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Exhibit 10.41
CREDIT AGREEMENT
By and Between
SENSORY SCIENCE CORPORATION
and
SONICblue INCORPORATED
Dated as of February 1, 2001
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TABLE OF CONTENTS
Page
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ARTICLE 1 DEFINITIONS......................................................................... 1
1.1 Definitions................................................................. 1
1.2 Accounting Terms............................................................ 7
ARTICLE 2 LOANS............................................................................... 7
2.1 Loans....................................................................... 7
2.2 Interest.................................................................... 7
2.3 Payments of Principal....................................................... 9
2.4 Use of Proceeds............................................................. 10
ARTICLE 3 CONDITIONS OF CLOSING AND LOANS..................................................... 10
3.1 Closing..................................................................... 10
3.2 Conditions to First Loan.................................................... 10
3.3 Conditions to Second Loan................................................... 11
3.4 Conditions for the Benefit of the Lender.................................... 13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................................... 13
4.1 Organization of Borrower and Subsidiaries................................... 13
4.2 Subsidiaries................................................................ 14
4.3 Requisite Power............................................................. 14
4.4 No Conflict................................................................. 14
4.5 Authorities................................................................. 15
4.6 Consents and Approvals...................................................... 15
4.7 No Event of Default; Compliance with Material Agreements.................... 15
4.8 Agreements and Other Documents.............................................. 15
4.9 Government Contracts........................................................ 16
4.10 Indebtedness................................................................ 16
4.11 Deposit and Disbursement Accounts........................................... 16
4.12 Intellectual Property Rights................................................ 16
4.13 Trade Relations............................................................. 17
4.14 Litigation.................................................................. 17
4.15 Taxes....................................................................... 17
4.16 Title to Property........................................................... 18
4.17 Rights to Property.......................................................... 18
4.18 Leaseholds.................................................................. 18
4.19 Insurance................................................................... 18
4.20 Labor Matters............................................................... 19
4.21 SEC Filings................................................................. 19
4.22 Financial Statements........................................................ 19
4.23 Absence of Certain Changes.................................................. 20
4.24 No Undisclosed Material Liabilities......................................... 20
4.25 Employee Benefit Plans...................................................... 21
4.26 Location of Collateral...................................................... 22
4.27 Material Contracts and Accounts............................................. 22
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4.28 No Defaults Under Contracts or Accounts..................................... 22
4.29 Assumed Names............................................................... 22
4.30 Compliance With Laws........................................................ 22
4.31 Environmental Laws.......................................................... 23
4.32 Statutory Regulation........................................................ 23
ARTICLE 5 AFFIRMATIVE COVENANTS............................................................... 23
5.1 Accounting Records.......................................................... 23
5.2 Financial Statements and Notices............................................ 23
5.3 Access...................................................................... 24
5.4 Maintenance of Existence.................................................... 25
5.5 Qualifications To Do Business............................................... 25
5.6 Insurance................................................................... 25
5.7 Collateral.................................................................. 25
5.8 Taxes and Other Liabilities................................................. 25
5.9 Governmental Approvals...................................................... 25
5.10 Compliance With Governmental Approvals and Governmental Requirements........ 25
5.11 Prevent Contamination....................................................... 25
5.12 Liens and Perfection........................................................ 26
5.13 Change of Location.......................................................... 26
5.14 Further Assurances.......................................................... 26
ARTICLE 6 NEGATIVE COVENANTS.................................................................. 27
6.1 Mergers..................................................................... 27
6.2 Restricted Payments......................................................... 27
6.3 Change of Name, Etc......................................................... 27
6.4 Accounting Policies......................................................... 27
6.5 Liens....................................................................... 27
6.6 Contingent Obligations...................................................... 27
6.7 Indebtedness................................................................ 27
6.8 Sale of Assets.............................................................. 27
6.9 Loans to Affiliates......................................................... 28
6.10 Certain ERISA Payments...................................................... 28
ARTICLE 7 EVENTS OF DEFAULT................................................................... 28
7.1 Events of Default........................................................... 28
7.2 Termination of Commitment and Acceleration.................................. 30
ARTICLE 8 MISCELLANEOUS....................................................................... 30
8.1 Successors and Assigns...................................................... 30
8.2 No Implied Waiver........................................................... 30
8.3 Amendments; Waivers......................................................... 31
8.4 Remedies Cumulative......................................................... 31
8.5 Severability................................................................ 31
8.6 Costs, Expenses and Attorneys' Fees......................................... 31
8.7 Indemnification............................................................. 32
8.8 Notices..................................................................... 32
8.9 Interpretation.............................................................. 33
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8.10 Governing Law and Consent to Jurisdiction................................... 33
8.11 Counterparts................................................................ 34
8.12 Headings.................................................................... 34
8.13 Survival.................................................................... 34
8.14 Highest Lawful Rate......................................................... 34
8.15 Calculations................................................................ 34
8.16 Confidential................................................................ 34
Exhibit A Note
Exhibit B Borrowing Request
Exhibit C Security Agreement
Exhibit D Patent, Trademark and Copyright Collateral Assignment
Exhibit E Pledge Agreement
Exhibit F Intercreditor Agreement
Exhibit G Officer's Certificate
Exhibit H Solvency Certificate
Exhibit I Opinion of Counsel to Borrower
Exhibit J Guaranty
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of February 1, 2001, by and between
SENSORY SCIENCE CORPORATION, a Delaware corporation ("Borrower"), and SONICblue
INCORPORATED, a Delaware corporation ("Lender"),
W I T N E S S E T H:
WHEREAS, concurrently herewith, the Borrower is entering into a certain
Agreement and Plan of Merger (the "Merger Agreement") with the Lender and Merger
Subsidiary, a Delaware corporation and wholly-owned subsidiary of the Lender;
and
WHEREAS, the Borrower has requested that the Lender extend a line of
credit to the Borrower in the aggregate principal amount of up to three million
dollars ($3,000,000) and the Lender is willing to do so, upon the terms and
conditions hereinafter set forth:
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. Except as otherwise expressly provided or unless the
context otherwise requires, the terms defined in this Section 1.1 shall, for all
purposes of this Agreement, have the meanings herein specified, the following,
definitions being equally applicable to the singular and plural forms of any of
the terms herein defined:
"Acceleration" means that the Loans (i) shall not have been paid at the
Final Maturity Date or (ii) shall have become due and payable prior to their
stated maturity pursuant to Section 7.2 hereof.
"Accounts" means all existing and future accounts, accounts receivable
and rights to payment, including all accounts receivable created by or arising
from all sales or leases of goods or rendition of services by Borrower to its
customers or subscribers, all unpaid seller's rights (including rescission,
replevin, reclamation and stopping in transit) relating to the foregoing or
arising therefrom, all rights to any goods represented by any of the foregoing,
including returned or repossessed goods, all reserves and credit balances
arising from any of the foregoing, all guarantees or collateral for any of the
foregoing and all insurance policies or rights relating to any of the foregoing.
"Affiliate" means with respect to any Person (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of the capital stock
having ordinary voting power in the election of directors of such Person, (ii)
each Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person or (iii) each of such Person's officers,
directors, joint
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venturers and partners. For the purposes of this definition, the term "control"
(including with correlative meanings the terms "controlling", "controlled by"
and "under common control with") as applied to any Person shall mean the
possession, directly or indirectly beneficially, of the power to direct or cause
the direction of its management or policies, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" means this Credit Agreement between the Borrower and the
Lender (including the Schedules and Exhibits hereto), as originally executed or
as it may from time to time be supplemented, modified or amended as provided
herein.
"Authorized Officer" means an officer of the Borrower designated in the
latest Certificate of Incumbency executed by or on behalf of the Borrower. The
Lender shall be entitled to conclusively rely on the latest such Certificate of
Incumbency delivered to it.
"Borrower" means Sensory Science Corporation, a Delaware corporation.
"Borrowing Request" means each request by the Borrower for a Loan as
specified in such request, which shall be in the form of Exhibit B attached
hereto. Each Borrowing Request shall be accompanied by the documents which are
required to substantiate such request.
"Business Day" means a day other than a Saturday, Sunday or any other
day on which commercial banks in San Francisco, California are required or
authorized to be closed.
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"Certificate of Incumbency" means the latest Certificate of Incumbency
executed by or on behalf of the Borrower and delivered to the Lender.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the property, real or personal, in which the Lender
has a security interest under the Security Documents.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet item, level of income or other
financial condition of the obligor of such obligation, or to make payment for
any products, materials or supplies or for any transportation, services or lease
regardless of the nondelivery or nonfurnishing thereof, in any such case if the
purpose or intent of such agreement is to provide assurance that such
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obligation will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such obligation will be protected
(in whole or in part) against loss in respect thereof. The amount of any
Contingent Obligation shall be equal to the actual amount of the obligation so
guaranteed or otherwise supported.
"Contracts" means all existing and future instruments, chattel paper,
documents of title, contracts, agreements, licenses, grants and rights, now or
hereafter entered into or acquired by Borrower, as modified, replaced or
supplemented from time to time, including all purchase and supply agreements and
related warranty rights, operating agreements and insurance policies.
"Environmental Laws" means any federal, state, local and foreign
statutes, laws (including, without limitation, common law), judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits,
governmental agreements or governmental restrictions relating to human health
and safety, the environment or to pollutants, contaminants, wastes, or
chemicals.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"Existing Debt" means the Indebtedness of the Borrower to a) Congress
Financial Corporation (Western) ("Congress") under the Second Amended and
Restated Loan and Security Agreement dated as of August 19, 1998, as amended, by
and among Congress, Borrower, Go-Video, Inc., and California Audio Labs, LLC and
b) Softech Financial under the Master Lease Agreement dated as of May 4, 2000 by
and between Softech Financial and Borrower.
"Event of Default" shall have the meaning set forth in Article 7
hereof.
"Final Maturity Date" means the first anniversary of the date of this
Agreement.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"General Intangibles" means all general intangibles and intangible
property, including rights under Contracts, rights to payment of any kind,
insurance proceeds and amounts due under insurance policies, deposit accounts,
patent rights, trademarks, service marks, copyrights, trade names, customer
lists, goodwill, registrations, licenses, license rights, rights in intellectual
property, software, software licenses, computer programming (including source
codes, object codes and all other embodiments of computer programming or
information), tax refunds and benefits, corporate and other business records,
refunds and indemnification rights, all amounts owed at any time to Borrower,
all rights to receive payment or property upon any assignment, transfer, sale or
surrender of any other Collateral and all other intangible personal property of
Borrower of every kind and nature.
