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EXHIBIT 10.58
TERM LOAN AGREEMENT
TERM LOAN AGREEMENT, dated May 5, 2000 by and between ▇▇▇▇.▇▇▇, a
Delaware corporation (the "Company"), and ▇▇▇▇.▇▇▇, Inc., a Delaware
corporation (the "Lender").
1. The Loan. The Lender agrees to lend to the Company and, subject
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to the following sentence, the Company agrees to borrow from the Lender, the
amount of $ 5,000,000, to be advanced to the Company in three equal
installments (each, an "Installment") on the date hereof (provided that
$916,667 of the first installment will be deferred until all conditions of
lending are met) and on June 1, 2000 and June 30, 2000 (each, an "Installment
Funding Date"). The Company shall have the option in its sole discretion (a)
not to draw down any or all Installments and (b) to drawn down any particular
Installment at a date later than the applicable Installment Funding Date but
prior to the Maturity Date (each, a "Delayed Installment Funding Date"),
provided that the Company gives the Lender at least forty-eight (48) hours'
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written notice prior to an Installment Funding Date of its election not to draw
down any such Installment on such Installment Funding Date and at least forty-
eight (48) hours' written notice prior to any Delayed Installment Funding Date.
2. The Note. The obligation to repay the loan shall be evidenced
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by the Company's promissory note (the "Note") in substantially the form of
Exhibit A attached hereto , dated the date of the first Installment, payable to
the order of the Lender in full on the later of (a) August 31, 2000 and (b) the
date which is sixty (60) days following the date, if any, upon which the Lender
terminates its discussions concerning a merger with the Company (other than
following a breach by the Company of its obligations under the letter of
intent, dated as of April 5, 2000, between the Company and the Lender (the
"Letter of Intent")) prior to the execution of a definitive merger agreement or
upon which any such definitive merger agreement, once executed and delivered by
the Company and the Lender, is terminated as a result of a failure to obtain
approval of the Lender's stockholders or as a result of a material breach by
the Lender thereunder. The principal balance with respect to each Installment
of the loan shall bear interest on such principal balance from the Installment
Funding Date or Delayed Installment Funding Date, as the case may be, with
respect to such Installment until the entire principal balance with respect to
such Installment has been repaid in full, payable in arrears on the Maturity
Date, at a rate per annum (based on a 365 day year
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for the actual number of days elapsed) equal to the lesser of 13% and the
maximum allowable under applicable law. Interest shall be calculated based on
a 360 day year, but for the actual number of days elapsed in each calendar
month. The Lender may record the amount of each Installment and the amount of
prepayments, if any, of the loan and similar information on a schedule attached
to or otherwise made a part of the Note. Information so recorded by the Lender
shall be conclusive and binding on the Company in the absence of manifest
error. No failure to enter or delay in entering such records shall impair the
Company's obligations under the Note or this Agreement.
3. The Security Documents. The obligations of the Company under
----------------------
the loan shall be secured by a first priority security interest in the
Collateral described in and according to the terms of the Security Agreement,
dated the date hereof (the "Security Agreement"), between the Company and
Lender and the other security agreements encumbering the Collateral necessary
to establish and maintain the security interest for the benefit of the Lender
under this Agreement, including, without limitation, (a) a collateral
assignment of trademarks (security agreement) granting to the Lender a first
priority security interest in the Trademarks (as hereinafter defined), (b) a
collateral assignment of patents (security agreement) granting to the Lender a
first priority security interest in the Patents (as hereinafter defined), (c) a
collateral assignment of copyrights (security agreement) granting to the Lender
a first priority security interest in the Copyrights(as hereinafter defined),
(d) an escrow of an electronic copy (CD-ROM) of all Source Code (as defined in
Schedule II to the Security Agreement) owned by the Company and identified on
Schedule 6(v) hereto constituting or relating to the Debtor Software (as
defined in Schedule II to the Security Agreement) and of the Company's customer
lists and data base, in each case to be delivered to an escrow agent selected
by Lender and reasonably satisfactory to the Company (the "Escrow Agent") and
held pursuant to an escrow agreement selected by Lender and reasonably
satisfactory to the Company, (e) a letter in the form attached hereto as
Exhibit B from each of the local exchange or other carriers providing DID
Numbers (as hereinafter defined) to the Company,(f) waivers and/or estoppel
certificates, if applicable, from landlords and co-locators and (g) such
letters to and representations from the banks at which the Company or one of
its subsidiaries maintains Bank Accounts (as hereinafter defined) as are
reasonably satisfactory to the Lender ((a) through (g), together with the
Security Agreement, the "Security Documents").
