EXHIBIT 10.27
TERM LOAN AGREEMENT
TERM LOAN AGREEMENT, dated May 5, 2000 by and between xXXX.xxx, a
Delaware corporation (the "Company"), and XXXX.XXX, 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
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gives the Lender at least forty-eight (48) hours' 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 by
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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 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
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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)
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through (g), together with the Security Agreement, the "Security Documents").
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 less
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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 the
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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
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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 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,
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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 xxxx.xxx 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
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Company of this Agreement, the Note, the
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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, 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
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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 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
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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
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"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
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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).
(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
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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 its
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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,
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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 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
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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
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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
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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.
(p) Environmental Protection. To the Company's knowledge, based upon
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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
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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
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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.
(r) Location of Assets. All of the assets of the Company are located
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in Xxxxx Xxxx, Xxxxxxxxxx xxx Xxxxx Xxxxxxx, Xxxxxxxxxx, 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) sets
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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
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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.
(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 and
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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.
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(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
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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) 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
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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.
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(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 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 action
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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
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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
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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.
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(b) Taxes. Pay and discharge, and cause each of its subsidiaries to
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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 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
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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
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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
14
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)),
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
15
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 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,
16
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:
(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
17
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
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.
18
(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.
(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
19
for a period of 20 days after the Company be comes 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 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
20
(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.
-------------
(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:
21
If to the Company, at
xXXX.xxx
0000 Xxxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxx
Facsimile No: (000) 000-0000
If to the Lender, at
XXXX.XXX, Inc.
0000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxx and
Xxxxxxxx X. Xxxxxxxx
Facsimile No: (000) 000-0000
(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.
22
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
xXXX.xxx
By/s/ Xxxx X. Xxxxx
-----------------
XXXX.XXX, Inc.
By/s/ Xxxxxx X. Xxxxxxxxx
-----------------------
23
