EXHIBIT 10.6
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$4,000,000
SECURED REVOLVING CREDIT AGREEMENT
Dated as of
November 13, ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇ TECHNOLOGIES, INC.
AND
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
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TABLE OF CONTENTS
SECTION 1. DEFINITIONS; INTERPRETATION ..................................... 1
Section 1.1 Definitions ............................................. 1
Section 1.2 Interpretation .......................................... 10
SECTION 2. THE CREDIT FACILITY ............................................. 10
Section 2.1 Loans ................................................... 10
Section 2.2 Manner of Borrowing ..................................... 10
Section 2.3 Interest Payments ....................................... 10
Section 2.4 Maturity of Loans ....................................... 11
Section 2.5 The Note ................................................ 11
Section 2.6 Optional Prepayments .................................... 12
Section 2.7 Mandatory Prepayments ................................... 12
Section 2.8 Revolving Commitment Reduction or Termination ........... 12
SECTION 3. PAYMENTS AND EXPENSES ........................................... 12
Section 3.1 Place and Application of Payments ....................... 12
Section 3.2 Expenses ................................................ 12
SECTION 4. CONDITIONS PRECEDENT ............................................ 13
Section 4.1 Conditions Precedent to Initial Borrowing .................. 13
Section 4.2 Conditions Precedent to all Borrowings ..................... 14
SECTION 5. REPRESENTATIONS AND WARRANTIES 15
Section 5.1 Organization ............................................ 15
Section 5.2 Power and Authority; Validity ........................... 15
Section 5.3 No Violation ............................................ 16
Section 5.4 Litigation .............................................. 16
Section 5.5 Use of Proceeds; Margin Regulations ..................... 16
Section 5.6 Investment Company Act .................................. 16
Section 5.7 Public Utility Holding Company Act ...................... 16
Section 5.8 True and Complete Disclosure ............................ 16
Section 5.9 Financial Statements .................................... 17
Section 5.10 No Material Adverse ..................................... 17
Section 5.11 Labor Controversies ..................................... 17
Section 5.12 Taxes ................................................... 17
Section 5.13 ERISA ................................................... 17
Section 5.14 Consents ................................................ 18
Section 5.15 Capitalization .......................................... 18
Section 5.16 Ownership of Property ................................... 18
Section 5.17 Compliance with Statutes ................................ 18
Section 5.18 Environmental Matters ................................... 18
Section 5.19 Year 2000 Compliance .................................... 19
SECTION 6. COVENANTS ....................................................... 19
Section 6.1 Existence ............................................... 20
Section 6.2 Maintenance ............................................. 20
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Section 6.3 Taxes ................................................... 20
Section 6.4 ERISA ................................................... 20
Section 6.5 Insurance ............................................... 20
Section 6.6 Financial Reports and Other Information ................. 21
Section 6.7 Lender Inspection Rights ................................ 23
Section 6.8 Conduct of Business ..................................... 23
Section 6.9 New Subsidiaries ........................................ 23
Section 6.10 Dividends; Negative Pledges ............................. 23
Section 6.11 Restrictions on Fundamental Changes ..................... 24
Section 6.12 Environmental Laws ...................................... 24
Section 6.13 Liens ................................................... 24
Section 6.14 Indebtedness ............................................ 25
Section 6.15 Loans, Advances and Investments ......................... 26
Section 6.16 Capital Expenditures .................................... 26
Section 6.17 Transfer of Assets ...................................... 27
Section 6.18 Transactions with Affiliates ............................ 27
Section 6.19 Compliance with Laws .................................... 27
Section 6.20 Royalties ............................................... 27
Section 6.21 Corporate Governance Documents .......................... 27
SECTION 7. EVENTS OF DEFAULT AND REMEDIES .................................. 27
Section 7.1 Events of Default ....................................... 27
Section 7.2 Non-Bankruptcy Defaults ................................. 30
Section 7.3 Bankruptcy Defaults ..................................... 30
SECTION 8. MISCELLANEOUS ................................................... 30
Section 8.1 No Waiver of Rights ..................................... 30
Section 8.2 Non-Business Day ........................................ 30
Section 8.3 Documentary Taxes ....................................... 30
Section 8.4 Survival of Representations ............................. 31
Section 8.5 Setoff .................................................. 31
Section 8.6 Notices ................................................. 31
Section 8.7 Counterparts ............................................ 32
Section 8.8 Successors and Assigns .................................. 33
Section 8.9 Participations in Borrowings and Note; Transfers of
Borrowings and Note ..................................... 33
Section 8.10 Amendments .............................................. 33
Section 8.11 Headings ................................................ 33
Section 8.12 Legal Fees, Other Costs and Indemnification ............. 34
Section 8.13 Governing Law; Submission to Jurisdiction; Waiver of
Jury Trial; Arbitration ................................. 34
Section 8.14 Severability ............................................ 36
Section 8.15 Effective Date .......................................... 36
Section 8.16 Notice .................................................. 36
SCHEDULES
Schedule 5.4 - Litigation
Schedule 5.11 - Capitalization
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SECURED REVOLVING CREDIT AGREEMENT, dated as of November 13, 1998, between
Elgin Technologies, Inc., a Delaware corporation (the "Borrower"), and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇. (the "Lender").