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4. Warrant. On April 5, 2000, the Company granted a warrant to the
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Lender (the "Warrant") to purchase 250,000 shares (the "Warrant Shares") of
common stock, par value $0.01 per share (the "Common Stock"), to the Lender at
an exercise price equal to $4.4375 per share, subject to adjustment. On or
prior to the Installment Funding Date or Delayed Installment Funding Date, as
the case may be, with respect to the first Installment of the loan, the Company
shall deliver to the Lender an instrument representing the Warrant in the form
attached hereto as Exhibit C. The parties further agree that the warrant
referred to in Section 3 of the Letter of Intent, when and if granted, will be
reflected in a warrant agreement in the form attached hereto as Exhibit C.
5. Optional Prepayment. The Company shall have the right on not
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less than five business days' written notice to the Lender to prepay the loan
in whole at any time or in part from time to time without premium or penalty
but with accrued interest on the principal being paid to the date of
prepayment.
6. Representations. The Company represents and warrants to the
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Lender the following, the truth and accuracy of which are a continuing
condition of the making of the Installments hereunder:
(a) Good Standing and Power. Other than DocuMagix, Inc., each of
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the Company and each of its subsidiaries is a corporation, duly organized and
existing, in good standing, under the laws of the jurisdiction of its
incorporation, and each has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified could not reasonably be expected to have a material adverse effect on
the business, results of operations, financial condition, assets or prospects
of the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect").
(b) Corporate Authority. The Company has full corporate power and
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authority to execute and deliver this Agreement, the Note, the Security
Documents and the Warrant, to incur and perform the obligations provided for
herein and in the Note, and to perform its obligations hereunder and under the
Note, the Security Documents and the Warrant, all of which have been duly
authorized by all proper and necessary corporate
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action. No consent or approval of stockholders is required in connection with
the execution and delivery by the Company of this Agreement, the Note, the
Security Documents or the Warrant or the performance by the Company of its
obligations hereunder or thereunder.
(c) Authorizations. No authorizations, consents, approvals,
--------------
registrations, exemptions and licenses with or from any governmental
authorities are necessary in connection with the execution and delivery by the
Company of this Agreement, the Note, the Security Documents or the Warrant and
the performance by the Company of its obligations hereunder and thereunder.
(d) Binding Agreement. This Agreement, the Note and the Security
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Documents constitute the valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(e) Subsidiaries.
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(i) The Company has the following subsidiaries and no others:
DocuMagix, Inc., JetFax Deutschland GmbH and ▇▇▇▇.▇▇▇ limited (UK).
(ii) DocuMagix, Inc. has no liabilities, individually or in the
aggregate, in excess of $50,000. A description of the assets of DocuMagix,
Inc. is set forth in Schedule 6(e) hereto.
(f) Litigation. There are no proceedings or investigations pending
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or, to the knowledge of the Company, threatened before any court or arbitrator
or before or by any governmental authority except as disclosed in the SEC
Documents (as hereinafter defined) and which, individually or in the aggregate,
if determined adversely to the interests of the Company or a subsidiary, could
reasonably be expected to have a Material Adverse Effect.
(g) No Conflicts. The execution, delivery and performance by the
------------
Company of this Agreement, the Note, the Security Documents and the Warrant,
and the consummation by the Company of its obligations hereunder and
thereunder, do not and will not (i) conflict with or result in a breach of any
provision of law, statute, rule or regulation applicable to the Company or any
of its subsidiaries or any judgment, order, writ, injunction,
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license or permit applicable to the Company or any of its subsidiaries or any
of their respective properties, (ii) conflict with any provision of the
certificate of incorporation or bylaws or similar organization documents of the
Company or any of its subsidiaries or (iii) conflict with, violate or
constitute a breach of or a default under any material agreement or contract to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their respective assets is bound.
(h) Financial Reports and SEC Documents; Material Adverse Effect.
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The Company's Annual Reports on Form 10-K for the years ended December 31, 1999
and 1998, and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by it or any of its
subsidiaries subsequent to December 31, 1998 under the Securities Act of 1933,
as amended (the "Security Act"), or under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or under
the securities regulations of the Securities and Exchange Commission (the
"SEC"), in the form filed or to be filed (collectively, the "SEC Documents")
with the SEC as of the date filed, (A) complied or will comply in all material
respects as to form with the applicable requirements under the Securities Act
or the Exchange Act, as the case may be, and (B) did not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
each of the balance sheets contained in or incorporated by reference into any
such SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, in all material respects, the financial
position of Company and its subsidiaries as of its date, and each of the
statements of income and changes in shareholders' equity and cash flows or
equivalent statements in such SEC Documents (including any related notes and
schedules thereto) fairly presents, or will fairly present, in all material
respects, the results of operations, changes in shareholders' equity and
changes in cash flows, as the case may be, of the Company and its subsidiaries
for the periods to which they relate, in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except in each case as may be noted therein, subject to normal year-
end audit adjustments in the case of unaudited statements. Except as set forth
in Schedule 6(h) hereto, there has been no material adverse change in the
business, results of operations, financial condition, assets or prospects of
the
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Company and its subsidiaries, taken as a whole, since the date of the Company's
balance sheet dated December 31, 1999.
