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EXHIBIT 10.1
LOAN AGREEMENT
This LOAN AGREEMENT (as amended from time to time, this "Agreement"),
dated as of September 30, 1999 (the "Effective Date") is entered into by and
among GENERAL AUTOMATION, INC., a Delaware corporation "Borrower"), and PACIFIC
MEZZANINE FUND, L.P., a California limited partnership ("PMF") (together with
any subsequent Lender pursuant to Section 1.02(e) hereof, each a "Lender" and
collectively, the "Lenders").
ARTICLE I
DEFINITIONS AND RELATED MATTERS
SECTION 1.01 DEFINITIONS. The following terms with initial capital
letters have the following meanings:
"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person. The term
"control" means the possession, directly or indirectly, of the power, whether or
not exercised, to direct or cause the direction of the management or policies of
a Person, whether through the ownership of voting securities or other equity
interests, by contract or otherwise, and the terms "controls", "controlled" and
"common control" have correlative meanings. Notwithstanding the foregoing
provisions of this definition, in no event shall the Lenders or any of their
Affiliates be deemed to be Affiliates of Borrower.
"Agreement" is defined in the Preamble.
"Applicable Law" means all applicable provisions of all (i)
constitutions, treaties, statutes, laws, rules, regulations and ordinances of
any Governmental Authority, (ii) Governmental Approvals and (iii) orders,
decisions, judgments, awards and decrees of any Governmental Authority.
"Bankruptcy Code" means Title II of the United States Code (11 U.S.C.
Section 101 et seq.), as amended from time to time, or any successor statute.
"Base Rate" means, at any time, a rate of interest equal to ten percent
(10%) per annum calculated as specified in Section 2.02.
"Benefit Arrangements" shall have the meaning specified in Section 4.13.
"Best Knowledge" shall mean to the personal knowledge of any officer of
Borrower.
"Borrower" is defined in the Preamble and includes its -successors and
Permitted assigns.
"Borrower's Certificate" means the certificate, executed by Borrower, in
substantially the form of Exhibit D.
"Business Day" any day that is not a Saturday, Sunday or other day on
which banks in San Francisco, California are authorized or obligated to close.
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"Capital Expenditure" means, for any period, (i) the aggregate
consolidated capital expenditures (whether paid in cash or accrued as
liabilities) of Borrower for such period, as the same are required to be set
forth, in accordance with GAAP, in the consolidated statement of cash flows of
Borrower for such period and (ii) capitalized lease obligations of Borrower, on
a consolidated basis, incurred during such period.
"Closing" shall mean the time at which Lender makes the Loan.
"Closing Date" means September 30, 1999 or such later date on which all
conditions set forth in Section 3.01 shall have been satisfied or waived in
writing.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means the collateral under, and as defined in, the
Collateral Documents.
"Collateral Documents" means the Security Agreement, the Intercreditor
Agreement, the Deposit Notice and all financing statements and other documents
or instruments executed or delivered from time to time in connection therewith
or otherwise to secure the Obligations, in each case as from time to time
amended.
"Commitment" means the obligation of the Lenders to make the Loan under
this Agreement, on the terms and conditions set forth herein.
"Common Stock" means the common stock, $0.10 par value, of Borrower.
"Contingent Obligation" means, as to any Person, any obligation, direct
or indirect, contingent or otherwise, of such Person with respect to any
Indebtedness or other obligation of another Person, including any direct or
indirect guarantee of such Indebtedness or obligation, to maintain the net
worth, solvency or financial condition of the other Person, or otherwise to
assume or hold harmless the holders of Indebtedness or any other obligation of
another Person against loss in respect thereof.
"Contractual Obligation" means, as applied to any Person, any provision
of any security issued by that Person or of any indenture, mortgage, deed of
trust, contract, undertaking, agreement, or other document or instrument to
which that Person is a party or by which it or any of its assets or properties
is bound or to which it or any of its assets or properties is subject.
"Conversion Rate" means the rate at which the notes convert into shares
of Borrower's Common Stock as set forth in Section 2.08 hereof.
"Current Assets" means, at any particular time, all items which would,
in conformity with GAAP, be classified as current assets on a balance sheet of
Borrower, as at such time.
"Current Liabilities" means, at any particular time, all items which
would, in conformity with GAAP, be classified as current liabilities (including
deferred taxes payable and other deferred liabilities) on a balance sheet of
Borrower, as at such time, with the exception of deferred revenues.
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"Debt Service Coverage Ratio" means, with respect to any period, the
ratio of (a) Borrower's net income after taxes for such period excluding
Borrower's pre-tax extraordinary gains or losses, plus depreciation and
amortization deducted in determining net income for such period, minus Capital
Expenditures for such period, to (b) current maturities of long term
Indebtedness and capitalized leases paid or scheduled to be paid during such
period.
"Default" means any condition or event that, with the giving of notice
or lapse of time or both, would, unless cured or waived, become an Event of
Default.
"Distribution" means (i) distributions or dividends on or in respect of
the capital stock of Borrower (except distributions solely in additional shares
of such stock) and (ii) the repurchase, purchase, redemption or acquisition of
capital stock of Borrower or of the warrants or rights or other options to
purchase such stock except for the purchase of the Warrants as provided herein.
"Dollars" and "$" mean the lawful money of the United States.
"EBITDA" means Borrower's earnings determined in accordance with GAAP
before interest, taxes, depreciation and amortization.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Employee Benefit Plans" shall have the meaning specified in Section
4.13.
"Event of Default" is defined in Section 7.01.
"Existing Liens" means such Liens which are described on Schedule 1.01.
"Fees and Expenses" is defined in Section 2.04.
"Financial Statements" shall have the meaning specified in Section 4.03.
"Fundamental Event" means with respect to Borrower the occurrence of any
one or more of the following:
(i) any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets of
Borrower, on a consolidated basis, in one transaction or a series of
related transactions;
(ii) the filing with the SEC of any tender or
exchange offer by any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) to acquire, directly or indirectly, voting stock of
Borrower, or the acquisition of voting stock of the Borrower by way of a
tender or exchange offer in a transaction that is exempt from
registration; and
(iii) the occurrence of a merger, sale, joint venture
or other transaction which, in the reasonable opinion of PMF adversely
affects Borrower's ability to generate revenue or earnings.
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"Funding Date" means the date on which the Lenders make the Loan.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time in the United States.
"Governmental Approval" means an authorization, consent, approval,
permit, license, registration or filing with, any Governmental Authority.
"Governmental Authority" means any nation, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, including
any government authority, agency, department, board, commission or
instrumentality of the United States, any State of the United States or any
political subdivision thereof, and any tribunal or arbitrator of competent
jurisdiction.
"Indebtedness" means, with respect to any Person, without duplication:
(i) all obligations for borrowed money; (ii) all obligations evidenced by bonds,
debentures, notes or other similar instruments; (iii) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business that are not overdue by more than
ninety (90) days or that are being contested in good faith; (iv) all obligations
constituting capitalized lease obligations under GAAP; (v) all obligations or
liabilities of others secured by a Lien on any asset owned by such Person,
whether or not such obligation or liability is assumed; (vi) all obligations of
such Person, contingent or other-wise, in respect of any letters of credit,
bankers! acceptances or similar instruments, and (vii) all Contingent
Obligations.
"Indemnities" is defined in Section 8.02(a).
"Intercreditor Agreement" means that certain Intercreditor Agreement
dated as of the Effective Date by and among the Lenders and acknowledged by the
Borrower.
"Interest Coverage Ratio" means, with respect to any period, the ratio
of (a) Borrower's net income after taxes for such period (excluding pre-tax
extraordinary gains or losses), plus interest, depreciation and amortization
deducted in determining net income for such period, and minus Capital
Expenditures for such period, to (b) interest expense on Indebtedness deducted
in determining net income for such period.
"Investment" means, as applied to any Person, (i) any direct or indirect
acquisition by that Person of securities or partnership interests of any other
Person, or all or any substantial part of the business or assets of any other
Person, and (ii) any direct or indirect loan, advance or capital contribution by
that Person to any other Person.
"Investment Unit Pricing Agreement" means that certain Investment Unit
Pricing Agreement dated as of the Effective Date among Borrower and Lender.
"Investor's Rights Agreement" means that certain Investor's Rights
Agreement dated as of the Effective Date among Borrower and the Lenders.
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"Lender" is defined in the Preamble and includes its successors and
assigns.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof).
"Loan" shall mean the Loan made by the Lenders pursuant to this
Agreement as defined in Section 2.01(a).
"Loan Account" is defined in Section 2.05(a).
"Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents, the Warrants, the Investment Unit Pricing Agreement, the
Investors' Rights Agreement and any other instrument or other writing executed
or delivered by Borrower in connection herewith, and all amendments, appendices,
exhibits and schedules to any of the foregoing.
"Mandatory Prepayment" shall mean a prepayment of the Loan pursuant to
Section 2.03(b).
"Margin Regulations" means Regulation G, T, U and X of the Board of
Governors of the Federal Reserve System, and any successor regulations thereto,
as in effect from time to time.
"Margin Stock" " means "margin stock" as defined in the Margin
Regulations.
"Material Adverse Effect" or "Material Adverse Change" means a material
adverse effect on or a material adverse change in. as the case may be, the
business, assets, income, financial condition or prospects of Borrower, on a
consolidated basis.
"Maturity Date" means September 30, 2004.
"Multiemployer Plan" means a multiemployer plan, as defined in Sections
3(37) and 4001(a)(3) of ERISA.
"Net Cash Proceeds" means: (i) in the case of a sale of assets or
similar transaction, the cash (or the fair value of any other consideration
received by Borrower in respect of such transaction), net of reasonable
out-of-pocket expenses, and (ii) in the case of any issuance of equity
Securities, the cash (or the fair value of any other consideration received by
Borrower for such securities), net of reasonable costs of issuance.
"Notes" means the certain promissory notes in substantially the form of
Exhibit A of even date herewith executed and issued by Borrower to the Lenders
as such notes may from time to time be amended in a writing signed by Borrower.
"Obligations" means all present and future obligations and liabilities
of Borrower of every type and description arising under or in connection with
this Agreement or any other Loan Document due or to become due to Lender or any
Person entitled to indemnification under any
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of the Loan Documents, or any of their respective successors or assigns,
including all liability of Borrower for payment of principal, interest, fees,
expense reimbursements and indemnifications, whether voluntary or involuntary,
due or not due, absolute or contingent, secured or unsecured, liquidated or
unliquidated, determined or undetermined, and direct or indirect.
"Payment Date" means the first Business Day of each calendar month,
commencing October 1, 1999, and the Maturity Date.
"Permitted Liens" means, collectively, the Liens permitted under Section
6.01.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or any other entity
or organization, including a Governmental Authority or other government or any
agency or political subdivision thereof.