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"Guaranty Agreement" means the Guaranty Agreement in the form attached
hereto as Exhibit J.
"iCache Business" means the business of caching or making information
on computer systems or networks closer to the user or user application in order
to make it more speedily accessible.
"Incipient Default" means any event which, upon the lapse of time or
the giving of notice or both, would constitute an Event of Default.
"Indebtedness" of a Person means (a) any obligation of such Person for
borrowed money; (b) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) any obligation of such
Person to pay the deferred purchase price of property or for services (other
than in the ordinary course of business); (d) any Capitalized Lease Obligation
of such Person; (e) any obligation or liability of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed; (f) indebtedness of such Person consisting of reimbursement obligations
under letters of credit issued for the account of such person; and (g) any other
obligation or liability which is required by GAAP to be shown as part of the
Consolidated Liabilities on a consolidated balance sheet of such Person.
"Intercreditor Agreement" means the Intercreditor Agreement
substantially in the form of Exhibit F attached hereto.
"Lender" means SONICblue Incorporated, a Delaware corporation.
"Lien" means any interest in property securing an obligation, whether
such interest is based on common law, statute or contract, and including but not
limited to any security interest or lien arising from a mortgage, encumbrance,
pledge, charge, easement, servitude, security agreement, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes. The
term "Lien" shall also include reservations, exceptions, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property.
"Loan" means a loan made pursuant to Section 2.1 hereof.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, powers of attorney, consents, assignments, contracts, notices,
leases, financing statements, reimbursement agreements, certificates,
statements, reports and notices and all other writings heretofore, now or
hereafter executed by, on behalf of or for the benefit of the Borrower and
delivered to the Lender pursuant to or in connection with this Agreement or the
transactions contemplated hereby, together with all amendments, modifications
and supplements thereto.
"Loan Parties" means the Borrower and all Subsidiaries (each, a "Loan
Party").
"Material Adverse Change" means any change, violation, inaccuracy,
circumstance or effect that is materially adverse to the business, properties,
assets (including intangible assets), liabilities, capitalization or financial
condition of any Loan Party
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"Maturity" means any date on which the Loan or any portion thereof
becomes due and payable whether as stated, by acceleration or otherwise.
"Maturity Triggering Event" shall mean an event or series of related
events as a result of which (i) any person or "group" (as such term is defined
under Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations thereunder), other than the Lender or any Affiliate of the Lender,
becomes the beneficial owner of shares of the Borrower representing more than
50% of the combined voting power of the then outstanding securities entitled to
vote generally in the election of directors of the Borrower ("Voting
Securities"), or (ii) the Borrower consolidates with or merges with or into or
effects a business combination or similar transaction with another entity, or
conveys, transfers or leases all or substantially all of its assets to any
person, other than in each case with the Lender or any affiliate of the Lender,
and, in the case of any such transaction, the stockholders of the Borrower
immediately prior to such transaction do not own, immediately after such
transaction, at least a majority of the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors
or similar managing authority of the surviving or resulting entity in such
transaction in substantially the same proportion as their ownership of Voting
Securities immediately before such transaction.
"Merger Subsidiary" means a subsidiary of the Lender formed for the
purpose of the merger of the Borrower into Lender.
"Note" means the Borrower's promissory note substantially in the form
of Exhibit A attached hereto, evidencing the Loan as provided in Section 2.1(b)
hereof.
"Obligations" means all loans, advances, debts, liabilities
obligations, covenants and duties owing to the Lender by the Borrower of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, arising under this Agreement, either of the Notes,
the Security Documents, or any of the other Loan Documents, whether or not for
the payment of money, arising by reason of an extension of credit, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all principal, interest, charges, expenses, fees, attorneys' fees and
disbursements and any other sum chargeable to the Borrower under this Agreement
or any other Loan Document.
"Other Assurances" means any agreement, instrument, conveyance,
mortgage, pledge, hypothecation or other document executed and delivered
pursuant to Section 5.14 hereof (as amended, modified or supplemented from time
to time).
"Patent, Trademark and Copyright Security Agreement" means the Patent,
Trademark and Copyright Security Agreement in the form attached hereto as
Exhibit D.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
to all or any part of such corporation's functions under ERISA.
"Permitted Liens" means: (a) the Liens created under the Security
Documents; (b) carriers', warehousemen's, mechanics', landlords', materialmen's,
suppliers', tax, assessment, governmental and other like liens and charges
arising in the ordinary course of business securing obligations that are not
incurred in connection with the obtaining of any advance or credit and which are
not overdue, or are being contested in good faith by appropriate
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proceedings, provided that, in accordance with GAAP, adequate reserves have been
set aside on the books of the Borrower for the eventual payment thereof in the
event it is determined that such obligations are payable by the Borrower; (c)
Liens arising in connection with worker's compensation, unemployment insurance,
appeal and release bonds and progress payments under government contracts; (d)
any "banker's lien" or similar right of offset; (e) any lien arising in
connection with a Capitalized Lease Obligation permitted hereunder on the asset
which is the subject of the related lease; (f) Liens for any Taxes, or other
governmental charges, either not delinquent or secured by a bond reasonably
acceptable to the Lender or not yet due and being contested in good faith and by
appropriate proceedings, so long as (x) such proceedings shall not involve any
substantial danger of the sale, forfeiture or loss of a material portion of the
Collateral or result in a Material Adverse Change, or (y) a bond or other
security acceptable to the Lender, in its sole discretion, has been posted or
provided in such manner and amount as to assure the Lender that any amounts
determined to be due will be promptly paid in full when such contest is
determined; and (g) Liens existing on the Closing Date in favor of holders of
Existing Debt.
"Person" means any individual, corporation, partnership, trust, joint
stock company, unincorporated organization, association or other entity or
organization, including any government, political subdivision, agency or
instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement substantially in the form
attached hereto as Exhibit E.
"Restricted Payment" means, as applied to the Borrower, (a) any
dividend or other distribution on any of the shares now or hereafter outstanding
of the capital stock of the Borrower or return of capital to its stockholders as
such; and (b) any purchase or other acquisition for value of (i) any shares of
the capital stock of the Borrower (except shares acquired solely upon the
conversion thereof into other shares of its capital stock) or (ii) any security
convertible into, or any option, warrant or other right to acquire, shares of
the capital stock of the Borrower.
"Security Agreement" means the Security Agreement substantially in the
form of Exhibit C attached hereto.
"Security Documents" means the Security Agreement, the Pledge
Agreement, the Patent, Trademark and Copyright Security Agreement and the Other
Assurances.
"Subsidiary" means any corporation, partnership, joint venture,
association or other business entity of which the Borrower now or hereafter
owns, directly or indirectly, securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
governing body thereof.
"Taxes" means any and all governmental or quasi-governmental fees
(including, without limitation, license, filing and registration fees), taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, social security (or similar), unemployment,
occupation, use, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording, employment, premium, windfall profits,
environmental (including taxes under section
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59A of the Code, as amended), customs duties, capital stock, profits,
disability, sales, registration, value added, alternative or add-on minimum,
estimated or other taxes, assessments or charges imposed by any federal, state,
local or foreign governmental entity and any interest, penalties, or additions
to tax attributable thereto.
1.2 Accounting Terms. Each accounting term not defined herein and each
accounting term partly defined herein to the extent not defined shall be
construed in accordance with GAAP.
ARTICLE 2
LOANS
2.1 Loans.
(a) Loans. Subject to all of the terms and conditions of this
Agreement, the Lender agrees to make a line of credit available to the Borrower
in an aggregate amount not to exceed three million dollars ($3,000,000) to be
governed by the terms and conditions of, and repaid in accordance with, this
Agreement. The Lender shall make the first loan (the "Loan") of five hundred
thousand dollars ($500,000) within one Business Day of the Borrower's delivery
to the Lender of a Note pursuant to Section 2.1(b), a warrant to purchase
892,857 shares of common stock of Borrower pursuant to Section 3.2(a) of this
Agreement and a letter from the holders of Existing Debt, in form and substance
satisfactory to the Lender, consenting to this Agreement and the transactions
contemplated hereunder and under the other Loan Documents. Thereafter, Loans
under this Agreement will be made upon satisfaction of the conditions specified
in Section 3.3. Amounts repaid in respect of the Loans (whether repaid when due
or prepaid) may not be reborrowed.
(b) Notes. Each Loan made by the Lender shall be evidenced by a single
promissory note of the Borrower, such note to be substantially in the form
attached hereto as Exhibit A, dated the date on which such Loan is made, payable
to the order of the Lender and in a principal amount equal to the amount of such
Loan and otherwise duly completed. On the date on which the Borrower submits a
Borrowing Request for a Loan, the Borrower shall deliver the Note to the Lender.
(c) Borrowing Procedures for Loan. The Borrower shall give the Lender
not less than two (2) Business Days' written notice of its Loans, specifying in
each case the information required by the form of Borrowing Request attached
hereto as Exhibit B. No Borrowing Request may be delivered to the Lender after
the date falling 30 days after the Closing Date. Subject to the Lender's receipt
of a Borrowing Request, and satisfaction of the other conditions specified in
Article 3 hereof on the date requested, the Lender shall wire transfer the
portion of the Loan so requested as specified in the Borrowing Request.
2.2 Interest.
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(a) Interest Rate. The Obligations shall bear interest from the date of
disbursement on the unpaid principal amount thereof until such amount shall
become due and payable (whether upon Maturity, by Acceleration or otherwise) at
the lesser of the Prime Rate (as defined herein) or the maximum permitted by
law. Upon Maturity, the Loans (or such portion thereof as has so become due and
payable) shall, to the extent permitted by applicable law, bear interest at a
rate equal to the lesser of the Prime Rate plus two (2) percentage points per
annum or the maximum permitted by law. "Prime Rate" is a per annum rate equal to
the rate of interest published in the "Money Rates" section of The Wall Street
Journal as the "prime rate" (the "Prime Rate"). The interest rate chargeable
hereunder in respect of the Loans shall be increased or decreased, as the case
may be, without notice or demand of any kind, upon the announcement of any
change in the Prime Rate. Each change in the Prime Rate shall be effective
hereunder on the first day following the announcement of such change.