(i) Capitalization. As of the date hereof, the authorized capital
--------------
stock of the Company consists of 35,000,000 shares of Common Stock, of which no
more than 13,500,000 shares were outstanding as of the date hereof (more
specifically, 13,186,775 shares were outstanding at May 2, 2000), and 5,000,000
shares of Preferred Stock, par value $0.01 per share, of which 1,500 shares of
Series B Convertible Preferred Stock were outstanding as of the date hereof.
As of the date hereof, no shares of Company Common Stock were held in treasury
by the Company or otherwise owned by the Company or its subsidiaries. The
outstanding shares of Common Stock have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights (and were not issued in violation of any preemptive rights);
provided that the holders of the Series B Convertible Preferred Stock (the
"Series B Preferred") have certain rights of first refusal and rights to
participate in certain equity financings. As of the date hereof, there are no
shares of Common Stock authorized and reserved for issuance, the Company does
not have any options, rights or warrants issued or outstanding with respect to
the Common Stock, and the Company does not have any commitment to authorize,
issue or sell any Common Stock or options, rights or warrants, except pursuant
to this Agreement or the Warrant, and except for (i) the warrants to be issued
to Lender pursuant to the Letter of Intent; (ii) shares of Common Stock into
which the Seris B Preferred (and any subsequently issued Series C Convertible
Preferred Stock) is convertible; (iii) the warrants listed on Schedule 6(i)
hereto (the "Existing Warrants"); and (iv) any options ("Company Stock
Options") to acquire shares of Common Stock issued under the 1989 Stock Option
Plan, the 1995 Stock Plan or the 1997 Director Stock Option Plan (collectively,
the "Stock Option Plans"). As of the date hereof, there are 3,737,646 shares
(reflects 796,398 options available for grant and 2,941,248 options currently
outstanding) of Common Stock issuable and reserved for issuance upon exercise
of Company Stock Options and 645,092 shares of Common Stock issuable and
reserved for issuance upon exercise of the Existing Warrants. Upon exercise of
the Warrant or any portion thereof and payment by the Lender of the exercise
price with respect thereto, the Warrant Shares issued upon such exercise shall
be duly authorized and validly issued and outstanding, fully paid and
nonassessable, and subject to no preemptive rights (and not issued in violation
of any preemptive rights).
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(j) Taxes. The Company and each of its subsidiaries has filed or
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caused to be filed all tax returns required to be filed and has paid all taxes
shown to be due and payable on said returns or on any assessment made against
it or any of its property and all other taxes, assessments, fees, liabilities
or other charges imposed on it or any of its property by any governmental
authority, except for any taxes, assessments, fees, liabilities or other
charges which are being contested in good faith and for which reserves which
are adequate under generally accepted accounting principles have been
established.
(k) Use of Proceeds. The proceeds of the loan will be used by the
---------------
Company for general corporate purposes to fund the on-going operations of the
business of the Company, and not for any dividends or distributions with
respect to the capital stock of the Company.
(l) Title to Properties; Possession Under Leases. The Company and
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its subsidiaries have good and marketable title to, or valid leasehold
interests in, all properties and assets reflected on the consolidated balance
sheet of the Company as of December 31, 1999, except for such immaterial
properties and assets as have been disposed of in the ordinary course of
business and except for minor defects in title that do not interfere with the
ability of the Company or any of such subsidiaries to conduct its business as
now conducted. All such assets and properties are free and clear of all
mortgages, pledges, liens, charges, security interests and other encumbrances,
other than as set forth on Schedule 6(o). Schedule 6(l) contains a true and
correct list of all leases by the Company or any of its subsidiaries of any
interest in real property, and sets forth, with respect to each such lease, the
date of such lease, each and every amendment to such lease, and the name, phone
number and address of the landlord and sublandlord, if any, with respect to
such lease. Each of the Leases is binding and enforceable against the Company
or one of its subsidiaries and, to the knowledge of the Company, against the
other party thereto and is in full force and effect. The real property
leasehold interests of the Company and its subsidiaries are not subject to any
mortgages, pledges, liens, charges, security interests or other encumbrances,
other than those contemplated by this Agreement and the Security Agreements.
(m) ERISA. (i) Neither the Company nor any of its subsidiaries has
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engaged in a transaction with respect to any employee benefit plan which,
assuming the taxable period of such transaction expired as of the date hereof,
could subject the
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Company or any of its subsidiaries to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Section 502(i) of the Employee Retirement Income Security Act of 1934, as
amended ("ERISA"), in an amount that could have a Material Adverse Effect.
(ii) No employee benefit plan had an accumulated funding
deficiency, whether or not waived, as of the last day of the most recent fiscal
year of such employee benefit plan ended prior to the date hereof.
(iii) No liability under Sections 4062, 4063 or 4064 of ERISA has
been or is expected by the Company to be incurred by the Company or any of its
subsidiaries with respect to any single employer plan in an amount that would
have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has incurred or expects to incur any withdrawal liability with
respect to any employee benefit plan which is a multiemployer plan in an amount
which could have a Material Adverse Effect.
