Note and $3 Million Note, respectively.
C-7.
2.4 MANDATORY PREPAYMENT. Borrower shall cause the proceeds of any
Qualified Financing or Unqualified Financing (less reasonable closing costs not
to exceed $500,000) to be paid directly to Lender for repayment of the
outstanding principal amount of, and accrued interest on, the Primary Note,
until paid in full.
3. CONDITIONS PRECEDENT TO LOANS.
3.1 CONDITIONS PRECEDENT TO SECURED LOANS. The obligation of Lender
to make the applicable Secured Loans is subject to the condition precedent that
Lender shall have received, in form and substance satisfactory to Lender, each
of the following:
(A) each of the Secured Notes, duly executed by Borrower, as
applicable;
(B) the IP Security Agreement, duly executed by Borrower;
and
(C) the Financing Statement.
3.2 CONDITIONS PRECEDENT TO UNSECURED LOANS. The obligation of
Lender to make the applicable Unsecured Loans is subject to the condition
precedent that Lender shall have received each of the applicable Unsecured
Notes, duly executed by Borrower.
3.3 CONDITIONS PRECEDENT TO ALL LOANS. In addition to the foregoing
conditions precedent, the obligation of Lender to make the Loans is subject to
the condition precedent that Lender shall have received, in form and substance
satisfactory to Lender, each of the following:
(A) this Agreement, duly executed by Borrower;
(B) the Purchase Agreement, duly executed by Borrower;
(C) an officer's certificate of Borrower with respect to its
articles of incorporation and bylaws, resolutions
authorizing the execution and delivery of this Agreement
and the other Loan Documents, and incumbency;
(D) to the extent required, consent to the consummation and
performance of the transactions contemplated by the Loan
Documents from existing lenders and lessors, including
Silicon Valley Bank;
(E) evidence that all UCC-1 financing statements filed by WA
Telcom Products Co., Inc. against Borrower have been
terminated; and
(F) such other documents, and completion of such other
matters, as Lender may reasonably deem necessary or
appropriate.
4. CREATION OF SECURITY INTEREST WITH RESPECT TO OBLIGATIONS.
The provisions of this Article 4 shall apply only if Lender makes a
Secured Loan to Borrower.
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Lender a continuing security interest in all Collateral to secure prompt
repayment of the Secured Obligations and to secure
C-8.
prompt performance by Borrower of each of its covenants and duties under the
applicable Secured Notes. Such security interest constitutes a valid security
interest in such Collateral, junior only to the security interest granted by
Borrower in connection with the Senior Indebtedness.
4.2 AUTHORIZATION TO FILE; DELIVERY OF ADDITIONAL DOCUMENTATION
REQUIRED. Borrower authorizes Lender to file financing statements without notice
to Borrower, with all appropriate jurisdictions, in order to perfect or protect
Lender's security interests in the Collateral. Borrower shall execute and
deliver to Lender all documents that Lender may reasonably request, in form
satisfactory to Lender, to perfect and continue perfected Lender's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents to the extent such
transactions relate to the applicable Secured Notes.
4.3 TERMINATION OF SECURITY INTERESTS. The security interests
granted hereunder shall terminate upon the indefeasible payment in full of the
Secured Obligations. Notwithstanding the foregoing, the security interests
securing the Secured $3 Million Loan shall terminate if the Primary Loan is
indefeasibly paid in full on or before the six-month anniversary of the Closing
Date. If the Primary Loan is not indefeasibly paid in full on or before the
six-month anniversary of the Closing Date, then the security interests securing
the Secured $3 Million Loan shall terminate upon the later to occur of the
indefeasible payment in full of (a) the Primary Note and (b) the Inventory Note.
Borrower shall be responsible for any costs relating to any such termination.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified, except
where the failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized and are not in conflict with nor constitute a breach of any provision
contained in Borrower's articles of incorporation or bylaws, nor will they
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement by which it is bound.
5.3 LITIGATION. Except as disclosed in the Purchaser SEC Documents
(as defined in the Purchase Agreement), there are no actions or proceedings
pending by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could reasonably be expected
to have a Material Adverse Effect.
5.4 SOLVENCY; PAYMENT OF DEBTS. Borrower is able to pay its debts
(including trade debts) as they mature; the fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; and Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement.
C-9.
5.5 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE; STATES IN WHICH
QUALIFIED TO DO BUSINESS. Except as set forth on the Schedule, Borrower has not
done business under any name other than that specified on the signature page
hereof. The chief executive office of Borrower is located at the address
indicated in Section 10 hereof. All jurisdictions in which Borrower is or has
been qualified to do business or has or has had an address within the last five
years are set forth on the Schedule.
5.6 COMPLIANCE WITH LAWS AND REGULATIONS. Borrower and each
Subsidiary have met the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. No event has occurred resulting
from Borrower's failure to comply with ERISA that is reasonably likely to result
in Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied in all material
respects with all the provisions of the Federal Fair Labor Standards Act.
Borrower is in compliance with all environmental laws, regulations and
ordinances except where the failure to comply is not reasonably likely to have a
Material Adverse Effect. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed
all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein except those being
contested in good faith with adequate reserves under GAAP.
5.7 GOVERNMENT CONSENTS. Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Effect.
5.8 INBOUND LICENSES. Borrower is not a party to, nor is bound by,
any license or other agreement that prohibits or otherwise restricts Borrower
from granting a security interest in Borrower's interest in such license or
agreement or any other property (to the extent that such license or agreement
constitutes Collateral).
5.9 QUALIFIED FINANCINGS AND UNQUALIFIED FINANCINGS. From the date
of the Purchase Agreement through and until the date hereof, Borrower has
delivered to Lender all amounts made available to it in connection with any
Qualified Financing or Unqualified Financing (less reasonable closing costs not
to exceed $500,000) to the extent such amount was equal to or less than
$5,000,000.
5.10 CURRENT INDEBTEDNESS. As of the date hereof, the total amount
of Borrower's Senior Indebtedness does not exceed the Senior Indebtedness Cap.
5.11 NO DEFAULT UNDER SENIOR INDEBTEDNESS. No "event of default"
exists under any agreement or document constituting Senior Indebtedness.
5.12 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Lender
pursuant to the Loan Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained in such certificates or statements not misleading.
C-10.
6. AFFIRMATIVE COVENANTS.
6.1 GOOD STANDING AND GOVERNMENT COMPLIANCE. Until satisfaction in
full of all outstanding Obligations, Borrower shall maintain its and each of its
Subsidiaries' corporate existence in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a Material Adverse Effect. Until satisfaction in full of all
outstanding Obligations, Borrower shall comply, and shall cause each Subsidiary
to comply, with all statutes, laws, ordinances and government rules and
regulations to which it is subject, the failure to comply with which could
reasonably be expected to have a Material Adverse Effect, and shall maintain,
and shall cause each of its Subsidiaries to maintain, in force all licenses,
approvals and agreements, the loss of which could reasonably be expected to have
a Material Adverse Effect, or a material adverse effect on the Collateral or the
priority of Lender's Lien on the Collateral.
6.2 TAXES. Until satisfaction in full of all outstanding
Obligations, Borrower shall make, and cause each Subsidiary to make, due and
timely payment or deposit of all material federal, state and local taxes,
assessments or contributions required of it by law, including those laws
concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will
execute and deliver to Lender, on its reasonable request, proof satisfactory to
Lender indicating that Borrower or a Subsidiary has made such payments or
deposits and any appropriate certificates attesting to the payment or deposit
thereof.
6.3 INSURANCE.
(A) Until satisfaction in full of all outstanding Secured
Obligations, Borrower, at its expense, shall keep the Collateral insured against
loss or damage by fire, theft, explosion, sprinklers and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain liability and other
insurance in amounts and of a type that are customary to businesses similar to
Borrower's.
(B) Upon Lender's request and until satisfaction in full of
all outstanding Secured Obligations, Borrower shall deliver to Lender certified
copies of the policies of insurance and evidence of all premium payments. If an
Event of Default has occurred and is continuing, all proceeds payable under any
casualty policy shall, at Lender's option and subject to the rights of any
Senior Creditor, be payable to Lender to be applied toward the Secured
Obligations.
6.4 FURTHER ASSURANCES. At any time and from time to time until
satisfaction in full of all outstanding Obligations, Borrower shall execute and
deliver such further instruments and take such further action as may be
reasonably requested by Lender to effect the purposes of the Loan Documents.
6.5 REPORTING REQUIREMENTS. Borrower will deliver to Lender, no
later than 40 calendar days after the last day of each calendar quarter, a
Compliance Report in the form of EXHIBIT E. In addition, Borrower will notify
Lender immediately of the occurrence of an "event of default" under any
agreement or document constituting Senior Indebtedness.
7. NEGATIVE COVENANTS. Borrower covenants and agrees that until
satisfaction in full of the Obligations, Borrower will not do any of the
following without the prior written consent of Lender, which consent shall not
be unreasonably withheld, delayed or conditioned, except as set forth below:
(A) convey, sell, lease, transfer or otherwise dispose of
(collectively, to "TRANSFER"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other
C-11.
than (i) Inventory and licenses in the ordinary course of its business, (ii)
such surplus or excess property disclosed on the Schedule and (iii) Transfers of
property which do not exceed $250,000 in the aggregate in any calendar year;
(B) without at least thirty (30) days prior written notice to
Lender, relocate its chief executive office, its principal place of business,
any office in which it maintains books or records relating to Collateral or any
office or facility at which Collateral is located;
(C) without at least thirty (30) days prior written notice to
Lender, change its jurisdiction of incorporation, its corporate name, any trade
name or corporate structure;
(D) without at least thirty (30) days prior written notice to
Lender, change its federal taxpayer identification number;
(E) merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other Person, or acquire, or permit any
of its Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where each of the following conditions is
met:
(I) no Event of Default exists or would exist
immediately after giving effect to any such transaction;
(II) Borrower is the continuing or surviving company and
no Change of Control shall occur as a result of such transaction; and
(III) such transaction would not result in a decrease of
more than 10% of Borrower's consolidated EBITDA.
For purposes of clause (iii) above, and to the extent
Borrower is relying on debt financing to consummate any such transaction, then,
for purposes of calculating the Senior Indebtedness Cap, Borrower may include
the target company's EBITDA (as adjusted on a pro forma basis to eliminate any
reasonably expected cost reductions to be made in connection with such
transaction, but only to the extent such pro forma adjustments are commercially
reasonable) and trade accounts receivable in such calculation, but only to the
extent that (A) Borrower has a reasonable, good faith belief that such target
company's EBITDA and trade accounts receivable shall continue at their
then-current levels and (B) Borrower complies with Section 7(f);
(F) create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness, provided, that to the extent Borrower has the right to incur
additional Senior Indebtedness based on an increase in the Senior Indebtedness
Cap, then Borrower shall deliver to Lender, prior to the date of the incurrence
of such Permitted Indebtedness, a certificate signed by the chief financial
officer of Borrower, containing the calculations on which the amount of such
Permitted Indebtedness was determined, together with the amount of, and lending
institution providing, such Permitted Indebtedness;
(G) so long as any of the Secured Obligations remain
outstanding, create, incur, assume or allow any Lien with respect to any of its
property, except for Permitted Liens, or assign or otherwise convey any right to
receive income, or permit any of its Subsidiaries so to do, other than in the
ordinary course of business;
C-12.