(b) Payment of Interest. Interest on the average daily balance of the
principal outstanding on the Loan shall be payable in arrears on the last day of
each month and on the Final Maturity Date.
(c) Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year consisting of three hundred
sixty-five (365).
(d) Excess Interest. The contracted for rate of interest of the Loans
contemplated hereby, without limitation, shall consist of the following: (i) the
interest rate set forth in Section 2.2(a), calculated and applied to the
principal balance of the Obligations in accordance with the provisions of this
Agreement; (ii) interest after an Event of Default, calculated and applies to
the amount of the Obligations in accordance with the provisions hereof, and
(iii) all Additional Sums (as herein defined), if any. The Borrower agrees to
pay an effective contracted for rate of interest which is the sum of the
above-referenced elements. The other charges, goods, things in action or any
other sums or things of value paid or payable by Borrower (collectively, the
"Additional Sums"), whether pursuant to this Agreement or any other documents or
instruments in any way pertaining to this lending transaction or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
(e) It is the intent of the parties to comply the usury laws of the
State of California (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
the Borrower or otherwise in connection with the loan evidenced hereby, or (b)
the maturity of the Obligations is accelerated in whole or in part, or (c) all
or part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection
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with the loan evidenced hereby, would exceed the Maximum Interest Rate, then in
any such event (1) the provisions of this paragraph shall govern and control,
(2) neither Borrower nor any other Person now or hereafter liable for the
payment of the Obligations shall be obligated to pay the amount of such interest
to the extent that it is in excess of the Maximum Interest Rate, (3) any such
excess which may have been collected shall be either applied as a credit against
the then unpaid principal amount of the Obligations or refunded to the Borrower,
at the Lender's option, and (4) the effective rate of interest shall be
automatically reduced to the Maximum Interest Rate. It is further agreed,
without limiting the generality of the foregoing, that to the extent permitted
by the Applicable Usury Law; (x) all calculations of interest which are made for
the purpose of determining whether such rate would exceed the Maximum Interest
Rate shall be made by amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby, all interest at any
time contracted for, charged or received from the Borrower or otherwise in
connection with such loan: and (y) in the event that the effective rate of
interest on the loan should at any time exceed the Maximum Interest Rate, such
excess interest that would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law shall be paid to the Lender's from
time to time, if and when the effective interest rate on the loan otherwise
falls below the Maximum Interest Rate, to the extent that interest paid to the
date of calculation does not exceed the Maximum Interest Rate, until the entire
amount of interest which would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law has been paid in full. The Borrower
further agrees that should the Maximum Interest Rate be increased at any time
hereafter because of a change in the Applicable Usury Law, such increases shall
apply to all indebtedness evidenced hereby regardless of when incurred; but,
again to the extent not prohibited by, the Applicable Usury Law, should the
Maximum Interest Rate be decreased because of a change in the Applicable Usury
Law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
2.3 Payments of Principal.
(a) Repayment. The Borrower shall repay the principal amount of the
Loan on the Final Maturity Date.
(b) Prepayment of Loans. The Loans are subject to prepayment as
follows:
(i) The Borrower may prepay the Loans in part or whole at any
time without penalty or premium.
(ii) The Borrower shall promptly prepay the interest accrued
on and the principal outstanding of the Loans upon the occurrence of a
Maturity Triggering Event, a sale by the Borrower of substantially all
of its assets or the making of an agreement with any Person other than
the Lender or an Affiliate of the Lender the consummation of which
would result in a Maturity Triggering Event or sale by the Borrower of
substantially all of its assets.
(iii) The Borrower shall, to the extent permitted by the
Existing Debt, promptly prepay the interest accrued on and the
principal outstanding of the Loans from the net cash proceeds of any
equity in the Borrower issued thereby or of any Indebtedness incurred
by the Borrower which is subordinate to the Obligations.
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(c) Payments. All payments of interest on and principal amounts of the
Loans and other amounts payable by the Borrower hereunder shall be in United
States Dollars, in immediately available funds, to an account designated by the
Lender not later than 11:00 A.M. San Francisco, California time on the date on
which such payment is due. All (whether or not scheduled) payments received
after 2:00 P.M. San Francisco, California time shall be considered to have been
received the next Business Day. The Borrower shall give the Lender notice not
later than 7:00 A.M. San Francisco, California time on the date of any
prepayments. Whenever any payment falls on a day which is not a Business Day,
such payment shall be made the next succeeding Business Day, such extension of
time shall be included in the computation of interest. The Lender is hereby
authorized to note the date, amount and interest rate of the Loan and each
payment of principal and interest with respect thereto on the Lender's books and
records (either manually or by electronic entry), which notation shall be
presumptive evidence of the information noted absent manifest error.
(d) Offset. In addition to and not in limitation of all rights of
offset that the Lender may have under applicable law, the Lender, upon the
occurrence and during the continuance of an Acceleration, shall have the right
to appropriate and apply to the payment of all Obligations any and all balances,
credits or moneys of the Borrower then or thereafter with the Lender.
2.4 Use of Proceeds. $500,000 of the proceeds of the Loans shall be
used in connection with the iCache Business. The balance of the proceeds of the
Loans may be used in connection with the iCache Business but shall otherwise be
used solely for working capital purposes.
ARTICLE 3
CONDITIONS OF CLOSING AND LOANS
3.1 Closing. The execution of this Credit Agreement has taken place as
of the date hereof. The execution and delivery of the other Loan Documents by
all of the parties thereto shall be on the date as shall be agreed to by the
Lender and the Borrower (the "Closing Date"), at the offices of Pillsbury
Winthrop LLP, 00 Xxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000.
3.2 Conditions to First Loan. The obligation of the Lender to disburse
any portion of the first Loan shall be subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate) and dated as of the date of
this Agreement (or such earlier date as shall be satisfactory to the Lender), in
form and substance satisfactory to the Lender:
(i) This Agreement;
(ii) The Note;
(iii) A Common Stock Purchase Warrant in the form attached as
Exhibit W-1 hereto (the "Warrant Agreement"); and
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(iv) The letters from holders of Existing Debt, in form and
substance satisfactory to the Lender, consenting to this Agreement and
the transactions contemplated hereunder and under the other Loan
Documents.
(b) No Existing Default. No Event of Default or Incipient Default shall
exist on the date of this Agreement, or after giving effect to the transactions
contemplated to take place hereunder on such date.
(c) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 and the representations and warranties set
forth in the Security Documents to be executed and delivered to the Lender on
the Closing Date shall be in all material respects true and correct on the
Closing Date, and after giving effect to the transactions contemplated to occur
on such date.
(d) Softech Financial Debt. Lender shall be satisfied with the amount
of the Borrower's outstanding debt to Softech Financial; provided, however, that
so long as the amount of the outstanding debt is less than five hundred thousand
dollars ($500,000), Lender will be deemed to have been so satisfied.
3.3 Conditions to Second Loan. The obligation of the Lender to disburse
any portion of the first Loan shall be subject to the prior or contemporaneous
satisfaction of each of the following conditions precedent:
(a) Closing Documents. The Lender shall have received all of the
following, each duly executed (where appropriate) and dated as of the Closing
Date (or such earlier date as shall be satisfactory to the Lender), in form and
substance satisfactory to the Lender:
(i) This Agreement;
(ii) The Schedules to this Agreement;
(iii) The Note;
(iv) A Common Stock Purchase Warrant in the form attached as
Exhibit W-2 hereto;
(v) The letter from Softech Financial, in form and substance
satisfactory to the Lender, consenting to this Agreement and the
transactions contemplated hereunder and under the other Loan Documents.
(vi) The Security Agreement by and between the Lender and
Borrower;
(vii) The Patent, Trademark and Copyright Security Agreements
from each of the Loan Parties;
(viii) The Pledge Agreement;
(ix) Intercreditor Agreement;
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(x) Uniform Commercial Code financing statements naming each
of the Loan Parties as debtor and the Lender as secured party shall
have been recorded in the offices listed on Schedule 3.2;
(xi) Guaranty Agreement by and between Lender and Subsidiary;
(xii) Certificates of existence or good standing for each of
the Loan Parties from the offices of the Secretaries of State of
Delaware, California, and other states as the Lender shall reasonably
request;
(xiii) A written opinion by Xxxxx & Xxxxxx, L.L.P., as counsel
to the Borrower, covering the matters set forth in Exhibit I attached
hereto;
(xiv) A certificate of the Secretary or an Assistant Secretary
of each of the Loan Parties as to (A) the Loan Party's bylaws, (B)
authorization of the execution, delivery and performance of this
Agreement and all of the other Loan Documents by the Loan Party
(including action of shareholders where required) and (C) the
incumbency and signatures of Authorized Officers authorized to act
hereunder and thereunder;
(xv) A certificate, in the form of Exhibit G attached hereto,
signed by a Authorized Officer of the Borrower, stating (A) that the
representations and warranties contained in Article 4 hereof and the
other Security Documents executed by the Borrower are then true and
accurate as though made on and as of such date, and (B) that there has
then occurred no Event of Default or Incipient Default which is
continuing;
(xvi) Articles of Incorporation of the Borrower, certified to
by the Secretary of State of Delaware not more than ten (10) days
before the Closing Date; and
(xvii) Any other document, instrument, undertaking or
certificate stated in any of the Loan Documents to be delivered on the
Closing Date.
(b) Merger Agreement. The Merger Agreement shall be in full force and
effect and no event shall have occurred thereunder which with the passing of
time or giving of notice would be a ground for the termination thereof.
(c) No Existing Default. No Event of Default or Incipient Default shall
exist on the Closing Date, or after giving effect to the transactions
contemplated to take place hereunder on such date.
(d) Representations and Warranties Correct. The representations and
warranties set forth in Article 4 and the representations and warranties set
forth in the Security Documents to be executed and delivered to the Lender on
the Closing Date shall be in all material respects true and correct on the
Closing Date, and after giving effect to the transactions contemplated to occur
on such date.
(e) Consents and Approvals. The consents of the holders of the Existing
Debt and all Governmental Approvals required to be taken, given or obtained for
the execution and delivery of, and the performance of the obligations under, the
Loan Documents shall have been taken,
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given or obtained, as the case may be, and shall be in full force and effect on
the Closing Date and the time for appeal or challenge with respect to any
thereof shall have expired (or, if an appeal or challenge shall have been taken
or brought, the same shall have been dismissed) and shall not be subject to any
pending proceedings or appeals, administrative, judicial or otherwise.