WITNESSETH:
WHEREAS, the Borrower desires to obtain a commitment from the Lender to
make loans to the Borrower; and
WHEREAS, the Lender is willing to extend such commitment to the Borrower
on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1. 1 Definitions. Unless otherwise defined herein, the following
terms shall have the following meanings:
"ACL" means American Compact Lighting, L.L.C.
"Affiliate" means, for any Person, (i) any other Person that directly or
indirectly through one or more intermediaries controls, or is under common
control with, or is controlled by, such Person, and (ii) any other Person owning
beneficially or controlling ten percent (10%) or more of the equity interests in
such Person. As used in this definition, "control" means the power, directly or
indirectly, to direct or cause the direction of management or policies of a
Person (through ownership of voting securities or other equity interests, by
contract or otherwise).
"Agreement" means this Secured Revolving Credit Agreement, as amended,
restated or supplemented from time to time.
"Borrower" means Elgin Technologies, Inc., a Delaware corporation.
"Borrowing" means any extension of credit made by the Lender by way of
Loans.
"Borrowing Base" means at any time an amount equal to the sum of (i)
eighty percent (80%) of Eligible Accounts, and (ii) fifty percent (50%) of
Eligible Inventory: The Borrowing Base shall be determined monthly and shall be
subject to field audits and other verification at the expense of the Borrower as
reasonably requested by the Lender.
"Borrowing Base Certificate" means a certificate in form and substance
satisfactory to the Lender.
"Borrowing Request" means a borrowing request as defined in Section 2.2.
"Business Day" means any day other than a Saturday or Sunday on which
banks are not authorized or required to close in Dallas, Texas.
"Capital Expenditures" means, for any period, the sum, without
duplication, of all expenditures of the Borrower and its Subsidiaries for fixed
or capital assets made during such period which, in accordance with GAAP, are
required to be classified as capital expenditures.
"Capitalized Lease Obligations" means, for the Borrower and its
Subsidiaries, the amount of such Persons' liabilities under all leases of real
or personal property (or any interest therein) which is required to be
capitalized on the balance sheets of such Persons, determined in accordance with
GAAP.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof having maturities of not more than twelve (12) months
from the date of acquisition; (ii) U.S. Dollar denominated time deposits and
certificates of deposit maturing within one (1) year from the date of
acquisition thereof with the Lender or any other financial institution whose
short-term senior unsecured debt rating is at least A-1 from S&P or P-1 from
Moody's; (iii) LIBOR denominated time deposits and certificates of deposit
maturing within six (6) months from the date of acquisition thereof with the
Lender or any other financial institution whose short-term senior unsecured debt
rating is at least A-1 from S&P or P-1 from Moody's; (iv) commercial paper or
Eurocommercial paper with a rating of at least A-1 from S&P or P-1 from Moody's,
with maturities of not more than twelve (12) months from the date of
acquisition; (v) repurchase obligations entered into with any financial
institution whose short-term senior unsecured debt rating is at least A-1 from
S&P or P-1 from Moody's, which are secured by a fully perfected security
interest in any obligation of the type described in (i) above and has a market
value of the time such repurchase is entered into of not less than 100% of the
repurchase obligation of such Person thereunder; (vi) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within twelve (12) months from the date of acquisition thereof or providing for
the resetting of the interest rate applicable thereto not less often than
annually and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; and (vii) money market funds which have
at least $1,000,000,000 in assets and which invest primarily in securities of
the types described in clauses (i) through (vi) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all property and assets of the Borrower and its
Subsidiaries in which the Lender is granted a Lien pursuant to the terms of a
Security Document.