(H) pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock;
(I) subject to the limitations set forth in Section 7(e),
directly or indirectly acquire or own, or make any Investment in or to any
Person, or permit any of its Subsidiaries so to do, in excess of $500,000 in the
aggregate in any calendar year;
(J) directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower, or permit any of its
Subsidiaries so to do, other than arm's length transactions on terms no less
favorable than those available to unrelated third parties and otherwise
permitted hereunder;
(K) so long as any of the Secured Obligations remain
outstanding, store the Inventory or the Equipment with a bailee, warehouseman or
similar party unless Lender or a Senior Creditor has received a pledge of the
warehouse receipt covering such Inventory, unless waived by all Senior Creditors
(excluding Lender);
(L) so long as any of the Secured Obligations remain
outstanding, keep the Inventory and Equipment at a location other than as set
forth in on the Schedule, except for Inventory sold in the ordinary course of
business;
(M) become or be controlled by an "investment company," within
the meaning of the Investment Company Act of 1940, or become principally engaged
in, or undertake as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of the Loan for such purpose;
(N) fail to meet the minimum funding requirements of ERISA,
permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur, fail to comply with the Federal Fair Labor Standards Act or violate any
law or regulation, which violation could reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Lender's Lien on the Collateral;
(O) enter into any Qualified Financing or Unqualified
Financing without the ability or right to deliver the net proceeds thereof to
Lender in the manner set forth in Section 2.4;
(P) use any portion of the debt or equity obtained through any
Qualified Financing or Unqualified Financing (less reasonable closing costs not
to exceed $500,000) for any purpose other than to repay the Primary Note until
the outstanding principal amount of, and accrued interest on, the Primary Note
are paid in full; or
(Q) permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay any of the Obligations
when due;
C-13.
8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation
under Article 6 and the same is not cured within five (5) business days
thereafter, or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform or observe any other material term,
provision, condition or covenant contained in this Agreement, in any of the
other Loan Documents or in any other agreement between Borrower and Lender;
8.3 PURCHASE AGREEMENT. If there occurs a default on the part of
Borrower under the Purchase Agreement;
8.4 CHANGE IN CONTROL. If there occurs a Change in Control;
8.5 MATERIAL ADVERSE EFFECT. If an event occurs that has a Material
Adverse Effect;
8.6 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof;
8.7 INSOLVENCY. If (a) Borrower or any of its Subsidiaries becomes
insolvent, or (b) an Insolvency Proceeding is commenced by Borrower or any of
its Subsidiaries, or (c) an Insolvency Proceeding is commenced against Borrower
or any of its Subsidiaries and is not dismissed within sixty (60) days
thereafter;
8.8 OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties pursuant to which such
third party or parties accelerate the maturity of any Indebtedness in an amount
in excess of $300,000 and such acceleration is not rescinded or annulled within
any applicable cure period; or
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Lender pursuant to this
Agreement or to induce Lender to enter into this Agreement or any other Loan
Document.
9. LENDER'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default,
and subject to the rights of any Senior Creditor, Lender may, at its election,
without notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(A) Declare all Obligations, whether evidenced by this
Agreement, any of the Notes, the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.7, all Obligations shall become immediately due and
payable without any action by Lender);
C-14.
(B) Make such payments and do such acts as Lender considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Lender so requires, and to make
the Collateral available to Lender as Lender may designate. Borrower authorizes
Lender to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest or compromise any encumbrance, charge or Lien, which in Lender's
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Lender a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Lender's rights or remedies provided herein, at law, in equity
or otherwise;
(C) Settle or adjust disputes and claims directly with Account
debtors for amounts, upon terms and in whatever order that Lender reasonably
considers advisable (but only to the extent that such Accounts constitute
Collateral);
(D) Set off and apply to the Obligations any and all
indebtedness at any time owing to Borrower by Lender;
(E) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale and sell (in the manner provided for
herein) the Collateral. Lender is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
the Intellectual Property, or any property of a similar nature, as it pertains
to the Collateral, in completing production of, advertising for sale and selling
any Collateral and, in connection with Lender's exercise of its rights under
this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Lender's benefit;
(F) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Lender
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Lender deems appropriate; and
(G) Credit bid and purchase at any public sale.
Any deficiency in the Secured Obligations that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only during the existence of an
Event of Default, and subject to the rights of any Senior Creditor, Borrower
hereby irrevocably appoints Lender (and any of Lender's designated officers or
employees) as Borrower's true and lawful attorney to: (a) send requests for
verification of Accounts or notify account debtors of Lender's security interest
in the Accounts (but only to the extent that such Accounts constitute
Collateral); (b) endorse Borrower's name on any checks or other forms of payment
or security that may come into Lender's possession; (c) sign Borrower's name on
any invoice or xxxx of lading relating to any Account, drafts against account
debtors, schedules and assignments of Accounts, verifications of Accounts and
notices to account debtors; (d) dispose of any Collateral; (e) make, settle and
adjust all claims under and decisions with respect to Borrower's policies of
insurance; (f) settle and adjust disputes and claims respecting the accounts
directly with account debtors, for amounts and upon terms which Lender
determines to be reasonable; (g) to amend or otherwise modify, in its sole
discretion, the IP Security Agreement, without first obtaining Borrower's
approval of or signature to such amendment or modification; (h) to transfer the
Intellectual Property into the name of Lender or a third party to the extent
permitted under the Code; and (i) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
C-15.
the Collateral; provided that Lender may exercise such power of attorney to sign
the name of Borrower on any of the documents described in Section 4.3 regardless
of whether an Event of Default has occurred. The appointment of Lender as
Borrower's attorney-in-fact, and each and every one of Lender's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully satisfied and performed.
9.3 LENDER EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Lender may do any or all of the
following after reasonable notice to Borrower: (a) make payment of the same or
any part thereof; or (b) obtain and maintain insurance policies of the type
discussed in Section 6.3, and take any action with respect to such policies as
Lender deems prudent. Any amounts so paid or deposited by Lender shall
constitute Lender Expenses, shall be immediately due and payable, shall bear
interest at the then applicable rate hereinabove provided and, if the Loans
hereunder are Secured Loans, shall be secured by the Collateral. Any payments
made by Lender shall not constitute an agreement by Lender to make similar
payments in the future or a waiver by Lender of any Event of Default under this
Agreement.
9.4 LENDER'S LIABILITY FOR COLLATERAL. So long as Lender complies
with the Code, Lender shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency or other Person whomsoever. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrower.
9.5 REMEDIES CUMULATIVE. Lender's rights and remedies under this
Agreement, the Loan Documents and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law or in equity. No exercise by Lender of one right
or remedy shall be deemed an election, and no waiver by Lender of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Lender shall constitute a waiver, election or acquiescence by it. No waiver by
Lender shall be effective unless made in a written document signed on behalf of
Lender and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.6 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment and
notice of any default.
9.7 SUBORDINATION AGREEMENT. Concurrent with the execution of this
Agreement, Lender and Borrower shall enter into a subordination agreement with
Silicon Valley Bank in substantially the form attached hereto as EXHIBIT F (as
the same may be amended from time to time, the "SUBORDINATION AGREEMENT"), and
Lender acknowledges and agrees that the Indebtedness incurred by Borrower
hereunder in favor of Lender, and Lender's rights and remedies hereunder in
respect thereof, shall be subject to the terms of the Subordination Agreement.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents, which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by facsimile to Borrower or to Lender, as the case may be, at its addresses set
forth below:
C-16.
If to Borrower: VERSO TECHNOLOGIES, INC.
000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Hardin LLP
2700 International Tower
000 Xxxxxxxxx Xxxxxx XX
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxx and Xxxxxx X. Hussle
Facsimile: (000) 000-0000
If to Lender: CLARENT CORPORATION
000 Xxxxxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attention: Legal Department
Facsimile: (000) 000-0000
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx and
Xxxxxxxx Xxxxxx XxXxxxx
Facsimile: (000) 000-0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE. This Agreement will be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of law). If any
legal proceeding or other legal action relating to this Agreement is brought or
otherwise initiated, the venue therefor will be the Bankruptcy Court. Borrower
and Lender hereby expressly and irrevocably consent and submit to the
jurisdiction of the Bankruptcy Court.
12. GENERAL PROVISIONS.
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement or the other Loan
Documents, nor any rights hereunder or thereunder, may be assigned by Borrower.
Lender may assign its rights under any and all of the Loan Documents, in whole
or in part, to any one or more third parties, without consent from, or notice
to, Borrower.
C-17.
12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold
harmless Lender and its officers, employees and agents against: (a) all
obligations, demands, claims and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Lender Expenses in any way suffered, incurred or paid by
Lender as a result of or in any way arising out of, following, or consequential
to transactions between Lender and Borrower whether under this Agreement, or
otherwise (including reasonable attorneys' fees and expenses), except for losses
caused by Lender's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. In the event that any provision of
this Agreement, or the application of such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, will not
be affected and will continue to be valid and enforceable to the fullest extent
permitted by law.
12.5 AMENDMENTS IN WRITING. This Agreement may not be amended,
modified, altered or supplemented except by means of a written instrument
executed on behalf of Lender and Borrower.
12.6 INTERPRETATION OF AGREEMENT.
(A) Lender and Borrower each acknowledges that it has participated
in the drafting of this Agreement, and any applicable rule of construction to
the effect that ambiguities are to be resolved against the drafting party will
not be applied in connection with the construction or interpretation of this
Agreement.
(B) Whenever required by the context hereof, the singular number
will include the plural, and vice versa; the masculine gender will include the
feminine and neuter genders; and the neuter gender will include the masculine
and feminine genders.
(C) As used in this Agreement, the words "include" and "including,"
and variations thereof, will not be deemed to be terms of limitation, and will
be deemed to be followed by the words "without limitation."
(D) Unless the context otherwise requires, references in this
Agreement to "Sections," "Schedules" and "Exhibits" are intended to refer to
Sections of, and Schedules and Exhibits to, this Agreement.
(E) The bold-faced headings contained in this Agreement are for
convenience of reference only, will not be deemed to be a part of this Agreement
and will not be referred to in connection with the construction or
interpretation of this Agreement.
12.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will constitute an original and all of which, when
taken together, will constitute one agreement.
C-18.
12.8 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Lender
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statutes of limitation
periods with respect to actions that may be brought against Lender have run.
[THE SIGNATURE PAGE FOLLOWS.]
C-19.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VERSO TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
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CLARENT CORPORATION
By:
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Name:
--------------------------------------
Title:
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C-20.
EXHIBIT A
COLLATERAL DESCRIPTION
"COLLATERAL" means:
A. The following personal property of Borrower, but only to the extent that
such personal property falls within the definition of "Assets":
1. all accounts (including health-care-insurance receivables), chattel
paper (including tangible and electronic chattel paper), contract rights,
deposit accounts, documents (including negotiable documents), equipment
(including all accessions and additions thereto), general intangibles (including
payment intangibles), goods (including fixtures), instruments (including
promissory notes), inventory (including all goods held for sale or lease or to
be furnished under a contract of service, and including returns and
repossessions), commercial tort claims, investment property (including
securities and securities entitlements), letters of credit, letter of credit
rights, supporting obligations, rights to payment for money or funds advanced or
sold and money;
2. all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in the United
States of America or in any foreign jurisdiction, obtained or to be obtained on
or in connection with any of the forgoing, or any parts thereof or any
underlying or component elements of any of the forgoing, together with the right
to copyright and all rights to renew or extend such copyrights and the right
(but not the obligation) of Lender to xxx in its own name and/or in the name of
the Borrower for past, present and future infringements of copyright;
3. all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and all
rights to renew or extend such trademarks and the right (but not the obligation)
of Lender to xxx in its own name and/or in the name of the Borrower for past,
present and future infringements of trademark;
4. all (i) patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including the inventions and
improvements described and claimed therein, (ii) licenses pertaining to any
patent whether Borrower is licensor or licensee, (iii) income, royalties,
damages, payments, accounts and accounts receivable now or hereafter due and/or
payable under and with respect thereto, including damages and payments for past,
present or future infringements thereof, (iv) rights (but not obligations) to
xxx in the name of Borrower and/or in the name of Lender for past, present and
future infringements thereof, (v) rights corresponding thereto throughout the
world in all jurisdictions in which such patents have been issued or applied for
and (vi) reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing;
5. all (i) computer programs and supporting information provided in
connection with a transaction relating to the program and (ii) computer programs
embedded in goods and any supporting information provided in connection with a
transaction relating to the program whether or not the program is associated
with the goods in such a manner that it customarily is considered part of the
goods, and whether or not, by becoming the owner of the goods, a person acquires
a right to use the program in connection with the goods, and whether or not the
program is embedded in goods that consist solely of the medium in which the
program is embedded;
6. all of Borrower's books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;
and
7. all products and proceeds of or pertaining to the above, including
cash or other property which were proceeds and are recovered by a bankruptcy
trustee or otherwise as a preferential transfer by Borrower.
