Exhibit 10.35
Duplicate Original
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of February 24, 1999, is
entered into by and between Xxxxxxxxx.xxx, Inc., a Delaware corporation, with
its chief executive office, and principal place of business located at 00
Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000 (the "Borrower") and Comdisco,
Inc., a Delaware corporation, with its principal place of business located at
0000 Xxxxx Xxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000 (the "Lender" or sometimes
"Comdisco"). In consideration of the mutual agreements contained herein, the
parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a
loan in the aggregate principal amount of TWO MILLION and 00/100 DOLLARS
($2,000,00.00) in minimum installments of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00) each, (as the same may from time to time be amended, modified,
supplemented or revised, the "Loan"), which would be evidenced by Subordinated
Promissory Note(s) executed by Borrower substantially in the form of Exhibit A
hereto (as the same may from time to time be amended, modified, supplemented or
restated the "Note(s)").
WHEREAS, Lender is willing to make the Loan on the terms and conditions
set forth in this Agreement, and
WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate
to Senior Debt (as defined herein) to the extent set forth in the Subordination
Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "Account" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all
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rights to returned, reclaimed or repossessed goods), and all monies due or to
become due to Borrower under all purchase orders and contracts for the sale of
goods or the performance of services or both by Borrower (whether or not yet
earned by performance on the part of Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
1.2 "Account Debtor" means any "account debtor," as such term is defined
in Section 9105(1)(a) of the UCC.
1.3 "Advance" means each installment made by the Lender to Borrower
pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral.
1.4 "Advance Date" means the funding date of any Advance of the Loan.
1.5. "Advance Request" means the request by Borrower for an Advance under
the Loan, each to be substantially in the form of Exhibit C attached hereto, as
submitted by Borrower to Lender from time to time.
1.6 "Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.7 "Closing Date" means the date hereof.
1.8 "Collateral" shall have the meaning assigned to such term in Section 3
of this Agreement.
1.9 "Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "Copyrights" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.11 "Copyright License" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.12 "Documents" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
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1.13 "Equipment" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
1.14 "Excluded Agreements" means (i) any Warrant Agreement(s) executed
hereunder, and any other warrants (including without limitation, the warrant
agreement dated as of February 24, 1999) to acquire, or agreements governing the
rights of the holders of, any equity security of Borrower, (ii) any stock of the
Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the
Master Lease Agreement dated as of February 24, 1999 between Borrower, as
lessee, and Lender, as lessor, including, without limitation, any Equipment
Schedules and Summary Equipment Schedules to the Master Lease Agreement executed
or delivered by Borrower pursuant thereto and any other modifications or
amendments thereof, whereby Borrower (as lessee) leases equipment, software, or
goods from Lender (as lessor) to Borrower (as lessee).
1.15 "Facility Fee" means one percent (1.0%) of the principal amount of
the Loan due at the Closing Date.
1.16 "Fixtures" means any "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.17 "General Intangibles" means any "general intangibles," as such term
is defined in Section 9106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, Copyrights, Trademarks, Patents, rights to Intellectual Property,
interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to xxx for
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
1.18 "Instruments" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.19 "Intellectual Property" means all Copyrights, Trademarks, Patents,
trade secrets, owned source codes, customer lists, proprietary or confidential
information, inventions (whether or
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not patented or patentable), technical information, procedures, designs,
knowledge, know-how, owned software, data bases, skill, expertise, experience,
processes, models, drawings, materials and records.
1.20 "Inventory" means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest,
and, in any event, shall include, without limitation, all inventory, goods and
other personal property which are held by or on behalf of Borrower for sale or
lease or are furnished or are to be furnished under a contract of service or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.21 "License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.22 "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, xxxx, xxxx or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.23 "Loan Documents" shall mean and include this Agreement, the Note(s),
and any other documents executed in connection with the Secured Obligations or
the transactions contemplated hereby, as the same may from time to time be
amended, modified, supplemented or restated, provided, that the Loan Documents
shall not include any of the Excluded Agreements.
1.24 "Material Adverse Effect" means a material adverse effect upon: (i)
the business, operations, properties, assets or financial conditions of
Borrower; or (ii) the ability of Borrower to perform, or of Lender to enforce,
the Secured Obligations.
1.25 "Maturity Date" means the date thirty-six (36) months from the
Advance Date of each installment of the Loan.
1.26 "Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.27 "Patents" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) letters patent of, or rights
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corresponding thereto in, the United States or any other county, all
registrations and recordings thereof, and all applications for letters patent
of, or rights corresponding thereto in the United States or any other country,
including, without limitation, registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country; (b) all reissues,
continuations, continuations-in-part or extensions thereof; (c) all xxxxx
patents, divisionals, and patents of addition; and (d) all patents to issue in
any such applications.
1.28 "Permitted Liens" means any and all of the following: (i) liens in
favor of Lender, (ii) liens related to, or arising in connection with, Senior
Debt or (iii) liens outstanding as of the date of this agreement as listed on
Exhibit E hereto.
1.29 "Proceeds" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.30 "Receivables" shall mean and include all of the Borrowers accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.31 "Secured Obligations" shall mean and include all principal, interest,
fees, costs, or other liabilities or obligations for monetary amounts owed by
Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.32 "Senior Creditor" means a bank, insurance company, pension fund, or
other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
1.33 "Senior Debt" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges,
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expenses, costs, professional fees and expenses, and reimbursement obligations)
at any time owing by Borrower to Senior Creditor under the Senior Loan
Documents, including, but not limited to such amounts as may accrue or be
incurred before or after default or workout or the commencement of any
liquidation, dissolution, bankruptcy, receivership or reorganization by or
against Borrower provided, that Senior Debt shall not include the following
indebtedness or obligations:
(a) debt exceeding Two Million Dollars ($2,000,000.00) in principal amount
outstanding at any one time unless such additional amounts have been approved by
Lender.
1.34 "Senior Loan Documents" means the loan agreement between Borrower and
Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor pursuant to or in connection with the Senior Debt or
the loan agreement, as the same may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.35 "Subordination Agreement" means the form of Subordination Agreement
of to be entered into between Borrower, Lender, and Senior Creditor reasonably
acceptable to both Lender and Senior Creditor, such as set forth in Exhibit E.
1.36 "Trademark License" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.37 "Trademarks" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.39 "Warrant Agreement(s)" shall mean those agreements entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit I
pursuant to which Borrower granted Lender the right to purchase that number of
shares of Series B Preferred Stock of Borrower as more particularly set forth
therein.
SECTION 2. THE LOAN
2.1 The outstanding principal amount of each Advance, together with
interest thereon precomputed at the rate of eleven and one half (11.5%) percent
per annum, shall be due and payable in thirty-six (36) equal monthly
installments of principal and interest, payable on the first day of each month
(beginning on the first such date after the Advance Date for such Advance), to
and including the Maturity Date for such Advance (each, a "Payment Date"). If
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any payment under the Note(s) shall be payable on a day other than a business
day, then such payment shall be due and payable on the next succeeding business
day.
2.2 Borrower shall have the option to prepay the Loan, in whole or in
part, after twelve (12) months from the Closing Date by paying the principal
amount thereon together with all accrued and unpaid interest with respect to
such principal amount, as of the date of such prepayment, without premium. In
the event Borrower prepays all or a portion of the Note(s) within twelve (12)
months from the Closing Date hereof, Borrower shall pay the principal amount
together with all accrued and unpaid interest and a prepayment premium equal to
1% of the then outstanding principal amount of such principal amount being
prepaid.
2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or
any other Loan Document, it is not the parties' intent to contract for, charge
or receive interest at a rate that is greater than the maximum rate permissible
by law which a court of competent jurisdiction shall deem applicable hereto
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the "Maximum
Rate"). If the Borrower actually pays Lender an amount of interest, chargeable
on the total aggregate principal Secured Obligations of Borrower under this
Agreement and the Note(s) (as said rate is calculated over a period of time from
the date of this Agreement through the end of time that any principal is
outstanding on the Note(s)), which amount of interest exceeds interest
calculated at the Maximum Rate on said principal chargeable over said period of
time, then such excess interest actually paid by Borrower shall be applied
first, to the payment of principal outstanding on the Note(s); second, after all
principal is repaid, to the payment of Lender's out of pocket costs, expenses,
and professional fees which are owed by Borrower to Lender under this Agreement
or the Loan Documents; and third, after all principal, costs, expenses, and
professional fees owed by Borrower to Lender are repaid, the excess (if any)
shall be refunded to Borrower, and the effective rate of interest will be
automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in Section 2.1.
(c) Upon and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded
interest, and professional fees, shall bear interest at a rate per annum equal
to the rate set forth in Section 2.1. plus five percent (5%) per annum ("Default
Rate").
2.4 If the Borrower has not repaid the outstanding principal amount under
the Loan in its entirety by the Maturity Date (as defined in the applicable
Note(s)), then for each additional month, or portion thereof, thereafter that
the outstanding principal is not paid, Lender shall, have the right to purchase
from the Borrower, at the Exercise Price (adjusted, as set forth and defined in
the Warrant Agreement), an additional number of shares of Preferred Stock which
number shall be determined by (i) multiplying the outstanding principal amount
which is due but unpaid by three percent (3%) and (ii) dividing the product
thereof by the Exercise Price.