(iv) As used in this Section, (A) "accumulated funding deficiency"
shall have the meaning assigned to such term in Section 412 of the Code and
Section 302 of ERISA; (B) "employee benefit plan" and "multiemployer plan"
shall have the respective meanings assigned to such terms in Section 3 of
ERISA; (C) "taxable period" shall have the meaning assigned to such term in
Section 4975 of the Code; and (D) "withdrawal liability" shall have the meaning
assigned to such term in Part 1 of Subtitle E of Title IV of ERISA.
(n) Not an Investment Company. The Company is not an "investment
-------------------------
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(o) The Security Agreement. The provisions of the Security
----------------------
Documents will be effective to create in favor of the Lender a valid, binding
and enforceable security interest or lien in all right, title and interest of
the Company in the Collateral, and shall, upon recording or filing with the
proper state and county authorities, constitute a fully perfected first and
prior security interest, lien or mortgage, in all right, title and interest of
the Company in such Collateral, superior in right to any liens, except for the
liens relating to equipment leases as set forth in Schedule 6(o) hereto.
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(p) Environmental Protection. To the Company's knowledge, based
-------------
upon reasonable investigation, all real property owned or leased by the Company
or any of the Company's subsidiaries is free of contamination from any
substance that could result in the incurrence of material liabilities, or that
are currently identified or listed as hazardous or toxic pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601, et seq., or any other environmental laws, or any other substance which
has in the past or could at any time in the future cause or constitute a
health, safety or environmental hazard to any person or property, including,
without limitation, asbestos in any building, petroleum products, PCBs,
pesticides, or radioactive materials. To the Company's knowledge, based on
reasonable investigation, neither the Company nor any of the Company's
subsidiaries has caused or suffered to occur any release of any waste,
pollutant, hazardous substance, toxic substance, hazardous waste, special
waste, petroleum or petroleum-derived substance or waste, or any constituent of
any such substance or waste, including any such substance regulated under any
environmental law ("Contaminant") into the environment or any other conditions
that could result in the incurrence of material liabilities or any material
violations of any environmental laws. To the Company's knowledge, based on
reasonable investigation, neither the Company nor any of the Company's
subsidiaries has caused or suffered to occur any condition on any of the
Company's property that could give rise to the imposition of any lien under any
environmental laws. To the Company's knowledge, based on reasonable
investigation, neither the Company nor any of the Company's subsidiaries is
engaged in any manufacturing or any other operations, other than the use of
petroleum products for vehicles, that require the use, handling,
transportation, storage or disposal of any Contaminant, where such operations
require permits or are otherwise regulated pursuant to the environmental laws.
(q) No Material Misstatements. No information, report, financial
-------------------------
statement, exhibit or schedule furnished by or on behalf of the Company to the
Lender in connection with the negotiation of this Agreement, the Note, the
Security Documents and the Warrant, or included therein or delivered pursuant
thereto, upon which Lender reasonably relied in making or agreeing to make the
Installments, contained or contains any material misstatement of fact or
omitted or omits to state any material fact necessary to make the statements
therein not misleading.
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(r) Location of Assets. All of the assets of the Company are
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located in ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, except for
those located in Dublin, Ireland described in Schedule 6(r) hereto.
(s) Equipment. Schedule 6(s) hereto sets forth a true, correct and
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complete list and description of all equipment owned or leased by the Company.
(t) Compliance with Laws. The Company has acquired its assets and
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conducted its business in compliance in all material respects with all
applicable laws, rules, ordinances and regulations and judgments, decrees,
orders, awards and governmental and non-governmental permits and licenses to
which the Company is subject.
(u) Proprietary Rights and Intellectual Property. Schedule 6(u)
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sets forth a true, correct and complete list and description (including without
limitation, the jurisdiction in which registered) of all registered and common
law trademarks (including service marks), tradenames, trade styles, and
trademark applications (collectively, "Trademarks"), copyright rights,
registrations and applications, (collectively, "Copyrights"), patents and
patent applications (collectively, "Patents", and, together with the Trademarks
and Copyrights, the "Proprietary Rights") used in connection with the Company's
business. The Company has taken reasonable steps to establish and protect its
interest in and to both the Proprietary Rights and all other know-how, trade
secrets, processes, shop rights, technologies, discoveries, unpatented
inventions, formulae and procedures (collectively, "Intellectual Property")
used in the business and operations of the Company, and there are no material
limitations or prohibitions on the current or intended use of the Proprietary
Rights or the Intellectual Property. None of the Proprietary Rights or
Intellectual Property has been assigned, transferred or licensed to any third
party. The validity or enforceability of the patents, trademarks, tradenames,
copyrights and applications and registrations thereof constituting the
Proprietary Rights has not been challenged by others, nor is there any pending
or threatened litigation involving any of the Proprietary Rights or
Intellectual Property. The Company's use of the Proprietary Rights and
Intellectual Property does not constitute an infringement of the rights of any
other person, other than any infringement that could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
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(v) Computer Software. Schedule 6(v) hereto sets forth a true,
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correct and complete list and description of all computer software and/or
programs developed and owned by the Company or licensed by the Company from
third parties and used in and material to the business and operations of the
Company. A true, correct and complete copy of the Source Code for all such
software and/or programs and an electronic copy of the Company's customer lists
and data base have been delivered to the Escrow Agent.