B. All proceeds of any Qualified Financing or Unqualified Financing (less
reasonable closing costs not to exceed $500,000) and all products and proceeds
thereof, including cash or other property recovered by a bankruptcy trustee or
otherwise as a preferential transfer by Borrower.
The terms above have the meanings assigned to them in Division 9 (or, absent
definition in Division 9, in any other Division) of the Code.
EXHIBIT E
COMPLIANCE REPORT
In connection with that certain Loan and Security Agreement, dated as of
_____________, 2003, by and between VERSO TECHNOLOGIES, INC. ("BORROWER") and
CLARENT CORPORATION ("LENDER") (the "LOAN AGREEMENT"), Borrower hereby
represents and warrants to Lender as follows:
1. other than the representation set forth in the last sentence of
Section 5.5, all representations and warranties made by Borrower in
the Loan Agreement are true and correct in all material respects on
and as of the date hereof, except those representations and
warranties that speak as of a particular date, which shall be true
and correct as of such date;
2. Borrower is in complete compliance with all covenants contained in
the Loan Agreement on and as of the date hereof;
3. no Event of Default (as defined in the Loan Agreement) exists on and
as of the date hereof and the Borrower has no reason to believe that
an Event of Default will exist during the following reporting
period; and
4. the undersigned has the authority to execute this Compliance Report
by and on behalf of Borrower.
Dated: ___________________________
VERSO TECHNOLOGIES, INC.
By: ________________________________
Name: ________________________________
Title: ________________________________
EXHIBIT F
Silicon Valley Bank
Subordination Agreement
(Debt and Security Interest)
Borrower: ______________
Subordinating
Creditor: ______________
Date: ______________
THIS SUBORDINATION AGREEMENT is executed by the above-named Creditor
("Creditor") in favor of Silicon Valley Bank ("Silicon"), whose address is 0000
Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000, with respect to the above-named
Borrower ("Borrower"). In order to induce Silicon to extend or continue to
extend financing to the Borrower (but without obligation on Silicon's part to do
so), the Creditor hereby agrees as follows:
1. SUBORDINATION OF SECURITY INTEREST. All security interests now or
hereafter acquired by Silicon in any or all of the Collateral (as defined
below), in which the Borrower now has or hereafter acquires any ownership,
leasehold or other interest shall at all times be prior and superior to any
lien, ownership interest, security interest or other interest or claim now held
or hereafter acquired by the Creditor in the Collateral (the "Subordinate
Interest"). Said priority shall be applicable irrespective of the time or order
of attachment or perfection of any security interest or the time or order of
filing of any financing statements or other documents, or any statutes, rules or
law, or court decisions to the contrary. Upon any disposition of any of the
Collateral by Silicon, or by the Borrower with Silicon's written consent, the
Creditor hereby authorizes Silicon to file UCC terminations with respect to any
financing statements in favor of Creditor with respect to Borrower and the
Collateral, and Creditor agrees, if requested by Silicon, to execute and
immediately deliver any and all other releases, terminations and other documents
or agreements which Silicon deems necessary to accomplish a disposition of the
Collateral free of the Subordinate Interest; provided that Creditor shall retain
its Subordinate Interest in the proceeds of the Collateral so disposed of.*
*CREDITOR REPRESENTS AND WARRANTS TO SILICON THAT CREDITOR IS THE SOLE
HOLDER OF ALL SECURITY INTERESTS PERFECTED BY ALL UCC-1 FINANCING STATEMENTS
AUTHORIZED BY BORROWER TO BE FILED IN FAVOR OF CREDITOR.
2. "COLLATERAL." As used in this Agreement, "Collateral" shall mean all of
the following types of property, in which the Borrower now has or hereafter
acquires any ownership, leasehold or other interest, wherever located: all
tangible and intangible property of every kind and description, including (but
not limited to) all of the following: all Accounts; all Inventory; all
Equipment; all Deposit Accounts; all General Intangibles (including without
limitation all Intellectual Property); all Investment Property; all Other
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, all of the above, and
all Borrower's books relating to any of the above. The terms "Accounts",
"Inventory", "Equipment", "Deposit Accounts", "General Intangibles" and
"Investment Property" have the meanings given such terms by the California
Uniform Commercial Code in effect on the date hereof. "Intellectual Property"
means all present and future (a) copyrights, copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work thereof, whether published or unpublished, (b)
trade secret rights, including all rights to unpatented inventions and know-how,
and confidential information; (c) mask work or similar rights available for the
protection of semiconductor
SILICON VALLEY BANK SUBORDINATION AGREEMENT
-------------------------------------------------------------------------------
chips; (d) patents, patent applications and like protections including without
limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same; (e) trademarks, servicemarks,
trade styles, and trade names, whether or not any of the foregoing are
registered, and all applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by any such trademarks; (f) computer software and computer
software products; (g) designs and design rights; (h) technology; (i) all claims
for damages by way of past, present and future infringement of any of the rights
included above; (j) all licenses or other rights to use any property or rights
of a type described above. "Investment Property" means all present and future
investment property, securities, stocks, bonds, debentures, debt securities,
partnership interests, limited liability company interests, options, security
entitlements, securities accounts, commodity contracts, commodity accounts, and
all financial assets held in any securities account or otherwise, wherever
located, and all other securities of every kind, whether certificated or
uncertificated. "Other Property" means the following as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and all rights relating
thereto: all present and future "commercial tort claims", "documents",
"instruments", "promissory notes", "chattel paper", "letters of credit",
"letter-of-credit rights", "fixtures", "farm products" and "money"; and all
other goods and personal property of every kind, tangible and intangible,
whether or not governed by the California Uniform Commercial Code.
3. DISPOSITION OF COLLATERAL. The Creditor agrees that, until Silicon has
received payment in full of all indebtedness, liabilities, guarantees and other
obligations of the Borrower to Silicon, now existing or hereafter arising
(including without limitation interest accruing after commencement of any
bankruptcy or insolvency proceeding with respect to Borrower) (the "Silicon
Debt"), Silicon may dispose of, and exercise any other rights with respect to,
any or all of the Collateral, free of the Subordinate Interest, provided that
the Creditor retains any rights it may have as a junior secured creditor with
respect to the surplus, if any, arising from any such disposition or
enforcement. The Creditor agrees that any funds of the Borrower which it obtains
through the exercise of any right of setoff or other similar right constitute
Collateral, and the Creditor shall immediately pay such funds to Silicon to be
applied to the outstanding Silicon Debt.
4. SUBORDINATION OF DEBT. Creditor hereby subordinates payment by the
Borrower of any and all indebtedness, liabilities, guarantees and other
obligations of the Borrower to Creditor, now existing or hereafter arising
(collectively, the "Subordinated Debt"), to the payment to Silicon, in full in
cash, of all Silicon Debt, and Creditor agrees not to ask for, demand, xxx for,
take or receive all or any part of the Subordinated Debt nor any security
therefor unless and until all of the Silicon Debt has been paid and performed in
full, in cash; provided that, so long as no default or event of default has
occurred under any document instrument or agreement evidencing, securing or
relating to the Silicon Debt, both before and after giving effect to the
following payments, Creditor may accept payment of the following amounts on the
Subordinated Debt:
Regularly scheduled payments of principal and interest as set forth in
the Notes (as defined below).
[Besides amounts due under the Notes, what other amounts may be due
under the Borrower/Creditor Loan Agreement? Silicon needs to better understand
this before being able to agree to it, if at all.]
Creditor represents and warrants that the amount of Subordinated Debt
outstanding on the date hereof is the following amount:
$_________________ [describe Notes]
(collectively, the "Notes")
and that Creditor has not executed any other subordination agreements with
respect to such debt or the Collateral or the Borrower. Creditor agrees that
upon any distribution of the assets or readjustment of the indebtedness of the
Borrower whether by reason of liquidation, composition, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any of the Subordinated Debt, or
the application of the assets of the Borrower to the payment or liquidation
thereof, Silicon shall be entitled to receive payment in full in cash of all of
the Silicon Debt prior to the payment of all or any part of the Subordinated
Debt, and in order to enable Silicon to enforce its rights hereunder in any such
action or proceeding, Silicon is hereby irrevocably authorized and empowered in
its discretion (but without any obligation on its part) to make and present for
and on behalf of Creditor such proofs of claim against the Borrower on account
of the Subordinated Debt* as Silicon may deem expedient or proper and** to vote
such proofs of claim in any such proceeding and to receive and collect any and
all dividends or other payments or disbursements made thereon in whatever form
the same may be paid or issued and to apply same on account of the Silicon Debt.
Creditor further agrees to execute and deliver to Silicon such assignments or
other instruments as may be required by Silicon in order to enable Silicon to
enforce any and all such claims and to collect any and all dividends or other
payments or disbursements which may be made at any time on account of all and
any of the Subordinated Debt. Creditor shall endorse all notes and other written
evidence of the Subordinated Debt with a statement that they are subordinated to
the Silicon Debt pursuant to the terms of this agreement, in such form as
Silicon shall require, and
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SILICON VALLEY BANK SUBORDINATION AGREEMENT
-------------------------------------------------------------------------------
***Creditor will exhibit the originals of such notes and other written evidence
of the Subordinated Debt to Silicon so that Silicon can confirm that such
endorsement has been made, but this Subordination Agreement shall be fully
effective, even if no such endorsement is made.
*, IF CREDITOR DOES NOT DO SO PRIOR TO 20 DAYS BEFORE THE EXPIRATION OF THE TIME
TO FILE SUCH PROOFS OF CLAIM IN SUCH PROCEEDING,
**, IF SILICON HAS RECEIVED WRITTEN CONFIRMATION FROM CREDITOR THAT CREDITOR
DOES NOT INTEND TO VOTE OR IF SILICON HAS NOT RECEIVED SUCH CONFIRMATION FROM
CREDITOR AT LEAST 10 DAYS PRIOR TO ANY DEADLINE FOR VOTING SUCH PROOFS OF CLAIM,
***UPON SILICON'S REQUEST,
5. MODIFICATIONS TO SILICON DEBT; WAIVERS. Until Silicon has received
payment in full of all Silicon Debt, the Creditor agrees that, in addition to
any other rights that Silicon may have at law or in equity, Silicon may at any
time, and from time to time, without the Creditor's consent and without notice
to the Creditor, renew, extend or increase any of the Silicon Debt or that of
any other person at any time directly or indirectly liable for the payment of
any Silicon Debt, accept partial payments of the Silicon Debt, settle, release
(by operation of law or otherwise), compound, compromise, collect or liquidate
any of the Silicon Debt, make loans or advances to the Borrower secured in whole
or in part by the Collateral or refrain from making any loans or advances to the
Borrower, change, waive, alter or vary the interest charge on, or any other
terms or provisions of the Silicon Debt or any present or future instrument,
document or agreement between Silicon and the Borrower, release, exchange, fail
to perfect, delay the perfection of, fail to resort to, or realize upon any
Collateral, and take any other action or omit to take any other action with
respect to the Silicon Debt or the Collateral as Silicon deem necessary or
advisable in Silicon's sole discretion. The Creditor waives any right to require
Silicon to marshal any assets in favor of the Creditor or against or in payment
of any or all of the Silicon Debt.
6. DEFAULT. The Creditor shall promptly give Silicon written notice of any
default or event of default under any document, instrument or agreement
evidencing, securing or relating to any of the Subordinated Debt, and, until the
Silicon Debt has been paid and performed in full, the Creditor shall not*
accelerate the maturity of the Subordinated Debt, commence or join in any action
or proceeding to recover any amounts due on the Subordinated Debt, commence or
join in any involuntary bankruptcy petition or similar judicial proceeding
against the Borrower, or collect, take possession of, foreclose upon, or
exercise any other rights or remedies with respect to, the Collateral,
judicially or non-judicially, or attempt to do any of the foregoing**.