(f) Litigation. No action, proceeding or investigation shall have been
instituted nor shall governmental action before any Governmental Authority be
threatened, nor shall any order, judgment or decree have been issued or proposed
to be issued by any Governmental Authority to set aside, restrain, enjoin or
prevent the consummation of this Agreement, the transactions contemplated hereby
or by any other Loan Document.
(g) Payment of Taxes. All fees payable in connection with the
execution, delivery, recordation and filing of all the documents and instruments
referred to in this Agreement shall have been fully paid.
3.4 Merger Agreement. The Lender shall have no obligation to make any
Loans in excess of five hundred thousand dollars ($500,000) unless the Borrower
shall have entered into the Merger Agreement which shall be in full force and
effect. Nothing in this Agreement, however, shall be deemed to imply an
obligation for the Lender, the Merger Subsidiary or the Borrower to negotiate or
to enter into any agreement pursuant to which the Borrower will merge into,
combine its business and assets with or transfer substantially all of its
business and assets to the Merger Subsidiary.
3.4 Conditions for the Benefit of the Lender. The conditions set forth
in this Article 3 are for the exclusive benefit of the Lender and may be waived,
for purposes of this Agreement, only by the Lender.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Lender to enter into or become a party to this
Agreement and to make the Loan, as of the Closing Date the Borrower makes the
following representations and warranties to the Lender:
4.1 Organization of Borrower and Subsidiaries.
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted. The Borrower is
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which the nature of its business
requires such qualification, except where the failure to be so qualified or in
good standing which, taken together with all other such failures, would not
result in a Material Adverse Change.
(b) The chief executive office of the Borrower is located at 0000 Xxxx
XxXxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxx, 00000-0000.
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4.2 Subsidiaries.
(a) Except as set forth on Schedule 4.2, the Borrower does not have any
subsidiaries, or any interests, direct or indirect, in any corporation,
partnership, limited liability company, joint venture or other business entity.
Schedule 4.2 shows for each subsidiary (i) the respective jurisdictions of their
corporation; (ii) the jurisdictions in which they are qualified to do business
as a foreign corporation; (iii) the number of shares of each class of common and
preferred stock authorized; (iv) the number of shares of each class of common
and preferred stock outstanding; and (v) the number of such shares covered by
all outstanding options, warrants, rights of conversion or purchase and other
similar rights.
Each of the Borrower's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each of the Subsidiaries is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary. All of the outstanding shares of capital
stock of the Subsidiaries are validly issued, fully paid and nonassessable and,
other than directors' qualifying shares in the case of foreign Subsidiaries, are
owned by the Borrower or by a wholly owned Subsidiary of the Borrower free and
clear of all liens, claims, charges or encumbrances, and there are no
irrevocable proxies with respect to such shares. Except as set forth in the
Schedule and except for the capital stock of its Subsidiaries, the Borrower does
not own, directly or indirectly, any capital stock or other ownership interest
in any corporation, partnership, joint venture, limited liability company or
other entity. There are no restrictions on the Borrower to vote the stock of any
of its Subsidiaries.
4.3 Requisite Power. Each Loan Party has full corporate power and
authority to execute and deliver this Agreement and the other Loan Documents to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated hereby have been
duly and validly authorized and approved by each Loan Party's Board of
Directors, and except as set forth in Schedule 4.3, no other corporate
proceedings are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement and the Note have been duly and
validly executed and delivered by each Loan Party. This Agreement and the Note
constitute, and the other Loan Documents, when executed and delivered by the
Loan Parties will constitute, a legal, valid and binding agreement of the other
parties hereto, it constitutes a legal, valid and binding agreement of each Loan
Party, enforceable against it in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
4.4 No Conflict. The execution, delivery and performance by each Loan
Party of this Agreement and the other Loan Documents and the consummation by
each Loan Party of the transactions contemplated hereby and thereby do not and
will not (a) assuming compliance with the matters referred to in Section 3.2,
contravene or conflict with the certificate of incorporation or bylaws any Loan
Party, or contravene or conflict with or constitute a violation of any
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provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to any Loan Party, (b) constitute a default under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of any Loan Party or to a loss of any benefit to which any Loan Party
is entitled under any provision of any agreement, contract or other instrument
binding upon any Loan Party or any license, franchise, permit or other similar
authorization held by any Loan Party, or (c) result in the creation or
imposition of any Lien on any asset of any Loan Party, except for such
contraventions, conflicts or violations referred to in clause (a) or defaults,
rights of termination, cancellation or acceleration, or losses or Liens referred
to in clause (b) or (c) that would not, individually or in the aggregate, result
in a Material Adverse Change.
4.5 Authorities. The execution, delivery and performance by each Loan
Party of this Agreement and the other Loan Documents and the consummation of the
transactions contemplated hereby and thereby require no consent of, or filing
with, any Person or governmental body, agency, official or authority other than
(a) compliance with any applicable requirements of the 1933 Act and state
securities laws, and (b) other actions or filings which if not taken or made
would not, individually or in the aggregate, result in a Material Adverse
Change.
4.6 Consents and Approvals. The consents of the holders of the Existing
Debt required to be taken, given or obtained for the execution and delivery of,
and the performance of the obligations under, the Loan Documents have been
taken, given or obtained, as the case may be, and are in full force and effect.
4.7 No Event of Default; Compliance with Material Agreements. No Event
of Default or Incipient Default has occurred and is continuing or would result
from the execution of this Agreement. No Loan Party is in violation of any term
of any material agreement or instrument to which it is a party or by which it or
its properties are bound.
4.8 Agreements and Other Documents. As of the date hereof, each Loan
Party has provided to the Lenders accurate and complete copies (or summaries) of
all of the following agreements or documents to which each Loan Party is subject
and each of which is listed on Schedule 4.8: (a) supply agreements and purchase
agreements not terminable by any Loan Party within thirty (30) days following
written notice issued by any Loan Party; (b) any lease of Equipment having a
remaining term of one (1) year or longer and requiring aggregate rental and
other payments in excess of one million dollars ($1,000,000) per annum; (c)
Permits held by any Loan Party; (d) instruments or documents evidencing
Indebtedness of any Loan Party and any security interest granted by any Loan
Party with respect thereto; and (e) instruments and agreements evidencing the
issuance of any equity securities, warrants, rights or options to purchase
equity securities of any Loan Party. All such agreements are in full force and
effect and are not subject to termination because of default by any Loan Party
or otherwise. Each of the representations and warranties given by or with
respect to any Loan Party in the Related Documents is true and correct in all
material respects, and each of the representations and warranties given in the
Related Documents by or with respect to the other parties thereto is, to the
best of each Loan Party's knowledge, true and correct in all material respects,
in either case, except those inaccuracies which could not reasonably be expected
to result in a Material Adverse Change. There has been no amendment,
modification or waiver of the terms of any Related
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Documents since the initial execution thereof. Neither Borrower nor, to the best
of each Loan Party's knowledge, any other Person is in default of any of its
material obligations under any of the Related Documents. Except as set forth on
Schedule 4.6, no material contract to which any Loan Party is a party contains
any provision which provides that a change of control any Loan Party constitutes
an unauthorized assignment thereof or gives the other party a right of
termination, and all material contracts are either assignable or readily
replaceable on substantially comparable terms.
4.9 Government Contracts. Except as set forth in Schedule 4.9, no Loan
Party is a party to any contract or agreement with any Governmental Authority
and the Loan Parties' Accounts are not subject to the Federal Assignment of
Claims Act, as amended (31 U.S.C.Section 3727) or any similar state or local
law.
4.10 Indebtedness. No Loan Party is liable for any Indebtedness except
for the Existing Debt and Indebtedness incurred under the Loan Documents. No
Loan Party is a party to any agreement that expressly limits the ability of any
Loan Party, or would limit the Lender or any subsidiary of the Lender after the
merger of the Borrower into the Lender, to compete in or conduct any line of
business or compete with any Person or in any geographic area or during any
period of time except to the extent that any such limitation, individually or in
the aggregate, would not be reasonably likely to result in a Material Adverse
Change after the merger of the Borrower into the Lender.
4.11 Deposit and Disbursement Accounts. Schedule 4.11 lists all banks
and other financial institutions at which each Loan Party maintains deposits
and/or other accounts as of the date hereof, including any disbursement
accounts, and such Schedule correctly identifies the name, address and telephone
number of each such depository, the name in which the account is held, a
description of the purpose of the account and the complete account number.
4.12 Intellectual Property Rights.
(a) Schedule 4.12 accurately lists and describes in summary form all
United States and foreign letters patent and pending applications, patent and
"know-how" licenses (or similar agreements), trade name and trademark
registrations and pending applications, service xxxx registrations and pending
applications, copyright registrations and pending applications, those trade
names and common law trademarks which are currently in use by any Loan Party,
now owned in whole or in part by any Loan Party or under which any Loan Party is
licensed as indicated in Schedule 4.12 ("Intellectual Property Rights"). Unless
otherwise indicated in Schedule 4.12, the Borrower holds the entire right, title
and interest in and to the same, free and clear of all Liens and has the right
to use without payment to a third party, and to transfer to a third party, all
the Intellectual Property Rights.
(b) The Loan Parties own each of the patents and patent applications
referred to in the Borrower SEC Documents and, except as set forth in the
Borrower SEC Documents, (i) to the knowledge of the Borrower, each of the Loan
Parties owns or possesses, or could obtain ownership or possession of (on terms
not materially adverse to the consolidated financial position, stockholders'
equity, or results of operations of the Loan Parties taken as a whole) adequate
and enforceable rights to use all other Intellectual Property (as defined below)
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necessary for the conduct of their businesses, (ii) no claims are pending or, to
the knowledge of the Borrower, threatened that any Loan Party is infringing on
or otherwise violating the rights of any Person with regard to any Intellectual
Property that, if the subject of an unfavorable decision, ruling or finding,
could reasonably be expected to (or, with respect to any pending patent
litigation, the Borrower does not believe will) result in a Material Adverse
Change and the Borrower knows of no basis therefor, and (iii) to the knowledge
of the Borrower, no person is infringing on or otherwise violating any right of
any Loan Party with respect to any Intellectual Property owned by or licensed to
any Loan Party. Except as set forth in the Borrower SEC Documents, no Loan Party
has received notice of potential indemnity claims from customers based upon a
notice of infringement any such customer has received from a patent owner
relating to an assertion of infringement of a patent other than potential
indemnity claims that individually or in the aggregate would not reasonably be
expected to result in a Material Adverse Change. Each Loan Party's policy is to
require that its employees execute agreements assigning to each Loan Party all
rights such employees otherwise would have in Intellectual Property developed by
such employees while in the employ of the Loan Party.