"PMF's Office" means the office of PMF identified as such on the
signature pages hereto, or such other office as PMF may hereafter designate by
written notice to Borrower.
"Post-Default Rate" means: (i) in the event of failure to pay monetary
sums when due, five percent (5%) per annum above the Base Rate; and (ii) in the
event of Events of Default not involving a failure to pay monetary sums, two and
one-half percent (2 1/2%) per annum above the Base Rate.
"Proprietary Rights" shall mean any and all patents, trademarks, service
marks, trade names, copyrights, trade secrets, proprietary information, source
codes and other proprietary rights and processes.
"Qualifying Offering" means a firmly underwritten public offering of any
of Borrower's securities registered under the Securities Act with aggregate net
proceeds of at least $15,000,000 and a per share offering price of at least
$2.00 (or $3.00 if such offering closes more than 12 months after the Closing
Date).
"SBA" means the United States Small Business Administration.
"Security Agreement" means the Security Agreement between Borrower and
the Lenders in substantially the form of Exhibit B, as it may from time to time
be amended in writing.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means a Senior Loan.
"Senior Loan" means a loan to which Lender has agreed to subordinate
Lender's rights under this Agreement and the Note, pursuant to Section 2.01(d).
"Senior Lender" shall mean any lender whose rights are senior to the
Lenders in accordance with the terms hereof, including Comerica Bank and the
holders of the first and second deeds of trust on Borrower's headquarters and
any transferee or assignee thereof in accordance with the terms hereof.
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"Shareholder" means each holder of equity securities of Borrower and
"Shareholders" means all such holders of equity securities.
"Subsidiary" shall mean any corporation, partnership or limited
liability company of which Borrower owns or controls, directly or indirectly,
more than fifty percent (50%) of the voting stock or membership interests (as
the case may be) or any partnership, joint venture or other entity or
organization in which Borrower owns or controls, directly or indirectly, more
than a fifty percent (50%) equity interest.
"Tangible Net Worth" shall mean, with respect to any date of
determination, Borrower's net worth as determined in accordance with GAAP minus
(i) intangible assets as determined in accordance with GAAP (including, without
limitation, patents, customer lists, franchise agreements, licenses, goodwill,
non-competition agreements, subscription lists, organizational expenses, prepaid
insurance and deposits), (ii) the net undepreciated portion of leasehold
improvements constituting tangible property, (iii) trade receivables converted
to notes, (iv) monies due from officers and directors, (v) direct or indirect
loans to shareholders and Affiliates, (vi) security deposits, prepaid costs and
expenses, (vii) all contributions to equity in any form other than from
Borrower's net profit after taxes after the date hereof, and (viii) "other
assets" and "other current assets" under Borrower's financial statements
pursuant to GAAP.
"Taxes" means any present and future income and other taxes, charges,
fees, duties, imposts, withholdings and other assessments, together with any
interest and penalties, additions to tax and other additional amounts, imposed
by any Governmental Authority upon any Person.
"Warrants" means the Warrants to acquire Common Stock executed and
issued in appropriate form by Borrower to the Lenders, as it may from time to
time be amended in a writing signed by Borrower.
SECTION 1.02 RELATED MATTERS.
(a) Construction. Unless the context of this Agreement
clearly requires otherwise, references herein to the plural include the
singular, the singular includes the plural, the part includes the whole, the
word "including" is not limiting and all pronouns shall be deemed to cover all
genders. The words "hereof" "herein," "hereby," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. Article, Section, subsection, Exhibit, preamble,
recital and Schedule references are to this Agreement unless otherwise
specified. References in this Agreement to any agreement, other document or law
"as amended" or "as amended from time to time" shall include any amendments,
supplements, waivers, refinancings, renewals or other modifications.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance and
consistent with GAAP.
(c) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California.
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(d) Severability of Provisions. Any provision of this
Agreement that is illegal, invalid or unenforceable for any reason in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity or unenforceability without invalidating or
impairing the remaining provisions hereof or affecting the legality, validity or
enforceability of such provision in any other jurisdiction.
(e) Additional Lenders. The parties acknowledge and agree
that additional parties may lend funds to Borrower under the same terms as PMF
hereunder (up to an additional $1,050,000) with the consent of PMF and Borrower.
Such additional lenders shall execute this Agreement together with an
Intercreditor Agreement (and such additional documents as PMF may reasonably
require) in form and content satisfactory to PMF prior to making such loan.
ARTICLE II
THE LOAN, NOTES AND WARRANTS
SECTION 2.01 LOAN.
(a) The Loan.
(i) Lenders' Commitment. The Lenders agree, upon the
terms and subject to the conditions set forth in this Agreement, to make
to Borrower, upon satisfaction of the conditions precedent set forth in
Article III, a loan in the aggregate original principal amount of a
minimum of Three Million One Hundred Fifty Thousand Dollars ($3,150,000)
and a maximum of Four Million Two Hundred Thousand Dollars ($4,200,000)
(together with the amount loaned by any additional Lenders, the "Loan").
The amount of the Loan funded by PMF shall be Three Million One Hundred
Fifty Thousand Dollars ($3,150,000). Additional Lenders may fund up to
an additional $1,050,000 (unless otherwise agreed by PMF and Borrower).
(ii) Prepayment. Borrower may prepay the Loan at any
time, in whole or in part; provided, that Borrower shall give the
holder(s) of the Note(s) to be prepaid thirty (30) days' written notice
of its intention to prepay one or more Notes, which notice shall set
forth the date on which such prepayment shall be made and the amount of
the prepayment. The holder(s) of the Note(s) to be prepaid may elect to
convert their Notes pursuant to Section 1.08(a) hereof after delivery of
the prepayment notice and before prepayment. In addition, at the time of
any partial prepayment of principal, Borrower shall pay all unpaid Fees
and Expenses and accrued interest on the principal amount being prepaid
(iii) Fundamental Event. The Loan shall immediately
become due and payable or convertible at the sole option of the Lenders,
or any of them, upon the occurrence of a Fundamental Event.
(b) Funding of Loan. Not later than 11:30 am. (San Francisco
time) on the Closing Date and subject to and upon fulfillment of the applicable
conditions set forth in
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Article III as determined by the Lenders, the Lenders shall arrange for a wire
transfer in the amount of the Loan to the account designated by Borrower
pursuant to the wire instructions set forth in the Notice of Borrowing.
(c) Use of Proceeds. The proceeds of the Loan shall be used
to settle Borrower's obligations to Boundless Technologies and Texas Micro
Incorporated as set forth under Section 3.01(d) hereof. No part of the proceeds
of the Loan shall be used directly or indirectly for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock or
maintaining or extending credit to others for such purpose or for any other
purpose that violates the Margin Regulations.
(d) Agreement of Lender to Subordinate. Provided that no
Default or Event of Default has occurred and is continuing and that Borrower has
provided the Lenders with a pro forma compliance certificate (in form acceptable
to the Lenders) demonstrating that no Default or Event of Default will occur
after the incurrence of the proposed Senior Loan, the Lenders agree to
subordinate their rights under this Agreement, the Notes and the Collateral
Documents (including the liens in favor of the Lenders created pursuant to the
Collateral Documents) to one or more Senior Loans; provided that the time of
such subordination, (w) Borrower's EBITDA for the trailing four (4) calendar
quarters exceeds twenty-five percent (25%) of the sum of the maximum amount of
the proposed Senior Loans (including any prior senior Loans permitted hereunder)
plus the Obligations, (x) the terms of the proposed subordination providing such
Senior Loans are substantially similar the terms of the subordination agreement
by and between PMF and Comerica Bank dated September 30, 1999 and (y) the Senior
Lender is approved by PMF (which approval shall not be unreasonably withheld,
delayed or conditioned).
(e) Verification of Use of Proceeds. Within thirty (30) days
after the Closing Date, Borrower shall submit to the Lenders a written statement
in accordance with SBA Regulations and otherwise in form and substance
acceptable to each Lender, verifying that the proceeds of the Loan have been
utilized by Borrower as contemplated in Section 2.01(c).
SECTION 2.02 INTEREST.
(a) Rate.
(i) Subject to Section 2.02 (a)(ii) hereof, the Loan
shall bear, and Borrower agrees to pay, interest on the outstanding
principal balance thereof until due (whether at maturity, by reason of
prepayment or acceleration or otherwise) at an interest rate equal to
the Base Rate.
(ii) From and after the occurrence of an Event of
Default, for as long as such Event of Default shall be continuing,
without notice or demand, the outstanding principal balance of the Loan
(and overdue interest thereon, if any), shall bear interest at a rate
per annum equal to the applicable Post-Default Rate. In addition, all
amounts from time to time payable under the Collateral Documents and not
paid when due shall bear interest at the Post-Default Rate which is
applicable to payment defaults until paid.
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(b) Payment. Interest accrued on the Loan shall be payable
in arrears on each Payment Date and when such Loan shall become due (whether at
maturity, by reason of prepayment, demand, acceleration or otherwise), but only
to the extent then-accrued on the amount then so due; provided that interest
accrued at the Post-Default Rate shall be payable on written demand.
(c) Computations. Interest on the Loan (or other amount due
under the Loan Documents) shall accrue from day-to-day from and including the
Closing Date to and excluding the date of any principal repayment (or payment)
thereon. Interest on the Loan shall be computed on the basis of a three hundred
sixty (360) day year and paid for the actual number of days elapsed.
(d) Maximum Lawful Rate of Interest. The rate of interest
payable on the Loan (or other amount) shall in no event exceed the maximum rate
permissible under Applicable Law. If the rate of interest payable on the Loan
(or other amount) is ever reduced as a result of this subsection and at any time
thereafter the maximum rate permitted by Applicable Law shall exceed the rate of
interest provided for in this Agreement, then the rate provided for in this
Agreement shall be increased to the maximum rate provided by Applicable Law for
such period as is required so that the total amount of interest received by
Lender is that which would have been received by Lender but for the operation of
the first sentence of this subsection.
SECTION 2.03 PRINCIPAL.
(a) Scheduled Principal Payment Dates. No principal payments
shall be due or payable on any Payment Date until the Maturity Date: all unpaid
principal and accrued and unpaid interest shall be due and payable on the
Maturity Date;
(b) Mandatory Prepayments. Upon written request by Lender,
upon the occurrence of a Fundamental Event, Borrower shall immediately prepay
the Loan without Prepayment Penalty, if any.
SECTION 2.04 FEES AND EXPENSES.