*WITHOUT SILICON'S PRIOR WRITTEN CONSENT
**EXCEPT THAT IF BORROWER FAILS TO MAKE A PAYMENT OF PRINCIPAL OR INTEREST WITH
RESPECT TO THE SUBORDINATED DEBT, CREDITOR MAY (I) ACCELERATE THE MATURITY OF
THE SUBORDINATED DEBT BUT NOT EARLIER THAN 30 DAYS AFTER SILICON HAS RECEIVED A
WRITTEN NOTICE (AS DEFINED BELOW) FROM CREDITOR AND (II) EXERCISE ITS RIGHTS AND
REMEDIES WITH RESPECT TO THE SUBORDINATED DEBT AND/OR COLLATERAL BUT NOT EARLIER
THAN 180 DAYS AFTER SILICON'S RECEIPT OF A WRITTEN NOTICE FROM CREDITOR (THE
STANDSTILL PERIOD") PROVIDED THAT ALL PROCEEDS RECEIVED BY CREDITOR AS A RESULT
OF THE EXERCISE OF SUCH RIGHTS AND REMEDIES SHALL BE PROMPTLY REMITTED TO
SILICON IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. FOR THE PURPOSES OF THE
FOREGOING, "NOTICE" SHALL MEAN A WRITTEN NOTICE FROM CREDITOR THAT (A) AN EVENT
OF DEFAULT CONSISTING OF BORROWER'S FAILURE TO MAKE A PAYMENT OF PRINCIPAL OR
INTEREST HAS OCCURRED UNDER ANY DOCUMENT EVIDENCING THE SUBORDINATED DEBT AND
(B) SUCH DOCUMENT PERMITS ACCELERATION OF THE SUBORDINATED DEBT AS A RESULT OF
SUCH DEFAULT. CREDITOR ACKNOWLEDGES THAT THE INTENT OF THIS AGREEMENT IS TO
PLACE SILICON IN THE SAME POSITION AS IF THE COLLATERAL WAS NOT SUBJECT TO
CREDITOR'S SECURITY INTEREST, AND CREDITOR AGREES THAT IT WILL ASSERT NO CLAIMS
AGAINST SILICON WITH RESPECT TO THE COLLATERAL. SUBJECT TO THE FOREGOING AND IF
SILICON ACCELERATES THE MATURITY OF THE SILICON DEBT, NOTHING CONTAINED HEREIN
IS TO BE DEEMED TO PROHIBIT CREDITOR FROM INTERVENING IN, PARTICIPATING IN OR
COMMENCING A JUDICIAL PROCEEDING AGAINST THE BORROWER DURING THE STANDSTILL
PERIOD, BUT ONLY TO THE EXTENT NECESSARY TO PRESERVE OR PROTECT ITS INTEREST IN
THE COLLATERAL VIS-A-VIS OTHER CREDITORS OF THE BORROWER (OTHER THAN SILICON),
AND ALL PROCEEDS OF SUCH PROCEEDING RECEIVED BY CREDITOR WILL BE SUBJECT TO THE
TERMS OF THIS AGREEMENT. IN THE EVENT THAT SILICON PROVIDES NOTICE TO BORROWER
OF THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THAT CERTAIN LOAN AND SECURITY
AGREEMENT BETWEEN VERSO TECHNOLOGIES, INC., NACT TELECOMMUNICATIONS, INC.,
XXXXXXXX.XXX SOFTWARE, INC. AND SILICON DATED DECEMBER 14, 2001 (THE "SILICON
LOAN AGREEMENT"), SILICON AGREES TO PROMPTLY PROVIDE A COPY OF SUCH NOTICE TO
CREDITOR; PROVIDED, HOWEVER, SILICON SHALL NOT INCUR ANY LIABILITY TO CREDITOR,
BORROWER OR OTHER THIRD PARTY FOR NEGLIGENTLY OR INADVERTENTLY FAILING TO SEND
SUCH NOTICE TO CREDITOR AND ANY SUCH FAILURE BY SILICON TO SEND SUCH NOTICE TO
CREDITOR SHALL NOT IN ANY WAY IMPAIR, DIMINISH OR AFFECT THE RIGHTS AND REMEDIES
OF SILICON UNDER THE SILICON LOAN AGREEMENT AND RELATED DOCUMENTS.
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SILICON VALLEY BANK SUBORDINATION AGREEMENT
-------------------------------------------------------------------------------
7. NO COMMITMENT. It is understood and agreed that this Agreement shall in
no way be construed as a commitment or agreement by Silicon to continue
financing arrangements with the Borrower and that Silicon may terminate such
arrangements at any time, in accordance with Silicon's agreements with the
Borrower.
8. NO CONTEST. Creditor agrees not to contest the validity, perfection,
priority or enforceability of Silicon's security interest in the Collateral or
the Silicon Debt.
9. FINANCIAL CONDITION OF BORROWER. The Creditor is presently informed of
the financial condition of the Borrower and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of non-payment of the
Silicon Debt and the Subordinated Debt.* The Creditor waives any right to
require Silicon to disclose to it any information which Silicon may now or
hereafter acquire concerning the Borrower**.
*IF CREDITOR DESIRES TO BE KEPT INFORMED AS TO BORROWER'S FINANCIAL CONDITION
AND ALL OTHER CIRCUMSTANCES WHICH BEAR UPON THE RISK OF NON-PAYMENT OF THE
SILICON DEBT AND THE SUBORDINATED DEBT, CREDITOR COVENANTS THAT IT WILL DO SO TO
THE EXTENT CREDITOR DEEMS APPROPRIATE IN ITS SOLE DISCRETION.
**, AND SILICON WAIVES ANY RIGHT TO REQUIRE CREDITOR TO DISCLOSE TO IT ANY
INFORMATION WHICH CREDITOR MAY NOW OR HEREAFTER ACQUIRE CONCERNING THE BORROWER.
10. REVIVOR. If*, after payment of the Silicon Debt, the Borrower thereafter
becomes liable to Silicon on account of the Silicon Debt, or any payment made on
the Silicon Debt shall for any reason be returned by Silicon, this Agreement
shall thereupon in all respects become effective with respect to such subsequent
or reinstated Silicon Debt, without the necessity of any further act or
agreement between Silicon and the Creditor.
*THIS AGREEMENT IS NOT FORMALLY TERMINATED
11. GENERAL. The Creditor agrees, upon Silicon's request, to execute all such
documents and instruments and take all such actions as Silicon shall deem
necessary or advisable in order to carry out the purposes of this Agreement,
including, without limitation appropriate amendments to financing statements
executed by the Borrower in favor of Creditor in order to refer to this
Agreement (but this Agreement shall remain fully effective notwithstanding any
failure to execute any additional documents or instruments). The word
"indebtedness" is used in this agreement in its most comprehensive sense and
includes without limitation any and all present and future loans, advances,
credit, debts, obligations, liabilities, representations, warranties, and
guarantees, of any kind and nature, absolute or contingent, liquidated or
unliquidated, and individual or joint. Creditor represents and warrants that it
has not heretofore transferred or assigned the Subordinated Debt, the
Subordinate Interest or any financing statement naming Borrower as debtor and
Creditor as secured party, and that it will not do so without prior written
notice to Silicon and without making such transfer or assignment expressly
subject to this Agreement. This Agreement is solely for the benefit of Silicon
and Silicon's successors and assigns, and neither the Borrower nor any other
person shall have any right, benefit, priority or interest under, or because of
the existence of, this Agreement. All of Silicon's rights and remedies hereunder
and under applicable law are cumulative and not exclusive. This Agreement sets
forth in full the terms of agreement between the parties with respect to the
subject matter hereof, and may not be modified or amended, nor may any rights
hereunder be waived, except in a writing signed by Silicon and the Creditor. The
Creditor agrees to reimburse Silicon, upon demand, for all costs and expenses
(including reasonable attorneys' fees) incurred by Silicon in enforcing this
Agreement against Creditor, whether or not suit be brought. In the event of any
litigation between the parties based upon or arising out of this Agreement, the
prevailing party shall be entitled to recover all of its costs and expenses
(including without limitation attorneys fees) from the non-prevailing party.
This Agreement shall be construed in accordance with, and governed by, the laws
of the State of California. As a material part of the consideration to the
parties for entering into this Agreement, each party (i) agrees that all actions
and proceedings based upon, arising out of or relating in any way directly or
indirectly to, this Agreement shall be litigated exclusively in courts located
within Santa Xxxxx County, California, (ii) consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery, first-class mail, or any other method permitted
by law, and (iii) waives any and all rights to transfer or change the venue of
any such action or proceeding to any court located outside Santa Xxxxx County,
California. This Agreement shall be binding upon the Creditor and its successors
and assigns and shall inure to the benefit of Silicon and Silicon's successors
and assigns.
12. MUTUAL WAIVER OF JURY TRIAL. CREDITOR AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; BETWEEN CREDITOR AND SILICON; OR
(III) ANY CONDUCT, ACTS OR OMISSIONS OF CREDITOR OR SILICON OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH CREDITOR OR SILICON*; IN EACH OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.**
*WITH RESPECT TO, BASED UPON, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT
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SILICON VALLEY BANK SUBORDINATION AGREEMENT
-------------------------------------------------------------------------------
**13. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this
Agreement are and are intended solely for the purpose of defining the relative
rights of the Creditor on the one hand and Silicon on the other hand. Nothing
contained in this Agreement is intended to or shall (a) impair as among the
Borrower, its creditors (other than Silicon) and the Creditor, the obligation of
the Borrower, which is absolute and unconditional, to pay to the Creditor the
principal of and any interest on the Subordinated Debt as and when the same
shall become due and payable in accordance with their terms and the terms of
this Agreement; or (b) affect the relative rights against the Borrower of the
Creditor and creditors of the Borrower (other than Silicon).
"CREDITOR:"
---------------
By
---------------------------------
President or Vice President
Address:
------------------------
------------------------
CONSENT AND AGREEMENT OF BORROWER
The undersigned Borrower hereby approves of, agrees to and consents to all of
the terms and provisions of the foregoing Subordination Agreement and agrees to
be bound thereby and further agrees that any default or event of default by the
Borrower under any present or future instrument or agreement between the
Borrower and the Creditor shall constitute an immediate default and event of
default under all present and future instruments and agreements between the
Borrower and Silicon. Borrower further agrees that, at any time and from time to
time, the foregoing Agreement may be altered, modified or amended by Silicon and
the Creditor without notice to or the consent of Borrower.
Borrower:
------------------
By
------------------------------------
President or Vice President
Accepted:
Silicon:
SILICON VALLEY BANK
By
-------------------------------------
Title
----------------------------------
-3
-5-
Exhibit D
SECURED SUBORDINATED PROMISSORY NOTE
$3,000,000 plus capitalized interest _________________, 2003
__________, California
FOR VALUE RECEIVED, VERSO TECHNOLOGIES, INC., a Minnesota corporation
("BORROWER"), hereby unconditionally promises to pay to the order of CLARENT
CORPORATION, a Delaware corporation ("LENDER"), in lawful money of the United
States of America and in immediately available funds, the principal sum of Three
Million Dollars ($3,000,000) plus accrued interest capitalized in the manner set
forth below (the "LOAN"), together with accrued and unpaid interest thereon, on
the dates and in the manner set forth below.
This Secured Subordinated Promissory Note (this "NOTE") is the Secured $3
Million Note referred to, and defined in, and is executed and delivered in
connection with, that certain Loan and Security Agreement dated as of the date
hereof, by and between Borrower and Lender (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the "LOAN
AGREEMENT"). Additional rights of Lender are set forth in the Loan Agreement.
All capitalized terms used herein and not otherwise defined herein shall have
the meanings given to such terms in the Loan Agreement.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be due and payable within three (3) business days after
[_________________], 2008 (the "MATURITY DATE"). Notwithstanding the foregoing,
the total amount outstanding hereunder shall be immediately due and payable upon
the occurrence of a Change in Control.