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note(s), Borrower hereby
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assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for
security purposes only, and hereby grants to Lender a security interest in, all
of Borrower's and Borrower's wholly owned subsidiary's, Empire Furniture
Showroom, Inc. (the "Subsidiary") right, title and interest in, to and under
each of the following (all of which being hereinafter collectively called the
"Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible
or intangible and whether now or hereafter owned or existing,
leased, consigned by or to, or acquired by, Borrower and wherever
located, by excluding the cash surrender value of life insurance on
keyman life insurance and any proceeds thereunder; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that;
4.1 Borrower owns all right title and interest in and to the Collateral,
free of all liens, security interests, encumbrances and claims whatsoever,
except for Permitted Liens.
4.2 Borrower has the full power and authority to, and does hereby grant
and convey to the Lender, a perfected security interest in the Collateral as
security for the Secured Obligations, free of all liens, security interests,
encumbrances and claims, other than Permitted Liens and shall execute such
Uniform Commercial Code financing statements in connection herewith as the
Lender may reasonably request. Except as set forth herein and except for
Permitted Liens, no other lien, security interest, adverse claim or encumbrance
has been created by Borrower or is known by Borrower to exist with respect to
any Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all jurisdictions in which the nature of its business or
location of its properties require such qualifications and where the failure to
be qualified would have a material adverse effect.
4.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents required to be
delivered or executed in connection herewith, and the Warrant Agreement(s) have
been duly authorized by all necessary corporate action of Borrower, the
individual or individuals executing the Loan Documents and the Warrant
Agreement(s) were duly authorized to do so; and the Loan
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Documents and the Warrant Agreement(s) constitute legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization or other
similar laws generally affecting the enforcement of the rights of creditors.
4.5 This Agreement, the other Loan Documents and the Warrant Agreement(s)
do not and will not violate any provisions of Borrower's Certificate of
Incorporation, bylaws or any material contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which the Borrower is subject, or
result in the creation or imposition of any lien, security interest or other
encumbrance upon the Collateral, other than those created by this Agreement.
4.6 The execution, delivery and performance of this Agreement, the other
Loan Documents and the Warrant Agreement(s) do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof.
4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute a default under the Loan
Agreement between Borrower and Senior Creditor.
4.9 Borrower has filed and will file all tax returns, federal, state and
local, which it is required to file and has duly paid or fully reserved for all
taxes or installments thereof (including any interest or penalties) as and when
due, which have or may become due pursuant to such returns or pursuant to any
assessment received by Borrower for the three (3) years preceding the Closing
Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained comprehensive general liability
insurance against risks customarily insured against in Borrower's line of
business. Such risks shall include, without limitation, the risks of death,
bodily injury and property damage. So long as there are any Secured Obligations
outstanding, Borrower shall also cause to be carried and maintained insurance
upon the Collateral and Borrower's business, covering casualty, hazard and such
other property risks customarily insured against in Borrower's line of business.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee or additional insured, as
appropriate. Borrower shall use commercially reasonable efforts to cause all
policies evidencing such insurance to provide for at least thirty (30) days
prior written notice by the underwriter or insurance company to Lender in the
event of cancellation or expiration. Such policies shall be issued by such
insurers and in such amounts as are reasonably acceptable to Lender.
5.2 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable
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attorneys' fees, arising out of the disposition or utilization of the
Collateral, other than claims arising at or caused by Lender's gross negligence
or willful misconduct.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30)
days) after the end of each month, unaudited interim financial statements,
excluding footnotes, as of the end of such month (prepared on a
consolidated and consolidating basis, if applicable), including balance
sheet and related statement of income prepared in accordance with
generally accepted accounting principles and accompanied by a report
detailing any material contingencies (including the commencement of any
material litigation by or against Borrower, such report to be delivered on
a quarterly basis) or any occurrence that could reasonably be expected to
have a Material Adverse Effect, such report certified by Borrower's Chief
Executive Officer or Chief Financial Officer to be true and correct;
(b) as soon as practicable (and in any event within ninety (90)
days) after the end of each fiscal year, unqualified (except as it may
relate to obtaining additional equity capital) audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows, and setting forth in comparative form
the corresponding figures for the preceding fiscal year, certified by a
firm of independent certified public accountants selected by Borrower and
reasonably acceptable to Lender;
(c) promptly after the sending or filing thereof, as the case may
be, electronic version or hardcopy of any proxy statements, financial
statements or reports which Borrower has made available to its
shareholders and copies of any regular, periodic and special reports or
registration statements which Borrower files with the Securities and
Exchange Commission or any governmental authority which may be substituted
therefor, or any national securities exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and its
attorneys and accountants on reasonable notice to inspect, examine and make
copies and abstracts of the books of account and records of Borrower at
reasonable times during normal business hours. In addition, such representative
of Lender and its attorneys and accountants shall have the right to meet with
management and officers of the Company to discuss such books of account and
records.
10
6.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be reasonably requested by Lender;
and take all further action that may be necessary or desirable, or that Lender
may reasonably request, to confirm, perfect, preserve and protect the security
interests intended to be granted hereby, and in addition, and for such purposes
only, Borrower hereby authorizes Lender to execute and deliver on behalf of
Borrower and to file such financing statements, security agreement and other
documents without the signature of Borrower either in Lender's name or in the
name of Borrower as agent and attorney-in-fact for Borrower, in the event
Borrower has not signed such financing statements, security agreement or other
documentation within ten (10) days from Borrower's receipt thereof. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender) and shall give Lender immediate written notice thereof.
6.5 Without Lender's prior written consent, Borrower shall not, except
consistent with Borrower's usual and customary practice (a) grant any material
extension of the time of payment of any of the Receivables, (b) to any material
extent, compromise, compound or settle the same for less than the full amount
thereof, (c) release, wholly or partly, any Person liable for the payment
thereof, or allow any credit or discount whatsoever thereon other than trade
discounts granted in the ordinary course of business of Borrower.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with prudent industry practices.
6.7 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent, which consent shall not be
unreasonably withheld, to the assignment of all of Borrower's Secured
Obligations hereunder to the successor entity in form and substance satisfactory
to Lender. In the event Lender does not consent to such assignment the parties
agree Borrower shall prepay the Loan in accordance with Section 2.2 hereof.
6.8 Borrower shall not, without the prior written consent of Lender, such
consent not to be unreasonably withheld, declare or pay any cash dividend or
make a cash distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey any equitable,
beneficial or legal interest in any material portion of the assets of Borrower
(except inventory sold and licenses granted in the normal course of business).
6.9 Upon the request of Lender, Borrower shall, during business hours,
make the Inventory and Equipment available to Lender for inspection at the place
where it is normally located and shall make Borrower's log and maintenance
records pertaining to the Inventory and Equipment available to Lender for
inspection. Borrower, or Borrower's service provider(s) shall
11
take all action necessary to maintain such logs and maintenance records in a
correct and complete fashion.
6.10 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom. Borrower shall file on or before the due date therefor all personal
property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
6.11 Borrower shall not relocate any item of the Collateral (other than
sale of inventory in the ordinary course of business and except for equipment in
the custody of employees or agents of the Borrower on normal business travel)
except: (i) with the prior written consent of the Lender not to be unreasonably
withheld; and (ii) if such relocation shall be within the continental United
States. If permitted to relocate Collateral pursuant to the foregoing sentence,
unless otherwise agreed in writing by Lender, Borrower shall first (a) cause to
be filed and/or delivered to the Lender all Uniform Commercial Code financing
statements, certificates or other documents or instruments necessary to continue
in effect the perfected security interest of the Lender in the Collateral, and
(b) have given the Lender no less than thirty (30) days prior written notice of
such relocation.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to make an Advance on the Loan on each Advance
Date and satisfaction by Borrower or waiver by Lender, in Lender's sole
discretion, of the following conditions:
7.1 (a) The Advance Date for any installment shall occur on or before
February 24, 2000.
(b) Borrower shall have entered into a Master Lease Agreement and
Equipment Schedule(s) in the minimum amount of Five Hundred Thousand Dollars
($500,000.00).
7.2 Document Delivery. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Agreement, the Warrant Agreement, and
any documents reasonably required by Lender to effectuate the liens of
Lender, with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents and the Warrant Agreement(s);
(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
12
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
(e) payment of the Facility Fee;
(f) such other documents as Lender may reasonably request.
7.3 Advance Request. Borrower shall:
(a) deliver to Lender, at least five (5) business day prior to the
Advance Date, written notice in the form of an Advance Request, or as
otherwise specified by Lender from time to time, specifying the date and
amount of such Advance.
(b) deliver executed original Note(s) and Warrant Agreements as set
forth in Section 2, as applicable.
(c) At the time of the request, Borrower shall have achieved at
least seventy-five (75%) or more of its cumulative net income/loss
projections as set forth in its Business Plan dated December 22, 1998 for
the prior six (6) month period, attached here as Exhibit D. Should
Borrower request an Advance before the first six months of projections,
such calculation shall include as many full monthly periods as have
occurred since the Business Plan began.
(d) such other documents as Lender may reasonably request.
7.4 Perfection of Security Interests. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a perfected
secondary security interest in the Collateral, subject only to Permitted Liens.
Such actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be reasonably necessary or
desirable to perfect the security interest of Lender in such Collateral.