(a) In addition to principal and interest with respect to
the Loan, Borrower agrees: (i) to pay PMF on the Closing Date a processing fee
(the "Processing Fee") in an amount equal to two percent (2%) of the Loan
amount, which shall be considered as earned in full at Closing; (ii) on the
Closing Date, to reimburse PMF for (or pay to PMF's counsel directly) the
reasonable fees and expenses of such counsel in connection with the drafting and
negotiation of this Agreement and the other Loan Documents (including a
reasonable estimate of post-closing fees and expenses of such counsel), (iii) to
reimburse the Lenders for (or pay to Lenders' counsel directly) the reasonable
fees and expenses of such counsel in connection with the ongoing administration
of the Loan and the Warrants, whether or not a Default or Event of Default is
continuing; (iv) to reimburse PMF for its reasonable travel and other
out-of-pocket expenses (not including legal fees) incurred in connection with
PMF's due diligence and negotiation of the Loan Documents to the extent that
such expenses exceed the Twenty-Five Thousand Dollars ($25,000) non-refundable
expense deposit (the "Non-refundable Expense Deposit") paid to PMF in connection
with acceptance of the preliminary term sheet with respect
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to the Loan; and (v) to reimburse the Lenders for their reasonable out-of-pocket
costs incurred in administering the Loan and their ownership of the Warrants,
including, without limitation, the out-of-pocket costs incurred in attending
meetings of the Board of Directors of Borrower. To the extent that they are not
paid on the Closing Date, the fees and expenses described in this Section 2.04
(collectively, "Fees and Expenses") shall be payable within thirty (30) days
after invoice by PMF or other Lender, as the case may be and, if not paid within
such period, shall bear interest at the Post-Default Rate. PMF acknowledges that
any portion of the Non-refundable Expense Deposit which is not utilized to
reimburse PMF for its out-of-pocket expenses described in Sections 2.04(a)(v)
and (vi) above will be promptly returned to Borrower.
SECTION 2.05 ADMINISTRATION.
(a) Loan Account. Each of the Lenders shall maintain in
their records a loan account for such Lender's portion of the Loan hereunder
(each, a "Loan Account") in which shall be recorded (i) the original principal
amount of the Loan, (ii) all increases in the principal amount of the Loan, due
to deferred interest payments; (iii) all other appropriate debits and credits as
and when due in accordance with this Agreement, including all Fees and Expenses;
and (iv) all payments made by Borrower on the Loan and the Obligations. All
entries in the Loan Account shall be made in accordance with the customary
accounting practices of such Lender as in effect from time to time. All payments
hereunder shall be applied: First to such Lender's Fees and Expenses; Second to
accrued and unpaid interest; and Third, to principal payments then due and
owing; provided that upon written notice to Borrower, the Lenders may jointly
apply such payments against the Obligations in any other manner which the
Lenders deem proper and in compliance with the terms hereof.
(b) Statements. The Lenders may (but shall not be obligated
to) deliver to Borrower each month a written statement setting forth the balance
of the Loan Account. Each such statement shall be subject to subsequent review
by Borrower but, absent manifest error, shall be presumed to be correct and
shall be binding upon Borrower. Until such written statements are delivered to
Borrower as provided herein, the balance in the Loan Account shall be
rebuttable, presumptive evidence of the amounts due and owing such Lender by
Borrower with respect to the Loan and other Obligations covered thereby.
(c) Reinstatement. To the extent Borrower makes a payment to
a Lender, or a Lender receives any payment or proceeds of Collateral for
Borrower's benefit, which payment or proceeds or any part thereof 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, other law or equitable cause, then, to the extent of such
payment or proceeds received, the Obligations or the part thereof intended to be
satisfied thereby shall be revived and continue in full force and effect,
together with all collateral security therefor, as if such Payment or proceeds
had not been received by such Lender.
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SECTION 2.06 MANNER OF PAYMENT.
(a) Borrower shall make each payment hereunder or under the
other Loan Documents to the Lenders in Dollars and in immediately available
funds without any deduction whatsoever.
(b) If any principal of or any interest on the Loan or any
other amount payable hereunder or under the other Loan Documents falls due on a
date that is not a Business Day, then such due date shall be extended to the
next succeeding Business Day, and interest on such principal, interest or other
amount shall be payable in respect of such extension on such next succeeding
Business Day.
(c) All payments of principal and interest on the Notes
shall be made pro rata to all Note holders.
SECTION 2.07 THE NOTE; REGISTER.
(a) The Notes will be a fully-registered note on the books
of Borrower and will be issued only in fully-registered form.
(b) Borrower will cause to be kept at its principal office a
register for the registration and transfer of the Notes. The name and address of
each holder of a Note (or Notes), the transfer thereof and the names and
addresses of any transferee of a Note (or Notes), or any interest therein, shall
be recorded in such register. Until a transfer of a Note is duly registered on
the books of Borrower, Borrower may treat the registered holder thereof as the
owner for all purposes.
(c) Upon surrender for exchange or registration of transfer
of a Note at the office of Borrower designated for notices in accordance with
Section 8.04 hereof, Borrower shall execute and deliver, at its expense, one or
more new Notes of any authorized denomination requested by Lender (or any
subsequent holder of any Note) in writing, each dated the date to which interest
has been paid on the Note so surrendered, and registered in the name of such
Person as shall be designated in writing by such holder. Every Note surrendered
for registration of transfer shall be duly endorsed, or be accompanied by a
written instrument of transfer duly executed, by the holder of such surrendered
Note. All transfers of Notes must comply with all applicable state and federal
securities laws.
(d) Upon receipt of evidence reasonably satisfactory to
Borrower of the loss, theft, mutilation or destruction of any Note, and in the
case of any such loss, theft or destruction, upon delivery of an indemnity bond
by the holder thereof Borrower shall, without charge, make and deliver a new
Note of like amount in lieu of such lost, stolen or destroyed Note.
Notwithstanding the foregoing, if any such lost, stolen or destroyed Note is
owned by a Lender, then the affidavit of a duly authorized representative of
such Lender setting forth the fact of loss, theft or destruction and its
ownership of the Note at the time of loss, theft or destruction shall be
accepted as satisfactory evidence thereof, together with an indemnification
agreement in form and content reasonably satisfactory to such Lender, and no
indemnity bond shall be required as a condition to the execution and delivery of
the substitute Note.
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SECTION 2.08 CONVERSION OF THE NOTES.
(a) The Notes shall be convertible by the holders thereof in
whole or in part at any time before repayment by Borrower of all principal and
accrued interest into shares of the Company's Common Stock (the "Conversion
Shares") at conversion rate equal to Seventy Three Cents ($0.73) per Conversion
Share (the "Conversion Rate").
(b) Upon the occurrence of any subdivision, combination or
stock dividend of such class or series of stock, the number of Conversion Shares
shall automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such stock by such subdivision, combination or dividend.
SECTION 2.09 THE WARRANTS.
(a) Issuance, Purchase and Sale of Warrants. Concurrently
with the sale and issuance of the Notes, and subject to the terms and conditions
of this Agreement, at the Closing, Borrower will sell and issue to the Lenders
warrants to purchase shares of Common Stock of Borrower in substantially the
form of Exhibit C hereto (each, a "Warrant," and collectively, the "Warrants")
for an aggregate purchase price of $100. Each $8.00 of principal of Notes sold
hereby shall be accompanied by a detachable Warrant to purchase one share of
Common Stock of Borrower (the "Warrant Shares").
(b) Exercise of the Warrants. At the discretion of the
Warrant holder, each Warrant may be exercised into shares of Common Stock at an
exercise price of Forty Five Cents ($0.45) per share. Warrant Holders may elect
to cancel any outstanding debt and/or accrued interest, including the Notes, as
payment of the exercise price of the Warrant. Warrant Holders may also exchange
other securities of Borrower held at the market price thereof in payment of the
exercise price of Warrants. The Warrants shall expire on the earlier of (i) six
years from the date of repayment of the Notes issued together with such
Warrant(s) or (ii) 10 years from the date of original issuance thereof. The
Warrants shall be detachable the Notes and may be exercised, transferred or sold
independently of the Notes (subject to applicable law).
SECTION 2.10 REPRESENTATIONS AND WARRANTIES OF THE LENDERS.
(a) Minority Shareholder. Each of the undersigned Lenders
understand that upon conversion of the Notes or exercise of the Warrants, such
Lender may be a minority shareholder of Borrower, and as such, Lender may have
very limited rights to manage or to control the business of Borrower.
(b) Due Execution. This Agreement has been duly executed and
delivered by the undersigned Lender, and, upon execution and delivery by
Borrower, will be valid and legally enforceable in accordance with their terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting enforcement of creditors' rights,
and except as limited by application of legal principles affecting the
availability of equitable remedies.
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(c) Legends. Each of the undersigned understands that the
Notes, Warrants and the shares issuable upon conversion of the Notes and
exercise of the Warrants will bear restrictive legends as deemed necessary by
Borrower or its counsel with regard to the matters set forth in this Agreement
or otherwise as necessary or appropriate.
(d) Compliance with Securities Laws. Each Lender hereby
represents, warrants and covenants that (1) the Notes and Warrants and any
shares of stock purchased upon conversion of the Notes or exercise of the
Warrants shall be acquired for investment only and not with a view to, or for
sale in connection with, any distribution thereof; (2) the Lender has had such
opportunity as such Lender has deemed adequate to obtain from representatives of
Borrower such information as is necessary to permit the Lender to evaluate the
merits and risks of its investment in Borrower; (3) the Lender is able to bear
the economic risk of holding the Notes, Warrants and such shares as may be
acquired pursuant to conversion of the Notes or exercise of the Warrants for an
indefinite period; and (4) the Lender understands that the Notes, Warrants, and
shares of stock acquired pursuant to conversion of the Notes or exercise of the
Warrants will not be registered under the Securities Act unless and until the
Lenders' rights under the Investors' Rights Agreement are exercised in
accordance with the terms thereof, and until such registration is effected, such
securities will be "restricted securities" within the meaning of Rule 144 under
the 1933 Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of purchase of the Notes and
Warrants or conversion of the Notes or exercise of the Warrants, as the case may
be, and even then will not be available unless a public market then exists for
the stock, adequate information concerning the Company is then available to the
public, and other terms and conditions of Rule 144 are complied with.
(e) Further Notification. Each of the undersigned agrees to
notify Borrower in writing immediately if any of the statements made herein
become untrue.
ARTICLE III
CONDITIONS TO LOAN
SECTION 3.01 CONDITIONS PRECEDENT TO THE CLOSING. The obligation of the
Lenders to make the Loan shall be subject to satisfaction of all of the
following conditions precedent in a manner reasonably acceptable to Lender (in
its discretion):
(a) Closing Date. The Closing Date shall have occurred on or
before September 30, 1999.