2. INTEREST. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be capitalized at the rate of five percent (5%) per annum
or the maximum rate permissible by law (which, under the laws of the State of
California, shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less. From the date hereof, through
and until the two-year anniversary of this Note, 100% of the interest due
hereunder shall be capitalized quarterly, in arrears, not later than the first
day of each calendar quarter. From and after the two-year anniversary of this
Note, until the Loan is repaid in full, Borrower shall pay to Lender, in
immediately available funds, 25% of all interest due hereunder in respect of a
calendar quarter from and after such two-year anniversary, quarterly, in
arrears, not later than the third business day of each calendar quarter, with
the balance, or 75% of such interest, being capitalized in the manner set forth
above. All interest hereunder shall be calculated on the basis of a 360-day year
for the actual number of days elapsed.
Lender shall make, or cause to be made, an appropriate notation on SCHEDULE 1
reflecting the amount of interest capitalized, which, together with the
then-outstanding principal amount hereunder, will accrue interest at the
then-applicable rate. Absent manifest error, the amounts set forth on such
SCHEDULE 1 shall be prima facie evidence of the current principal amount
outstanding hereunder, but the failure to record, or any error in so recording,
shall not limit or otherwise affect the obligations of Borrower to repay the
principal amount outstanding under this Note when due.
Upon the occurrence and during the continuance of an Event of Default pursuant
to Section 6 below, all amounts owing hereunder shall bear interest at fifteen
percent (15%) per annum or the maximum amount permissible by law (which, under
the laws of the State of California, shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
D-1.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at
the office of Lender, 000 Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. SECURED NOTE. The full amount of this Note is secured by the
Collateral referred to and defined in the Loan Agreement to the extent provided
therein; it being understood that this Note may become unsecured prior to the
Maturity Date pursuant to Section 4.3 of the Loan Agreement. Borrower shall not,
directly or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on or in the Collateral, or on or in any portion thereof, except as
permitted pursuant to the Loan Agreement.
6. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
(a) Borrower fails to pay any of the principal amount due
under this Note on the date the same becomes due and payable or any accrued
interest or other amounts due under this Note on the date the same becomes due
and payable;
(b) Borrower files any petition or action for relief under
any bankruptcy, reorganization, insolvency or moratorium law or any other law
for the relief of, or relating to, debtors, now or hereafter in effect, or makes
any assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(c) An involuntary petition is filed against Borrower
(unless such petition is dismissed or discharged within sixty (60) days) under
any bankruptcy statute now or hereafter in effect, or a custodian, receiver,
trustee, assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of Borrower.
(d) An "Event of Default" occurs under the Loan Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (b) or (c) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
the Loan Agreement and applicable law.
7. SUBORDINATION. The indebtedness evidenced by this Note is hereby
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness, but only to the extent and in the manner expressly hereinafter set
forth. Lender acknowledges and agrees that the indebtedness represented hereby
and the exercise of Lender's rights and remedies under this Note shall be
subject to the terms and conditions of the Subordination Agreement.
7.1 INSOLVENCY PROCEEDINGS. If there shall occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation, or any other marshaling of the assets and
liabilities of Borrower, (a) no amount shall be paid by Borrower in respect of
the principal of, interest on or other amounts due with respect to this Note at
the time outstanding, unless and until the principal of and interest on the
Senior Indebtedness then outstanding shall be paid in full, and (b) no claim or
proof of claim shall be filed by or on behalf of Lender which shall assert any
right to receive any payments in respect of the principal of and
D-2.
interest on this Note, except that Lender may file a claim or proof of claim
asserting rights to receive principal and interest subject to the payment in
full of the principal of and interest on all of the Senior Indebtedness then
outstanding.
7.2 FURTHER ASSURANCES. By acceptance of this Note, Lender
agrees to execute and deliver customary forms of subordination agreements
requested from time to time by the Senior Creditors and Borrower may require
that Lender execute such forms of subordination agreement, provided that in each
case, such forms shall not impose on Lender terms less favorable than those
provided in the Subordination Agreement.
7.3 OTHER INDEBTEDNESS. Indebtedness of Borrower that does
not constitute Senior Indebtedness shall not be senior in any respect to the
indebtedness represented by this Note.
7.4 SUBROGATION. Subject to the payment in full of the
Senior Indebtedness, Lender shall be subrogated to the rights of the Senior
Creditors (to the extent of the payments or distributions made to such Senior
Creditors pursuant to the provisions of this Section 7) to receive payments and
distributions of assets of Borrower applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between Borrower and its creditors, other than the Senior Creditors and Lender,
be deemed to be a payment by Borrower to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the Senior
Creditors to which Lender would be entitled except for the provisions of this
Section 7 shall, as between Borrower and its creditors, other than the Senior
Creditors and Lender, be deemed to be a payment by Borrower to or on account of
the Senior Indebtedness.
7.5 LIEN SUBORDINATION. Any lien or security interest of
Lender, whether now or hereafter existing in connection with the amounts due
under this Note, on any assets or property of Borrower or any proceeds or
revenues therefrom which Lender may have at any time as security for any amounts
due and obligations under this Note, shall be subordinate to all liens or
security interests previously granted to a Senior Creditor by Borrower or by law
notwithstanding the date, order or method of attachment or perfection of any
such lien or security interest or the provisions of any applicable law.
7.6 NO IMPAIRMENT. Subject to the rights, if any, of the
Senior Creditors under this Section 7 to receive payments otherwise payable or
deliverable to Lender, nothing contained in this Section 7 shall impair, as
between Borrower and Lender, the obligation of Borrower, subject to the terms
and conditions hereof, to pay to Lender the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent Lender, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law.
7.7 APPLICABILITY OF PRIORITIES. The priority of the Senior
Creditors provided for herein with respect to security interests and liens are
applicable only to the extent that such security interests and liens are
enforceable and perfected and have not been avoided; if a security interest or
lien is judicially determined to be unenforceable or unperfected or is
judicially avoided with respect to any claim of the Senior Creditors or any part
thereof, the priority provided for herein shall not be available to such
security interest or lien to the extent that is avoided or determined to be
unenforceable or unperfected. The foregoing notwithstanding, Lender covenants
and agrees that it shall not challenge, attack or seek to avoid any security
interest or lien to the extent it secures any of the Senior Indebtedness.
D-3.
7.8 RELIANCE OF SENIOR CREDITORS. Lender, by its acceptance
hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each Senior Creditor, and each such Senior Creditor shall be
deemed conclusively to have relied on such subordination provisions in
continuing to hold, such Senior Indebtedness.
8. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all costs
of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby waived
to the full extent permitted by law.
9. CHOICE OF LAW AND VENUE. This Note will be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of law). If any legal
proceeding or other legal action relating to this Note is brought or otherwise
initiated, the venue therefor will be the Bankruptcy Court. Borrower and Lender
hereby expressly and irrevocably consent and submit to the jurisdiction of the
Bankruptcy Court.
10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend to
any holder hereof; provided, however, that neither this Note nor any rights
hereunder may be assigned by Borrower. Lender may assign its rights under this
Note at any time, in whole or in part, to any third party, without consent from,
or notice to, Borrower.
[THE SIGNATURE PAGE FOLLOWS.]
D-4.
BORROWER: VERSO TECHNOLOGIES, INC.
By:______________________________________
Printed Name:____________________________
Title:___________________________________
LENDER: CLARENT CORPORATION
By:______________________________________
Printed Name:____________________________
Title:___________________________________
D-5.
SCHEDULE 1
CAPITALIZED INTEREST/CURRENT PRINCIPAL AMOUNT OUTSTANDING
DATE AMOUNT OF CAPITALIZED INTEREST PRINCIPAL BALANCE
D-6.
EXHIBIT E
UNSECURED SUBORDINATED PROMISSORY NOTE
$3,000,000 plus capitalized interest __________________, 2003
__________, California
FOR VALUE RECEIVED, VERSO TECHNOLOGIES, INC., a Minnesota corporation
("BORROWER"), hereby unconditionally promises to pay to the order of CLARENT
CORPORATION, a Delaware corporation ("LENDER"), in lawful money of the United
States of America and in immediately available funds, the principal sum of Three
Million Dollars ($3,000,000) plus accrued interest capitalized in the manner set
forth below (the "LOAN"), together with accrued and unpaid interest thereon, on
the dates and in the manner set forth below.
This Unsecured Subordinated Promissory Note (this "NOTE") is the Unsecured
$3 Million Note referred to, and defined in, and is executed and delivered in
connection with, that certain Loan and Security Agreement dated as of the date
hereof, by and between Borrower and Lender (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the "LOAN
AGREEMENT"). Additional rights of Lender are set forth in the Loan Agreement.
All capitalized terms used herein and not otherwise defined herein shall have
the meanings given to such terms in the Loan Agreement.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be due and payable within three (3) business days after
[________________], 2008. Notwithstanding the foregoing, the total amount
outstanding hereunder shall be immediately due and payable upon the occurrence
of a Change in Control.
2. INTEREST. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be capitalized at the rate of five percent (5%) per annum
or the maximum rate permissible by law (which, under the laws of the State of
California, shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less. From the date hereof, through
and until the two-year anniversary of this Note, 100% of the interest due
hereunder shall be capitalized quarterly, in arrears, not later than the first
day of each calendar quarter. From and after the two-year anniversary of this
Note, until the Loan is repaid in full, Borrower shall pay to Lender, in
immediately available funds, 25% of all interest due hereunder in respect of a
calendar quarter from and after such two-year anniversary, quarterly, in
arrears, not later than the third business day of each calendar quarter, with
the balance, or 75% of such interest, being capitalized in the manner set forth
above. All interest hereunder shall be calculated on the basis of a 360-day year
for the actual number of days elapsed.
Lender shall make, or cause to be made, an appropriate notation on SCHEDULE 1
reflecting the amount of interest capitalized, which, together with the
then-outstanding principal amount hereunder, will accrue interest at the
then-applicable rate. Absent manifest error, the amounts set forth on such
SCHEDULE 1 shall be prima facie evidence of the current principal amount
outstanding hereunder, but the failure to record, or any error in so recording,
shall not limit or otherwise affect the obligations of Borrower to repay the
principal amount outstanding under this Note when due.
Upon the occurrence and during the continuance of an Event of Default pursuant
to SECTION 6 below, all amounts owing hereunder shall bear interest at fifteen
percent (15%) per annum or the maximum amount permissible by law (which, under
the laws of the State of California, shall be deemed to be the laws relating to
permissible rates of interest on commercial loans).
E-1.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at
the office of Lender, 000 Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
(a) Borrower fails to pay any of the principal amount due under
this Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note on the date the same becomes due and
payable;
(b) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(c) An involuntary petition is filed against Borrower (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Borrower.
(d) An "Event of Default" occurs under the Loan Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (b) or (c) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
the Loan Agreement and applicable law.
6. SUBORDINATION. The indebtedness evidenced by this Note is hereby
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness, but only to the extent and in the manner expressly hereinafter set
forth. Lender acknowledges and agrees that the indebtedness represented hereby
and the exercise of Lender's rights and remedies under this Note shall be
subject to the terms and conditions of the Subordination Agreement.
6.1 INSOLVENCY PROCEEDINGS. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Borrower,
(a) no amount shall be paid by Borrower in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (b) no claim or proof of claim shall be
filed by or on behalf of Lender which shall assert any right to receive any
payments in respect of the principal of and interest on this Note, except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding.
6.2 FURTHER ASSURANCES. By acceptance of this Note, Lender agrees
to execute and deliver customary forms of subordination agreements requested
from time to time by the Senior Creditors and Borrower may require that Lender
execute such forms of subordination agreement, provided that in
E-2.
each case, such forms shall not impose on Lender terms less favorable than those
provided in the Subordination Agreement.
6.3 OTHER INDEBTEDNESS. Indebtedness of Borrower that does not
constitute Senior Indebtedness shall not be senior in any respect to the
indebtedness represented by this Note.