7.5 Absence of Events of Defaults. As of the Closing Date or the Advance
Date, no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an Event of Default under this
Agreement or any of the Loan Documents and no fact or condition exists that
would (or would, with the passage of time, the giving of notice, or both)
constitute a default under the Senior Loan Documents between Borrower and Senior
Creditor.
7.6 Material Adverse Effect. As of the Closing Date or the Advance Date,
no event which has had or could reasonably be expected to have a Material
Adverse Effect has occurred and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note(s)
and other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the
Note(s) or any of the
13
other Loan Documents, and such default continues for more than five (5) days
after the due date thereof; or
8.2 Borrower defaults in the performance of any other covenant or Secured
Obligation of Borrower hereunder or under the Note(s) or any of the other Loan
Documents, and such default continues for more than twenty (20) days after
Lender has given notice of such default to Borrower.
8.3 Any material representation or warranty made herein by Borrower shall
prove to have been false or misleading in any material respect; or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an action
by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
8.6 Sixty (60) days shall have expired after the appointment, without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
8.7 The material default by Borrower under any Excluded Agreement(s), any
other promissory note or agreement for borrowed money, or any other material
agreement between Borrower and Lender; or
8.8 The occurrence of any default under any lease or other agreement or
obligation of Borrower involving an amount in excess of $100,000.00 or having a
Material Adverse Effect; or the entry of any judgment against Borrower involving
an award in excess of $100,000.00 that would have a Material Adverse Effect,
that has not been bonded or stayed on appeal within thirty (30) days; or
8.9 The occurrence of any material default under the Senior Loan
Documents; or
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately
14
due and payable (provided, that upon the occurrence of an Event of Default of
the type described in Sections 8.4 or 8.5, the Note(s) and all of the other
Secured Obligations shall automatically be accelerated and made due and payable
without any further act), whereupon the unpaid principal of and accrued interest
on such Note(s) and all other outstanding Secured Obligations shall become
immediately due and payable, and shall thereafter bear interest at the Default
Rate set forth in, and calculated according to, Section 2.3 (c) of this
Agreement. Lender may exercise all rights and remedies with respect to the
Collateral under the Loan Documents or otherwise available to it under
applicable law, including the right to release, hold or otherwise dispose of all
or any part of the Collateral and the right to occupy, utilize, process and
commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
ten (10) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's
reasonable costs and professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its
sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction
may direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 10. MISCELLANEOUS
10.1 Continuation of Security Interest. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Secured Obligations are paid in full. Upon payment in full of
the Secured Obligations, Lender shall execute and deliver to Borrower a written
termination statement (which Lender shall execute within a reasonable time after
full payment of the Secured Obligations hereunder), reassigning to Borrower,
without recourse, the Collateral and all rights conveyed hereby and returning
possession of the Collateral to Borrower. The rights, powers and remedies of
Lender hereunder shall be in addition to all rights, powers and remedies given
by statute or rule of law and are cumulative. The exercise of any one or more of
the rights, powers and remedies
15
provided herein shall not be construed as a waiver of or election of remedies
with respect to any other rights, powers and remedies of Lender.
10.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3 Notice. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the
seventh calendar day after deposit in the United States mails, with proper first
class postage prepaid, and shall be addressed to the party to be notified as
follows:
(a) If to Lender:
COMDISCO, INC.
Legal Department
Attention: General Counsel
0000 Xxxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
With a copy to:
COMDISCO, INC./COMDISCO VENTURES
0000 Xxxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
(b) If to Borrower:
XXXXXXXXX.XXX, INC.
Attention: Chief Financial Officer
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Phone: (000) 000-0000
(c) with a copy to:
XXXX & XXXX, LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other address as each party may designate for itself by like notice.
16
10.4 Entire Agreement; Amendments. This Agreement, the Note(s), and the
other Loan Documents, and the Warrant Agreement(s) constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and thereof, and supersede and replace in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof or thereof
(including, without limitation, Lender's proposal letter dated December 2, 1998,
all of which are merged herein and therein. None of the terms of this Agreement,
the Note(s), any of the other Loan Documents or Warrant Agreement(s) may be
amended except by an instrument executed by each of the parties hereto.
10.5 Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 Survival. All agreements, representations and warranties contained in
this Agreement, the Note(s), the other Loan Documents and the Warrant
Agreement(s) or in any document delivered pursuant hereto or thereto shall be
for the benefit of Lender and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement.
10.8 Successor and Assigns. The provisions of this Agreement, the other
Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note(s), any of the other Loan
Documents or the Warrant Agreement(s), without Lender's express written consent,
and any such attempted assignment shall be void and of no effect. Lender may
assign, transfer, or endorse its rights hereunder and under the other Loan
Documents or Warrant Agreement(s), except to a competitor or competitor's
affiliate of Borrower without prior notice to Borrower, and all of such rights
shall inure to the benefit of Lender's successors and assigns.
10.9 Further Indemnification. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
10.10 Governing Law. This Agreement, the Note(s), the other Loan Documents
and the Warrant Agreement(s) have been negotiated and delivered to Lender in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. Payment to Lender by Borrower of the Secured Obligations
is due in the State of Illinois. This Agreement, the Note(s), the other Loan
Documents and the Warrant Agreement(s) shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
17
10.11 Consent To Jurisdiction And Venue. All judicial proceedings arising
in or under or related to this Agreement, the Note(s), any of the other Loan
Documents or Warrant Agreement(s) may be brought in any state or federal court
of competent jurisdiction located in the State of Illinois. By execution and
delivery of this Agreement, each party hereto generally and unconditionally: (a)
consents to personal jurisdiction in Xxxx County, State of Illinois; (b) waives
any objection as to jurisdiction or venue in Xxxx County, State of Illinois; (c)
agrees not to assert any defense based on lack of jurisdiction or venue in the
aforesaid courts; and (d) irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Note(s), the other Loan
Documents or Warrant Agreement(s). Service of process on any party hereto in any
action arising out of or relating to this agreement shall be effective if given
in accordance with the requirements for notice set forth in Section 10.3, above
and shall be deemed effective and received as set forth in Section 10.3, above.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of either party to bring proceedings
in the courts of any other jurisdiction.
10.12 Mutual Waiver Of Jury Trial. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender; and
any Claims for damages, breach of contract arising out of this Agreement, any
other Loan Document or any of the Excluded Agreements, specific performance, or
any equitable or legal relief of any kind.
10.13 Confidentiality. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 6 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement shall be received in the strictest
confidence and will not be disclosed to any other person or entity in any manner
whatsoever, in whole or in part, without the prior written consent of the
Borrower, unless and until Lender has acquired indefeasible title thereto.
10.14 Counterparts. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
18
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER: XXXXXXXXX.XXX, INC.
Signature: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Print Name: Xxxxxxx X. Xxxxx
-----------------------------
Title: CFO
-----------------------------
Acknowledgement:
Subsidiary hereby acknowledges and confirms its grant of a security interest in
its assets as set forth in Section 3 hereof.
SUBSIDIARY: EMPIRE FURNITURE SHOWROOM, INC.
Signature: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Print Name: Xxxxxxx X. Xxxxx
-----------------------------
Title: CFO
-----------------------------
Accepted in Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature: /s/ Xxxxx X. Xxxx
-----------------------------
Print Name: XXXXX X. XXXX
-----------------------------
Title: PRESIDENT
COMDISCO VENTURES DIVISION
-----------------------------
19
Exhibit A
SUBORDINATED PROMISSORY NOTE
$ _______________ Date: ________________
Due: _________________
FOR VALUE RECEIVED, Xxxxxxxxx.xxx, Inc., a Delaware corporation (the "Borrower")
hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation
(the "Lender") at X.X. Xxx 00000, Xxxxxxx, XX 00000 or such other place of
payment as the holder of this Secured Promissory Note (this "Note") may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of _____________ and 00/100 Dollars ($___________) together
with interest at eleven and one-half percent (11.5%) per annum from the date of
this Note to maturity of each installment on the principal hereof remaining from
time to time unpaid, such principal and interest to be paid in 36 equal monthly
installments of $__________ each, commencing _____________ and on the same day
of each month thereafter to and including ____________, such installments to be
applied first to accrued and unpaid interest and the balance to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each.
This Note is the Note referred to in, and is executed and delivered in
connection with, that certain Subordinated Loan and Security Agreement dated
February 24, 1999 by and between Borrower and Lender (as the same may from time
to time be amended, modified or supplemented in accordance with its terms, the
"Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws
- 1 -
of the State of Illinois, excluding any conflicts of law rules or principles
that would cause the application of the laws of any other jurisdiction.
BORROWER: XXXXXXXXX.XXX, INC.
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Signature: __________________________
Print Name: _________________________
Title: ______________________________
- 2 -
Exhibit B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
XXXXXXXXX.XXX, INC.