For purposes of this Agreement, "Intellectual Property" shall mean,
with respect a Person, patents, copyrights, trademarks (registered and
unregistered), service marks, brand names, trade names, and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing, technology, know-how, software, and tangible or intangible
proprietary information or materials and any other trade secrets related
thereto.
4.13 Trade Relations. There exists no actual or, to the knowledge of
Borrower, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between Borrower and any
customer or supplier that would prevent the Borrower from conducting its
business after the consummation of the financing contemplated by this Agreement.
4.14 Litigation. Except as disclosed in the Borrower SEC Documents
filed prior to the date hereof, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Borrower threatened
against or affecting, any Loan Party or any of their respective properties
before any court or arbitrator or any governmental body, agency or official
which would reasonably be expected to result in a Material Adverse Change.
4.15 Taxes. Except as set forth in the Borrower Balance Sheet
(including the notes thereto) or as otherwise set forth in Schedule 4.15 and
except as would not, individually or in the aggregate, result in a Material
Adverse Change, (i) all Borrower Tax Returns required to be filed with any
taxing authority by, or with respect to, the Loan Parties have been filed in
accordance with all applicable laws; (ii) the Loan Parties have timely paid all
Taxes shown as due and payable on the Borrower Tax Returns that have been so
filed, and, as of the time of filing, the Borrower Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities and the status of the Loan Parties (other than Taxes which are being
contested in good faith and for which adequate reserves are reflected on the
Borrower Balance Sheet); (iii) the Loan Parties have made provision for all
Taxes payable by the Loan Parties for which no Borrower Tax Return has yet been
filed; (iv) the charges, accruals and reserves for Taxes with respect to the
Loan Parties reflected on the Borrower Balance Sheet are adequate under GAAP to
cover the Tax liabilities accruing through the date thereof; (v) there is no
action,
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suit, proceeding, audit or claim now proposed or pending against or with respect
to any Loan Party in respect of any Tax where there is a reasonable possibility
of an adverse determination; and (vi) to the best of the Borrower's knowledge
and belief, no Loan Party is liable for any Tax imposed on any entity other than
such Person, except as the result of the application of Treas. Reg. Section
1.1502-6 (and any comparable provision of the tax laws of any state, local or
foreign jurisdiction) to the affiliated group of which the Borrower is the
common parent. For purposes of this Agreement, "Borrower Tax Returns" shall mean
any return, report, form or similar statement required to be filed by Borrower
with respect to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
4.16 Title to Property. Each Loan Party has good and marketable title
to all of its material properties and assets, free and clear of all Liens,
except for liens for taxes not yet due and payable and such liens or other
imperfections of title and use restrictions, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby.
4.17 Rights to Property. Borrower has title in fee simple to, or a
valid leasehold interest in, all its real property, and good title to, or a
valid leasehold interest in, all its other property purported to be owned by it
and all property reflected in the most recent balance sheet referred to in
Section 4.21 (except as sold or otherwise disposed of in the ordinary course of
business or as no longer used or useful in the conduct of the business).
Schedule 4.17 lists or describes (i) all sites and site leases, (ii) all other
real property owned or leased by Borrower, and (iii) all material Equipment of
Borrower and its location or proposed location. Borrower has, or by the Closing
Date shall have, entered into the site leases described on Schedule 4.17. Such
site leases are in full force and effect and are not subject to termination
because of default or otherwise.
4.18 Leaseholds. No Loan Party has given or received notice of any
material default under any material lease under which any Loan Party is the
lessee of real property (each a "Borrower Lease" and collectively the "Borrower
Leases") and, to the knowledge of the Borrower, neither any Loan Party nor any
other party thereto is in default in any material respect under any of the
Borrower Leases. All of the Borrower Leases are in full force and effect, and
are valid, binding and enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' or
lessors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in Schedule 4.18, no Loan Party has leased,
subleased, licensed or assigned, as the case may be, all or any portion of its
leasehold interest under any Borrower Lease to any person.
4.19 Insurance. The insurance carried by the Loan Parties is in such
types and amounts and covering such risks as are consistent with customary
practices and standards of companies engaged in businesses and operations
similar to those of the Loan Parties. All such insurance is in full force and
effect and no Loan Party is in default thereunder. All claims thereunder have
been filed in a due and timely fashion. No Loan Party has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including
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renewals of any such products liability coverage) by any insurance carrier to
which it has applied for insurance during the past three years.
4.20 Labor Matters. There are no controversies pending or, to the best
knowledge of each of the Loan Parties, threatened, between the Loan Parties and
any of their respective employees. As of the date of this Agreement, no Loan
Party is a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Loan Parties nor does any Loan
Party know of any activities or proceedings of any labor union to organize any
such employees as of the date of this Agreement. As of the date of this
Agreement, no Loan Party has any knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of any Loan Party as of the date of this Agreement.
4.21 SEC Filings. (a) The Borrower has made available to the Lender (i)
its annual reports on Form 10-K for its fiscal years ended March 31, 1998, 1999
and 2000, (ii) its quarterly reports on Form 10-Q for its quarters ended June
30, 2000 and September 30, 2000, (iii) its proxy or information statements
relating to meetings of, or actions taken without a meeting by, the stockholders
of the Borrower held since March 31, 2000, and (iv) all of its other reports,
statements, schedules and registration statements filed with the SEC since March
31, 2000 (the documents referred to in this Section 4.21(a) being referred to
collectively as the "Borrower SEC Documents"). The Borrower's quarterly report
on Form 10-Q for its fiscal quarter ended September 30, 2000 is referred to
herein as the "Borrower 10-Q."
(a) As of its filing date, each Borrower SEC Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the 0000 Xxx.
(b) As of its filing date, each Borrower SEC Document filed pursuant to
the Exchange Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(c) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
4.22 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Borrower (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly report on Form 10-Q referred to in
Section 4.21 fairly present, in conformity with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of the Borrower and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject to normal year-end
adjustments and the absence of notes in the case of any unaudited interim
financial statements). For purposes of this Agreement, "Borrower Balance Sheet"
means the consolidated balance sheet of the Borrower as of September 30, 2000
set forth in the Borrower 10-Q and "Borrower Balance Sheet Date" means September
30, 2000.
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4.23 Absence of Certain Changes. Except as set forth in Schedule 4.23,
since Borrower Balance Sheet Date, the Loan Parties have conducted their
business in the ordinary course consistent with past practice and there has not
been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected, individually or in the
aggregate, to result in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Borrower or any
repurchase, redemption or other acquisition by any Loan Party of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
any Loan Party;
(c) any amendment of any material term of any outstanding security of
any Loan Party;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) any Loan
Party relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by any Loan Party of any
contract or other right, in either case, material to the Loan Parties taken as a
whole, other than transactions, commitments, contracts, agreements or
settlements (including without limitation settlements of litigation and tax
proceedings) in the ordinary course of business consistent with past practice,
those contemplated by this Agreement, or as agreed to in writing by the
Borrower;
(e) any change in any method of accounting or accounting practice
(other than any change for tax purposes) by any Loan Party, except for any such
change which is not significant or which is required by reason of a concurrent
change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment
to any such existing arrangement with) any director, officer or employee of any
Loan Party, (ii) entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of any Loan Party, (iii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements or (iv) increase in (or amendments to the terms of) compensation,
bonus or other benefits payable to directors, officers or employees of any Loan
Party, other than in the ordinary course of business consistent with past
practice, as permitted by this Agreement, or as agreed to in writing by the
Borrower.
4.24 No Undisclosed Material Liabilities. There are no liabilities of
any Loan Party of the Borrower of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(a) liabilities disclosed or provided for in the Borrower Balance Sheet
or in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected
to result in a Material Adverse Change;
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(c) liabilities disclosed in Borrower SEC Documents filed prior to the
date hereof or set forth in Schedule 4.24; and
(d) liabilities under this Agreement.
4.25 Employee Benefit Plans.
(a) Prior to the date hereof, the Borrower has provided the Borrower
with a list (set forth in Schedule 4.25) identifying each material "employee
benefit plan," as defined in Section 3(3) of ERISA, each material employment,
severance or similar contract, plan, arrangement or policy applicable to any
director, former director, employee or former employee of the Borrower and each
material plan or arrangement (written or oral), providing for compensation,
bonuses, profit-sharing, stock option or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) which is
maintained, administered or contributed to by the Borrower and covers any
employee or director or former employee or director of the Borrower, or under
which the Borrower has any liability. Such material plans (excluding any such
plan that is a "multiemployer plan", as defined in Section 3(37) of ERISA) are
referred to collectively herein as the "Borrower Employee Plans."
(b) Each Borrower Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan.
(c) Neither the Borrower nor any affiliate of the Borrower has incurred
a liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Borrower or any affiliate
of the Borrower of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) All Borrower Employee Plans that are intended to be qualified under
Section 401(a) of the Code have been the subject of determination, opinion,
notification or advisory letters from the Internal Revenue Service ("IRS") which
the company has made available to the Lender. Each such letter as the effect of
stating that each such Borrower Employee Plan is qualified and is exempt from
Federal income taxes under Section 501(a) of the Code. The remedial amendment
period with respect to each such Borrower Employee Plan has not expired for any
amendment to any such Borrower Employee Plan that was made on or after the date
of the application for the determination, opinion, notification or advisory
letter. No such determination, opinion, notification or advisory letter has been
revoked, nor has any event occurred since the date of the most recent such
letter that would adversely affect its qualification.
(e) No director or officer or other employee of any Loan Party will
become entitled to any retirement, severance or similar benefit or enhanced or
accelerated benefit (including any acceleration of vesting or lapse of
repurchase rights or obligations with respect to any employee
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stock option or other benefit under any stock option plan or compensation plan
or arrangement of the Borrower) solely as a result of the transactions
contemplated hereby.
(f) No Borrower Employee Plan provides post-retirement health and
medical, life or other insurance benefits for retired employees of any Loan
Party (other than benefit coverage mandated by applicable statute, including
benefits provided pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1985, as codified in Code section 4980B and ERISA section 601 et seq., as
amended from time to time ("COBRA")).