6.4 SUBROGATION. Subject to the payment in full of the Senior
Indebtedness, Lender shall be subrogated to the rights of the Senior Creditors
(to the extent of the payments or distributions made to such Senior Creditors
pursuant to the provisions of this Section 6) to receive payments and
distributions of assets of Borrower applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between Borrower and its creditors, other than the Senior Creditors and Lender,
be deemed to be a payment by Borrower to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the Senior
Creditors to which Lender would be entitled except for the provisions of this
Section 6 shall, as between Borrower and its creditors, other than the Senior
Creditors and Lender, be deemed to be a payment by Borrower to or on account of
the Senior Indebtedness.
6.5 NO IMPAIRMENT. Subject to the rights, if any, of the Senior
Creditors under this Section 6 to receive payments otherwise payable or
deliverable to Lender, nothing contained in this Section 6 shall impair, as
between Borrower and Lender, the obligation of Borrower, subject to the terms
and conditions hereof, to pay to Lender the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent Lender, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law.
6.6 RELIANCE OF SENIOR CREDITORS. Lender, by its acceptance
hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each Senior Creditor, and each such Senior Creditor shall be
deemed conclusively to have relied on such subordination provisions in
continuing to hold, such Senior Indebtedness.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all costs
of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby waived
to the full extent permitted by law.
8. CHOICE OF LAW AND VENUE. This Note will be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of law). If any legal
proceeding or other legal action relating to this Note is brought or otherwise
initiated, the venue therefor will be the Bankruptcy Court. Borrower and Lender
hereby expressly and irrevocably consent and submit to the jurisdiction of the
Bankruptcy Court.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend to
any holder hereof; provided, however, that neither this Note nor any rights
hereunder may be assigned by Borrower. Lender may assign its rights under this
Note at any time, in whole or in part, to any third party, without consent from,
or notice to, Borrower.
[The signature page follows.]
E-3.
BORROWER: VERSO TECHNOLOGIES, INC.
By:______________________________________
Printed Name:____________________________
Title:___________________________________
LENDER: CLARENT CORPORATION
By:______________________________________
Printed Name:____________________________
Title:___________________________________
E-4.
SCHEDULE 1
CAPITALIZED INTEREST/CURRENT PRINCIPAL AMOUNT OUTSTANDING
DATE AMOUNT OF CAPITALIZED INTEREST PRINCIPAL BALANCE
E-5.
EXHIBIT F
XXXX OF SALE, ASSIGNMENT and ASSUMPTION AGREEMENT
THIS XXXX OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT ("Xxxx of Sale,
Assignment and Assumption Agreement") is being entered into as of _________,
200__, by and between VERSO TECHNOLOGIES, INC., a Minnesota corporation
("Purchaser") and CLARENT CORPORATION, a Delaware corporation ("Seller"). Seller
and Purchaser are referred to collectively in this Xxxx of Sale, Assignment and
Assumption Agreement as the "Parties." Capitalized terms used herein without
definition shall have the meanings assigned to them in the Asset Purchase
Agreement (as defined below).
RECITALS
The Parties have entered into an Asset Purchase Agreement dated as of
December 13, 2002 (the "Asset Purchase Agreement") which provides for the
purchase by Purchaser of the Assets from Seller and for certain related
transactions.
This Xxxx of Sale, Assignment and Assumption Agreement is being entered
into pursuant to Section 7.4 of the Asset Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions set forth below, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties to this
Xxxx of Sale, Assignment and Assumption Agreement, intending to be legally
bound, agree as follows:
1. SALE AND ASSIGNMENT.
(A) Subject to the terms of the Asset Purchase Agreement, Seller does
hereby sell, transfer, convey and assign to Purchaser all of Seller's right,
title and interest as of the Closing Date in and to the Assets.
(B) Purchaser hereby accepts the transfer, assignment and conveyance of the
Assigned Contracts and Assumed Leases and agrees from and after the date hereof
to perform the obligations of Seller under the Assigned Contracts and Assumed
Leases.
2. ASSUMPTION OF LIABILITIES. Purchaser hereby assumes, and agrees to cause to
be timely discharged, duly paid and duly satisfied, each of the Assumed
Liabilities.
3. NO ADDITIONAL RIGHTS, OBLIGATIONS OR LIMITATION OF REMEDIES. Nothing
contained in this Xxxx of Sale, Assignment and Assumption Agreement is intended
to provide any rights to Purchaser or Seller beyond those rights expressly
provided to such Party in the Asset Purchase Agreement. Nothing contained in
this Xxxx of Sale, Assignment and Assumption Agreement is
F-1
intended to impose any obligations or liabilities on Purchaser or Seller beyond
those obligations and liabilities imposed on such Party in the Asset Purchase
Agreement. Nothing contained in this Xxxx of Sale, Assignment and Assumption
Agreement is intended to limit or restrict in any manner any of the rights or
remedies available to Purchaser or Seller under the Asset Purchase Agreement.
4. INDEMNIFICATION BY PURCHASER. Purchaser shall hold harmless and indemnify
Seller and Seller's agents, directors, officers, employees, affiliates,
successors and assigns (together with Seller, the "Indemnitees") from and
against, and shall compensate and reimburse the Indemnitees for, any loss,
damage, injury, liability, claim, demand, settlement, judgment, award, fine,
penalty, tax, or reasonable fee, (including any reasonable legal, expert,
accounting or advisory fee), charge, cost (including any reasonable cost of
investigation) or expense of any nature that is directly or indirectly suffered
or incurred by any Indemnitee or to which any Indemnitee may otherwise become
subject (whether or not relating to any third-party claim) and which arises from
or as a result of, or is directly or indirectly caused by to: (a) any failure by
Purchaser to timely discharge, duly pay or duly satisfy any of the Assumed
Liabilities; or (b) any suit or other proceeding related to any matter set forth
in clause (a) of this Section 4 (including any proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 4).
5. FURTHER ASSURANCES.
(A) It is the intent of the parties that all of the Seller's right,
title and interest in and to each of the Assets be transferred, assigned and
conveyed to Purchaser as set forth above. Each party will, to the extent
reasonably requested by the other party and at such other party's sole expense,
execute and/or cause to be delivered to each other party hereto such instruments
and other documents, and shall take such other actions, as such other party may
reasonably request for the purpose of carrying out or evidencing the intent of
this Xxxx of Sale, Assignment and Assumption Agreement.
(B) Each party will use commercially reasonable efforts to effect
the assignment of all non-U.S. patents, patent applications, trademarks and
trademark applications comprising the Assets pursuant to this Xxxx of Sale,
Assignment and Assumption Agreement and the Asset Purchase Agreement.
(C) After the Closing, if Seller files, pursuant to Section 1.9 of
the Asset Purchase Agreement, an additional motion to provide for the assumption
and assignment of the Additional Agreements pursuant to Sections 365(a), 365(b)
and 365(f) of the Bankruptcy Code, then Purchaser and Seller shall execute a
Xxxx of Sale, Assignment and Assumption Agreement covering the Additional
Agreements in the form of this Agreement.
6. MISCELLANEOUS PROVISIONS.
(A) GOVERNING LAW. This Xxxx of Sale, Assignment and Assumption
Agreement will be construed in accordance with, and governed in all respects by,
the laws of the State of California (without giving effect to principles of
conflicts of law).
F-2
(B) VENUE AND JURISDICTION. If any legal proceeding or other legal
action relating to this Xxxx of Sale, Assignment and Assumption Agreement is
brought or otherwise initiated, the venue therefor will be the Bankruptcy Court,
which will be deemed to be a convenient forum.
(C) NOTICES. Any notice or other communication required or permitted
to be delivered to either Party under this Agreement must be in writing and will
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such Party
below (or to such other address or facsimile telephone number as such Party
shall have specified in a written notice given to the other Party):
if to Purchaser:
Verso Technologies, Inc.
000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxx LLP
2700 International Tower
000 Xxxxxxxxx Xxxxxx XX
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxx and Xxxxxx X. Hussle
Facsimile: (000) 000-0000
if to Seller:
Clarent Corporation
000 Xxxxxxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
Attention: Legal Department
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
Five Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx and Xxxxxxxx Xxxxxx XxXxxxx
Facsimile: (000) 000-0000
F-3
(D) ASSIGNMENT. Purchaser may not delegate any of its obligations
under this Xxxx of Sale, Assignment and Assumption Agreement (whether
voluntarily, involuntarily, by way of merger or otherwise) to any other Person
without the prior written consent of Seller, which consent shall not be
unreasonably withheld.
(E) SEVERABILITY. In the event that any provision of this Xxxx of
Sale, Assignment and Assumption Agreement, or the application of such provision
to any Person or set of circumstances, shall be determined to be invalid,
unlawful, void or unenforceable to any extent, the remainder of this Xxxx of
Sale, Assignment and Assumption Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, will not be affected and will continue
to be valid and enforceable to the fullest extent permitted by law.
(F) ENTIRE AGREEMENT. This Xxxx of Sale, Assignment and Assumption
Agreement, the Asset Purchase Agreement, the Confidentiality Agreements (which
remain in full force and effect) and the Ancillary Agreements together set forth
the entire understanding of the Parties, and supersede all other agreements and
understandings between the Parties, relating to the subject matter hereof and
thereof.
(G) WAIVER. No failure on the part of either Party to exercise any
power, right, privilege or remedy under this Xxxx of Sale, Assignment and
Assumption Agreement, and no delay on the part of either Party in exercising any
power, right, privilege or remedy under this Xxxx of Sale, Assignment and
Assumption Agreement, will operate as a waiver thereof; and no single or partial
exercise of any such power, right, privilege or remedy will preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
(H) AMENDMENTS. This Xxxx of Sale, Assignment and Assumption
Agreement may not be amended, modified, altered or supplemented except by means
of a written instrument executed on behalf of both Parties.
(I) COUNTERPARTS. This Xxxx of Sale, Assignment and Assumption
Agreement may be executed in several counterparts, each of which will constitute
an original and all of which, when taken together, will constitute one
agreement.
(J) INTERPRETATION OF AGREEMENT.
(I) Each Party acknowledges that it has participated in the drafting
of this Xxxx of Sale, Assignment and Assumption Agreement, and any applicable
rule of construction to the effect that ambiguities are to be resolved against
the drafting party will not be applied in connection with the construction or
interpretation of this Xxxx of Sale, Assignment and Assumption Agreement.
(II) Whenever required by the context hereof, the singular number
will include the plural, and vice versa.
F-4
(III) As used in this Xxxx of Sale, Assignment and Assumption
Agreement, the words "include" and "including," and variations thereof, will not
be deemed to be terms of limitation, and will be deemed to be followed by the
words "without limitation."
(IV) Unless the context otherwise requires, references in this Xxxx
of Sale, Assignment and Assumption Agreement to "Sections" are intended to refer
to Sections of this Xxxx of Sale, Assignment and Assumption Agreement.
(V) The bold-faced headings contained in this Xxxx of Sale,
Assignment and Assumption Agreement are for convenience of reference only, will
not be deemed to be a part of this Xxxx of Sale, Assignment and Assumption
Agreement and will not be referred to in connection with the construction or
interpretation of this Xxxx of Sale, Assignment and Assumption Agreement.
F-5
IN WITNESS WHEREOF, the Parties have caused this Xxxx of Sale, Assignment
and Assumption Agreement to be executed as of the date first written above.
VERSO TECHNOLOGIES, INC.
By:
-----------------------------------
Name: Xxxxxx X. Xxxx
Title: Chief Executive Officer
CLARENT CORPORATION
By:
-----------------------------------
Name: Xxxxx X. Xxxx
Title: President
F-6
EXHIBIT G
UNSECURED SUBORDINATED PROMISSORY NOTE
(UNSECURED INVENTORY NOTE)
$1,800,000 ______________________, 2003
__________, California
FOR VALUE RECEIVED, VERSO TECHNOLOGIES, INC., a Minnesota corporation
("BORROWER"), hereby unconditionally promises to pay to the order of CLARENT
CORPORATION, a Delaware corporation ("LENDER"), in lawful money of the United
States of America and in immediately available funds, the principal sum of One
Million Eight Hundred Thousand Dollars ($1,800,000) (the "LOAN") on the dates
and in the manner set forth below.