(w) Phone Numbers. Schedule 6(w) sets forth a true, correct and
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complete list of phone numbers and direct-inward-dialing numbers, identified by
the local exchange or other carrier that provisions such numbers to the
Company, which have been assigned by the Company to its customers or which the
Company currently has in inventory for future assignment to its customers
(collectively, "DID Numbers").
(x) Bank Accounts. Schedule 6(x) sets forth the account numbers
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and location of all bank accounts and other deposit accounts (the "Bank
Accounts") of the Company and each of its subsidiaries.
7. Conditions of Lending.
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(a) The obligation of the Lender to make the first Installment on
the applicable Installment Funding Date or Delayed Installment Funding Date, as
the case may be, is subject to the following conditions precedent:
(i) Evidence of Corporate Action. The Lender shall have received
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copies of all corporate action taken by the Company to authorize this
Agreement, the Note, the Security Documents and the Warrant and the borrowing
hereunder, certified the date of such first Installment, and such other papers
as the Lender shall reasonably require.
(ii) Opinion of Company Counsel. The Lender shall have received a
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favorable written opinion of counsel for the Company, dated the date of the
First Installment, in substantially the form of Exhibit D attached hereto.
(iii) Security Documents; Security Arrangements. The Company shall
-----------------------------------------
have executed and delivered to the Lender the Security Documents granting to
the Lender a first prior perfected security interest in the Collateral together
with (A) acknowledgment copies of Financing Statements (Form UCC-1)
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duly filed under the Uniform Commercial Code of all jurisdictions as may be
necessary or, in the opinion of the Lender, advisable to perfect the security
interests created by the Security Documents, (B) certified copies of Requests
for Information (Form UCC-11) or equivalent reports, dated prior to the first
Installment hereunder, listing the Financing Statements referred to in (A)
above and all other financing statements which name the Company as debtor and
which are filed in all jurisdictions referred to in (A) above, and (C) evidence
of the completion of all other recordings and filings and such other actions
necessary or, in the opinion of the Lender, advisable to perfect the security
interests created by the Security Documents.
(iv) Insurance. The Company shall have delivered to the Lender,
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consistent with the requirements of subparagraph 8(c), evidence satisfactory to
it that the Collateral is adequately insured.
(v) Warrant. The Company shall have executed and delivered to the
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Lender the Warrant.
(b) The obligation of the Lender to make any Installment on the
loan on the applicable Installment Funding Date or Delayed Installment Funding
Date, as the case may be, is also subject to the following conditions
precedent:
(i) UCC/Litigation/Tax Lien Search. Lender's counsel shall have
------------------------------
obtained at the Company's expense certified copies of Requests for Information
(Form UCC-11) listing all effective Universal Commercial Code financing
statements which name the Company as debtor and the results of such tax lien,
judgment and litigation searches, against such parties as the Lender may
reasonably require showing no liens and encumbrances and that the Company is
not subject to any pending material litigation, bankruptcy or material tax
liens.
(ii) Compliance. At the time of any Installment Funding Date or
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Delayed Installment Funding Date, as the case may be, (A) the Company shall
have complied and shall then be in compliance with all the terms, covenants and
conditions of this Agreement, the Note and the Security Documents which are
binding upon it, (B) there shall have occurred no event of default as defined
in Section 10 and no event which, with the giving of notice or the lapse of
time, or both, would constitute such an event of default, (C) the
representations and warranties contained in Section 6 shall be true with the
same effect as though such representations and warranties had been made at the
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time of such Installment Funding Date or Delayed Installment Funding Date, as
the case may be, and (D) the Lender shall have received a certificate dated the
date of such Installment Funding Date or Delayed Installment Funding Date, as
the case may be, and signed by the chief executive officer or the chief
financial officer of the Company to the foregoing effect.
(iii) Litigation. There shall not be pending or threatened any
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action or proceeding before any court or administrative agency relating to the
transactions contemplated by this Agreement, the Note, the Security Documents
or the Warrant which, in the reasonable judgment of the Lender, could
materially impair the ability of the Company to perform its obligations
hereunder or thereunder.
(iv) Other Documents. The Lender shall have received such other
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documents as the Lender may reasonably require.