(g) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Borrower or any of its affiliates
relating to, or change in employee participation or coverage under, any Borrower
Employee Plan which would increase materially the expense of maintaining such
Borrower Employee Plan above the level of the expense incurred in respect
thereof for the 12 months ended on the Borrower Balance Sheet Date.
4.26 Location of Collateral. The Collateral is and will be kept at the
locations identified by Borrower and type of Collateral on Schedule 4.26 or such
other locations as may be permitted under Section 5.7.
4.27 Material Contracts and Accounts. Each Contract, General Intangible
and Account is, or will be when it is created, a bona fide, valid and legally
enforceable property or right of Borrower and, so far as Borrower knows, of any
other party thereto, except for those that do not, in the aggregate, materially
and adversely affect the value of the Collateral. No amount payable in
connection with any of such Contracts, General Intangibles or Accounts is
evidenced by any chattel paper or any promissory notes or other instruments that
have not been delivered to the Lender.
4.28 No Defaults Under Contracts or Accounts. With respect to each
Contract, Account and General Intangible, no default by Borrower or event which
with the giving of notice or the passage of time would be a default has occurred
and, to the knowledge of the Borrower, the other party or parties thereto are
not in default thereunder, and Borrower has fully and timely performed all its
material obligations thereunder. The right, title and interest of Borrower
thereunder is not subject to any defense, set off, counterclaim or claim, and
none of the foregoing has been asserted or alleged against Borrower. The amount
represented by Borrower to the Lender, from time to time as owing on any or all
Accounts, Contracts or General Intangibles, will at such time be the correct
amount actually owing by such account debtors thereunder.
4.29 Assumed Names. Except as set forth on Schedule 4.29, the Loan
Parties do not conduct business under any assumed names or trade names, nor have
the Loan Parties conducted business under any other names, or any assumed names
or trade names, at any time prior to the date hereof.
4.30 Compliance With Laws. No Loan Party is in violation of, or has
since September 30, 2000 violated, any applicable provisions of any laws,
statutes, ordinances or regulations except for any violations that, individually
or in the aggregate, would not reasonably be expected to result in a Material
Adverse Change.
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4.31 Environmental Laws. Except for such exceptions as, individually or
in the aggregate, have not resulted, and would not reasonably be expected to
result in, a Material Adverse Change, (i) no notice, notification, demand,
request for information, citation, summons, complaint or order has been received
by, and no investigation, action, claim, suit, proceeding or review is pending
or, to the knowledge of the Loan Parties, threatened by any Person against the
Loan Parties, and no penalty has been assessed against any Loan Party, in each
case, with respect to any matters relating to or arising out of any
Environmental Law; (ii) the Loan Parties are and have been in compliance with
all Environmental Laws; (iii) there are no liabilities of or relating to any
Loan Party relating to or arising out of any Environmental Law of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability.
4.32 Statutory Regulation. The Borrower is not an investment company
within the meaning of the Investment Borrower Act of 1940, as amended, and to
the Borrower's knowledge, is not, directly or indirectly, controlled by or
acting on behalf of any person which is an investment company, within the
meaning of said Act. The Borrower is not subject to any Governmental Requirement
regulating public utilities or similar entities, and is not, within the meaning
of the Public Utility Holding Borrower Act of 1935, as amended, (a) a holding
company; (b) a subsidiary or affiliate of a holding company; or (c) a public
utility. The Borrower is not subject to regulation under the Federal Power Act
or to any other Governmental Requirement limiting or placing conditions upon
their respective power or right to borrow money.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply and, if applicable, cause each Subsidiary to comply
with the following provisions; provided that the Borrower shall have no
obligation under this Article 5 if the Borrower and the Lender enter into the
Merger Agreement so long as that agreement remains in full force and effect:
5.1 Accounting Records. Each Loan Party shall maintain adequate books
and accounts in accordance with sound business practices and GAAP consistently
applied. Each Loan Party shall promptly furnish to the Lender any information
regarding their business or finances as the Lender may reasonably request,
provided that nothing in this Section 5.1 shall entitle the Lender to any
information which would result in a disclosure of the Borrower's proprietary
information or trade secrets. Upon request of the Lender, the Borrower will
extend its cooperation and assistance and comply with the requests of the Lender
or its representative in connection with an audit regarding the Collateral and
will furnish any information requested in respect thereof, including, without
limitation, appraisals of the Collateral, lien search reports and physical
counts.
5.2 Financial Statements and Notices. The Borrower shall furnish to the
Lender all of the following financial statements, information and notices:
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(a) The Borrower shall, within thirty (30) days after it is required to
file the same with the Securities and Exchange Commission, deliver copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Securities and Exchange Commission
may from time to time by rules and regulations prescribe) which the Borrower may
be required to file with the Securities and Exchange Commission pursuant to
section 23 or section 15(d) of the Securities Exchange Act of 1934, as amended.
(b) Promptly but in no event later than one (1) Business Day after (i)
the occurrence of an Event of Default or an Incipient Default, or (ii) any
default or Event of Default as defined in any evidence of Indebtedness or under
any agreement, indenture or other instrument under which such evidence of
Indebtedness has been issued, whether or not such Indebtedness is accelerated or
such default waived, the Borrower shall notify the Lender thereof, and within
five (5) calendar days after obtaining such an occurrence, a statement of a
Authorized Officer setting forth details of such Event of Default or Incipient
Default and the action which the Borrower proposes to take with respect thereto.
(c) As soon as practicable written notice of any actual or threatened
claims, litigation, suits, investigations, proceedings or disputes against or
affecting any Loan Party, including, without limitation: (i) any claims,
litigations, suits, investigations, proceedings or disputes involving in
aggregate a monetary amount in excess of fifty thousand dollars ($50,000),
whether or not covered by insurance; (ii) any labor controversy which is
reasonably expected to result in a strike against any Loan Party; (iii) any
proposal by any Governmental Authority to acquire any of the assets or business
of any Loan Party; (iv) any investigation or proceeding before or by any
Governmental Authority, the effect of which could reasonably be expected
materially to limit, prohibit or restrict the manner in which any Loan Party
currently conducts its business or to declare any substance contained in the
products manufactured or distributed by any Loan Party to be dangerous; (v) any
summons, citation, directive, notice, complaint, letter or other communication,
whether oral or written, from any person concerning any alleged violation by any
Loan Party, or any predecessor of any Loan Party, of any Environmental Law, or
any alleged noncompliance of any of the properties or the operations of any Loan
Party therewith; or (vi) any investigation of or request for information from
any Loan Party relating to the handling, storage or disposal of any Hazardous
Substance, or the release thereof into the environment, by any Loan Party or any
of their predecessors or any other Person, which investigation or request is
other than routine.
5.3 Access. Following the occurrence and during the continuance of an
Event of Default, each Loan Party shall permit the Lender and any Affiliate of
the Lender which shall be making inquiries in connection with the transactions
contemplated in the Acquisition Agreement, at such reasonable times and
intervals as the Lender may designate upon reasonable notice, at its own expense
(unless as part of an audit of the Collateral as provided in Section 5.1
hereof), by and through the representatives and agents of the Lender, to
inspect, audit and examine its books and records, to make copies thereof, to
discuss its affairs, finances and accounts with its officers and independent
public accountants, and to visit and inspect its properties; provided, however,
that nothing in this Section 5.3 shall entitle the Lender to make inquiries
which would result in disclosure of the Borrower's proprietary information or
trade secrets.
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5.4 Maintenance of Existence. Each Loan Party shall preserve and
maintain its corporate existence, except in connection with a merger or
consolidation of a Subsidiary with another Subsidiary or into the Borrower.
5.5 Qualifications To Do Business. Each Loan Party shall qualify to do
business and shall be and (in the case of corporations) remain in good standing
in each jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Change.
5.6 Insurance. Each Loan Party shall maintain in full force and effect
insurance normal and customary for the business of such Loan Party and each Loan
Party shall add to such insurance coverage insurance of the types and amounts
customarily carried in their respective lines of business, including, but not
limited to, fire, public liability, property damage, products liability and
workers' compensation insurance.
5.7 Collateral. The Borrower shall keep the Collateral in good repair,
working order and condition, and from time to time shall make necessary repairs
or replacements thereto so that the Collateral shall be maintained adequately
for their intended use. The Borrower shall not move any Collateral, other than
inventory sold in the ordinary course of business, from its location on the
Closing Date without giving the Lender prior written notice of the new location
to which such Collateral will be moved.
5.8 Taxes and Other Liabilities. Each Loan Party shall pay and
discharge when due any and all material Taxes, except as may be subject to good
faith contest or as to which a bona fide dispute may arise; provided, however,
that adequate reserves in accordance with GAAP or other provision is made to the
satisfaction of the Lender for prompt payment thereof in the event that it is
found that the same are their obligations.
5.9 Governmental Approvals. Each Loan Party shall apply for, diligently
pursue, and obtain or cause to be obtained, and shall thereafter maintain in
full force and effect all Governmental Approvals that shall now or hereafter be
necessary under any Governmental Requirement (a) for land use, public and
employee health and safety, pollution or protection of the environment, (b) for
the grant by the Borrower of the Liens granted by any of the Security Documents
and for the validity and enforceability thereof or for the perfection of and the
exercise by the Lender of its rights and remedies thereunder, and (c) for the
operation of the business of such Loan Party, except where the failure to be so
qualified could not reasonably be expected to result in a Material Adverse
Change. Each Loan Party shall promptly notify the Lender in the event of any,
and provide the Lender with a copy of all notices of, denial, suspension,
variance or revocation of any material Governmental Approvals.
5.10 Compliance With Governmental Approvals and Governmental
Requirements. Each Loan Party shall materially comply with all Governmental
Requirements, all terms and conditions of all Governmental Approvals and with
all other limitations, restrictions, obligations, schedules, timetables and
reporting requirements in any Governmental Requirements.
5.11 Prevent Contamination. Each Loan Party shall conduct its
operations on property owned, leased or used by it in such a way as to prevent
material contamination of any part of
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such property by any Hazardous Substance through the action of such Loan Party.
Each Loan Party shall use reasonable efforts to manage all Hazardous Substances
in a manner that does not require a Hazardous Waste Facility Permit, and in
compliance in all material respects with all Governmental Requirements and
Governmental Approvals. Without limiting the foregoing covenants, each Loan
Party shall not intentionally or recklessly, shall endeavor not to
unintentionally, and shall use reasonable efforts to assure that no other Person
to, emit, release or discharge on or from any property owned, leased exclusively
or used exclusively by such Loan Party into air, soil, surface water or
groundwater any Hazardous Substance in excess of permitted levels or reportable
quantities, or other concentrations, standards or limitations under any
Governmental Requirements or Governmental Approvals.