(b) Certain Loan Documents. Lender shall have received the
following:
(i) This Agreement, executed by Borrower, together
with all required Schedules and Exhibits hereto;
(ii) The Notes, executed by Borrower;
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(iii) The Security Agreement, executed by Borrower,
covering all Collateral;
(iv) A Borrower's Certificate, dated the Closing Date
and (A) certifying authorization of Borrower for the execution, delivery and
performance of this Agreement and the other Loan Documents, (B) identifying the
officers of Borrower having authority to execute and deliver this Agreement and
the other Loan Documents, (C) certifying the Amended and Restated Bylaws of
Borrower, as amended to the Closing Date, and (D) representing and warranting
that no Default or Event of Default has occurred and is continuing and that the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects;
(v) A file-stamped copy of the Amended and Restated
Articles of Incorporation of Borrower, duly filed with the Delaware Secretary of
State;
(vi) A Certificate of "good standing" with respect to
Borrower from the State of Delaware;
(vii) The Warrants duly executed by Borrower;
(viii) The Investors' Rights Agreement, duly executed
by the parties thereto;
(ix) The Investment Unit Pricing Agreement, duly
executed by the parties thereto;
(x) Small Business Administration Forms 480, 652 and
1031 from Borrower;
(xi) A certificate of Borrower to the effect that
Borrower is aware that PMF is a federal licensee under the Small Business
Investment Act of 1958, as amended;
(xii) Financing statements naming Borrower as "debtor"
for the States of Delaware, California, New York and Massachusetts, in form and
substance reasonably satisfactory to Lenders;
(xiii) The Intercreditor Agreement, duly executed by
the parties thereto; and
(xiv) A subordination agreement in form and content
reasonably satisfactory to PMF.
(c) Fees and Expenses. Borrower shall have paid PMF's
Processing Fee and the reasonable fees and disbursements of counsel for PMF
incurred in connection with the drafting and negotiation of the Loan Documents.
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(d) Boundless Technologies and Texas Micro Incorporated
Conversion.
(i) Borrower shall have converted its obligations to
Boundless Technologies as set forth in the letter agreement by and
between Borrower and Boundless Technologies attached hereto as Schedule
3.01(d)(i); and
(ii) Borrower shall have converted its obligations to
Texas Micro Incorporated as set forth in the letter agreement by and
between Borrower and Texas Micro Incorporated attached hereto as
Schedule 3.01(d)(ii).
(e) Financial Statements and Projections. The Lenders shall
have received the Financial Statements described in Section 4.03 an opening
balance sheet (prepared in accordance with GAAP) showing the pro forma financial
condition of Borrower after giving effect to the Loan, the payment of
transactional expenses, and financial projections demonstrating management's
good faith "most likely case" financial performance for the next twelve (12)
months and the next two (2) years.
(f) Solvency Balance Sheet. The Lenders shall have received
a solvency balance sheet demonstrating (based on the fair market value of
Borrower's assets) that after giving effect to the Loan and the payment of
transactional expenses, Borrower will be a solvent entity.
(g) Representations and Warranties. The representations and
warranties of Borrower or the Shareholders, as the case may be, contained in
this Agreement, the Collateral Documents and the Warrants, shall be true on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
(h) Performance. Borrower shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement, the
Security Agreement, the Warrants and the Loan Documents that are required to be
performed or complied with by them on or before the Closing Date.
(i) No Other Required Approvals. No Governmental Approval or
consent or approval necessary to avoid default under any material Contractual
Obligations of Borrower shall be required in connection with the consummation of
the transactions contemplated by this Agreement and the other Loan Documents,
except for Governmental Approvals and contractual consents that have been
obtained and filings necessary to perfect liens in favor of the Lenders.
(j) Opinion of Counsel. The Lenders shall have received from
Messrs. Higham, XxXxxxxxx & Xxxxxxx, LLP, counsel for Borrower, an opinion,
dated as of the Closing Date, in form and substance satisfactory to Lender,
addressing the matters set forth in Exhibit E.
(k) Absence of Material Adverse Change. There shall not have
occurred any interruption or change in the continued operation of the business
of Borrower in the ordinary course, which in the reasonable judgment of PMF is
material, or any event or condition of any character which might, in the
reasonable judgment of PMF, result in a Material Adverse Change.
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(l) Absence of Litigation Events. There shall not have been
issued any injunction, order or decree that prohibits or limits any of the
transactions contemplated by any of the Loan Documents and there shall not be
any action, suit, proceeding or investigation pending or, to the Best Knowledge
of Borrower, currently threatened against Borrower or any of the Lenders which
(i) questions the validity of this Agreement or any other Loan Document or the
right of Borrower or any of the Lenders to enter into this Agreement or any
other Loan Document or to consummate the transactions contemplated hereby or
thereby, (ii) might result, either individually or in the aggregate, in any
Material Adverse Change, or (iii) might result in any change in the current
equity ownership of Borrower.
(m) Searches of UCC and Other Records. Borrower shall have
provided the Lenders (at least five (5) Business Days prior to the Closing
Date), with original Official searches of Uniform Commercial Code filings in the
States of California, New York and Massachusetts as to liens of record naming
Borrower as "debtor."
(n) Litigation Searches. Borrower shall have provided the
Lenders (at least five (5) Business Days before the Closing Date) with a search
report (by an independent company acceptable to Lender) as to litigation in
Federal or state courts in the States of California, New York and Massachusetts,
naming Borrower as defendant.
(o) Sources and Uses Certificate. The Lenders shall have
received a certificate executed by the Chief Executive Officer and Chief
Financial Officer of Borrower, setting forth in reasonable detail the sources
and uses of funds in the transactions contemplated herein and in the other Loan
Documents.
(p) Communication with Accountants. The Lenders shall have
received a copy of a letter from Borrower addressed to its independent certified
public accountants authorizing such accountants to disclose to representatives
of the Lenders, and each of them, (but not to its assigns) any and all financial
information concerning Borrower as the Lenders may from time to time reasonably
request in order to determine Borrower's compliance with any of the financial
covenants set forth in Article VI.
(q) No Default. No Default or Event of Default shall have
occurred and be continuing or result from the Loan.
(r) [omitted]
(s) Board Representation. (i) The resignations of at least
two (2) of the current members of the Board of directors shall have been
tendered to and accepted by Borrower and (ii) the appointment or election of
PMF's nominee and the Lenders' nominee to Borrower's Board of Directors,
pursuant to the terms of the Investors' Rights Agreement, shall have been
consummated effective as of the Closing Date.
(t) General. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed or recorded in form and substance reasonably satisfactory to
the Lenders and the Lenders shall have received all
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such counterpart originals or certified copies thereof as the Lenders may have
reasonably requested.
SECTION 3.02 POST CLOSING OBLIGATIONS. In addition to the other duties
and obligations of Borrower set forth herein, Borrower shall perform the
following:
(a) Brokers' Fees. Borrower shall not pay any brokers' fees
relating to the transactions contemplated hereby, including in connection with
settlement of any claim made by e*offering, without the written consent of PMF
(which shall not be unreasonably withheld, delayed or conditioned).
(b) Refinancing/Sale of Headquarters. Borrower shall, as
soon as practicable after the Closing Date, refinance or sell its headquarters
building located in 00000 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000, under terms
reasonably acceptable to PMF.
(c) Board Representation. At the next annual meeting of its
shareholders, and at each subsequent meeting of the shareholders until the
termination of Section 1.2 of the Investors' Rights Agreement, Borrower shall
nominate and recommend for election the nominees for the board of directors of
PMF and the Lenders, and shall, if necessary, recommend amendment of its charter
to provide for a Board consisting of not more than five (5) directors.
(d) Patent and Copyright Security Agreements. Should
Borrower enter into or execute any security agreement or instrument granting or
purporting to grant any lien or security interest with respect to any patents,
trademarks, copyrights or other intellectual property of Borrower with any party
or parties, including, without limitation, Comerica Bank, Borrower shall (i)
disclose the terms of such agreements to the Lenders prior to the execution
thereof and (ii) name the Lenders as secured parties, junior only to the Senior
Lenders, in any such agreement or instrument.
(e) Pledge of Securities. Should Borrower enter into or
execute any pledge agreement or instrument granting or purporting to grant any
lien or security interest with respect to securities of Borrower or any of its
subsidiaries with any party or parties, including, without limitation, Comerica
Bank, Borrower shall (i) disclose the terms of such agreements to the Lenders
prior to the execution thereof and (ii) name the Lenders as secured parties,
junior only to the Senior Lenders, in any such agreement or instrument.
(f) Insurance. Borrower shall maintain general liability and
business interruption insurance adequate for a business of its size and type
during all time in which the Loan remains outstanding. In addition, Borrower
shall maintain Directors' and Officers' Insurance adequate for a business of its
size and type for all periods during which the Lenders have a right to nominate
a member or member of the board of directors pursuant to the Investors' Rights
Agreement.
(g) Source Code. Borrower shall, as soon as practicable
after the Closing Date, place the source code for Borrower's proprietary
software in a mutually acceptable source-code escrow, which escrow shall name
PMF as a secured party (together with the Senior Lenders, if any).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lenders as follows:
SECTION 4.01 ORGANIZATION, POWERS AND GOOD STANDING. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, and having its principal place of business in, the State of
California, and has all requisite corporate power and authority and the legal
right to own and operate its properties and to carry on its business as
heretofore conducted and as proposed to be conducted. Borrower is duly qualified
to transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a Material Adverse Effect Borrower has all
requisite power and authority to eater into this Agreement and the other Loan
Documents to which it is a party and to carry out the transactions contemplated
hereby and thereby.
SECTION 4.02 AUTHORIZATION, BINDING EFFECT NO CONFLICT, ETC.
(a) All corporate action on the part of Borrower, its
directors and shareholders, necessary for the authorization, execution and
delivery of this Agreement, the Notes the Warrants, and the other Loan
Documents, the performance of all of their obligations hereunder and thereunder
and the authorization, issuance (or reservation for issuance) and delivery of
the Notes, the Warrants and the Common Stock issuable upon the exercise of the
Warrants and conversion of the Notes has been taken or will be taken on or prior
to the Closing Date. Each of the Loan Documents has been (or on the Closing Date
will be) duly executed and delivered by Borrower. Each Loan Document is a legal,
valid and binding obligation of Borrower, enforceable against it in accordance
with its respective terms, except as may be affected by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or by equitable principles
relating to or limiting the rights of creditors generally.