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"Credit Documents" means this Agreement, the Note, the Stock Pledge
Agreement, the Security Agreements, the Subsidiary Guaranties, the First
Additional Warrant, the Second Additional Warrant, the Registration Rights
Agreement, the First Amendment to Voting Agreement, the Borrowing Requests, the
Borrowing Base Certificates and any other documents or instruments executed by
any Credit Party in connection with this Agreement.
"Credit Party" means the Borrower, the Guarantors and any other Person who
from time to time is a party to a Credit Document.
"DC&A" means D C & A Partners, Inc., a New York corporation.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Dollar" and "U.S. Dollar" and the sign "$" means lawful money of the
United States of America.
"e^2" means e^2 Electronics, Inc., a Delaware corporation.
"e^2 Financing Documents" means the Financing Documents referenced in that
certain Assignment and Assumption Agreement dated as of April 23, 1998, by and
between DC&A and Star Bank, National Association, as heretofore amended.
"Effective Date" means the date this Agreement becomes effective as
defined in Section 8.15.
"Eligible Accounts" means, as of the date of the determination thereof,
the then aggregate outstanding unpaid balance of all accounts receivable owed to
the Borrower and its Subsidiaries arising from the sale by the Borrower and its
Subsidiaries of finished goods or services to account debtors which meet the
Borrower's or such Subsidiary's credit standards in effect on such date and
which meet all of the criteria listed below:
(a) the account receivable of an account debtor of the Borrower or
the relevant Subsidiary has not been outstanding for more than ninety (90)
days after the date of invoice and the account debtor of the account
receivable is not the debtor on any other account receivable owed to the
Borrower or any of its Subsidiaries where the account has been outstanding
for more than ninety (90) days after the date of invoice; provided that
(i) any account receivable more than ninety (90) days past due may be
included as an Eligible Account to the extent that the payment of the
account receivable by the account debtor is secured by a letter of credit
issued or confirmed by a financial institution reasonably acceptable to
the Lender with the terms thereof matching the terms of payment of such
invoice by such account debtor, or if the account receivable is not
supported by such a letter of credit, the account debtor of the account
receivable is insured on terms satisfactory
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to the Lender in its sole discretion or from a list of account debtors
approved by the Lender from time to time in its sole discretion and (ii)
the accounts receivable of the Borrower and its Subsidiaries more than
ninety (90) days past due as of the Effective Date (excluding any accounts
receivable the subject of a dispute or otherwise not qualifying as
Eligible Accounts pursuant to the terms of (b) through (h) below) shall be
included as Eligible Accounts for a period of sixty (60) days from the
Effective Date;
(b) the account receivable was invoiced on or within thirty (30)
days after the date of shipment of the finished goods covered thereby or
completion of the services giving rise to such account and the account
receivable is not for a progress billing or unbilled retainage;
(c) the account receivable constitutes a valid, binding and legally
enforceable obligation of the account debtor to the Borrower or the
relevant Subsidiary;
(d) the account receivable has not been sold or assigned, in whole
or in part, and is not subject to any Lien other than under the Security
Documents;
(e) neither the Borrower nor any of its Subsidiaries has any notice
that the account debtor of such account receivable is a debtor under any
proceeding under the Bankruptcy Code or any comparable insolvency law;
(f) the Lender at all times has a perfected first priority security
interest in such account receivable;
(g) the account debtor of the account receivable is not an Affiliate
of the Borrower or a governmental entity; and
(h) an account receivable shall not be included in the calculation
of Eligible Accounts to the extent that (i) such account receivable is
subject to any claimed offset, counterclaim or other defense, or the
goods, the sale of which gave rise to the account receivable, have been
returned, rejected, lost or damaged, or (ii) such inclusion would result
in the accounts receivable in the name of the account debtor (other than
receivables supported by a letter of credit issued or confirmed by a
financial institution acceptable to the Lender and other account debtors
approved by the Lender from time to time in its sole discretion)
constituting more than twenty percent (20%) of all Eligible Accounts.