5.12 Liens and Perfection.
(a) From and after the Closing Date, the Borrower shall cause the
Security Documents to be and remain, except for Permitted Liens, perfected Liens
subordinate only to prior perfected security interests of holders of Existing
Debt on all Collateral for the benefit of the Lender and to become perfected
Liens subordinate only to prior perfected security interests of holders of
Existing Debt on any real or personal property now owned or hereafter received
by the Borrower upon the disposition of any of the Collateral which property is
not subject to the Liens created by the Security Documents. The Borrower shall,
upon the request of the Lender, execute and deliver or cause to be executed and
delivered to the Lender any agreement, instrument, conveyance, mortgage, pledge,
hypothecation or financing statement, in form and substance reasonably
satisfactory to the Lender, which agreement, instrument, conveyance, mortgage,
pledge, hypothecation, document or financing statement the Lender shall
reasonably determine is necessary to obtain, perfect or enforce a first priority
Lien on any property owned by the Borrower on which the Lender does not have a
perfected security interest or lien or any property received by the Borrower
upon its disposition of any of the Collateral.
(b) Without limiting the generality of Section 5.12(a) hereof, the
Borrower shall from time to time do all things and deliver all documents and
instruments reasonably requested by the Lender to perfect, protect and enforce
the Liens granted under the Security Documents and pursuant to this Section
5.12. Such acts include, without limitation, the filing of financing statements
under the Uniform Commercial Code and of other documents and instruments under
other applicable laws.
5.13 Change of Location. Each Loan Party shall notify the Lender not
later than thirty (30) days in advance of any change in the location of its
chief executive office.
5.14 Further Assurances. Upon reasonable request from the Lender or an
Affiliate of the Lender, the Borrower shall prepare and file or cause to be
prepared and filed all necessary applications and filings and information with
each Person and Governmental Authority which application, filing or information
is required to consummate the transactions contemplated in the Merger Agreement.
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ARTICLE 6
NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any Obligation is
outstanding it shall comply and, if applicable, cause each Subsidiary to comply
with all of the following provisions; provided that the Borrower shall have no
obligation under this Article 6 if the Borrower and the Lender enter into the
Merger Agreement so long as that agreement remains in full force and effect:
6.1 Mergers. Except for consolidations and mergers of a Subsidiary into
another Subsidiary or into the Borrower or as may be agreed with the Lender, no
Loan Party shall enter into any merger, consolidation, reorganization or
recapitalization, or any agreement, in each case, to do any of the foregoing. No
Loan Party shall acquire or form any subsidiaries, partnerships or joint
ventures or acquire any interests in any partnerships or joint ventures.
6.2 Restricted Payments. The Borrower shall not make Restricted
Payments to its shareholders unless it has received the prior written consent of
the Lender.
6.3 Change of Name, Etc. No Loan Party shall change its name without at
least thirty (30) days' prior notice to the Lender, or change the nature of its
business or engage in any other business other than the businesses in which it
is engaged as of the Closing Date without the prior written consent of the
Lender.
6.4 Accounting Policies. Except in order to comply with GAAP, the
Borrower shall not materially change any of its accounting policies or its
fiscal year.
6.5 Liens. The Borrower shall not create or permit to exist any Lien
upon any of the Collateral, except for Permitted Liens, or enter into any
agreement to xxxxx x Xxxx (other than in connection with the granting or
sufferance of a Permitted Lien, provided that such agreement pertains only to
the property covered by the Permitted Lien) on any of the Collateral.
6.6 Contingent Obligations. No Loan Party shall become liable, directly
or indirectly, for any Contingent Obligation amendments, modification,
refinancings and refunding, thereof, Indebtedness owed by the Borrower to a
Subsidiary or by a Subsidiary to another Subsidiary or the Borrower.
6.7 Indebtedness. No Loan Party shall incur, create, assume or permit
to exist any Indebtedness except (i) the Obligations, (i) the Existing Debt,
(iii) trade payables and other contractual obligations to suppliers and
customers incurred in the ordinary course of business, (iv) Indebtedness
subordinated to the Obligations on terms reasonably acceptable to the Lender,
(v) intercompany Indebtedness, (vi) Indebtedness consisting of Contingent
Obligations permitted by Section 6.6, (vii) purchase money Indebtedness secured
by Permitted Liens, and (viii) other Indebtedness not to exceed one hundred
thousand dollars ($100,000).
6.8 Sale of Assets. Except for inventory sold in the ordinary course of
business, sales of assets that are obsolete or no longer useful or sales,
transfers, leases, license or other dispositions
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between or among any of the Loan Parties, no Loan Party shall sell, transfer,
lease, license or otherwise dispose of any of its assets, or enter into any
understanding, term sheet, letter of intent or memorandum of understanding,
whether binding or not, or any agreement, in each case, to do any of the
foregoing.
6.9 Loans to Affiliates. No Loan Party shall, directly or indirectly,
make any loan or advance to any Affiliate, except in the ordinary course of
business and as permitted in Section 6.7.
6.10 Certain ERISA Payments. The Borrower shall not make any payment of
any material liability arising under ERISA or under the Code of any ERISA
Affiliate.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(a) Payments. The Borrower shall fail to pay when due:
(i) any installment of principal hereunder;
(ii) any payment of interest or any other sum payable
hereunder or under any of the other Loan Documents within three (3)
Business Days of when due; or
(iii) any amounts aggregating to one million dollars
($1,000,000) due to the Lender under any contract (including any
purchase order) pursuant to which the Lender does business with the
Borrower not paid within twenty (20) days of when due.
(b) Other Covenants and Agreements. Any of the Loan Parties shall
default in the performance of any of its agreements set forth in any other
provision herein or in any of the other Loan Documents (and not constituting an
Event of Default under any of the other clauses of this Section 7.1).
(c) Representations and Warranties. Any warranty, representation or
certification made by the Borrower or any officer of the Borrower in any of the
Loan Documents, shall be untrue in any material respect or shall omit to state a
fact necessary to make it not materially misleading in light of the
circumstances under which it was made, in any case on any date as of which the
facts set forth are stated or certified.
(d) Judgment. A judgment or judgments shall be entered against any Loan
Party in excess of fifty thousand dollars ($50,000) in any one case or in excess
of one hundred thousand dollars ($100,000) in the aggregate and shall remain
undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against any Loan Party or any of their assets.
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(e) Liens for Pension Contributions. Any material Lien shall have been
placed upon the assets of any Loan Party or any ERISA Affiliate under the Code
or ERISA.
(f) Plan Termination or Withdrawal Liability. Any termination of a
single employer plan (as defined in section 4001(a)(15) of ERISA) or any
complete or partial withdrawal from a multiemployer plan (as defined in section
4001(a)(3) of ERISA) shall occur, or steps shall have been taken by any Person
that make it reasonable to expect that such termination or withdrawal will
occur, and such termination or withdrawal could reasonably be expected to result
in liability of the Borrower or any ERISA Affiliate to the PBGC, to a trustee or
to such multiemployer plan in the aggregate amount of one million dollars
($1,000,000) or more. A plan amendment described in section 4041(e) of ERISA
shall be treated as a plan termination for purposes of this paragraph.
(g) Funding Waiver. The Borrower or any ERISA Affiliate shall apply
under section 412 of the Code for a waiver of the minimum funding standard.
(h) Plan Qualification. Any plan of the Borrower or an ERISA Affiliate
that is intended to have qualification under section 401(a) of the Code loses
such qualification, if the loss of such qualification can reasonably be expected
to impose on the Borrower or any ERISA Affiliate liabilities (for additional
taxes, to plan participants or otherwise) in the aggregate amount of one million
dollars ($1,000,000) or more.
(i) Cross-Default. The Loan Parties shall default in the payment when
due, whether by acceleration or otherwise, of an amount greater than one million
dollars ($1,000,000) on any of its Indebtedness (not arising hereunder or under
any of the other Loan Documents), or default in the performance or observance
(subject to any applicable grace period) of any agreement, covenant or condition
with respect to any such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or to permit the holder or
holders of any such Indebtedness, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or, if such Indebtedness is a guaranty, to call upon such guaranty in
advance of nonpayment of the guaranteed indebtedness.
(j) Collateral. A judgment creditor of any Loan Party shall obtain
possession of any material portion of the Collateral by any means, including,
but not limited to, levy, distraint, replevin or self-help.
(k) Impairment of Collateral. The Lender's Lien, or the priority
thereof, on any material portion of the Collateral shall become impaired or
otherwise unenforceable.
(l) Bankruptcy. Any Loan Party shall institute a voluntary case seeking
liquidation or reorganization under Chapter 7 or Chapter 11, respectively, of
the United States Bankruptcy Code, or shall consent to the institution of an
involuntary case thereunder against it; or any Loan Party shall file a petition
initiating or shall otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or any Loan Party
shall apply for, or by consent or acquiescence there shall be an appointment of,
a receiver, liquidator, sequestrator, trustee or other officer with similar
powers, or any Loan Party shall make an assignment for the benefit of creditors;
or any Loan Party shall admit in writing its inability to
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pay its debts generally as they become due; or, if an involuntary case shall be
commenced seeking the liquidation or reorganization of any Loan Party under
Chapter 7 or Chapter 11, respectively, of the United States Bankruptcy Code, or
any similar proceeding shall be commenced against any Loan Party under any other
applicable federal or state law, and (i) the petition commencing the involuntary
case is not timely controverted; or (ii) the petition commencing the involuntary
case is not dismissed within forty-five (45) days of its filing; or (iii) an
interim trustee is appointed to take possession of all or a portion of the
property and/or to operate all or any part of the business of any Loan Party; or
(iv) an order for relief shall have been issued or entered therein; or a decree
or order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee or other officer having similar
powers over any Loan Party, or of all or a part of the property of any of the
foregoing, shall have been entered; or any other similar relief shall be granted
against any Loan Party under any applicable federal or state law.
(m) Material Adverse Change. The Lender shall have determined that a
Material Adverse Change other than solely as a result of losses incurred by the
Borrower in the ordinary course of business has occurred since the date of this
Agreement.