(b) The execution, delivery and performance by Borrower of
each of the Loan Documents, and the consummation of the transactions
contemplated thereby (including the issuance of the Notes, the Warrants and the
Common Stock issuable upon exercise of the Warrants and conversion of the
Notes), do not and cannot (i) conflict with any provision of Borrower's Articles
of Incorporation or Bylaws, (ii) conflict with, result in a breach of, or
constitute (or, with the giving of notice or lapse of time or both, would
constitute) a default under, or require the approval or consent of any Person
pursuant to, any Contractual Obligation of Borrower (except as disclosed in
Schedule 4.02 which consents have been obtained and are in full force and
effect), or violate any provision of Applicable Law binding on Borrower, or
(iii) result in the creation or imposition of any Lien upon any asset of such
Person, except for Liens in favor of the Lenders.
(c) Except for filings and recordings in connection with the
perfection of Liens created by the Collateral Documents, which in each case have
been accurately completed and executed and delivered by Borrower, no
Governmental Approval is or will be required in connection with the execution,
delivery and performance by Borrower of any Loan Document to
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which it is party or the transactions contemplated thereby or to ensure the
legality, validity or enforceability thereof.
SECTION 4.03 FINANCIAL INFORMATION RELATING TO BORROWER. Borrower has
delivered to the Lenders the audited financial statements (balance sheet,
statement of operations and statement of cash flows) of Borrower at and for the
year ended December 31, 1998, audited by _____________, and the unaudited
financial statements (balance sheet and statement of operations) of Borrower at
and for the three (3) month period ended June 30, 1999 (collectively, the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects, subject to the absence of footnotes, the absence of a
statement of cash flows and normal year-end adjustments in the case of the June
30, 1999 financial statements, and have been prepared in accordance with GAAP.
Without limiting the foregoing, the Financial Statements accurately set out and
describe the financial condition and operating results of Borrower as of the
dates, and for the periods, indicated therein.
SECTION 4.04 LITIGATION. Except as disclosed in Schedule 4.04, there are
no actions, suits or proceedings pending or, to the Best Knowledge of Borrower,
threatened against or affecting Borrower, or its assets or properties before any
Governmental Authority (i) that, if adversely determined, could have a Material
Adverse Effect, (ii) that in any manner draw into question the validity or the
enforceability of this Agreement, any other Loan Document or any transaction
contemplated hereby or thereby, or (iii) that might result in any change in the
current equity ownership of Borrower, nor to Borrower's Best Knowledge is there
any basis for any matter described in the foregoing Sections 4.04(i). (ii) or
(iii). Schedule 4.04 includes, as of the Closing Date, any actions pending or
threatened (or any basis therefor known to Borrower) involving the prior
employment of any of Borrower's employees, their use in connection with the
businesses of Borrower of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. On the Closing Date, except as set forth in Schedule 4.04,
Borrower is not a party or subject to the provisions of any order (except as
imposed by laws of general application), writ, injunction, judgment or decree
(except as imposed by laws of general application) of any court, Governmental
Authority or government agency or instrumentality, Except as set forth in
Schedule 4.04, on the Closing Date there is no action, suit, proceeding or
investigation by Borrower currently pending or which Borrower intends to
initiate (as plaintiff), which, if adversely determined, would be material to
Borrower or its business or prospects.
SECTION 4.05 DISCLOSURE. Borrower has fully provided the Lenders with
all of the information which the Lenders has requested for deciding whether to
enter into the transactions contemplated by the Loan Documents. The information
in any document, certificate or written statement furnished to Lender by or on
behalf of Borrower with respect to the business, assets, results of operation,
financial condition or prospects of Borrower for use in connection with the
transactions contemplated by this Agreement and the other Loan Documents is,
when considered as a whole, true and correct and does not omit to state any
material fact required to be stated therein to make the furnished information
not misleading. To Borrower's Best Knowledge, there is no fact (other than
matters of a general economic nature) that has materially and adversely affected
or could reasonably be expected to have a Material Adverse Effect, which has not
been disclosed herein or in such other documents, certificates and statements.
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SECTION 4.06 SHAREHOLDERS. Schedule 4.06 hereto sets forth a complete
and accurate list of each: (i) Warrant holder with number of shares of Common
Stock the Warrant is convertible into, exercise price, and expiration date; (ii)
all classes of Preferred Stock (if any) and the number of shares of Common Stock
such Preferred is convertible into; (iii) the total number of Common Stock
existing. Schedule 4.06 sets forth an aggregate number of option shares and the
number of Common Shares such option represent.
SECTION 4.07 SUBSIDIARIES. Borrower does not presently own or control,
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity other than as set forth in Borrower's Form
10-K for the fiscal year ended September 30, 1998. Each of Borrower's
subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it was organized and operates. Each of such
subsidiaries has all requisite power and authority and the legal right to own
its property and carry on its business as heretofore conducted and as proposed.
Each of such subsidiaries is qualified to transact business and is in good
standing in each jurisdiction in which failure to do so would have a Material
Adverse Effect.
SECTION 4.08 VALID ISSUANCE. The outstanding shares of the Common Stock
have been duly authorized, issued and delivered and are validly outstanding,
fully paid and nonassessable. The Warrants, when issued, sold and delivered on
the Closing Date, will be duly and validly issued, fully paid and nonassessable.
The Common Stock issuable upon exercise of the Warrants and conversion of the
Notes has been duly and validly reserved for issuance, and, upon issuance in
accordance with the applicable exercise terms thereof will be duly and validly
issued, fully paid and nonassessable. Borrower represents and warrants that the
issuance and sale of the Notes and the Warrants and the Common Stock issuable
upon conversion of the Warrants and conversion of the Notes are exempt from the
registration requirements of Section 5 of the Securities Act by reason of the
exemption from registration set forth in Section 4(2) of the Securities Act. The
parties acknowledge that Borrower's warranty provided in the preceding sentence
is based upon the Lenders' representations and warranties set forth in Section
2.10 hereof.
SECTION 4.09 PATENTS, TRADEMARKS AND COPYRIGHTS. Except as set forth in
Schedule 4.09 hereto, Borrower has no patents, trademarks and registered
copyrights material to Borrower's business as now conducted and as proposed to
be conducted. Borrower has not received any written communications alleging that
Borrower has violated or, by conducting its business as proposed, could violate
any of the patents, trademarks and copyrights of any other Person. To Borrower's
Best Knowledge, none of Borrower's employees are obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement
or subject to any judgment, decree (except as imposed by laws of general
application) or order (except as imposed by laws of general application) of any
court, Governmental Authority or administrative agency, that would interfere
with the use of his or her best efforts to promote the interests of Borrower or
that would conflict with its business as proposed to be and as currently
conducted. To the best knowledge of Borrower, there is no material violation by
any Person of any right of Borrower with respect to any patents, trademarks and
copyrights owned or used by it.
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SECTION 4.10 COMPLIANCE WITH LAWS AND AGREEMENTS. Except as set forth in
Schedule 4.10 hereto, Borrower is not in violation or default of any provisions
of any Contractual Obligations to which it is a party or by which it is bound or
of any provision of any Applicable Law, which violation or default could have a
Material Adverse Effect.
SECTION 4.11 CONTRACTUAL OBLIGATIONS AND RECENT ACTION. Except as set
forth on Schedule 4.11 hereto, as of the Closing Date there will be no
Contractual Obligations to which Borrower is a party or by which it is bound
which involve (i) obligations of, or payments by the Borrower in excess of Two
Hundred Fifty Thousand Dollars ($250,000), (ii) the license of any of its
Proprietary Rights, (iii) material obligations to any of Borrower's officers,
directors or Affiliates or (iv) any other agreement material to the business,
operations, or prospects of Borrower. Since June 30, 1999 and prior to the
Closing Date, Borrower has not (i) declared, authorized, paid or made any
Distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any Indebtedness for money borrowed or incurred any other
liabilities individually in excess of One Hundred Thousand Dollars ($100,000) or
in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate,
other than the Obligations under this Agreement and the other Loan Documents,
(iii) made any loans or advances to any Person, other than ordinary advances for
travel expenses, (iv) made any amendments or other modifications to any
Contractual Obligations which have or could have a Material Adverse Effect, or
(v) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the license or sale of its software products in the ordinary course of
business.
SECTION 4.12 TITLE TO PROPERTY. Borrower owns its property and assets
free and clear of all Liens, except for Permitted Liens. With respect to the
property it leases, Borrower is in compliance with the material provisions of
all such leases and will hold a valid leasehold interest free of any material
Liens.
SECTION 4.13 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.13 sets forth all employee benefit plans, as
defined in Section 3(3) of ERISA, that are sponsored or contributed to by
Borrower covering employees or former employees of it (collectively, "Employee
Benefit Plans") and all material benefit arrangements that are not Employee
Benefit Plans, including each arrangement providing for insurance coverage,
workers' compensation benefits, incentive bonuses, deferred bonus arrangements
and equity compensation plans maintained by Borrower covering employees or
former employees (collectively, "Benefit Arrangements").
(b) Borrower does not sponsor, maintain or contribute to, or
within the five (5) years prior to the Closing Date, has not sponsored,
maintained or contributed to, and does not have an obligation to sponsor,
maintain or contribute to any "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA that is subject to Title IV of ERISA. No Employee
Benefit Plan has participated in, engaged in or been a party to any non-exempt
"prohibited transaction" (as defined in ERISA or the Code) and Borrower has not
incurred any liability for taxes under Code Sections 4971, 4972, 4975, 4976,
4977, 4979, 4980 or 4980B, or for penalties under ERISA Section 502(c)(i) or
(1), with respect to any Employee Benefit Plan. No officer, director or employee
of Borrower has committed a material breach of any responsibility or
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obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan. There is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code with respect to any Employee
Benefit Plan. Each Employee Benefit Plan and Benefit Arrangement has at all
times prior hereto been maintained in all material respects, by its terms and in
operation, in accordance with its terms and all Applicable Laws.
(c) With respect to each Employee Benefit Plan and each
Benefit Arrangement, other than ordinary claims for benefits pursuant to the
terms of any Employee Benefit Plan or any Benefit Arrangement, there is no claim
pending or, to the best knowledge of Borrower, threatened, against or involving
any Employment Benefit Plan or any Benefit Arrangement by any Person or any
Governmental Authority.
SECTION 4.14 ABSENCE OF MATERIAL ADVERSE CHANGE. Since June 30, 1999,
other than as disclosed in the Schedules hereto, there has not occurred any
event or condition of any character which could result in a Material Adverse
Change involving Borrower.
SECTION 4.15 TAX RETURNS AND PAYMENT. Except as set forth in Schedule
4.15 (i) Borrower has filed all tax returns and reports as required by
Applicable Law, (ii) those returns and reports are true and complete in all
material respects, and (iii) Borrower has paid all taxes and other assessments
due prior to the time penalties would have accrued thereon. The provision for
taxes of Borrower reflected on its most recent financial statements is adequate
for taxes due or accrued as of the date thereof.