"Eligible Inventory" means, as of the date of the determination thereof,
the historical cost (net of any write-downs thereto) of all goods held for sale
or to be furnished under contracts of service, including raw materials and
finished goods, but excluding obsolete and slow moving inventory, owned by the
Borrower or any Subsidiary and in the possession of such Person and located in
the United States of America in which the Lender has a perfected first priority
security
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interest and which is subject to no Lien other than under the Security
Documents, determined in accordance with GAAP.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violations, investigations or proceedings relating to any
Environmental Law ("Claims") or any permit issued under any Environmental Law,
including, without limitation, (i) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (ii)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to health
or safety in relation to the environment.
"Environmental Law" means any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now or hereafter in
effect, including any judicial or administrative order, consent, decree or
judgment relating to (i) the environment, (ii) health or safety in relation to
the environment or (iii) Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the events or circumstances specified in
Section 7.1.
"First Additional Warrant" means the Warrant for 267,000 shares of common
stock of the Borrower at a strike price of $0.55 in form and substance
satisfactory to the Lender, as it may be amended, restated or supplemented from
time to time.
"First Amendment to Voting Agreement" means the first amendment to the
Voting Agreement in form and substance satisfactory to the Lender, as it may be
amended, restated or supplemented from time to time.
"GAAP" means generally accepted accounting principles from time to time in
effect as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the statements and pronouncements of the Financial Accounting Standards Board or
in such other statements, opinions and pronouncements by such other entity as
may be approved by a significant segment of the U.S. accounting profession.
"Guarantor" means each of ▇▇▇▇▇▇ Power, Logic Labs, and any other
Subsidiary of the Borrower required to become a Guarantor pursuant to Section
6.9.
"Guaranty" by any Person means all obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guarantying or in effect guarantying any
Indebtedness, dividend or other obligation (including, without limitation,
obligations in connection with sales of any property) of any other Person (the
"primary
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obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation, or
to purchase any property or assets constituting security therefor, primarily for
the purpose of assuring the owner of such Indebtedness or obligations of the
ability of the primary obligor to make payment of the Indebtedness or
obligation; or (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, or (y) to maintain working capital or other
balance sheet condition, or otherwise to advance or make available finds for the
purchase or payment of such Indebtedness or obligation, in each case primarily
for the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation; or (iii) to lease property or to purchase securities or other
property or services of the primary obligor primarily for the purpose of
assuring the owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of the Indebtedness or obligation; or (iv)
otherwise to assure the owner of the Indebtedness or obligation of the primary
obligor against loss in respect thereof.
"Hazardous Material" shall have the meaning assigned to that term in the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Acts of 1986, and shall
include any substance defined as "hazardous" or "toxic" or words used in place
thereof under any Environmental Law applicable to the Borrower.
"Highest Lawful Rate" means the maximum nonusurious interest rate, if any,
that any time or from time to time may be contracted for, taken, reserved,
charged or received on the Loans or under laws applicable to the Lender, which
are presently in effect or, to the extent allowed by applicable law, under such
laws which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow. Determination of the
rate of interest for the purpose of determining whether the Loans are usurious
under all applicable laws shall be made by amortizing, prorating, allocating,
and spreading, in equal parts during the period of the full stated term of the
Loans, all interest at any time contracted for, taken, reserved, charged or
received from the Borrower in connection with the Loans, as applicable.
"Indebtedness" means, for any Person, the following obligations of such
Person, without duplication: (i) obligations of such Person for borrowed money;
(ii) obligations of such Person representing the deferred purchase price of
property or services other than accounts payable arising in the ordinary course
of business and other than amounts which are being contested in good faith and
for which reserves in conformity with GAAP have been provided; (iii)
obligations of such Person evidenced by bonds, debentures, notes, bankers
acceptances or other similar instruments of such Person or reimbursement
obligations or other obligations with respect to letters of credit issued for
such Person's account or letters of credit issued pursuant to such Person's
application therefor; (iv) obligations of other Persons, whether or not assumed,
secured by Liens upon property or payable out of the proceeds or production from
property now or hereafter owned or acquired by such Person, but only to the
extent of such property's fair market
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value; (v) Capitalized Lease Obligations of such Person; (vi) obligations under
Interest Rate Protection Agreements and any hedge, swap, exchange, forward,
future, collar or cap arrangements, fixed price agreements or other agreements
or arrangements designed to protect against fluctuations in commodity prices or
currency exchange rates; and (vii) obligations of such Person pursuant to a
Guaranty of any of the foregoing of another Person. For purposes of this
Agreement, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture to the extent such Indebtedness has recourse to
such Person.