8. Affirmative Covenants. So long as the Company may borrow
---------------------
hereunder and until payment in full of the Note and performance of all other
obligations of the Company hereunder, the Company will:
(a) Working Capital. Maintain an excess of consolidated current
---------------
assets over consolidated current liabilities of the Company and its
subsidiaries of not less than ($3.25 million), i.e., negative working capital
of $3.25 million. "Consolidated current assets" and "consolidated current
liabilities" are to be determined as to both classification of terms and
amounts in accordance with generally accepted accounting principles maintained
by the Company in the preparation of the financial statements referred to in
subparagraph 6(h); provided, however, that the cash balance, on the asset side,
and the unpaid loan balance hereunder, on the liability side, shall not be
counted for such purpose.
(b) Taxes. Pay and discharge, and cause each of its subsidiaries
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to pay and discharge, all taxes, assessments and governmental charges upon it,
its income and its properties prior to the date on which penalties are attached
thereto, unless and to the extent only that such taxes, assessments and
governmental charges shall be contested in good faith and by appropriate
proceedings by the Company or such subsidiary, as the case may be.
(c) Insurance. Maintain, and cause each of its subsidiaries to
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maintain, insurance with responsible insurance
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companies against such risks, on such properties and in such amounts as is
customarily maintained by similar businesses; and file, and cause each of its
subsidiaries to file, with the Lender upon its request a detailed list of the
insurance then in effect and stating the names of the insurance companies, the
amounts and rates of the insurance, dates of the expiration thereof and the
properties and risks covered thereby.
(d) Corporate Existence. Maintain its corporate existence in good
-------------------
standing, and qualify and remain qualified to do business as a foreign
corporation in each jurisdiction in which the character of the properties owned
or leased by it therein or in which the transaction of its business makes such
qualification necessary, and subject to the provisions of subparagraph 9(c),
cause each of its subsidiaries (other than DocuMagix, Inc.) so to do.
(e) Authorizations. Obtain, make and keep in full force and effect
--------------
all authorizations from and registrations with governmental authorities that
may be required for the validity or enforceability against the Company of this
Agreement, the Note, the Security Documents and the Warrant.
(f) Maintenance of Records. For the Company and each of its
----------------------
subsidiaries, (i) keep proper books of record and account in which full, true
and correct entries will be made of all dealings or transactions of or in
relation to its business and affairs; (ii) set up on its books reserves with
respect to all taxes, assessments, charges, levies and claims; and (iii) on a
current basis, set up on its books, from its earnings, appropriate reserves
against doubtful accounts receivable, advances and investments and all other
proper reserves (including, without limitation by reason of enumeration,
reserves for premiums, if any, due on required prepayments and reserves for
depreciation, obsolescence, or amortization of properties), which should be set
aside from such earnings in connection with its business. All determinations
pursuant to this subsection shall be made in accordance with, or as required
by, generally accepted accounting principles consistently applied in the
opinion of such independent public accountants as shall then be regularly
engaged by the Company.
(g) Maintenance of Property, Etc. (i) Except as otherwise
-----------------------
permitted herein, and except for parts and obsolete inventory items to be sold
in connection with the service and consumables business (the proceeds of which
will be deposited in the Asset Sales Account in accordance with Section 9(c)),
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62
maintain, keep and preserve and cause each of its subsidiaries to maintain,
keep and preserve all of its material properties in good repair, working order
and condition and from time to time make all necessary and proper repairs,
renewals, replacements, and improvements thereto, and (ii) maintain, preserve
and protect and cause each of its subsidiaries to maintain, preserve and
protect all franchises, licenses, copyrights, patents and trademarks material
to its business, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
(h) Conduct of Business. (i) Engage in as its principal business
-------------------
the unified messaging business, (ii) except as set forth in Schedule 8(h)
hereto, preserve, renew and keep in full force and effect all its material
contracts, (iii) preserve, renew and maintain in full force and effect all its
franchises and licenses necessary or desirable in the normal conduct of its
business as now conducted, (iv) comply with all of the terms of all instruments
which evidence, secure or govern the indebtedness of the Company and its
subsidiaries and comply in all material respects with all rules and regulations
of all governmental authorities, and (v) incur liabilities and otherwise
conduct its business only in the ordinary course of business consistent with
past practice.
(i) Notification of Events of Default and Adverse Developments.
----------------------------------------------------------
Promptly notify the Lender upon the discovery by the Company of the occurrence
of (i) any event of default, or any event which with the giving of notice or
lapse of time, or both, would constitute an event of default, hereunder; (ii)
any event, development or circumstance whereby the financial statements most
recently furnished to the Lender fail in any material respect to present
fairly, in accordance with generally accepted accounting principles, the
financial condition and operating results of the Company and its subsidiaries
as of the date of such financial statements; (iii) any litigation or
proceedings that are instituted or threatened (to the knowledge of the Company)
against the Company or its subsidiaries or any of their respective assets; (iv)
each and every event which would be an event or default (or an event which with
the giving of notice or lapse of time would be an event of default) under any
indebtedness of the Company or any of its subsidiaries, such notice to include
the names and addresses of the holders of such indebtedness and the amount
thereof; and (v) any other development in the business or affairs of the
Company or its subsidiaries if the effect thereof is likely to have a Material
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63
Adverse Effect; in each case describing the nature thereof and the action the
Company proposes to take with respect thereto.