This Unsecured Subordinated Promissory Note (this "NOTE") is the Unsecured
Inventory Note referred to, and defined in, and is executed and delivered in
connection with, that certain Loan and Security Agreement dated as of the date
hereof, by and between Borrower and Lender (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the "LOAN
AGREEMENT"). Additional rights of Lender are set forth in the Loan Agreement.
All capitalized terms used herein and not otherwise defined herein shall have
the meanings given to such terms in the Loan Agreement.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be due and payable in the amounts set forth below, within three (3)
business days of the dates set forth below. Notwithstanding the foregoing, the
total amount outstanding hereunder shall be immediately due and payable upon the
occurrence of a Change in Control.
REPAYMENT DATE(1) REPAYMENT AMOUNT
March 31, 2003 $300,000
June 30, 2003 $500,000
September 30, 2003 $500,000
December 31, 2003 $500,000
2. NO INTEREST. Borrower shall not pay interest on the outstanding
principal amount of the Loan, unless and until Borrower shall fail to make a
principal payment when due, at which time the Loan shall accrue interest at the
rate of twelve percent (12%) per annum, or the maximum rate permissible by law
(which, under the laws of the State of California, shall be deemed to be the
laws relating to permissible rates of interest on commercial loans), whichever
is less. Such interest shall be due monthly in arrears on the [15th] day of each
month.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at
the office of Lender, 000 Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000,
unless another place of payment shall be specified in writing by Lender.
4. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
----------
(1) Actual payment dates subject to change. First repayment date shall be 90
days after closing, and subsequent repayment dates shall follow at quarterly
intervals.
G-1.
(A) Borrower fails to pay any of the principal amount due under
this Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note on the date the same becomes due and
payable;
(B) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(C) An involuntary petition is filed against Borrower (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Borrower.
(D) An "Event of Default" occurs under the Loan Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (b) or (c) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
the Loan Agreement and applicable law.
5. SUBORDINATION. The indebtedness evidenced by this Note is hereby
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness, but only to the extent and in the manner expressly hereinafter set
forth. Lender acknowledges and agrees that the indebtedness represented hereby
and the exercise of Lender's rights and remedies under this Note shall be
subject to the terms and conditions of the Subordination Agreement.
5.1 INSOLVENCY PROCEEDINGS. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Borrower,
(a) no amount shall be paid by Borrower in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (b) no claim or proof of claim shall be
filed by or on behalf of Lender which shall assert any right to receive any
payments in respect of the principal of and interest on this Note, except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding.
5.2 FURTHER ASSURANCES. By acceptance of this Note, Lender agrees
to execute and deliver customary forms of subordination agreements requested
from time to time by the Senior Creditors and Borrower may require that Lender
execute such forms of subordination agreement, provided that in each case, such
forms shall not impose on Lender terms less favorable than those provided in the
Subordination Agreement.
5.3 OTHER INDEBTEDNESS. Indebtedness of Borrower that does not
constitute Senior Indebtedness shall not be senior in any respect to the
indebtedness represented by this Note.
5.4 SUBROGATION. Subject to the payment in full of the Senior
Indebtedness, Lender shall be subrogated to the rights of the Senior Creditors
(to the extent of the payments or distributions made to such Senior Creditors
pursuant to the provisions of this Section 5) to receive payments and
distributions of assets of Borrower applicable to the Senior Indebtedness. No
such payments or
G-2.
distributions applicable to the Senior Indebtedness shall, as between Borrower
and its creditors, other than the Senior Creditors and Lender, be deemed to be a
payment by Borrower to or on account of this Note; and for purposes of such
subrogation, no payments or distributions to the Senior Creditors to which
Lender would be entitled except for the provisions of this Section 5 shall, as
between Borrower and its creditors, other than the Senior Creditors and Lender,
be deemed to be a payment by Borrower to or on account of the Senior
Indebtedness.
5.5 NO IMPAIRMENT. Subject to the rights, if any, of the Senior
Creditors under this Section 5 to receive payments otherwise payable or
deliverable to Lender, nothing contained in this Section 5 shall impair, as
between Borrower and Lender, the obligation of Borrower, subject to the terms
and conditions hereof, to pay to Lender the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent Lender, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law.
5.6 RELIANCE OF SENIOR CREDITORS. Lender, by its acceptance
hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each Senior Creditor, and each such Senior Creditor shall be
deemed conclusively to have relied on such subordination provisions in
continuing to hold, such Senior Indebtedness.
6. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all costs
of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby waived
to the full extent permitted by law.
7. CHOICE OF LAW AND VENUE. This Note will be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of law). If any legal
proceeding or other legal action relating to this Note is brought or otherwise
initiated, the venue therefor will be the Bankruptcy Court. Borrower and Lender
hereby expressly and irrevocably consent and submit to the jurisdiction of the
Bankruptcy Court.
8. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend to
any holder hereof; provided, however, that neither this Note nor any rights
hereunder may be assigned by Borrower. Lender may assign its rights under this
Note at any time, in whole or in part, to any third party, without consent from,
or notice to, Borrower.
[THE SIGNATURE PAGE FOLLOWS.]
G-3.
BORROWER: VERSO TECHNOLOGIES, INC.
By:______________________________________
Printed Name:____________________________
Title:___________________________________
LENDER: CLARENT CORPORATION
By:______________________________________
Printed Name:____________________________
Title:___________________________________
G-4.
EXHIBIT H
SECURED SUBORDINATED PROMISSORY NOTE
(SECURED INVENTORY NOTE)
$1,800,000 _____________________, 2003
__________, California
FOR VALUE RECEIVED, VERSO TECHNOLOGIES, INC., a Minnesota corporation
("BORROWER"), hereby unconditionally promises to pay to the order of CLARENT
CORPORATION, a Delaware corporation ("LENDER"), in lawful money of the United
States of America and in immediately available funds, the principal sum of One
Million Eight Hundred Thousand Dollars ($1,800,000) (the "LOAN"), together with
accrued and unpaid interest thereon, on the dates and in the manner set forth
below.
This Secured Subordinated Promissory Note (this "NOTE") is the Secured
Inventory Note referred to, and defined in, and is executed and delivered in
connection with, that certain Loan and Security Agreement dated as of the date
hereof, by and between Borrower and Lender (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the "LOAN
AGREEMENT"). Additional rights of Lender are set forth in the Loan Agreement.
All capitalized terms used herein and not otherwise defined herein shall have
the meanings given to such terms in the Loan Agreement.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be due and payable in the amounts set forth below, within three (3)
business days of the dates set forth below. Notwithstanding the foregoing, the
total amount outstanding hereunder shall be immediately due and payable upon the
occurrence of a Change in Control.
REPAYMENT DATE(1) REPAYMENT AMOUNT
March 31, 2004 $300,000
June 30, 2004 $500,000
September 30, 2004 $500,000
December 31, 2004 $500,000
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from January 1, 2004 until payment in full,
which interest shall be payable at the rate of seven percent (7%) per annum or
the maximum rate permissible by law (which, under the laws of the State of
California, shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less. Interest shall be due and
payable quarterly in arrears not later than the third Business Day of each
calendar quarter and shall be calculated on the basis of a 360-day year for the
actual number of days elapsed.
Upon the occurrence and during the continuance of an Event of Default pursuant
to Section 6 below, all amounts owing hereunder shall bear interest at fifteen
percent (15%) per annum or the maximum amount permissible by law (which, under
the laws of the State of California, shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
----------
(1) Actual payment dates subject to change. First repayment date shall be 1 year
and 90 days after closing, and subsequent repayment dates shall follow at
quarterly intervals.
X-0.
0. XXXXX OF PAYMENT. All amounts payable hereunder shall be payable at
the office of Lender, 000 Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx 00000,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. SECURED NOTE. The full amount of this Note is secured by the
Collateral referred to and defined in the Loan Agreement. Borrower shall not,
directly or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on or in the Collateral, or on or in any portion thereof, except as
permitted pursuant to the Loan Agreement.
6. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:
(a) Borrower fails to pay any of the principal amount due under
this Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note on the date the same becomes due and
payable;
(b) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or
(c) An involuntary petition is filed against Borrower (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Borrower.
(d) An "Event of Default" occurs under the Loan Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (b) or (c) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
the Loan Agreement and applicable law.
7. SUBORDINATION. The indebtedness evidenced by this Note is hereby
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness, but only to the extent and in the manner expressly hereinafter set
forth. Lender acknowledges and agrees that the indebtedness represented hereby
and the exercise of Lender's rights and remedies under this Note shall be
subject to the terms and conditions of the Subordination Agreement.
7.1 INSOLVENCY PROCEEDINGS. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Borrower,
(a) no amount shall be paid by Borrower in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (b) no claim or proof of claim shall be
filed by or on behalf of Lender which shall assert any right to receive any
payments in respect of the principal of and interest on this Note, except that
Lender may file a claim or proof of claim asserting rights to receive
H-2.
principal and interest subject to the payment in full of the principal of and
interest on all of the Senior Indebtedness then outstanding.
7.2 FURTHER ASSURANCES. By acceptance of this Note, Lender agrees
to execute and deliver customary forms of subordination agreements requested
from time to time by the Senior Creditors and Borrower may require that Lender
execute such forms of subordination agreement, provided that in each case, such
forms shall not impose on Lender terms less favorable than those provided in the
Subordination Agreement.
7.3 OTHER INDEBTEDNESS. Indebtedness of Borrower that does not
constitute Senior Indebtedness shall not be senior in any respect to the
indebtedness represented by this Note.
7.4 SUBROGATION. Subject to the payment in full of the Senior
Indebtedness, Lender shall be subrogated to the rights of the Senior Creditors
(to the extent of the payments or distributions made to such Senior Creditors
pursuant to the provisions of this Section 7) to receive payments and
distributions of assets of Borrower applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between Borrower and its creditors, other than the Senior Creditors and Lender,
be deemed to be a payment by Borrower to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the Senior
Creditors to which Lender would be entitled except for the provisions of this
Section 7 shall, as between Borrower and its creditors, other than the Senior
Creditors and Lender, be deemed to be a payment by Borrower to or on account of
the Senior Indebtedness.
7.5 LIEN SUBORDINATION. Any lien or security interest of Lender,
whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of Borrower or any proceeds or revenues
therefrom which Lender may have at any time as security for any amounts due and
obligations under this Note, shall be subordinate to all liens or security
interests previously granted to a Senior Creditor by Borrower or by law
notwithstanding the date, order or method of attachment or perfection of any
such lien or security interest or the provisions of any applicable law.
7.6 NO IMPAIRMENT. Subject to the rights, if any, of the Senior
Creditors under this Section 7 to receive payments otherwise payable or
deliverable to Lender, nothing contained in this Section 7 shall impair, as
between Borrower and Lender, the obligation of Borrower, subject to the terms
and conditions hereof, to pay to Lender the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent Lender, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law.
7.7 APPLICABILITY OF PRIORITIES. The priority of the Senior
Creditors provided for herein with respect to security interests and liens are
applicable only to the extent that such security interests and liens are
enforceable and perfected and have not been avoided; if a security interest or
lien is judicially determined to be unenforceable or unperfected or is
judicially avoided with respect to any claim of the Senior Creditors or any part
thereof, the priority provided for herein shall not be available to such
security interest or lien to the extent that is avoided or determined to be
unenforceable or unperfected. The foregoing notwithstanding, Lender covenants
and agrees that it shall not challenge, attack or seek to avoid any security
interest or lien to the extent it secures any of the Senior Indebtedness.
7.8 RELIANCE OF SENIOR CREDITORS. Lender, by its acceptance
hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each Senior Creditor, and each such Senior Creditor shall be
deemed conclusively to have relied on such subordination provisions in
continuing to hold, such Senior Indebtedness.
H-3.
8. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all costs
of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby waived
to the full extent permitted by law.