"Initial Borrowing Date" means the date on which all conditions precedent
set forth herein to the initial Borrowings are satisfied or waived in writing
and the initial Borrowing hereunder occurs.
"Interest Payment Date" means the last Business Day of each calendar month
such Loan is outstanding commencing November 30, 1998.
"Investments" has the meaning assigned to such term in Section 6.15.
"Lender" is defined in the preamble.
"Lien" means any interest in any property or asset in favor of a Person
other than the owner of the property or asset and securing an obligation owed to
such Person, whether such interest is based on the common law, statute or
contract, including, but not limited to, the security interest lien arising from
a mortgage, encumbrance, pledge, conditional sale, security agreement or trust
receipt, or a lease, consignment or bailment for security purposes.
"Loan" has the meaning assigned to such term in Section 2.1.
"Logic Labs" means Logic Laboratories, Inc., a Delaware corporation and a
wholly owned Subsidiary of the Borrower.
"Material Adverse Effect" means an effect that results in a material
adverse change since September 30, 1998, in (i) the business, properties,
assets, condition (financial or otherwise) or prospects of the Borrower or the
Borrower and its Subsidiaries taken as a whole, or (ii) in the ability of the
Borrower or the Borrower and the Guarantors, taken as a whole, to perform its
Obligations under the Credit Documents to which it is a party.
"Maturity Date" means November 12, 2000.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc. or any successor thereto.
"Note" means the convertible revolving promissory note of the Borrower
defined in Section 2.5.
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"Obligations" means all obligations of the Borrower and any other Credit
Party to pay fees, costs and expenses hereunder, to pay principal or interest on
Loans and to pay any other obligations to the Lender arising under or in
relation to any Credit Document.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Business" means any business described in Section 6.8.
"Permitted Liens" means the Liens described in Section 6.13.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or any agency or political subdivision
thereof.
"Plan" means an employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
is either (i) maintained by the Borrower or any of its Subsidiaries or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
any of such entities is then making or accruing an obligation to make
contributions or has within the preceding five (5) plan years made or had an
obligation to make contributions.
"Registration Rights Agreement" means the Registration Rights Agreement by
and between the Borrower and the Lender dated as of November 13, 1998, as it may
be amended, restated or supplemented from time to time.
"Revolving Commitment" means the Lender's obligations to make Loans.
"Revolving Commitment Amount" means an amount equal to $4,000,000 minus
the aggregate principal amount of Loans converted to common stock of the
Borrower pursuant to the terms and conditions of the Note, if any, as such
amount may be reduced from time to time pursuant to the terms of this Agreement.
"Revolving Commitment Termination Date" means the earliest of (i) the
Maturity Date, (ii) the date on which the Revolving Commitment Amount has been
reduced to zero, or (iii) the occurrence of any Event of Default described in
Sections 7.1(f) or (g) or the occurrence and continuance of any other Event of
Default and the giving of written notice by the Lender to the Borrower pursuant
to Section 7.2 that the Revolving Commitment has been terminated.
"Revolving Line of Credit" has the meaning assigned to such term in
Section 2.1.
"Royalty Agreement" means that certain Assumption, Payment Agreement and
Amended and Restated Royalty Agreement dated as of January 25, 1996, by and
among ▇▇▇▇▇▇▇▇▇ and ACL, as amended by that certain Amendment to Royalty
Agreement dated as of April 15, 1998, by and between ▇▇▇▇▇▇▇▇▇ and Logic Labs.
"S&P" means Standard & Poor's Rating Group or any successor thereto.
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"Second Additional Warrant" means the Warrant for 267,000 shares of common
stock of the Borrower at a strike price of $0.55 in substantially the form of
the First Additional Warrant, as it may be amended, restated or supplemented
from time to time.
"Security Agreements" means the Security Agreements and Financing
Statements in form and substance satisfactory to the Lender executed by each of
the Borrower and the Guarantors, as they may be amended, restated or
supplemented from time to time.
"Security Documents" means the Stock Pledge Agreement, the Security
Agreements and all other security agreements, mortgages and like agreements or
instruments delivered by the Borrower or any Guarantor granting a Lien in any
of such Person's property or assets to the Lender to secure the Obligations, as
they may be amended, restated or supplemented from time to time.
"▇▇▇▇▇▇▇▇▇" means ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
"Stock Pledge Agreement" means the Stock Pledge Agreement executed by the
Borrower in form and substance satisfactory to the Lender executed by the
Borrower, as it may be amended, restated or supplemented from time to time.