(j) Environmental Matters. (i) Comply, and cause its subsidiaries
---------------------
to comply, in all material respects with all applicable environmental laws,
(ii) notify the Lender promptly after becoming aware thereof of any release,
adverse environmental condition or environmental claim in connection with the
Company's or any subsidiaries' facilities, and (iii) promptly forward to the
Lender a copy of any order, notice, permit, application, or any other
communication or report received by Company or any of its subsidiaries in
connection with any such matters as they may affect such premises, if material.
(k) Reporting Obligations. As soon as practicable, but in any
---------------------
event within fifteen (15) days after the end of each month prior to such time
as the principal balance of the Note is repaid in full, the Company shall
provide to the Lender unaudited monthly consolidated financial statements of
the Company and its subsidiaries for such month prepared in accordance with
generally acceptable accounting principles, together with a certificate by the
chief financial officer of the Company that the information contained in such
financial statements fairly presents in all material respects the financial
condition of the Company and its subsidiaries on the date thereof (subject to
year-end adjustments). The Company shall from time to time provide to the
Lender such other financial data and information as the Lender may reasonably
request.
(l) Option Exercises. The Company will deposit into the Asset
----------------
Sales Account (as hereinafter defined) any proceeds received by the Company
upon exercise of Company Stock Options, Existing Warrants, the Warrant, or any
other warrants or stock options of the Company.
(m) Phone Numbers. Upon contracting with a new local exchange or
-------------
other carrier for the provision of DID Numbers, the Company will, within ten
(10) days of such contract, notify the Lender and provide to the Lender the
letter described in Section 3(e) of this Agreement from such carrier.
9. Negative Covenants. So long as the Company may borrow hereunder
------------------
and until payment in full of the Note and performance of all other obligations
of the Company hereunder, the Company will not:
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64
(a) Borrowing. Create, incur, assume or suffer to exist any
---------
liability for borrowed money, or permit any subsidiary so to do, except
indebtedness to the Lender. "Borrowed money" means any obligation to repay
money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under generally
accepted accounting principles would be capitalized on the books of the Company
or which is the substantial equivalent of the financing of the property so
leased.
(b) Mortgages and Pledges. Create, incur, assume or suffer to
---------------------
exist any mortgage, pledge, lien or other encumbrance of any kind (including
the charge upon property purchased under conditional sale or other title
retention agreements) upon, or any security interest in, any of its property or
assets, whether now owned or hereafter acquired, or permit any subsidiary so to
do, except (i) liens for taxes not delinquent or being contested in good faith
and by appropriate proceedings, (ii) deposits or pledges to secure obligations
under workmen's compensation, social security or similar laws, or under
unemployment insurance, (iii) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of business, (iv) mechanic's, workmen's,
materialmen's or other like liens arising in the ordinary course of business
with respect to obligations which are not due or which are being contested in
good faith, (v) existing liens as set forth on Schedule 9(b) hereto, and (vi)
purchase money security interests on assets acquired in the ordinary course of
business securing indebtedness otherwise permitted to be incurred hereunder,
incurred in connection with the acquisition of such assets, which liens cover
only the assets so acquired.
(c) Merger, Acquisition or Sale of Assets. Enter into any merger
-------------------------------------
or consolidation or acquire all or substantially all of the assets of any
person, firm, joint venture, corporation or other entity, or sell, lease, or
otherwise dispose of any of its assets except in the ordinary course of its
business, or permit any subsidiary so to do, except that a wholly-owned
subsidiary may be merged or consolidated with one or more other wholly-owned
subsidiaries or into the Company and except that the Company shall have the
right to dispose of "non-core" assets having an aggregate value not to exceed
$100,000 (absent the approval of Lender, such approval not to be unreasonably
withheld), all the
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65
proceeds of which shall be deposited by the Company into a segregated account
(the "Asset Sales Account") which shall form part of the Collateral under the
Security Documents and shall not be used to fund the Company's operating
expenses.
(d) Loans. Make loans or advances to any person, firm, joint
-----
venture, corporation or other entity, or permit any subsidiary so to do.
(e) Contingent Liabilities. Assume, guarantee, endorse,
----------------------
contingently agree to purchase or otherwise become liable upon the obligation
of any person, firm, joint venture, corporation or other entity (other than in
connection with a merger permitted by subparagraph 9(c)), or permit any
subsidiary so to do.
(f) Investments. Purchase or acquire the obligations or stock of,
-----------
or any other interest in, any person, firm, joint venture, corporation or other
entity, or permit any subsidiary so to do, except (i) direct obligations of the
United States of America and (ii) certificates of time deposit issued by a
commercial Lender having a combined capital and surplus of at least $50,000,000
and chartered under the laws of the United States or one of the States thereof.