9. CHOICE OF LAW AND VENUE. This Note will be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of law). If any legal
proceeding or other legal action relating to this Note is brought or otherwise
initiated, the venue therefor will be the Bankruptcy Court. Borrower and Lender
hereby expressly and irrevocably consent and submit to the jurisdiction of the
Bankruptcy Court.
10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend to
any holder hereof; provided, however, that neither this Note nor any rights
hereunder may be assigned by Borrower. Lender may assign its rights under this
Note at any time, in whole or in part, to any third party, without consent from,
or notice to, Borrower.
[THE SIGNATURE PAGE FOLLOWS.]
H-4.
BORROWER: VERSO TECHNOLOGIES, INC.
By:______________________________________
Printed Name:____________________________
Title:___________________________________
LENDER: CLARENT CORPORATION
By:______________________________________
Printed Name:____________________________
Title:___________________________________
H-5.
EXHIBIT I
ATTORNEY DOCKET NO: PATENT
ASSIGNMENT OF PATENT RIGHTS
(Company to Company)
Clarent Corporation, a corporation duly organized under and pursuant to
the laws of Delaware, and having its principal place of business at 000
Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, Xxxxxxxxxx (herein referred to as "Assignor")
owns the entire right, title and interest in any Letters Patent(s) ("said
patent(s)") and any Patent application(s) ("said application(s)") set forth in
Schedule 1 attached hereto, as well as any invention(s) ("said invention(s)")
disclosed in said application(s) and said patent(s).
WHEREAS, Verso Technologies, Inc., a corporation duly organized under
and pursuant to the laws of Minnesota, and having its principal place of
business at 000 Xxxxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx (herein referred
to as "Assignee"), is desirous of acquiring the entire right, title, and
interest in and to said invention(s), said application(s), and said patent(s),
the right to file applications on said invention(s), the entire right, title and
interest in and to any applications for Letters Patent of the United States or
other countries claiming priority to said application(s), the right to recover
damages, including provisional or other royalties, for prior infringements of
said application(s) and said patent(s), and the entire right, title, and
interest in and to any Letters Patent or Patents, United States or foreign, to
be obtained for said invention(s) and said application(s);
NOW, THEREFORE, in consideration of the purchase price set forth in
Section 1.3 of that certain Asset Purchase Agreement by and between Clarent
Corporation and Verso Technologies, Inc. dated as of December 13, 2002, the
receipt of which is hereby acknowledged, the Assignor has sold, assigned,
transferred, and set over, and by these presents does sell, assign, transfer,
and set over, unto the Assignee, its successors, legal representatives, and
assigns the entire right, title, and interest in and to said invention(s), said
application(s), and said patent(s), the right to file applications on said
invention(s), the entire right, title and interest in and to any applications
for Letters Patent of the United States or other countries claiming priority to
said application(s), including divisions, continuations, and
continuations-in-part of said application(s), the right to recover damages,
including provisional or other royalties, for prior infringements of said
application(s) and said patent(s), the entire right, title and interest in and
to any and all Letters Patent or Patents, United States or foreign, to be
obtained for said invention(s) and said application(s), the entire right, title
and interest in and to any and all reissues and extensions of said patent(s),
and all rights under the Hague Convention, the Paris Convention for the
Protection of Industrial Property, and under the Patent Cooperation Treaty, the
same to be held and enjoyed by the Assignee, for its own use and behalf and the
use and behalf of its successors, legal representatives, and assigns, to the
full end of the term or terms for which Letters Patent or Patents may be granted
as fully and entirely as the same would have been held and enjoyed by the
Assignor had this sale and assignment not been made;
AND for the same consideration, the Assignor hereby covenants and
agrees to and with the Assignee, its successors, legal representatives, and
assigns that the Assignor will, whenever counsel of the Assignee, or the counsel
of its successors, legal representatives, and assigns, shall advise that any
proceeding in connection with said invention(s), said application(s), said
patent(s), any application claiming priority to said application(s), any reissue
or extension of said patent(s), and any United States or foreign Letters Patent
or Patents for said invention(s) or said application(s), including interference
proceedings, is lawful and desirable, sign all papers and documents, take all
lawful oaths, and do all acts necessary or required to be done for the
procurement, maintenance, enforcement and defense of Letters Patent or Patents
for said invention(s), without charge to the Assignee, its successors, legal
representatives, and assigns, but at the cost and expense of the Assignee, its
successors, legal representatives, and assigns;
I-1
AND the Assignor hereby requests the Commissioner of Patents to issue
any and all aforementioned patent(s) of the United States to the Assignee, as
the Assignee of said invention(s) and the Letters Patent to be issued thereon
for the sole use and behalf of the Assignee, its successors, legal
representatives, and assigns.
Date: By:
---------------------- --------------------------------------------
Name: Xxxxx X. Xxxx
Title: President
Company: Clarent Corporation
State of:
County of:
The preceding Assignment was acknowledged before me this day of
------ ----------
by
----------------------
-------------------------------
Notary Public
My Commission Expires:
I-2
EXHIBIT J
ASSIGNMENT OF TRADEMARKS
WHEREAS, CLARENT CORPORATION, a Delaware corporation, having its
principal offices at 000 Xxxxxxxxxx Xxxxx, Xxxxxxx Xxxx, XX 00000, is the owner
of the trademark applications and registrations listed on the attached Schedule
A ("the Marks"); and
WHEREAS, VERSO TECHNOLOGIES, INC., a Minnesota corporation, having its
principal offices at 000 Xxxxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx, is
desirous of acquiring the Marks;
NOW, THEREFORE, pursuant to the agreement between the parties, and for
good and valuable consideration, the receipt of which is hereby acknowledged,
CLARENT CORPORATION hereby assigns and transfers to VERSO TECHNOLOGIES, INC. all
right, title and interest in the United States and throughout the world, in and
to the Marks, together with the goodwill of the business symbolized by the Marks
and the applications and registrations therefor.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment of
Trademarks to be effective as of
-----------------------------------
CLARENT CORPORATION
Date: By
------------------ --------------------------------
Print Name: Xxxxx X. Xxxx
Title: President
VERSO TECHNOLOGIES, INC.
Date: By
------------------ --------------------------------
Print Name: Xxxxxx X. Xxxx
Title: Chief Executive Officer
J-1
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A............ Certain Definitions
Exhibit B............ Form of Loan and Security Agreement
Exhibit C............ Form of Secured Promissory Note
Exhibit D............ Form of Senior Promissory Note
Exhibit E............ Form of Unsecured Promissory Note
Exhibit F............ Form of Xxxx of Sale, Assignment and Assumption Agreement
Exhibit G............ Form of Unsecured Inventory Note
Exhibit H............ Form of Secured Inventory Note
Exhibit I............ Form of Patent Assignment
Exhibit J............ Form of Trademark Assignment
Schedule 1........... Domain names to be assigned
Schedule 2........... Contracts to be assigned
Schedule 3........... Leases to be assigned
Schedule 4........... Certain excluded assets
Schedule 5........... Description of Indebtedness of Purchaser
Schedule 6........... Consents to be obtained
Schedule 7........... Patents to be assigned
Schedule 8........... Trademarks to be assigned
TABLE OF CONTENTS
PAGE
1. SALE AND PURCHASE OF ASSETS; RELATED TRANSACTIONS...................................................... 1
1.1 Sale and Purchase of Assets................................................................... 1
1.2 Excluded Assets............................................................................... 3
1.3 Purchase Price................................................................................ 4
1.4 Sales and Transfer Taxes...................................................................... 5
1.5 Allocation of Purchase Price.................................................................. 6
1.6 Ancillary Agreements.......................................................................... 6
1.7 Closing....................................................................................... 6
1.8 Assumption and Assignment of Assigned Contracts and Assumed Leases............................ 7
1.9 Assigned Contracts and Assumed Leases......................................................... 7
1.10 Assumed Liabilities; Non-Assumed Liabilities.................................................. 7
1.11 Grant-back License of "Clarent" Name.......................................................... 8
2. REPRESENTATIONS AND WARRANTIES OF SELLER............................................................... 8
2.1 Title to Assets............................................................................... 8
2.2 Specified Patents............................................................................. 8
2.3 Assigned Contracts; Assumed Leases............................................................ 8
2.4 Real Property................................................................................. 8
2.5 Compliance with Legal Requirements............................................................ 8
2.6 Authority; Binding Nature of Agreement........................................................ 8
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER............................................................ 9
3.1 SEC Filings; Financial Statements............................................................. 9
3.2 Absence of Changes............................................................................ 9
3.3 No Undisclosed Liabilities.................................................................... 9
3.4 Compliance with Legal Requirements............................................................ 9
3.5 Legal Proceedings............................................................................. 9
3.6 Authority; Binding Nature of Agreement........................................................ 10
3.7 Debt.......................................................................................... 10
3.8 Non-Contravention; Consents................................................................... 10
3.9 Solvency...................................................................................... 10
-i-
TABLE OF CONTENTS
(CONTINUED)
PAGE
4. PRE-CLOSING COVENANTS OF SELLER........................................................................ 11
4.1 Access........................................................................................ 11
4.2 Conduct of Business........................................................................... 11
4.3 Consents...................................................................................... 11
4.4 Conditions.................................................................................... 11
4.5 Employees..................................................................................... 12
4.6 Bankruptcy Case............................................................................... 12
4.7 Bankruptcy Court Approval and Notices......................................................... 12
4.8 Cure Payments................................................................................. 12
4.9 Liabilities of Canadian Subsidiary............................................................ 12
4.10 Customer Care Maintenance Contracts........................................................... 13
4.11 Year-end Audits............................................................................... 13
5. PRE-CLOSING COVENANTS OF PURCHASER..................................................................... 13
5.1 Consents; Releases............................................................................ 13
5.2 Conditions.................................................................................... 13
5.3 Bankruptcy Case............................................................................... 14
5.4 Qualified Financing........................................................................... 14
5.5 Possession of the Assets...................................................................... 14
6. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE................................................ 14
6.1 Accuracy of Representations................................................................... 14
6.2 Performance of Covenants...................................................................... 14
6.3 Additional Documents.......................................................................... 14
6.4 No Restraints................................................................................. 15
6.5 Bankruptcy Case............................................................................... 15
7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE................................................... 15
7.1 Accuracy of Representations................................................................... 15
7.2 Performance of Covenants...................................................................... 15
7.3 Delivery of Consideration..................................................................... 15
7.4 Additional Documents.......................................................................... 15
7.5 No Material Adverse Effect.................................................................... 16
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.6 Bankruptcy Case............................................................................... 16
7.7 No Restraints................................................................................. 16
8. TERMINATION............................................................................................ 16
8.1 Right to Terminate Agreement.................................................................. 16
8.2 Termination Procedures........................................................................ 17
8.3 Effect of Termination......................................................................... 17
9. AS-IS OFFER AND BANKRUPTCY APPROVALS................................................................... 17
9.1 AS-IS Transaction............................................................................. 17
9.2 Bankruptcy Court Approvals.................................................................... 18
9.3 Notice........................................................................................ 19
10. MISCELLANEOUS.......................................................................................... 19
10.1 Time of Essence............................................................................... 19
10.2 No Other Representations...................................................................... 19
10.3 Access of Seller to Books and Records......................................................... 19
10.4 Survival of Representations and Warranties.................................................... 20
10.5 Governing Law................................................................................. 20
10.6 Venue and Jurisdiction........................................................................ 20
10.7 Notices....................................................................................... 20
10.8 Assignment.................................................................................... 21
10.9 Parties in Interest........................................................................... 21
10.10 Severability.................................................................................. 21
10.11 Entire Agreement.............................................................................. 21
10.12 Confidentiality............................................................................... 21
10.13 Deduction or Setoff........................................................................... 22
10.14 Waiver........................................................................................ 22
10.15 Ordinary Course of Business................................................................... 22
10.16 Amendments.................................................................................... 22
10.17 Counterparts.................................................................................. 22
10.18 Interpretation of Agreement................................................................... 22
10.19 Further Assurances............................................................................ 23
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TABLE OF CONTENTS
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