Dated as of February 24, 1999 (the "Effective Date")
WHEREAS, Xxxxxxxxx.xxx, Inc., a Delaware corporation (the "Company") has
entered into a Subordinated Loan and Security Agreement dated as of February 24,
1999, and related Subordinated Promissory Note(s) (collectively, the "Loans")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of its Series B Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 176,056 fully paid and
non-assessable shares of the Company's Series B Preferred Stock ("Preferred
Stock") at a purchase price of $1.42 per share, as adjusted from time to time,
(the "Exercise Price"). The number and purchase price of such shares are subject
to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering ("IPO"), whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office this Warrant Agreement with a notice of exercise
in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly
completed and executed. Promptly upon receipt of this Warrant Agreement with the
Notice of Exercise and the payment of the purchase price in accordance with the
terms set forth below, and in no event later than thirty (30) days thereafter,
the Company shall issue to the Warrantholder a certificate for the number of
shares of Preferred Stock purchased and shall execute the acknowledgment of
exercise in the form attached hereto as Exhibit II (the "Acknowledgment of
Exercise") indicating the number of shares which remain subject to future
purchases, if any.
The Exercise Price shall at the Warrantholder's election be paid to the
Company at its principal address either (i) by cash, wire transfer or certified
check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If
the Warrantholder elects the Net Issuance method, the Company will issue
Preferred Stock in accordance with the following formula:
- 1 -
X = Y(A-B)
-----
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to
be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred
Stock (at the date of calculation).
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect
to the offering and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before
the day the current fair market value of the securities is being
determined and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share
of Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Preferred Stock shall be the
product of (x) the amount as determined in good faith by its Board of
Directors to represent the fair market value per share of the Common Stock
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in
which case the fair market value of Preferred Stock shall be deemed to be
the value received by the holders of the Company's Preferred Stock on a
common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or
- 2 -
listing on any domestic securities exchange, before such shares may be issued
upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, conversion, exchange or subdivision of shares or redemption
otherwise provided for herein), or a merger or consolidation of the Company with
or into another corporation whether or not the Company is the surviving
corporation, or the sale of all or substantially all of the Company's properties
and assets to any other person (hereinafter referred to as a "Merger Event"),
then, as a part of such Merger Event, lawful provision shall be made so that the
Warrantholder shall thereafter be entitled to receive, upon exercise of the
Warrant, the number of shares of preferred stock or other securities of the
successor corporation or other property resulting from such Merger Event,
equivalent in value to that which would have been issuable if Warrantholder had
exercised this Warrant immediately prior to the Merger Event. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
Agreement with respect to the rights and interest of the Warrantholder after the
Merger Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares of Preferred Stock
purchasable) shall be applicable to the greatest extent possible.
(b) Reclassification of Shares. If the securities as to which purchase
rights under this Warrant Agreement exist at any time shall, by combination,
reclassification, conversion, (including without limitation a mandatory
conversion of the Preferred Stock pursuant to Article IV Section B(51) of the
Charter (as defined below)), exchange or subdivision of securities; redemption
or otherwise, change into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, conversion, exchange, subdivision, redemption or
other change. After an IPO, the purchase price per share and the number and kind
of securities or other property purchasable under this Warrant Agreement shall
be subject to adjustment only pursuant to paragraphs (a), (b), (c) and (d), and
not paragraph (f), of this Section 8.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
- 3 -
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If the Company has not paid any
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which
due but unpaid by 3% and (ii) dividing the product thereof by the Exercise
Price.
(f) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's Amended
and Restated Certificate of Incorporation, as amended through the Effective
Date, a true and complete copy of which is attached hereto as Exhibit IV (the
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter. The Company shall
provide Warrantholder with prior written notice of any issuance of its stock or
other equity security to occur after the Effective Date of this Warrant (other
than such issuances with respect to which the Company is not required to make an
adjustment to the Series B Conversion Price (as defined in the Charter) pursuant
to Article IV Section B(5e)), which notice shall include (a) the price at which
such stock or security is to be sold, (b) the number of shares to be issued, and
(c) such other information as necessary for Warrantholder to determine if a
dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company
- 4 -
shall not be required to pay any tax which may be payable in respect of any
transfer involved and the issuance and delivery of any certificate in a name
other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable against the Company in accordance
with their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 3,040,000
shares of Class A Common Stock, of which 3,040,000 shares are issued and
outstanding, 17,250,000 shares of Class B Common Stock, 6,136,070 of which
are issued and outstanding and (B) 3,009,600 shares of Series A Preferred
Stock, of which 3,009,600 shares are issued and outstanding and 7,246,036
shares of Series B Preferred Stock, of which 7,042,254 shares are issued
and outstanding.
(ii) The Company has reserved (A) 684,930 shares of Common Stock for
issuance under its 1995 Incentive Stock Plan, under which 337,500 options
are outstanding. There are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock
or other securities of the Company, except as contemplated by this Warrant
Agreement and the Warrant Agreement of even date herewith with respect to
26,408 shares of Series B Preferred Stock.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances
of the Company's capital stock.
(e) Other Commitments to Register Securities. Except as set forth in this
Amended and Restated Registration Rights Agreement dated December 29, 1998, the
Company is not, pursuant to the terms of any other agreement currently in
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement as to the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale
- 5 -
or distribution of any part thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers of mere
record ownership from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold by
the holder thereof in accordance with such registration or (2) such security
shall have been sold without registration in compliance with Rule 144 under the
1933 Act, or (3) a letter shall have been issued to the Warrantholder at its
request by the staff of the Securities and Exchange Commission or a ruling shall
have been issued to the Warrantholder at its request by such Commission stating
that no action shall be recommended by such staff or taken by such Commission,
as the case may be, if such security is transferred without registration under
the 1933 Act in accordance with the conditions set forth in such letter or
ruling and such letter or ruling specifies that no subsequent restrictions on
transfer are required. Whenever the restrictions imposed hereunder shall
terminate, as hereinabove provided, the Warrantholder or holder of a share of
Preferred Stock then outstanding as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense to such holder,
one or more new certificates for the Warrant or for such shares of Preferred
Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer. Until receipt by the Company of the Transfer
Notice in accordance with this Section, the Company may treat the Warrantholder
as the absolute owner for all purposes.
- 6 -
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to principles of conflicts
of laws); provided, however, that to the extent the value of the Warrants is
considered in evaluating compliance with usury laws, the laws of the State of
Illinois shall govern.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
0000 Xxxxx Xxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000, attention: Venture Lease
Administration, cc: Legal Department, attn.: General Counsel, (and/or, if by
facsimile, (000) 000-0000 and (000) 000-0000 and (ii) to the Company at 00
Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000, attention: (and/or if by
facsimile, (000) 000-0000), cc: Xxxx and Xxxx LLP, 00 Xxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000, Attention Xxxxxxx X. Carp, Esq. and/or if by facsimile,
(000) 000-0000), or at such other address as any such party may subsequently
designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d) of Section 9 above. The Company shall also supply
such other documents as the Warrantholder may from time to time reasonably
request.
- 7 -
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: XXXXXXXXX.XXX, INC.
By: _________________________
Title:_________________________
Warrantholder: COMDISCO, INC.
By: _________________________
Title:_________________________
- 8 -
EXHIBIT I
NOTICE OF EXERCISE
TO: Xxxxxxxxx.xxx, Inc., Chief Financial Officer
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Series B Preferred Stock of __________________, pursuant to the terms
of the Warrant Agreement dated the ______ day of February, 1999 (the
"Warrant Agreement") between Xxxxxxxxx.xxx, Inc and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series B Preferred Stock of
Xxxxxxxxx.xxx, Inc, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the
Warrant Agreement and further represents and warrants that it is the sole,
true, lawful beneficial owner of the Warrant Agreement with no
restrictions on the Warrantholder's rights of disposition or exercise
pertaining thereto.
(3) Please issue a certificate or certificates representing said shares of
Series B Preferred Stock in the name of the undersigned or in such other
name as is specified below.
___________________________________
(Name)
___________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: ____________________________
Title: ____________________________
Date: ____________________________
- 9 -
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned _____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Series B Preferred Stock of Xxxxxxxxx.xxx, Inc, pursuant to the terms of
the Warrant Agreement, and further acknowledges that ______ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company: XXXXXXXXX.XXX, INC
By: __________________________
Title: __________________________
Date: __________________________
- 10 -
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
__________________________________________________________
(Please Print)
whose address is _________________________________________
__________________________________________________________
Dated: ________________________________
Holder's Signature: ___________________
Holder's Address: ___________________
Signature Guaranteed: ____________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
- 11 -
Exhibit C
Advance Request
Name: Xxxxxxxxx.xxx, Inc. ("Borrower") Date:___________
Address: 00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Borrower hereby requests from Comdisco, Inc. ("Lender") an Advance in the
amount of $_________________ on ______________, 199__ (the "Advance Date") under
that Subordinated Loan and Security Agreement between Borrower and Lender dated
February 24, 1999 (the "Agreement").
Please:
(a) Issue a check payable to Borrower __________
or
(b) Wire Funds to Borrower's account ___________
Bank:_______________________________________
Address:____________________________________
____________________________________
ABA Number:_________________________________
Account Number:_____________________________
Account Name:_______________________________
Borrower hereby affirms that all Representations and Warranties of
Borrower set forth in Section 4 and all Conditions Precedent to Loan set forth
in Section 7 of the Agreement remain true and correct as of the date hereof.
Executed this __ day of ___________, 199__ by:
BORROWER: XXXXXXXXX.XXX, INC.