(g) Capital Expenditures. Make any capital expenditures, or permit
--------------------
any subsidiary so to do, in any one fiscal quarter exceeding in the aggregate
for the Company and its subsidiaries $250,000.
(h) Dividends and Purchase of Stock. Declare any dividends (other
-------------------------------
than dividends payable in capital stock of the Company) on any shares of any
class of its capital stock, or apply any of its property or assets to the
purchase, redemption or other retirement of, or set apart any sum for the
payment of any dividends on, or for the purchase, redemption or other
retirement of, or make any other distribution by reduction of capital or
otherwise in respect of, any shares of any class of capital stock of the
Company, or permit any subsidiary to purchase or acquire any shares of any
class of capital stock of the Company.
(i) Stock of Subsidiaries. Sell or otherwise dispose of any shares
---------------------
of capital stock of any subsidiary or permit any subsidiary to issue any
additional shares of its capital stock.
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(j) Cash Disbursements. During any period of two (2) consecutive
------------------
calendar months (beginning May 1, 2000), make cash expenditures (net of any
Excluded Professional Fees and Severance Payments (as hereinafter defined) and
without credit being given for cash received from asset sales) of greater than
$2,500,000. As used herein, "Excluded Professional Fees and Severance
Payments" shall mean Borrower's cash expenditures for professional fees and
severance payments, which expenditures shall not exceed $1,000,000 in the
aggregate absent approval of the Lender (such approval not to be unreasonably
withheld).
10. Events of Default. If one or more of the following events of
-----------------
default (each, an "Event of Default") shall occur:
(a) Default shall be made in the payment of principal of or
interest upon the Note when due and payable, whether at maturity, by
notice of intention to prepay or otherwise;
(b) Default shall be made in the due observance or
performance of any term, covenant or agreement contained in
subparagraph 8(a) or paragraph 9 hereof;
(c) Default shall be made in the due observance or
performance of any other term, covenant or agreement contained in
this Agreement, and such default shall have continued unremedied for
a period of 20 days after the Company becomes aware of such default;
(d) Any representation or warranty made by the Company herein
or any representation made in any certificate, report or opinion
delivered in connection herewith shall prove to have been misleading
in any material respect when made or deemed to be made;
(e) Any obligation of the Company (other than its obligations
hereunder) or of any subsidiary for the payment of borrowed money (as
defined in subparagraph 9(a)) is not paid when due or becomes or is
declared to be due and payable prior to the expressed maturity
thereof, or there shall have occurred an event which, with the giving
of notice or lapse of time, or both, would
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cause any such obligation to become, or allow any such obligation to
be declared to be, due and payable;
(f) The Company or any subsidiary makes an assignment for the
benefit of creditors, files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for any
receiver of or any trustee for the Company or any subsidiary or any
substantial part of its property, commences any proceeding relating
to the Company or any subsidiary under any reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, or
there is commenced against the Company or any subsidiary any such
proceeding which remains undismissed for a period of 30 days, or the
Company or any subsidiary by any act indicates its consent to,
approval of or acquiescence in any such proceeding or the appointment
of any receiver of or any trustee for the Company or any subsidiary
or any substantial part of its property, or suffers any such
receivership or trusteeship to continue undischarged for a period of
30 days; or
(g) One or more judgments against the Company or any
subsidiary or attachments against its property, which in the
aggregate exceed $50,000, or the operation or result of which could
be to interfere materially and adversely with the conduct of the
business of the Company or any subsidiary, remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of 20
days;
then, upon the happening of any of the foregoing events of default which shall
be continuing, the Note shall become and be immediately due and payable upon
declaration to that effect delivered by the Lender to the Company; provided
that, upon the happening of any event specified in subparagraph 9(f), the Note
shall be immediately due and payable without declaration or other notice to the
Company. The Company expressly waives any presentment, demand, protest or
other notice of any kind.
11. Miscellaneous.
-------------
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(a) Expenses. The Company agrees to pay all out-of-pocket expenses
--------
of the Lender (including the reasonable fees and expenses of its counsel) in
connection with and any amendments or supplements to this Agreement and the
enforcement of any provision of this Agreement or any amendment or supplement
and the collection of the Note.
(b) Cumulative Rights and No Waiver. Each and every right granted
-------------------------------
to the Lender hereunder or under any other document delivered hereunder or in
connection herewith, or allowed it by law or equity, shall be cumulative and
may be exercised from time to time. No failure on the part of the Lender to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise by the Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right.
(c) Notices. Any communication, notice or demand to be given
-------
hereunder or on the Note issued hereunder shall be duly given if delivered or
mailed by certified or registered mail as follows:
If to the Company, at
▇▇▇▇.▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Lender, at
▇▇▇▇.▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
(d) Applicable Law. This Agreement and the rights and obligations
--------------
of the parties hereunder shall be governed by the laws of the State of
California, both in interpretation and performance.
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67
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
▇▇▇▇.▇▇▇
By
------------------------------
▇▇▇▇.▇▇▇, Inc.
By
------------------------------
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68