"Subsidiary" means, for any Person, any corporation or other entity of
which more than fifty percent (50%) of the outstanding stock or comparable
equity interests having ordinary voting power for the election of the board of
directors of such corporation, any managers of such limited liability company or
similar governing body (irrespective of whether or not, at the time, stock or
other equity interests of any other class or classes of such corporation or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by such Person, as
applicable; provided that e^2 shall not be considered a Subsidiary of the
Borrower for purposes of this Agreement.
"Subsidiary Guaranty" means the Subsidiary Guaranty executed by each
Subsidiaries of the Borrower in form and substance satisfactory to the Lender,
as they may be amended, restated or supplemented from time to time.
"Taxes" has the meaning assigned to such term in Section 5.12.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, determined as of the then most recent valuation date
for such Plan, but only to the extent that such excess represents a potential
liability of the Borrower or any of its Subsidiaries to the PBGC or such Plan.
"Voting Agreement" means the Voting Agreement dated as of April 1, 1998,
by and among the Borrower, ▇▇▇▇▇ ▇▇▇▇▇ Holdings, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇ and the Borrower.
"▇▇▇▇▇▇ Power" means ▇▇▇▇▇▇ Power Systems, Inc., a Delaware corporation
and a wholly owned Subsidiary of the Borrower.
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Section 1.2 Interpretation. The foregoing definitions shall be equally
applicable to the singular and plural forms of the terms defined. All references
to times of day in this Agreement shall be references to Dallas, Texas time
unless otherwise specifically provided.
SECTION 2. THE CREDIT FACILITY.
Section 2.1 Loans. Subject to the terms and conditions hereof, the Lender
agrees to make one or more loans (each, a "Loan") to the Borrower on a revolving
basis from time to time before the Revolving Commitment Termination Date in an
aggregate amount not to exceed at any time outstanding an amount equal to the
Revolving Commitment Amount, subject to any reductions of such commitment
pursuant to the terms of this Agreement (the "Revolving Line of Credit");
provided that the Lender shall have no obligation to make a Loan if, after the
making of such Loan, the outstanding principal amount of Loans would thereby
exceed the lesser of (i) the Revolving Commitment Amount then in effect, or (ii)
the Borrowing Base. Subject to the terms and conditions hereof, the Borrower may
borrow, repay and reborrow under the Revolving Line of Credit.
Section 2.2 Manner of Borrowing. The Borrower shall give notice to the
Lender by no later than 9:00 a.m. on the date the Borrower requests the Lender
to advance a Borrowing of Loans pursuant to a duly executed Borrowing Request (a
"Borrowing Request") in form and substance satisfactory to the Lender. Not later
than 1:30 p.m. on the date of any requested advance of a new Borrowing of a
Loan, the Lender, subject to all other provisions hereof, shall make available
its Loan in funds immediately available in Dallas, Texas for the benefit of the
Borrower. Each Borrowing shall be in a minimum amount of not less than $50,000.
Section 2.3 Interest Payments.
(a) Interest Rate. Each Loan shall bear interest (computed on the
basis of a 365/366-day year and actual days elapsed, excluding the date of
repayment) on the unpaid principal amount thereof from the date such Loan
is made until maturity (whether by acceleration or otherwise) at a rate
per annum equal to the lesser of (i) the Highest Lawful Rate, or (ii) a
fixed rate of ten percent (10%) per annum, payable in arrears on each
Interest Payment Date for such Loan and at maturity (whether by
acceleration or otherwise).
(b) Default Rate. If any payment of principal and/or interest on any
Loan is not made or paid when due (whether by acceleration or otherwise),
such Loan and/or interest thereon shall bear interest (computed on the
basis of a 365/366-day year and actual days elapsed) from the date such
payment was due until such principal and/or interest then due is paid in
full, payable on demand, at a rate per annum equal to the lesser of (i)
the Highest Lawful Rate, or (ii) the sum of fifteen percent (15%) per
annum.