SECTION 4.16 MINUTE BOOKS. The minute books of Borrower provided to the
Lenders for review, together with the certified resolutions delivered on the
Closing Date, contain an accurate and appropriate summary of all meetings of
Borrower's Board of Directors, Committees and stockholders since the date of
incorporation through the Closing Date and reflect all transactions referred to
in such minutes accurately in all material respects.
SECTION 4.17 LABOR AGREEMENTS AND ACTIONS. Borrower is not bound by or
subject to (and none of its assets will be bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested in writing or, to the best knowledge of
Borrower, sought to represent any of the employees of Borrower. There is no
strike or other labor dispute involving Borrower pending, or, to the best
knowledge of Borrower, threatened, which could have a Material Adverse Effect.
Prior to the Closing Date, Borrower has not made any material change in any
compensation arrangements or agreements with any employees that would
substantially increase aggregate salary and employee expenses beyond amounts
reflected in the Financial Statements. Borrower is not a party to any employment
agreement or any agreement with any consultant or adviser performing services
for Borrower, except for the agreements listed in Schedule 4.17. Borrower is not
aware that any officer or key employee (other than the Selling Shareholder), or
that any group of key employees, intends to terminate their employment with
Borrower, nor does Borrower have a present intention to terminate the employment
of any of the foregoing.
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SECTION 4.18 STATUS UNDER CERTAIN STATUTES. Borrower is not subject to
regulation under the Investment Company Act of 1940, as amended, or any other
statute, law, rule or regulation that limits the ability of Borrower to incur
indebtedness.
SECTION 4.19 ABSENCE OF DEFAULTS. No Default or Event of Default exists
as of the Closing Date.
SECTION 4.20 MARGIN REGULATIONS. No part of the proceeds of the Loan
will be used, directly or indirectly, for the purpose of buying or carrying any
Margin Stock within the meaning of the Margin Regulations or for the purpose of
buying, carrying or trading in any securities under such circumstances as to
involve Borrower or any broker or dealer in a violation of the Margin
Regulations. Margin Stock does not constitute more than ten percent (10%) of the
value of the assets of Borrower on the Closing Date and Borrower does not have
any present intention that Margin Stock will constitute more than ten percent
(10%) of the value of such assets at any time while the Loan is outstanding.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants and agrees that, so long as any Obligations shall
remain unpaid, Borrower shall perform all of the following:
SECTION 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower shall
deliver to Lenders:
(a) As soon as available and in any event within ninety (90)
days after the end of each fiscal year and fiscal quarter of Borrower, a
consolidated balance sheet of Borrower and its Subsidiaries, if any, as of the
end of such period and the related consolidated statements of operations and
cash flow for such period, setting forth in each case in comparative form the
figures for the previous fiscal year or quarter and comparison to budget, and,
in the case of the fiscal year end, accompanied by an audit report thereon of
independent public accountants of nationally recognized standing reasonably
satisfactory to the Lenders;
(b) As soon as available and in any event within twenty (20)
days after the end of each month, internal financial statements reasonably
acceptable to PMF. These statements must show reasonable estimates of gross
revenue, expenses, and current assets and liabilities. On a monthly basis,
Borrower will send the Lenders copies of all reports sent to Senior Lenders;
(c) Simultaneously with the delivery of each set of
financial statements referred to in Sections 5.01 (a) and (b) above, a
certificate of the Chief Executive Officer and the Chief Financial Officer of
Borrower stating whether any Default or Event of Default exists on the date of
such certificate and, if any Default or Event of Default then-exists, setting
forth the material details thereof and the action which Borrower is taking or
proposes to take with respect thereto;
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(d) By the forty-fifth (45th) day of each fiscal year,
Borrower shall deliver to the Lenders a comprehensive business plan for such
fiscal year approved by its Board of Directors, in such form and addressing such
matters as may be reasonably requested by any Lender, including projected
balance sheets, statements of operations and statements of cash flow for such
fiscal year and each calendar quarter thereof and a comparison and explanation
of the results of the preceding fiscal year to the projections contained in the
business plan for such fiscal year;
(e) Within five (5) days after any officer of Borrower
obtains knowledge of any Default or Event of Default, a certificate of the Chief
Executive Officer and the Chief Financial Officer of Borrower setting forth the
material details thereof and the action which Borrower is taking or proposes to
take with respect thereto;
(f) Promptly after the release thereof, copies of any press
releases issued by Borrower;
(g) Within five (5) days after any executive Officer Of
Borrower obtains actual knowledge of the threat or commencement of any
litigation, or any material development in any litigation, against Borrower,
that includes allegations of damages in excess of One Hundred Thousand Dollars
($100,000) or that otherwise could have a Material Adverse Effect in Borrower's
judgment, notice providing reasonable details about the threat or commencement
of such litigation or providing reasonable details on such material development;
(h) Periodically, upon written request by any Lender, Small
Business Administration Form 1031 and such other forms or information as such
the Lender may from time to time request in writing to comply with Small
Business Administration regulations or requests in writing;
(i) Within one hundred twenty (120) days after the end of
each fiscal year of Borrower, and at such other times as a Lender may request in
writing, a capitalization table describing: (v) all outstanding securities of
Borrower; (w) all outstanding options, warrants, or other rights to purchase
securities of Borrower; (x) the names of the owners thereof, (y) the type and
amount of securities held by each such owner; and (z) such other information
regarding the ownership of securities of Borrower as a Lender may reasonably
request.
(j) From time to time such additional information regarding
Borrower as any Lender may reasonably request. The Lenders acknowledge that the
information received by them or their designee(s) pursuant to this Agreement may
be confidential and is for the Lenders' use only. The Lenders will not use such
confidential information in violation of the Securities Exchange Act of 1934, as
amended, or other applicable securities laws, or reproduce, disclose or
disseminate such information to any other person or entity (other than its
officers, partners, employees or agents or other Lenders having a need to know
the contents of such information, and its attorneys, provided such persons also
agree in writing to keep such information confidential), except in connection
with the exercise of rights or remedies under this Agreement, the Investors'
Rights Agreement or any other agreement referred to herein, unless the Company
has made such information available to the public generally or, if the Lender
gives the Company
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written notice at least twenty (20) days prior to disclosure (or such shorter
notice that may be reasonable in the circumstances), the Lender is required to
disclose such information by a governmental body.
SECTION 5.02 ANNUAL BUDGET AND MILESTONE GOALS. Promptly following
receipt of the business plan described in Section 5.01(d), the Lenders and
Borrower shall jointly agree on a budget for the succeeding fiscal year, which
will reflect the following order of priority: (i) first, compliance with the
terms of this Agreement and the other Loan Documents, and (ii) second, such
other goals as Borrower may desire to pursue. The approval of the budget by the
Lenders shall not be unreasonably withheld. In connection with such budget, the
Lenders and Borrower shall also agree on reasonable "Milestone" goals for
Borrower for such fiscal year, which shall reflect goals to be achieved in
addition to compliance with the budget. The Lenders' approval of the Milestone
goals shall not be unreasonably withheld.
SECTION 5.03 MAINTENANCE OF EXISTENCE, ETC. Until such time as the
Obligations have been fully-performed, Borrower will preserve and keep in full
force and effect its corporate existence and any rights and franchises material
to its business.
SECTION 5.04 MAINTENANCE OF PROPERTIES. Borrower shall maintain or cause
to be maintained in good repair, working order and condition (ordinary wear and
tear excepted), all of the assets or properties useful or reasonably necessary
to its business, and from time to time Borrower shall make or cause to be made
all appropriate repairs, renewals and replacements thereto.
SECTION 5.05 COMPLETE INFORMATION. All data, certificates, reports,
statements, documents and other information furnished to Lender in connection
with this Agreement or the other Loan Documents shall be subject to the
assumptions and qualifications stated therein and, at the time such information
is so furnished, not contain any untrue statement of a material fact, shall be
complete and correct in all material respects to the extent necessary to give
Lender sufficient and accurate knowledge of the subject matter thereof, and
shall not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
SECTION 5.06 INSPECTION. Upon reasonable written notice at least one (1)
Business Day in advance, Borrower shall permit any Lender, any holder of a Note
or a Warrant and one or more representatives of the SBA, at such reasonable
times (during normal business hours) as may be requested by any Lender in
writing, to examine Borrower's books of account and records, to inspect
Borrower's properties and to discuss Borrower's business, affairs, finances and
accounts with its officers, auditors and investment bankers. If an Event of
Default shall have occurred and be continuing, Borrower shall reimburse the
Lenders for their reasonable out-of-pocket expenses incurred in connection with
an inspection under this Section 5.06. Otherwise, any such inspection shall be
at the expense of the Lenders.
SECTION 5.07 COMMUNICATIONS WITH ACCOUNTANTS. Borrower will at all times
permit the Lenders to communicate with Borrower's accountant as contemplated by
Section 3.01(g). If for any reason the letter provided to the Lenders pursuant
to Section 3.01 (g) expires
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or if Borrower engages new accountants, Borrower will provide such new
accountants with written instructions (similar to those provided in Section
3.01(g)) that, upon written request of any Lender, they are directed to
communicate with the Lenders directly.
SECTION 5.08 GOVERNMENTAL APPROVALS. Borrower will at all times obtain
and keep in full force and effect all Governmental Approvals that are necessary
for the ownership, maintenance and operation of its properties and conduct of
its business as now conducted and proposed to be conducted, and shall at all
times operate and comply with such Governmental Approvals.
SECTION 5.09 SOURCE CODE. Borrower will update all source code in escrow
pursuant to Section 3.01(t) promptly following any amendments or modifications
to the source code to Borrower's proprietary software.
ARTICLE VI
NEGATIVE COVENANTS OF BORROWER
SECTION 6.01 LIENS. Borrower shall not, directly or indirectly (or
permit any Subsidiary, if any, to), create, incur, assume or permit to exist any
Lien on or with respect to any of its assets or properties, except the following
("Permitted Liens"):
(a) Liens securing the Obligations;
(b) Existing Liens as of the Closing Date;
(c) Liens securing purchase money indebtedness and
capitalized lease obligations; provided that such liens affect only the assets
acquired with such purchase money indebtedness or capitalized lease obligations;
and provided further that the aggregate amount of Indebtedness secured by such
liens at any time shall not exceed Two Million Dollars ($2,000,000);
(d) Liens securing Senior Indebtedness;
(e) Liens for taxes, assessments or charges of any
Governmental Authority for claims not yet due or which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP;
(f) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than any Lien
imposed under ERISA) imposed by Applicable Law and created in the ordinary
course of business and Liens on deposits made to obtain the release of such
Liens if (i) the underlying obligations are not overdue for a period of more
than sixty (60) days or (ii) such Liens are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP;
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(g) Liens (other than any Lien imposed under ERISA) incurred
on deposits made in the ordinary course of business (including, without
limitation, surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social security
benefits, statutory obligations and other similar obligations;
(h) Easements (including, without limitation, reciprocal
easement agreements and utility agreements), nights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere materially with
the ordinary conduct of the business of Borrower and which do not materially
detract from the value of the property to which they attach or materially impair
the use thereof to Borrower;
(i) Building restrictions, zoning laws and other statutes,
laws, rules, regulations, ordinances and restrictions, and any amendments
thereto, now or at any time hereafter adopted by any Governmental Authority
having jurisdiction;
(j) Any attachment or judgment Lien unless it constitutes an
Event of Default;
(k) Other Liens incidental to the conduct of the business or
the ownership of the assets or property of Borrower which were not incurred in
connection with borrowed money and which do not in the aggregate materially
detract from the value of the assets or property or materially impair the use
thereof in the operation of the Borrower's business and which, in any event, do
not secure obligations aggregating in excess of Twenty-Five Thousand Dollars
($25,000).