BY: _______________________
TITLE:_______________________
PRINT:_______________________
20
FurnitureSite, Inc
Income Statement
-------------------------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun Jul Aug
-------------------------------------------------------------------------------------------------
$ $ $ $ $ $ $ $
-------------------------------------------------------------------------------------------------
Merchandise Sales 525,000 400,000 300,000 307,847 389,133 817,660 1,180,343 1,628,290
89.7% 89.7% 89.7% 89.7% 89.7% 89.7% 89.7% 89.7%
Freight Revenues 60,375 46,000 34,500 35,402 44,750 94,031 135,739 187,253
10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
-------------------------------------------------------------------------------------------------
Net Sales 585,375 448,000 334,500 343,249 433,883 911,691 1,316,082 1,815,544
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
COGS-Merchandise 431,250 325,000 223,500 229,346 289,904 605,068 873,454 1,204,935
73.7% 72.9% 66.8% 66.8% 66.8% 66.4% 66.4% 66.4%
COGS-Freight 60,375 46,000 34,500 35,402 44,750 94,031 135,739 187,253
10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3%
COGS-Repairs 3,938 3,000 2,250 2,309 2,918 6,132 8,853 12,212
0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%
-------------------------------------------------------------------------------------------------
Total COGS 495,563 374,000 260,250 267,057 337,573 705,232 1,018,046 1,404,400
-------------------------------------------------------------------------------------------------
84.7% 83.9% 77.8% 77.8% 77.8% 77.4% 77.4% 77.4%
Cost of Returns 2,625 2,000 1,500 1,539 1,946 4,088 5,902 8,141
0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
-------------------------------------------------------------------------------------------------
Gross Profit 87,188 70,000 72,750 74,653 94,365 202,371 292,135 403,002
-------------------------------------------------------------------------------------------------
14.9% 15.7% 21.7% 21.7% 21.7% 22.2% 22.2% 22.2%
-------------------------------------------------------------------------------------------------
Operating Expenses:
Marketing Expenses 122,145 376,506 1,035,525 653,262 1,179,495 613,412 594,128 958,634
20.9% 84.4% 309.6% 190.3% 271.8% 67.3% 45.1% 52.8%
Sales, Customer 99,339 114,896 121,310 126,885 133,042 133,940 149,262 158,079
Service, etc. 17.0% 25.8% 36.3% 37.0% 30.7% 14.7% 11.3% 8.7%
External Web Dev 9,056 11,556 14,333 17,111 17,111 17,111 17,806 17,806
(Amort) 1.5% 2.6% 4.3% 5.0% 3.9% 1.9% 1.4% 1.0%
Other Operating 140,693 153,910 153,910 160,910 164,410 164,410 175,888 172,569
Expenses 24.0% 34.5% 46.0% 46.9% 37.9% 18.0% 13.4% 9.5%
-------------------------------------------------------------------------------------------------
Total Operating
Expenses 371,233 656,868 1,325,078 958,168 1,494,059 928,873 937,083 1,307,088
-------------------------------------------------------------------------------------------------
63.4% 147.3% 396.1% 279.1% 344.3% 101.9% 71.2% 72.0%
-------------------------------------------------------------------------------------------------
Operating Profit (284,045) (586,868) (1,252,328) (883,515) (1,399,694) (726,502) (644,949) (904,086)
-54.1% -146.7% -417.4% -287.0% -359.7% -88.9% -54.6% -55.5%
G&A 218,707 223,925 257,378 365,132 320,708 304,160 301,343 312,462
37.4% 50.2% 76.9% 106.4% 73.9% 33.4% 22.9% 17.2%
Depreciation &
Amortization 19,652 20,694 22,471 26,708 26,708 30,188 32,382 36,285
-------------------------------------------------------------------------------------------------
EBIT (522,404) (831,487) (1,532,177) (1,275,354) (1,747,109) (1,060,850) (978,674) (1,252,833)
[ILLEGIBLE] (1,741) (12,526) (13,098) (14,248) (13,932) (14,072) (14,132) (13,868)
-------------------------------------------------------------------------------------------------
[ILLEGIBLE] (524,145) (844,013) (1,545,275) (1,289,602) (1,761,041) (1,074,922) (992,806) (1,266,701)
----------------------------------------
Sep Oct Nov
----------------------------------------
$ $ $
----------------------------------------
Merchandise Sales 1,617,301 2,099,698 [COLUMN
89.7% 89.7% ILLEGIBLE]
Freight Revenues 185,990 241,465
10.3% 10.3%
----------------------------------------
Net Sales 1,803,290 2,341,163
100.0% 100.0%
COGS-Merchandise 1,180,629 1,532,779
65.5% 65.5%
COGS-Freight 185,990 241,465
10.3% 10.3%
COGS-Repairs 12,130 15,748
0.7% 0.7%
----------------------------------------
Total COGS 1,378,749 1,789,992
----------------------------------------
76.5% 76.5%
Cost of Returns 8,087 10,498
0.4% 0.4%
----------------------------------------
Gross Profit 416,455 540,672
----------------------------------------
23.1% 23.1%
----------------------------------------
Operating Expenses:
Marketing Expenses 1,024,838 1,377,609
56.8% 58.8%
Sales, Customer 169,707 194,053
Service, etc. 9.4% 8.3%
External Web Dev 17,806 17,806
(Amort) 1.0% 0.8%
Other Operating 172,569 172,819
Expenses 9.6% 7.4%
----------------------------------------
Total Operating
Expenses 1,384,919 1,762,287
----------------------------------------
76.8% 75.3%
----------------------------------------
Operating Profit (968,464) (1,221,615)
-59.9% -58.2%
G&A 320,245 311,083
17.8% 13.3%
Depreciation &
Amortization 45,452 48,910
----------------------------------------
EBIT (1,334,161) (1,581,607)
[ILLEGIBLE] (16,851) (17,042)
----------------------------------------
[ILLEGIBLE] (1,351,012) (1,598,649)
FurnitureSite, Inc
Income Statement
-----------------------------------------------------------------------
2000 2001 2002 2003
-----------------------------------------------------------------------
$ $ $ $
-----------------------------------------------------------------------
Merchandise Sales 109,281,191 140,789,858 193,903,152 282,622,991
100.0% 100.0% 100.0% 100.0%
Freight Revenues -- -- -- --
0.0% 0.0% 0.0% 0.0%
-----------------------------------------------------------------------
Net Sales 109,281,191 140,789,858 193,903,152 282,622,991
100.0% 100.0% 100.0% 100.0%
COGS-Merchandise 70,601,113 89,711,298 122,697,067 177,586,156
64.6% 63.7% 63.3% 62.8%
COGS-Freight 12,567,337 15,486,884 20,359,831 28,262,299
11.5% 11.0% 10.5% 10.0%
COGS-Repairs 819,609 1,055,924 1,454,274 2,119,672
0.8% 0.8% 0.8% 0.8%
-----------------------------------------------------------------------
Total COGS 83,988,059 106,254,106 144,511,172 207,968,128
-----------------------------------------------------------------------
76.9% 75.5% 74.5% 73.6%
Cost of Returns 546,406 703,949 969,516 1,413,115
0.5% 0.5% 0.5% 0.5%
-----------------------------------------------------------------------
Gross Profit 24,746,726 33,831,803 48,422,465 73,241,748
-----------------------------------------------------------------------
22.6% 24.0% 25.0% 25.9%
-----------------------------------------------------------------------
Operating Expenses:
Marketing Expenses 22,230,739 24,113,410 26,176,556 28,592,038
20.3% 17.1% 13.5% 10.1%
Sales, Customer Service, etc. 4,248,271 5,212,613 6,831,521 9,215,462
3.9% 3.7% 3.5% 3.3%
External Web Dev (Amort) 392,889 537,000 95,000 --
0.4% 0.4% 0.0% 0.0%
Other Operating Expenses 5,257,871 5,743,449 6,652,045 7,656,152
4.8% 4.1% 3.4% 2.7%
-----------------------------------------------------------------------
Total Operating Expenses 32,129,769 35,606,472 39,755,122 45,463,653
-----------------------------------------------------------------------
29.4% 25.3% 20.5% 16.1%
-----------------------------------------------------------------------
Operating Profit (7,383,044) (1,774,669) 8,667,343 27,778,096
-6.8% -1.3% 4.5% 9.8%
G&A 8,680,987 2,425,176 11,247,687 13,884,376
7.9% 6.7% 5.8% 4.9%
Depreciation & Amortization 1,225,059 1,665,126 2,152,820 2,281,154
1.6% 101.6% 201.6% 301.6%
-----------------------------------------------------------------------
EBIT (17,289,090) (12,864,971) (4,733,164) 11,612,566
EXHIBIT E
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") dated as of February
__, 1999, is entered into by and between COMDISCO, INC., a Delaware corporation
("Subordinated Creditor"), and Xxxxxxxxx.xxx, Inc. ("Borrower"), a Delaware
corporation, for the express benefit of Senior Creditor (as defined in Section
1, below).
RECITALS
Concurrently herewith, Subordinated Creditor is agreeing to advance to
Borrower a secured loan of money in the aggregate original principal amount of
TWO MILLION DOLLARS ($2,000,000.00) in minimum installments of FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00) each which would be evidenced by one or more
Subordinated Promissory Note(s), and a Subordinated Loan and Security Agreement,
dated as of February 24, 1999 (as the same may from time to time be amended,
modified, supplemented, extended, renewed, restated or replaced, the
"Subordinated Note(s)" and the "Subordinated Loan Agreement," respectively),
made by Borrower in favor of Subordinated Creditor. Borrower's obligations to
Subordinated Creditor evidenced by the Subordinated Note(s) are secured by the
personal property collateral granted by Borrower to Subordinated Creditor
pursuant to the Subordinated Loan Agreement.