(n) Invalidity of Loan Documents. Any of the Loan Documents shall cease
for any reason to be in full force and effect in any material respect or any
party thereto (other than the Lender) shall purport to disavow its obligations
thereunder, shall declare that it does not have any further obligation
thereunder or shall contest the validity or enforceability thereof.
7.2 Termination of Commitment and Acceleration. If any Event of Default
described in Section 7.1(m) shall occur, the Notes and all other Obligations
shall become immediately due and payable. If any other Event of Default shall be
continuing, the Lender may declare its obligation to advance further portions of
the Loans to be terminated and the outstanding Notes and all other Obligations
to be due and payable, or all of the foregoing, whereupon the Notes and all
other Obligations shall immediately become due and payable, all as so declared
by the Lender and without presentment, demand, protest or other notice of any
kind.
ARTICLE 8
MISCELLANEOUS
8.1 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon, and the benefits thereof shall inure to, the parties
hereto and their respective successors and assigns; provided, however, that the
Borrower shall not assign this Agreement or any of the rights, duties or
obligations of the Borrower hereunder without the prior written consent of the
Lender.
8.2 No Implied Waiver. No delay or omission to exercise any right,
power or remedy accruing to the Lender upon any breach or default of the
Borrower under this Agreement or under any of the other Loan Documents shall
impair any such right, power or remedy of the Lender, nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default occurring thereafter, nor shall any waiver
of any
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single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter.
8.3 Amendments; Waivers.
(a) No amendment, modification or waiver of, or consent with respect
to, any provision of this Agreement, the Note or any of the other Loan Documents
shall in any event be effective unless the same shall be in writing and signed
and delivered by the Lender and the Borrower.
(b) Any amendment, modification, waiver or consent hereunder shall be
effective only in the specific instance and for the specific purpose for which
given.
8.4 Remedies Cumulative. All rights and remedies, either under this
Agreement, by law or otherwise afforded to the Lender shall be cumulative and
not exclusive, and any single or partial exercise of any power or right
hereunder or thereunder does not preclude other or further exercise thereof, or
the exercise of any other power or right.
8.5 Severability. Any provision of this Agreement, the Note or any of
the other Loan Documents which is prohibited or unenforceable in any
jurisdiction shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Note and the other Loan Documents shall remain valid.
8.6 Costs, Expenses and Attorneys' Fees. If, at any time or times, the
Lender or, in subsection (a) below, the Borrower shall employ counsel or other
professional advisors for advice or other representation or shall incur
reasonable legal, appraisal, accounting, consulting or other costs and expenses
in connection with any of the following:
(a) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by any party to any Loan or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreements to
be executed or delivered in connection herewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against the Borrower or any
other Person that may be obligated to the Lender by virtue of the Loan, under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law;
provided, however, that in any litigation between the Borrower and the Lender
the prevailing party shall be entitled to recover reasonable attorneys' fees
under this Section 8.6(a).
(b) Any attempt to inspect, verify, protect, collect, sell, liquidate
or otherwise dispose of any or all of the Collateral.
In any such event, the reasonable fees of such attorneys and other professional
advisors arising from such services, including those of any appellate
proceedings, and all reasonable expenses, costs, charges and other fees incurred
by such counsel or other professionals in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 8.6 shall be payable, on demand. Without limiting the generality of the
foregoing, such reasonable expenses, costs, charges and fees may include:
attorneys' fees, costs and expenses,
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paralegal fees, costs and expenses; accountants' fees, costs and expenses;
appraisers' fees, costs and expenses; other consultants' fees, costs and
expenses; court costs and expenses; photocopying and duplicating expenses; court
reporter fees, costs and expenses; long distance telephone charges; air express,
courier and other delivery charges; telegram charges; facsimile costs and
expenses; secretarial overtime charges; and expenses for travel, lodging and
food paid or incurred in connection with the performance of such legal or other
professional services.
8.7 Indemnification. The Borrower shall indemnify, defend and hold
harmless the Lender and its directors, officers, employees, Affiliates,
attorneys and agents (collectively called the "the Lender Indemnitees") from and
against any and all liabilities, obligations, losses, damages, penalties,
impositions and charges imposed by any Governmental Authority, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever, whether or not well founded, meritorious or in meritorious
(including, without limitation, any expenses (including attorneys' fees)
incurred by any such the Lender Indemnitee in connection with any investigation
or administrative or judicial proceeding, whether or not any such the Lender
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by or asserted against such the Lender Indemnitees by any Person other
than the Lender (whether direct, indirect, consequential or punitive and whether
based on any Governmental Requirement, including, without limitation,
securities, environmental and commercial laws and regulations, under common law
or at equitable cause, or on contract or otherwise) in any manner relating to or
arising, directly or indirectly, out of this Agreement, any other Loan
Documents, or any act, event or transaction related or attendant thereto; the
making of Loans hereunder, the management of the Loans (including any liability
under federal, state or local environmental laws or regulations), the use or
intended use of the proceeds of the Loans (collectively, the "Indemnified
Matters"); provided, however, that the Borrower shall have no obligation to a
the Lender Indemnitee under this Section 8.7 with respect to Indemnified Matters
to the extent such Indemnified Matters were caused by or resulted from the gross
negligence or willful misconduct of a the Lender Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute to the payment and satisfaction of all
Indemnified Matters incurred by the Lender Indemnitees the maximum portion which
the Borrower is permitted to pay and satisfy under applicable law. This
indemnification shall survive repayment by the Borrower of all Loans made under
this Agreement, and the termination of this Agreement. This Section 8.7 shall
apply only if the second Loan is not made.
8.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with receipt
confirmed and promptly confirmed by personal delivery, U.S. first class mail, or
courier), or by courier service, as follows:
(a) If to the Lender to:
SONICblue Incorporated
0000 Xxxxxxx Xxxxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000
Attn: Chief Executive Officer
Fax: (000) 000-0000
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with a copy to:
Pillsbury Winthrop LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxx X. del Xxxxx
Fax: (000) 000-0000
(b) If to the Borrower to:
Sensory Science Corporation
0000 Xxxx XxXxxxx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Attention: Chief Executive Officer
Fax: ____________________
with a copy to:
Xxxxx & Xxxxxx, L.L.P.
Xxx Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxxx
Fax: (000) 000-0000
8.9 Interpretation. This Agreement, together with the Schedules and
Exhibits to this Agreement and all of the other Loan Documents, is intended by
the Lender and the Borrower as a final expression of their agreement and,
together with all of the other Loan Documents, is intended as a complete
statement of the terms and conditions of their agreement. The parties
acknowledge that the Schedules to this Agreement have not been provided by the
Borrower as of the date hereof, but will be delivered, in form and substance
satisfactory to the Lender, on or before the Closing Date. Upon the Lender's
acceptance thereof, this Agreement shall be deemed to be amended to incorporate
such schedules and shall be a part hereof.
8.10 Governing Law and Consent to Jurisdiction. THE VALIDITY,
CONSTRUCTION AND EFFECT OF THIS AGREEMENT, THE NOTE AND EACH OF THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO ITS CHOICE OF APPLICABLE LAW PRINCIPLES.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER WITH RESPECT TO
THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA,
AND THE BORROWER ACCEPTS FOR ITSELF AND ITS ASSETS AND PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
THE BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY
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OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH JURISDICTION. NOTING HEREIN SHALL LIMIT THE
RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURT OF
ANY OTHER JURISDICTION.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
8.12 Headings. Captions, headings and the table of contents in this
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
8.13 Survival. The obligation of the Borrower under Sections 8.6 and
8.7 of this Agreement shall survive the repayment of the Loans.
8.14 Highest Lawful Rate. Anything herein to the contrary
notwithstanding, the obligations of the Borrower to pay interest on the Loan
shall be subject to the limitation that payment of interest to the Lender shall
not be required, for any period for which interest is computed hereunder, to the
extent that contracting for or receiving such payment by the Lender would be
contrary to the provisions of any law applicable to the Lenders limiting the
highest rate of interest which may be lawfully contracted for, charged or
received by it.
8.15 Calculations. Any calculations made by the Lender pursuant to this
Agreement shall be prima facie evidence in the absence of manifest error.
8.16 Confidential.
(a) Neither of the parties hereto shall make any public announcement
regarding the transactions contemplated in this Agreement and the other Loan
Documents without the prior consent of the other party. Each of the parties
hereto shall keep strictly confidential any and all information furnished to it
or to its Affiliates, agents or representatives in the course of negotiations
relating to this Agreement or any transaction contemplated by this Agreement and
the other Loan Documents, and the business and financial reviews and
investigation conducted by the parties hereto in connection with this Agreement
and the other Loan Documents, and such parties have instructed their respective
officers, employees and other representatives having access to such information
of such obligation of confidentiality. The parties hereto covenant and agree
that they will not use any information so obtained except in connection with the
transactions contemplated by this Agreement, will not disclose or divulge such
information to any other person and will keep confidential any information so
obtained; provided, however, that any disclosure of such information may be made
by the Lender to protect or enforce its rights in the Collateral to the extent
disclosure is reasonably necessary for such protection or enforcement or after
consultation with the other party to the extent required by applicable
Governmental Requirement and that such information may be used as evidence in or
in connection with any pending or threatened litigation related to this
Agreement or other Loan Documents or any transactions contemplated hereunder or
thereunder. The obligations of confidentiality set forth herein shall not apply
to information generally available to the public or in the possession of the
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receiving party prior to its disclosure under this Agreement or that is given to
the receiving party by another person other than in breach of obligations of
confidentiality owed by such person to the disclosing party under this
Agreement.
(b) Nothwithstanding the foregoing in this Section 8.16, if either
party shall be required to disclose any information concerning this Agreement or
required to make any public announcement or press release, such party shall not
disclose such information or make any public announced or press release without
consulting the other party and jointly making such disclosure, announcement or
press release.
(c) Nothwithstanding the foregoing in this Section 8.16, Borrower may
make such disclosure concerning this Agreement as is necessary to obtain
consents from holders of Existing Debt pursuant to Sections 3.2(e) and 4.6.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date and year first above written.
SENSORY SCIENCE CORPORATION
By /s/ Xxxxx X. Xxxxxxx
----------------------------------------
Xxxxx X. Xxxxxxx
President and Chief Executive Officer
SONICblue INCORPORATED
By /s/ Xxxxxxx X. Xxxxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxxxx
President and Chief Executive Officer
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