SECTION 6.02 INDEBTEDNESS. Borrower shall not, directly or indirectly,
incur, create, issue, assume or guarantee any Indebtedness except:
(a) The Obligations;
(b) Senior Indebtedness not to exceed Five Million Dollars
($5,000,000) (in addition to debt secured by Borrower's headquarters) which
Borrower incurs pursuant to Section 2.01 (d)(ii);
(c) Purchase money indebtedness and capitalized lease
obligations; provided that the aggregate amount of such Indebtedness shall not
exceed Two Million Dollars ($2,000,000);
(d) Trade indebtedness incurred in the ordinary course of
Borrower's business; provided that at the time of incurrence of such trade
indebtedness, Borrower is not delinquent in the repayment of a material amount
of any previously-incurred trade indebtedness.
SECTION 6.03 CURRENT RATIO. Borrower shall not permit the ratio of its
Current Assets to Current Liabilities to be less than (i) 1.00:1.00 at any time
during the period commencing on the Closing Date and ending on December 31,
1999; and (ii) 1.05:1.00 for the period commencing on January 1, 2000 and at all
times thereafter.
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SECTION 6.04 DEBT SERVICE COVERAGE RATIO. Borrower shall not permit its
Debt Service Coverage Ratio for any calendar quarter to be less than 1.00:1.00.
SECTION 6.05 FUNDAMENTAL CHANGES. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not voluntarily liquidate or dissolve, or (whether in a single transaction
or a series of transactions) consolidate or merge with any other Person, or
permit any other Person to consolidate or merge with it, or sell, lease,
transfer or otherwise dispose of all or substantially all of any of its
properties or assets (whether now owned or hereafter acquired) to any other
Person.
SECTION 6.06 NATURE OF BUSINESS. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not, directly or indirectly (or permit any Subsidiary, if any, to), engage
in any line of business in which it is not currently engaged or otherwise alter
its manner of conducting business from that existing as of the Closing Date,
except that Borrower may engage in activities that are ancillary, incidental or
necessary to its ongoing business as presently conducted. For the avoidance of
doubt, it is understood that Borrower is currently in the business of the
development and marketing of software and related hardware and consulting
services.
SECTION 6.07 CAPITAL EXPENDITURES. Except with the consent of the
Lenders (which shall not be unreasonably withheld, delayed or conditioned),
Borrower shall not permit Capital Expenditures for any fiscal year to exceed One
Million Dollars ($1,000,000).
SECTION 6.08 INVESTMENTS. Borrower shall not, directly or indirectly (or
permit any Subsidiary, if any, to), make any advances or loans to, or other
investments in, any other Person other than:
(a) Ordinary advances for travel expenses;
(b) Advances in payment of salaries already earned;
(c) Deposits in commercial. banks to which a Deposit Notice
has been received and acknowledged; and
(d) Loans to employees made in the ordinary course of
business and not exceeding Fifty Thousand Dollars ($50,000) in the aggregate at
any time.
Without limiting the foregoing, Borrower shall not make loans or other
advances to any of its Shareholders or to any Affiliates or relatives of its
Shareholders.
SECTION 6.09 Borrower shall not purchase, redeem or retire any stock or
equity security in Borrower, whether now or hereafter outstanding, or pay,
directly or indirectly, any dividends or distributions to its Shareholders (or
Affiliates thereof) in the form of cash, stock or other securities, or other
property other than stock dividends, provided that if no Default or Event of
Default has occurred and is continuing (or will occur after giving effect
thereto), Borrower may redeem stock as permitted in the Amended and Restated
Articles of Incorporation.
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SECTION 6.10 AMENDMENTS OF CHARTER AND BYLAWS. Borrower will not amend
its Amended and Restated Articles of Incorporation or Amended and Restated
Bylaws in any way with respect to authorized capital, the Board of Directors or
authorization of corporate action or in any other respect that could have an
adverse effect on any Lender or the ability of Borrower to meet its obligations
under the Loan Documents, without obtaining the prior written consent of the
Lenders, which consent shall not be unreasonably withheld, delayed or
conditioned.
SECTION 6.11 TRANSACTIONS WITH AFFILIATES. Borrower, its officers,
directors or employees shall not, directly or indirectly, engage in any material
transactions with any Affiliate or any relatives of any Affiliate.
SECTION 6.12 EMPLOYMENT CONTRACTS AND EXPENSES. Other than with respect
to senior management pursuant to Section 6.12 below,, Borrower shall not,
directly or indirectly, enter into any employment contract with any officer or
employee involving payment in any fiscal year of more than Two Hundred Thousand
Dollars ($200,000).
SECTION 6.13 MANAGEMENT COMPENSATION. Borrower shall not, directly or
indirectly, provide any of its senior managers with an aggregate compensation in
excess of: (i) a base salary of Two Hundred Thousand Dollars ($200,000) per
year; (ii) if no Default or Event of Default has occurred and is continuing, a
bonus not to exceed 100% of base salary per year; (iii) health insurance and
other fringe benefits, to the extent that they are made available to Borrower's
employees generally; (iv) Ten Thousand Dollars ($10,000) of annual expenses
(including lease payments, maintenance expenses, insurance and all other
expenses) associated with a leased vehicle for personal and business use. Any
bonus to be paid pursuant to Clause 6.13(ii) shall be approved by the Chairman
of the Compensation Committee of Borrower's Board of Directors, which chairman
shall be an "independent" director.
SECTION 6.14 EMPLOYEE BENEFIT PLANS. Borrower will not sponsor or
contribute to any new Employee Benefit Plan, make any change to any existing
Employee Benefit Plan that would increase its obligations in any material
respect or incur any obligations in respect of any Multiemployer Plan.
SECTION 6.15 ACCOUNTING PRINCIPLES. Borrower will not make any material
change in the accounting principles underlying the Financial Statements, except
for changes mandated by GAAP or applicable federal or state securities laws.
SECTION 6.16 SUBSIDIARIES. Borrower will not create or acquire any new
Subsidiaries, transfer any assets to any Subsidiary except if.
(a) Borrower provides the Lenders with at least sixty (60)
days prior written notice of its intent to form such a Subsidiary;
(b) All of the capital stock of the Subsidiary is pledged to
the Lenders to secure the Obligations pursuant to a pledge agreement in form and
substance acceptable to Lender;
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(c) The Subsidiary guarantees the obligations pursuant to a
guaranty agreement and provides a lien on all of the Subsidiary's assets to
secure the guaranty, in each case pursuant to documentation in form and
substance acceptable to the Lenders; and
(d) At the time of formation of such Subsidiary no Event of
Default or Default has occurred and is continuing.