Borrower has advised Subordinated Creditor that it contemplates entering
into a loan agreement (as the same may from time to time be amended, modified,
supplemented or restated, the "Senior Loan Agreement") with Senior Creditor,
pursuant to which Senior Creditor shall make available to Borrower, on a senior
secured basis, certain extensions of credit as described in the Senior Loan
Agreement.
In contemplation of Borrower obtaining such senior secured financing and
the conditions expected to be imposed by Senior Creditor as conditions precedent
to making available to Borrower the proceeds of such financing, Subordinated
Creditor is entering into this Agreement with Borrower for the express benefit
of Senior Creditor, on the terms and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of Borrower's and Subordinated Creditor's
entering into the Subordinated Loan Documents (as defined in Section 1, below),
Subordinated Creditor and Borrower hereby severally agree, each on behalf of
itself and for the benefit of Senior Creditor, as set forth below.
1. DEFINITIONS
As used herein, the following terms shall have the following meanings:
"Excluded Agreements" means:
(a) the Warrant Agreement of even date herewith between Borrower and
Subordinated Creditor pursuant to which Borrower granted Subordinated
Creditor the
1
amended, modified, supplemented or restated, the "Warrant Agreement"), and
any other warrants to acquire, or agreements governing the rights of the
holders of, any equity security of Borrower,
(b) any stock of the Company issued or purchased pursuant to the
Warrant Agreement,
(c) the Master Lease Agreement dated as of February 24, 1998 between
Borrower, as lessee, and Subordinated Creditor, as lessor, including,
without limitation, any Equipment Schedules and Summary Equipment
Schedules to the Master Lease Agreement executed or delivered by Borrower
pursuant thereto and any other modifications or amendments thereof whereby
Borrower (as lessee) leases equipment, software, or goods from
Subordinated Creditor (as lessor).
"Senior Creditor" means a bank, insurance company, pension fund, or other
institutional lender to be determined, or a syndicate of such institutional
lenders (including, without limitation, any agent or other representative for
such syndicate), that provides Senior Debt financing to Borrower; provided, that
Senior Creditor shall not include any officer, director, shareholder, venture
capital investor, or insider of Borrower, or any affiliate of the foregoing
persons, except upon the express written consent of Subordinated Creditor.
"Senior Debt" means any and all indebtedness and obligations for borrowed
money (including, without limitation, principal, premium (if any), interest,
fees, charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Senior Creditor
under the Senior Loan Documents including but not limited to such amounts as may
accrue or be incurred before or after default or workout or the commencement of
any liquidation, dissolution, bankruptcy, receivership, or reorganization case
by or against Borrower provided, that Senior Debt shall not include the
following indebtedness or obligations:
(a) obligations incurred after default or workout or the commencement of
any liquidation, dissolution, bankruptcy, receivership, or reorganization case
by or against Borrower, and
(b) debt exceeding Two Million Dollars ($2,000,000.00) outstanding at any
one time.
"Senior Loan Documents" means the Senior Loan Agreement and any other
agreement, security agreement, document, promissory note, UCC financing
statement, or instrument executed by Borrower in favor of Senior Creditor
pursuant to or in connection with the Senior Debt or the Senior Loan Agreement,
as the same may from time to time be amended, modified, supplemented, extended,
renewed, restated or replaced.
"Subordinated Debt" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees, charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Subordinated
Creditor under the Subordinated Loan Documents, including but not limited to
such amounts as may accrue or be incurred before or after default or workout or
the commencement of any liquidation, dissolution, bankruptcy, receivership, or
reorganization case by or against Borrower; provided, that notwithstanding
anything to the contrary contained in this Agreement, Subordinated Debt shall
not include any indebtedness or obligations of Borrower arising under or in
connection with any of the Excluded Agreements.
2
"Subordinated Loan Documents" means the Subordinated Note(s), the
Subordinated Loan Agreement, and any other agreement, document, promissory note,
UCC financing statement, or instrument executed by Borrower pursuant to or in
connection with the Subordinated Debt, as the same may from time to time be
amended, modified, supplemented, extended, renewed, restated or replaced;
provided, that the Subordinated Loan Documents shall not include any of the
Excluded Agreements.
2. SUBORDINATION
(a) On the terms and conditions set forth below, Subordinated Creditor's
right to payment and performance of the Subordinated Debt is hereby subordinated
to Senior Creditor's right to full payment and performance of the Senior Debt.
Subject to and except as set forth in Section 3, below, Subordinated Creditor
shall not ask, demand, xxx for, take or receive from Borrower, by setoff or in
any other manner, the whole or any part of any monies which may now or hereafter
be owing by Borrower to Subordinated Creditor, or be owing by any other person
to Subordinated Creditor under a guaranty or similar instrument, on account of
the Subordinated Debt, nor any collateral security for any of the foregoing,
including, without limitation, any personal property collateral granted to
Subordinated Creditor pursuant to the Subordinated Loan Agreement, unless and
until all Senior Debt shall have been paid in cash or otherwise provided for in
property or securities in the full amount of the allowed claim of the Senior
Debt and all commitments to extend credit under the Senior Loan Agreement shall
have been terminated (the temporary reduction of outstanding obligations,
liabilities and indebtedness of Borrower to Senior Creditor not being deemed to
constitute full payment or satisfaction thereof). Nothing herein shall be deemed
to subordinate, waive or restrict the payment or performance of the obligations
arising under the Excluded Agreements or subordinate the priority of any lien or
interest in property securing or evidenced by the Excluded Agreements.
(b) Subordinated Creditor expressly understands that Senior Creditor is
expected not to permit Subordinated Creditor to create, maintain or perfect any
lien on or in any property of Borrower, other than the security interest granted
in favor of Subordinated Creditor in certain of Borrower's personal property
under and as described in the Subordinated Loan Agreement. If, notwithstanding
the foregoing, any lien shall be created or shall arise (including, without
limitation, the security interests granted in favor of Subordinated Creditor
pursuant to the Subordinated Loan Agreement), whether by operation of law or
otherwise, and may from time to time exist in favor of Subordinated Creditor in
or on any property of Borrower to secure all or any portion of the Subordinated
Debt, then, regardless of the relative times of attachment or perfection thereof
or the order of filing of financing statements, mortgages or other documents,
any liens granted by Borrower in favor of Senior Creditor to secure the Senior
Debt shall in all respects be first and senior liens, superior to any liens in
favor of Subordinated Creditor securing the Subordinated Debt, including,
without limitation, the security interests granted in favor of Subordinated
Creditor pursuant to the Subordinated Security Agreement. In the event
Subordinated Creditor has or obtains possession of any such property or
forecloses upon or enforces its lien upon any such property, whether by judicial
action or otherwise, then all such property shall be immediately delivered in
kind to Senior Creditor or, if not deliverable in kind, all cash or non-cash
proceeds and profits of such property shall be held in trust for the benefit of
Senior Creditor and paid over to Senior Creditor, without any deduction or
offset, unless and until all of the Senior Debt shall have been paid in cash or
otherwise provided for in property or securities in the full amount of the
allowed claim of the Senior Debt and all commitments to extend credit under the
Loan Agreement shall have been terminated.
3
(c) The subordination contained in this Agreement is intended to define
the rights and duties of Subordinated Creditor and Senior Creditor; it is not
intended that any third party (including any bankruptcy trustee, receiver, or
debtor-in-possession) shall benefit from it. If the effect of the subordination
contained in this Agreement would be to give any third party a priority status
to which that party would not otherwise be entitled, that provision shall, to
the extent necessary to avoid that priority, be given no effect and the rights
and priorities of Senior Creditor and Subordinated Creditor shall be determined
in accordance with applicable law and this Subordination Agreement.
3. PERMITTED PAYMENTS; PAYMENT BLOCKAGE
(a) Notwithstanding anything to the contrary contained in Section 2,
above, but subject expressly to Section 3.b, below, Borrower shall be permitted
to make, and Subordinated Creditor shall be permitted to accept or receive the
following permitted payments ("Permitted Payments"): (i) scheduled repayments of
principal when due under the Subordinated Note(s) and Subordinated Loan
Agreement, (ii) scheduled payments of accrued interest when due under the
Subordinated Note(s) and Subordinated Loan Agreement, (iii) payments of
reimbursable expenses, costs and professional fees and expenses as and when due
under the Subordinated Note(s) and the other Subordinated Loan Documents, (iv)
cancellation of Subordinated Debt in consideration of the Exercise Price for
stock purchased by Subordinated Creditor under the Warrant Agreement, and (v)
other payments consented to in writing by Senior Creditor.