In addition, if at any time Borrower's revenues are less than seventy
percent (70%) of the consolidated revenues of Borrower and its subsidiaries,
Borrower shall execute and cause each of its subsidiaries to execute, security
and co-borrower agreements and instruments, in substantially the same form as
this Agreement and the Loan Documents, which, among other things, grants the
Lenders a lien and security interest in all of the assets of Borrower's
subsidiaries as security for the Loan.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an event of default (an "Event of Default"):
(a) Borrower shall fail to pay when due any principal
(whether at stated maturity, upon acceleration, upon demand, upon required
prepayment or otherwise); or
(b) Borrower shall fail to pay within five (5) Business Days
of when due, interest payable hereunder or under the other Loan Documents, or
(c) Borrower shall fail to pay within fifteen (15) days
after written notice any fees, costs, expenses or other amounts payable
hereunder or the other Loan Documents; or
(d) Borrower (i) shall default in the payment, beyond any
period of grace provided therefor, of any principal of or interest on any
indebtedness in an amount exceeding One Hundred Five Thousand Dollars
($105,000), or (ii) shall commit any breach of or default under any other term
of any agreement, indenture or instrument relating to any indebtedness in an
amount exceeding One Hundred Five Thousand Dollars ($105,000), if the effect of
such breach or default is to cause, or to permit the holder or holders of such
indebtedness (or a Person on behalf of such holder or holders) to cause (upon
the giving of notice or the lapse of time or both, or otherwise), any such
indebtedness to become or be declared due and payable prior to its stated
maturity (or to be, or become required to be, purchased or redeemed prior to its
stated maturity) or to cause, or to permit the holder or holders thereof to
cause, Borrower to be deprived of any of Borrower's assets or property, unless
such default is waived by PMF (which waiver shall not be unreasonably withheld,
delayed or conditioned) (notwithstanding anything to the contrary herein,
Borrower shall not be in default hereof with respect to the Forbearance
Agreement by and between Borrower and Comerica Bank dated _________ or the
event(s) of default set forth therein for which Comerica Bank has agreed to
waive or forebear; or
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(e) Borrower shall fail to perform, comply with or observe
any agreement or obligation to be performed or complied with by it pursuant to
Section 2.01(c), Section 5.01(e), Section 5.05 or any Section of Article VI
hereof; provided that, in the case of any failure to comply with Section 6.03
(Current Ratio) hereof, such failure shall not have been remedied within sixty
(60) days after written notice thereof from a Lender; or
(f) Any representation or warranty or certification made or
furnished by Borrower under this Agreement, the other Loan Documents or any
agreement, instrument or document contemplated thereby shall prove to have been
false or incorrect in any material respect when made (or deemed made); or
(g) Borrower shall fail to perform, comply with or observe
any agreement or obligation to be performed or complied with by it under this
Agreement (other than those provisions referred to in Sections 7.01(a), (b),
(c), and (e) above) or any other Loan Document, and such failure shall not have
been remedied within thirty (30) days after written notice thereof from a Lender
to the Borrower or after the Borrower otherwise becomes aware of such failure;
or
(h) The Lien of the Lenders on the Collateral shall for any
reason fail to constitute a perfected security interest thereon, prior to all
other Liens, except only the Lien of the Senior Lender, or Borrower (or its
counsel) makes an assertion that any Lender's Lien does not constitute such a
security interest; or
(i) There shall be commenced against Borrower an involuntary
case seeking the liquidation or reorganization of Borrower under Chapter 7, 11
or 13, respectively, of the Bankruptcy Code or any similar proceeding under any
other Applicable Law or an involuntary case or proceeding seeking the
appointment of a receiver, liquidator, sequestrator, custodian, trustee or other
officer having similar powers of Borrower or to take possession of all or a
substantial portion of its property or assets or to operate all or a substantial
portion of its business, and any of the following events occur: (i) Borrower
consents in writing to the institution of the involuntary case or proceeding;
(ii) the petition commencing the involuntary case or proceeding is not timely
controverted, (iii) the petition commencing the involuntary case or proceeding
remains undismissed and unstayed for a period of sixty (60) days, or (iv) an
order for relief shall have been issued or entered therein; or
(j) Borrower shall commence a voluntary case seeking
liquidation or reorganization under Chapter 7, 11 or 13, respectively, of the
Bankruptcy Code or any similar proceeding under any other Applicable Law, or
shall consent in writing thereto; or shall consent to the conversion of an
involuntary case to a voluntary case; or shall file a petition, answer a
complaint or otherwise institute any proceeding seeking, or shall consent or
acquire to the appointment of, a receiver, liquidator, sequestrator, custodian,
trustee or other officer having similar powers of Borrower or to take possession
of all or a substantial portion of its property or assets or to operate all or a
substantial portion of its business; or
(k) Borrower shall suffer any money judgments, writs or
warrants of attachment or similar processes that shall continue unsatisfied and
unstayed. for a period of thirty (30) days or, in any event, within ten (10)
days of the date of any proposed sale thereunder, or a
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judgment creditor shall obtain possession of any of the property or assets of
Borrower having an aggregate value exceeding Two Hundred Fifty Thousand Dollars
($250,000) by any means, including by levy, distraint, replevin or self-help,
unless waived by PMF (which waiver shall not be unreasonably withheld, delayed
or conditioned);
(l) Any of the Loan Documents, or any material provisions in
any of them, shall cease to be in full force and effect as against Borrower for
any reason other than a release or termination thereof upon the full payment and
satisfaction of the Obligations thereunder pursuant to its terms, or Borrower
shall contest or purport to repudiate or disavow any of its obligations
thereunder or the validity or enforceability thereof;
SECTION 7.02 REMEDIES. Upon the occurrence of an Event of Default, any
Lender may, at its election, without notice of its election and without demand,
do any one or more of the following, all of which is authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, such Lender's the Note, any of the other Loan Documents, immediately
due and payable; provided however that all Obligations shall be immediately due
and payable without notice or demand upon an Event of Default under Section
7.01(i) or Section 7.01(j) hereof caused by an insolvency proceeding involving
Borrower;
(b) Without notice to or demand upon Borrower, make such
payments and do such acts as such Lender considers necessary or reasonable to
protect its Lien in the Collateral. Borrower agrees subject to the rights of any
Senior Lender to assemble the Collateral if such Lender so requires in writing,
and to make the Collateral available to such Lender at such location within
California as such Lender may designate in writing. Borrower authorizes such
Lender to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest or compromise any Lien which in the reasonable opinion of such Lender
appears to be prior or superior to its Lien and to pay all reasonable expenses
incurred in connection therewith; and
(c) Exercise such Lender's rights and remedies under the
Collateral Documents.
SECTION 7.03 CUMULATIVE REMEDIES. Each Lenders rights and remedies under
this Agreement, a other Loan Documents and all other agreements with Borrower
shall be cumulative. Such Lender shall have all other rights and remedies not
inconsistent herewith as provided under the California Uniform Commercial Code,
by law or in equity. No exercise by a Lender of one right or remedy shall be
deemed an election, and no waiver by Lender of any Event of Default shall be
deemed a continuing waiver. No delay by any Lender shall constitute a waiver,
election or acquiescence by it.
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SECTION 7.04 APPOINTMENT OF PMF AS LENDERS' AGENT.
The parties hereto acknowledge that the Lenders have appointed PMF as
its Agent pursuant to that certain Intercreditor Agreement of even date
herewith. Subject to the terms and conditions of such agreement, PMF is
authorized to exercise the rights granted the Lenders hereby on behalf of such
Lenders. The parties agree that Borrower may rely on any waiver, approval or
consent granted by PMF.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 EXPENSES. Borrower agrees to pay on written demand therefor
all reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by the Lenders in any workout, restructuring or similar
arrangements requested by Borrower or after an Event of Default in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of any of the other Loan Documents or of its rights hereunder or
thereunder or in connection with any foreclosure, collection or bankruptcy
proceedings.
SECTION 8.02 INDEMNIFICATION.
(a) Borrower agrees to indemnify, defend and hold harmless
each of the Lenders and their officers, directors, employees, agents, attorneys
and Affiliates of the Lenders (collectively, the "Indemnities") from and against
(A) all transfer taxes, documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Agreement
and the other Loan Documents or the making of the Loan, and (B) all liabilities,
losses, damages, penalties, judgments, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by or asserted against such Indemnitee, in any manner
directly or proximately relating to or arising out of this Agreement or any
other Loan Document, the Loan made hereunder or the use or intended use of the
proceeds of the Loan; provide that no Indemnitee shall have the right to be
indemnified or held harmless hereunder for any liabilities, tosses, damages,
penalties, judgments, claims, costs or expenses which are a direct result of its
own gross negligence or willful misconduct.
(b) The obligations of Borrower under this Section 8.02
shall survive the termination of this Agreement and the discharge of Borrower's
other obligations hereunder.
SECTION 8.03 AMENDMENTS AND OTHER MODIFICATIONS. No amendment of any
provision of this Agreement (including a waiver thereof or consent relating
thereto) shall be effective unless the same shall be in writing and signed by
the Lenders and Borrower. Any waiver or consent relating to any provision of
this Agreement shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar
circumstances.
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SECTION 8.04 NOTICES.
(a) All notices and other communications under this
Agreement shall be in writing and (except for financial statements, other
related informational documents and routine communications, which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
courier, by overnight, registered or certified mail (postage prepaid), or by
telefax or telegram and shall be deemed to be given when received by the
intended recipient thereof, or, if the address of the recipient is unknown, five
(5) Business Days after such notice is mailed by United States certified mail
(postage prepaid) to the last known address of the intended recipient. Unless
otherwise specified in a notice given in accordance with this Section 8.04,
notices and other communications shall be given to the parties hereto at their
respective addresses (or to their respective telephone or telefax numbers)
indicated on the signature page hereof.
(b) Borrower shall notify each Lender in a writing
substantially in the form of Borrower's Certificate of the names of its officers
authorized to execute certificates and agreements deliverable hereunder on
behalf of Borrower, and shall provide each Lender with a specimen signature of
each such officer. The Lenders shall be entitled to rely conclusively on such
officers' authority to request the Loan on behalf of Borrower and on such
officers' authority to execute and deliver such certificates and agreements
until Lender receives written notice to the contrary. The Lenders shall have no
duty to verify the authenticity of any signature appearing on any notice,
certificate or agreement delivered hereunder, including, without limitation, the
Borrower's Certificate.
SECTION 8.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and, subject to the next sentence, inure to the benefit of the parties
hereto and their respective successors and assigns, subject to applicable state
and federal securities laws. Borrower may not assign or transfer any interest
hereunder without the prior written consent of the Lenders. Each Lender may
assign or transfer all or any portion of its rights and obligations under this
Agreement and the other Loan Documents to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to such Lender herein or otherwise (and each Lender shall be released
from obligations assumed by such Person) Notwithstanding the foregoing sentence:
(i) any Lender may not assign or transfer any portion of its rights under the
Loan having a principal balance of less than Five Hundred Thousand Dollars
($500,000); and (ii) a Lender may not assign its rights to appoint a member of
Borrower's Board of Directors.
SECTION 8.06 SET OFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, the Lenders are
hereby irrevocably authorized by Borrower at any time or from time to time,
without notice to Borrower, any such notice being hereby expressly waived, to
set off and to appropriate and to apply any credits, indebtedness or claims, in
each case whether direct or indirect or contingent or matured or unmatured, at
any time held or owing by the Lenders to or for the credit or the account of
Borrower, against and on account of the Obligations of Borrower to the Lenders
under this Agreement and the other Loan
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Documents, irrespective of whether or not the Lenders shall have made any demand
for payment and although such Obligations may be contingent and unmatured.
SECTION 8.07 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loan hereunder and
the execution and delivery of the other Loan Documents and, except as otherwise
expressly provided herein, shall continue until repayment arid performance of
all Obligations, and any investigation at any time made by or on behalf of
Lender shall not diminish the right of Lender to rely thereon.
SECTION 8.08 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and ail of which counterparts,
taken together, shall constitute but one and the same agreement. This Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto.
SECTION 8.09 COMPLETE AGREEMENT. This Agreement, together with the
Exhibits and Schedules to this Agreement and the other Loan Documents, is
intended by the parties as a final expression of their agreement regarding the
subject matter hereof and is intended as a complete statement of the terms and
conditions of such agreement.
SECTION 8.10 LIMITATION OF LIABILITY. No claim may be made by Borrower
against Lender or any of its Affiliates, officers, directors, employees, agents
or attorneys for any special, indirect, consequential or punitive damages in
respect of any breach or wrongful conduct (whether the claim is based on
contract or tort or duty imposed by law) arising out of or related to the
transactions contemplated by this Agreement or the other Loan Documents or any
act, omission or event occurring in connection therewith. Borrower hereby
waives, releases and agrees not to xxx upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor. The foregoing provisions of this Section 8.10 are not intended to
preclude Borrower from bringing a legal action against Lender for Borrower's
direct, actual damages.
SECTION 8.11 WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDER WAIVE
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OTHER ACTION ARISING OUT OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
SECTION 8.12 VENUE. The parties hereby submit to the exclusive
jurisdiction of the Superior Court of the State of California, sitting in San
Francisco, California, or the United States District Court for the Northern
District of California for the adjudication of all disputes relating to this
Agreement or any of the other Loan Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
Borrower:
GENERAL AUTOMATION, INC.,
a Delaware corporation
By:________________________________
Name: ____________________________
Title: ____________________________
Borrower's principal office:
___________________________________
___________________________________
___________________________________
Lenders:
PACIFIC MEZZANINE FUND, L.P.,
a California limited partnership
By. Pacific Private Capital, its General Partner
By:________________________________
Name: ____________________________
Title: General Partner
Lender's principal office:
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Telefax: (000) 000-0000
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