(b) Notwithstanding anything to the contrary contained in this Section 3
or elsewhere in this Agreement, if Senior Creditor delivers to Subordinated
Creditor written notice (a "Blockage Notice") which states that either:
(i) a specific default by Borrower involving the payment of Senior
Debt (a "Payment Default") has occurred under the Senior Loan Documents
and continues to exist after the giving of any required notice and the
expiration of any applicable grace or cure period, or
(ii) a specific default by Borrower not involving the payment of
Senior Debt (a "Non-Payment Default") has occurred under the Senior Loan
Documents and continues to exist after the giving of any required notice
and the expiration of any applicable grace or cure period, and said
Non-Payment Default shall have resulted in the Senior Debt becoming or
being declared due and payable prior to the date on which it would
otherwise have become due and payable (an "Acceleration Notice"),
then from and after the date of delivery of any such Blockage Notice,
Subordinated Creditor shall not accept or receive any payment of any kind of or
on account of the Subordinated Debt (including any Permitted Payment), unless
and until (A) in the case of a Blockage Notice with respect to a Payment
Default, the earlier of (x) the time such Payment Default shall have been cured
by Borrower or waived in writing by Senior Creditor, or (y) the expiration of
the Blockage Period (as defined below) for such Blockage Notice, or (B) in the
case of a Blockage Notice with respect to a Non-Payment Default, the earlier of
(x) the time such Acceleration Notice shall have been rescinded in writing by
Senior Creditor (whether or not such Non-Payment Default shall have been cured
or waived), or (y) the expiration of the Blockage Period for such Blockage
Notice.
4
As used herein, "Blockage Period" means a period of time beginning on the
date a Blockage Notice is delivered to Subordinated Creditor and terminating on
the earlier to occur of:
(1) 120 days following such date; provided that if, prior to the
expiration of such 120-day period, Senior Lender has commenced a judicial
proceeding or non-judicial actions to collect or enforce the Senior Debt
or the collateral for the Senior Debt, or a case or proceeding by or
against Borrower is commenced under the federal Bankruptcy Code or any
other insolvency law, then such period shall be extended during the
continuation of such proceedings and actions until the payment in cash or
other property or securities in the full amount of the allowed claim of
the Senior Debt; or
(2) Senior Creditor's written consent to such termination.
Senior Creditor shall not issue more than one (1) Blockage Notice in any period
of 365 consecutive days. After the satisfaction of the applicable conditions
specified in (A) or (B) above, Subordinated Creditor shall be entitled to
receive all Permitted Payments.
4. ENFORCEMENT RIGHTS
Any rights of Subordinated Creditor to accelerate the maturity of the
Subordinated Debt, enforce any claim (including any default remedy) with respect
to the Subordinated Debt or the collateral for the Subordinated Debt, or
otherwise to take any action against Borrower or Borrower's property with
respect to the Subordinated Debt shall be subject to any Blockage Notice given
pursuant to Section 3.b hereof.
5. ASSIGNMENT OF SUBORDINATED DEBT
Subordinated Creditor hereby covenants to Senior Creditor that prior to
the termination of this Agreement in accordance with Section 10, below, the
entire Subordinated Debt created in favor of Subordinated Creditor shall
continue to be owing only to Subordinated Creditor, and any collateral security
therefor (including, without limitation, the collateral security granted to
Subordinated Creditor pursuant to the Subordinated Security Agreement) shall
continue to be held solely for the benefit of Subordinated Creditor, unless
assigned pursuant to an assignment made expressly subject to this Agreement. The
Subordinated Note(s) shall be legended to expressly state that it is subject to
this Subordination Agreement.
6. SENIOR CREDITOR'S PRIORITY
In the event of any distribution, division, or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the property of Borrower or the proceeds thereof to the creditors of
Borrower, or the readjustment of the Senior Debt and the Subordinated Debt of
Borrower, whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding involving the readjustment of all or any part of the Senior Debt or
the Subordinated Debt, or the application of the property of Borrower to the
payment or liquidation thereof, or upon the dissolution, liquidation,
reorganization, or other winding up of Borrower's business, or upon the sale of
all or any substantial part of Borrower's property (any of the foregoing being
hereinafter referred to as an "Insolvency Event"), then, and in any such event,
Senior Creditor shall be entitled to receive payment in cash or other property
or securities in the full amount of the allowed claim of the Senior Debt, before
Subordinated Creditor shall be entitled to receive any payment on account of the
Subordinated Debt, and to that end and in furtherance thereof:
5
(a) All payments and distributions of any kind or character, whether
in cash, property, or securities, in respect of the Subordinated Debt to
which Subordinated Creditor would be entitled if the Subordinated Debt
were not subordinated pursuant to this Agreement, shall be paid to Senior
Creditor and applied in payment of the Senior Debt.
(b) Subordinated Creditor shall file a claim or claims, on the form
required in such proceedings, on or before thirty (30) days prior to the
last date such claims or proofs of claim may be filed pursuant to law or
the order of any court exercising jurisdiction over such proceeding.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of any kind or character, whether in cash, properties or
securities, shall be received by Subordinated Creditor on account of the
Subordinated Debt before all of the Senior Debt has been paid, then such
payment or distribution shall be received by Subordinated Creditor in
trust for and shall be promptly paid over to Senior Creditor for
application to the payments of amounts due on the Senior Debt until the
Senior Debt shall have been paid in cash, property, or securities in the
full amount of the allowed claim of the Senior Debt.
7. GRANT OF AUTHORITY
In the event of the occurrence of an Insolvency Event, and in order to
enable Senior Creditor to enforce its rights hereunder in any of the aforesaid
actions or proceedings, Senior Creditor is hereby irrevocably authorized and
empowered, in Senior Creditor's discretion, as follows:
(a) Senior Creditor is hereby irrevocably authorized and empowered
(in its own name or in the name of Subordinated Creditor or otherwise),
but shall have no obligation, (i) to demand, xxx for, collect and receive
every payment or distribution referred to in Section 6, above, and give
acquittance therefor and (ii) (if Subordinated Creditor has failed to file
claims or proofs of claim on or before thirty (30) days prior to the last
date such claims or proofs of claim may be filed pursuant to law or the
order of any court exercising jurisdiction over such proceeding) to file
claims and proofs of claim, and (iii) to take such other action
(including, without limitation, enforcing any lien securing payment of the
Subordinated Debt) as it may deem necessary or advisable for the exercise
or enforcement of any of the rights or interests of Senior Creditor
hereunder. Subordinated Creditor shall duly and promptly take such action
as Senior Creditor may reasonably request to execute and deliver to Senior
Creditor such authorizations, endorsements, assignments, or other
instruments as Senior Creditor may reasonably request in order to enable
Senior Creditor to enforce any and all claims with respect to, and any
liens securing payment of, the Subordinated Debt as such enforcement is
contemplated herein.
(b) To the extent that payments or distributions on account of the
Subordinated Debt are made in property or securities other than cash,
Subordinated Creditor authorizes Senior Creditor to sell or dispose of
such property or securities on such terms as are commercially reasonable
in the situation in question. Following full payment of the Senior Debt,
Senior Creditor shall remit to Subordinated Creditor (with all necessary
endorsements) to the extent of Subordinated Creditor's interest therein,
all
6
payments and distributions of cash, property, or securities paid to and
held by Senior Creditor in excess of the allowed amount of the Senior
Debt.
8. PAYMENTS RECEIVED BY SUBORDINATED CREDITOR
Should any payment, distribution, or security be received by Subordinated
Creditor upon or with respect to the Subordinated Debt (other than Permitted
Payments) prior to termination of this Agreement in accordance with Section 10,
below, Subordinated Creditor shall receive and hold the same in trust for the
benefit of Senior Creditor and shall forthwith deliver the same to Senior
Creditor in precisely the form received (except for the endorsement or
assignment of Subordinated Creditor where necessary), for application to the
Senior Debt, and, until so delivered, the same shall be held in trust by
Subordinated Creditor as the property of Senior Creditor.
9. FURTHER ASSURANCES; COOPERATION
Subject to Section 16.b hereof, Subordinated Creditor agrees to cooperate
with Senior Creditor and to take all actions that Senior Creditor may reasonably
require to enable Senior Creditor to realize the full benefits of this
Agreement.
10. TERMINATION OF AGREEMENT
This Agreement shall be effective upon the date set forth in Section 21
hereof. After the effective date occurs, this Agreement shall remain in effect
and cannot be revoked or amended by Subordinated Creditor, except with the
written consent of Senior Creditor. This Agreement shall terminate upon the date
which is 105 days following the date on which the Senior Debt shall have been
paid in cash or other property or securities in the full amount of the allowed
claim of the Senior Debt and all commitments to extend credit under the Loan
Agreement shall have been terminated.
11. ADDITIONAL AGREEMENTS FOR SENIOR CREDITOR
Senior Creditor may administer and manage its credit and other
relationships with Borrower in its own best interest, without notice to or
consent of Subordinated Creditor. At any time and from time to time, Senior
Creditor may enter into any amendment or agreement with Borrower as Senior
Creditor may deem proper, extending the time of payment of or renewing or
otherwise altering the terms of all or any of the obligations constituting
Senior Debt or affecting the collateral security for, supporting or underlying
any or all of the Senior Debt, and may exchange, sell, release, surrender or
otherwise deal with any such collateral without in any way thereby impairing or
affecting this Agreement, and all such additional agreements and amendments
shall be "Senior Loan Documents" evidencing the Senior Debt; provided, that
neither this Section 11 nor any provision of such agreements shall affect the
limitations contained in the definitions of Senior Creditor or Senior Debt.
12. SUBROGATION
If cash or other property otherwise payable or deliverable to Subordinated
Creditor or on account of the Subordinated Debt shall have been applied pursuant
to this Agreement to the payment of the Senior Debt, and if the Senior Debt
shall have been paid in cash, property or securities in the full amount of the
allowed claim of Senior Debt, then Subordinated Creditor shall be subrogated to
any rights of Senior Creditor to receive further payments or distributions
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applicable to the Senior Debt until the Subordinated Debt shall have been fully
paid. No such payments or distributions received by Subordinated Creditor by
reason of such subrogation shall, as between Borrower and its creditors other
than Senior Creditor, on the one hand, and Subordinated Creditor, on the other
hand, be deemed to be a payment by Borrower on account of the Subordinated Debt
owed to Subordinated Creditor.
13. SUBORDINATED CREDITOR'S WAIVERS AND COVENANTS
(a) Without limiting the generality of any other waiver made by
Subordinated Creditor in this Agreement, Subordinated Creditor hereby expressly
waives (i) reliance by Senior Creditor upon the subordination and other
agreements herein provided, and (ii) any claim that Subordinated Creditor may
now or hereafter have against Senior Creditor arising out of any and all actions
that Senior Creditor, in good faith, takes or omits to take (A) with respect to
the creation, perfection or continuation of liens in or on any collateral
security for the Senior Debt, (B) with respect to the foreclosure upon, sale,
release, or depreciation of, or failure to realize upon, any of the collateral
security for the Senior Debt, (C) with respect to the collection of any claim
for all or any part of the Senior Debt from any account debtor, guarantor or any
other third party and (D) with respect to the valuation, use, protection or
release of any collateral security for the Senior Debt.
(b) Without limiting the generality of any other covenant or agreement
made by Subordinated Creditor in this Agreement, Subordinated Creditor hereby
covenants and agrees that (i) Senior Creditor has not made any warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Senior Loan Agreement or any of the other
Senior Loan Documents, or the collectibility of the Senior Debt; and (ii)
Subordinated Creditor will not interfere with or in any manner oppose a
disposition of any collateral security for the Senior Debt by Senior Creditor.
14. REINSTATEMENT OF SENIOR DEBT
To the extent that the Senior Creditor receives payments on, or proceeds
of any collateral security for the Senior Debt which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law, or equitable cause, then, to the extent of
such payment or proceeds invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid, the Senior Debt, or part thereof, intended
to be satisfied shall be revived and continue in full force and effect as if
such payments or proceeds had not been received by Senior Creditor.
15. NO WAIVERS
Senior Creditor shall not be prejudiced in its rights under this Agreement
by any act or failure to act of Borrower or Subordinated Creditor or any
noncompliance of Borrower or Subordinated Creditor with any agreement or
obligation, regardless of any knowledge thereof which Senior Creditor may have,
or with which Senior Creditor may be charged; and no action permitted hereunder
taken by Senior Creditor shall in any way affect or impair the rights of Senior
Creditor in the exercise of any other right or remedy or shall operate as a
waiver thereof, and no single or partial exercise by Senior Creditor of any
right or remedy shall preclude any other or further exercise thereof; nor shall
any modification or waiver of any of the provisions of this Agreement be binding
upon Senior Creditor, except as expressly set forth in a writing duly signed and
delivered by Senior Creditor.
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16. INFORMATION CONCERNING BORROWER; CREDIT ADMINISTRATION
(a) Subordinated Creditor hereby assumes responsibility for keeping itself
informed of the financial condition of Borrower, any and all endorsers and any
and all guarantors of the Senior Debt and of all other circumstances bearing
upon the risk of nonpayment of the Senior Debt or the Subordinated Debt that
diligent inquiry would reveal, and Subordinated Creditor hereby agrees that
Senior Creditor shall have no duty to advise Subordinated Creditor of
information known to Senior Creditor regarding such condition.
(b) Subject to Sections 2.d, 3, 4, 7, and 8 hereof, Subordinated Creditor
may (i) administer and manage its credit and other relationships with Borrower
in its own best interest, and (ii) amend or extend its agreements with Borrower
or enter into additional agreements with Borrower, all without the consent of or
notice to the Senior Creditor; provided that neither this Section 16.b nor any
amendments or additional agreements referred to therein shall impair or affect
the subordination of Subordinated Debt or change the definition of Subordinated
Debt or Subordinated Creditor.
17. NOTICES
Except as otherwise provided herein, all notices and service of process
required, contemplated, or permitted hereunder or with respect to the subject
matter hereof shall be in writing, and shall be deemed to have been validly
served, given or delivered upon the earlier of: (i) the first business day after
transmission by facsimile or hand delivery or deposit with an overnight express
service or overnight mail delivery service; or (ii) the third calendar day after
deposit in the United States mails, with proper first class postage prepaid, and
shall be addressed to the party to be notified as follows:
If to Subordinated Creditor:
COMDISCO, INC.
Legal Department
Attention: General Counsel
0000 Xxxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
With a copy to:
COMDISCO INC./VENTURE GROUP
Attention: Xxxxx Xxxx
0000 Xxxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
If to Borrower:
FURNITURESITE, INC.
Attention: __________
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
FAX: (000) 000-0000
TEL: (000) 000-0000
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If to Senior Creditor, at such address as Senior Creditor shall designate
in a writing given to Subordinated Creditor and Borrower, or to such other
address as each party may designate for itself by like notice.
18. SEVERABILITY
Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
19. GOVERNING LAW
This Agreement has been approved by Subordinated Creditor in the State of
Illinois, and shall be governed by and interpreted in accordance with the laws
of the State of Illinois without regard to principles of conflict of laws that
would cause the application of laws of any other jurisdiction.
20. ASSIGNMENT
This Agreement shall be binding upon Subordinated Creditor, Borrower and
their respective successors and assigns, and shall inure to the benefit of and
be enforceable by Senior Creditor and its successors and assigns.
21. EFFECTIVENESS OF AGREEMENT
This Agreement shall be effective upon the occurrence of both of the
following events: (a) the execution of this Agreement by Borrower and its
acceptance in Rosemont, Illinois by Subordinated Creditor, and (b) the delivery
by Borrower and Senior Creditor to Subordinated Creditor of written notice (the
"Notice of Senior Loan") in the form attached hereto as Exhibit A, that Borrower
has entered into a Senior Loan Agreement with Senior Creditor for Senior Debt,
which notice shall identify Senior Creditor and state the address to which
notices to Senior Creditor are to be sent. Borrower agrees to furnish
Subordinated Creditor with a copy of the Senior Loan Agreement and such other
Senior Loan Documents as Subordinated Creditor shall reasonably request;
provided, however, that any delay or failure by Borrower to furnish such copies
shall not limit or impair the effectiveness of this Agreement.
22. MUTUAL WAIVER OF JURY TRIAL
Because disputes arising in connection with complex financial transactions
are most quickly and economically resolved by an experienced and expert person
and the parties wish applicable state and federal laws to apply (rather than
arbitration rules), the parties desire that their disputes be resolved by a
judge applying such applicable laws. EACH OF BORROWER, SUBORDINATED CREDITOR,
AND SENIOR CREDITOR SPECIFICALLY WAIVE EACH PARTY'S RIGHT TO TRIAL BY JURY OF
ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY
OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER, SUBORDINATED
CREDITOR, OR SENIOR CREDITOR AGAINST THE OTHER PARTY OR PARTIES TO THIS
AGREEMENT. This
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Waiver extends to all such claims, including, without limitation, claims which
involve persons or entities other than Borrower, Subordinated Creditor, and
Senior Creditor; claims which arise out of or are in any way connected to the
relationships between or among Borrower, Subordinated Creditor, and Senior
Creditor; and any claims for damages, breach of contract, specific performance,
or any equitable or legal relief of any kind.
23. COUNTERPARTS
This Agreement and any amendments, waivers, consents or supplements hereto
may be executed in any number of counterparts, and by different parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, this Subordination Agreement has been executed as of
the date first above written.
BORROWER FURNITURESITE, INC.
Signature: __________________________
Print Name: __________________________
Title: __________________________
ACCEPTED IN ROSEMONT, ILLINOIS:
SUBORDINATED CREDITOR COMDISCO, INC.
Signature: __________________________
Print Name: __________________________
Title: __________________________
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EXHIBIT A
TO SUBORDINATION AGREEMENT
NOTICE OF SENIOR LOAN
Pursuant to Section 22 of the Subordination Agreement dated as of
______________, 1999, by and between Comdisco, Inc., (as Subordinated Creditor)
and Furnituresite, Inc. (as Borrower), notice is hereby given that Borrower has
entered into a Senior Loan Agreement with __________________________ (as Senior
Creditor), whose address is: ___________________________________________________
________________________________________________________________________________
Facsimile:_____________________, and that on and after the date of this Notice
Senior Creditor is and shall be entitled to all the rights and benefits of the
Subordination Agreement and shall be bound thereby.
Attached hereto are true and correct copies, as executed, of the
Senior Loan Agreement and the other Senior Loan Documents.
BORROWER: FURNITURESITE, INC.
Signature: __________________________
Print Name: __________________________
Title: __________________________
SENIOR CREDITOR: ________________________________[NAME]
Signature: __________________________
Print Name: __________________________
Title: __________________________
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