(c) Usury Savings Clause. It is the intention of the Lender to
conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated hereby or the Loans would be usurious as to the
Lender under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose
laws
10
may be mandatorily applicable to the Lender notwithstanding the other
provisions of this Agreement, the Note or any other Credit Document),
then, in that event, notwithstanding anything to the contrary in this
Agreement, the Note or any other Credit Document, it is agreed as follows:
(i) the aggregate of all consideration which constitutes interest under
laws applicable to the Lender that is contracted for, taken, reserved,
charged or received by the Lender under this Agreement, the Note or any
other Credit Document or otherwise shall under no circumstances exceed the
Highest Lawful Rate, and any excess shall be credited by the Lender on the
principal amount of the Note (or, if the principal amount of the Note
shall have been paid in full, refunded by the Lender to the Borrower);
(ii) in the event that the maturity of the Note is accelerated by reason
of an election of the holder or holders thereof resulting from any Event
of Default hereunder or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest
under laws applicable to the Lender may never include more than the
Highest Lawful Rate, and excess interest, if any, provided for in this
Agreement, the Note any other Credit Document or otherwise shall be
automatically canceled by the Lender as of the date of such acceleration
or prepayment and, if theretofore paid, shall be credited by the Lender on
the principal amount of the Note (or if the principal amount of the Note
shall have been paid in full, refunded by the Lender to the Borrower); and
(iii) if at any time the interest provided under this Agreement, the Note
or any other Credit Document, together with any other fees payable
pursuant to this Agreement, the Note or any other Credit Document and
deemed interest under applicable law, exceeds the amount that would have
accrued at the Highest Lawful Rate, the amount of interest and any such
fees to accrue to the Lender hereunder and thereunder shall be limited to
the amount which would have accrued at the Highest Lawful Rate, but any
subsequent reductions shall not reduce the interest to accrue to the
Lender hereunder and thereunder below the Highest Lawful Rate until the
total amount of interest accrued pursuant hereto and thereto and such fees
deemed to be interest equals the amount of interest which would have
accrued to the Lender if a varying rate per annum equal to the interest
hereunder had at all times been in effect plus the amount of fees which
would have been received but for the effect hereof; and in each case, to
the extent permitted by applicable law, the Lender shall not be subject to
any of the penalties provided by law for contracting for, taking,
reserving, charging or receiving interest in excess of the Highest Lawful
Rate. The Lender hereby elects to determine the applicable rate ceiling
under Chapter lD of Article 5069 of the Texas Credit Title Act, Title 79,
Texas Revised Civil Statutes by the weekly rate ceiling from time to time
in effect, subject to the Lender's right subsequently to change such
method in accordance with applicable law. The provisions of Chapter 346 of
Tex. Finance Code ▇▇▇. (▇▇▇▇▇▇ 1998), regulating certain revolving credit
accounts shall not apply to this Agreement or the Note.
Section 2.4 Maturity of Loans. All outstanding Loans shall mature and
become due and payable, together with all accrued and unpaid interest thereon,
on the Maturity Date.
Section 2.5 The Note. The Loans shall be evidenced by a convertible
revolving promissory note of the Borrower payable to the Lender in form and
substance satisfactory to the Lender (such promissory note, together with any
replacements thereof, the "Note"). The holder of the Note shall record on its
books and records or on a schedule to the Note the amount of each Loan
outstanding from him to the Borrower, all payments of principal and interest and
the
11
principal balance from time to time outstanding thereon. Such record, whether
shown on the books and records of a holder of the Note or on a schedule to the
Note, shall be prima facie evidence as to all such matters; provided, however,
that the failure of any holder to record any of the foregoing or any error in
any such record shall not limit or otherwise affect the obligation of the
Borrower to repay all Loans outstanding to it hereunder, together with accrued
interest thereon.
Section 2.6 Optional Prepayments. The Borrower shall have the privilege of
prepaying the Loans, subject to the Lender's right to convert the Note as
provided in the Note, without premium or penalty in whole or in part upon five
(5) Business Days' prior written notice to the Lender. Any optional prepayments
of principal shall be accompanied by accrued and unpaid interest thereon to the
date of any such prepayment.
Section 2.7 Mandatory Prepayments. If the aggregate principal amount of
outstanding Loans shall at any time for any reason exceed the lesser of the
Revolving Commitment Amount then in effect or the Borrowing Base, the Borrower
shall, (i) immediately and without notice or demand if such outstandings exceed
the Revolving Commitment Amount then in effect, or (ii) within two (2) Business
Days if such outstandings exceed the Borrowing Base but do not exceed the
Revolving Commitment Amount then in effect, pay the amount of such excess to the
Lender as a prepayment of the Loans. Immediately upon determining the need to
make any such prepayment, the Borrower shall notify the Lender of such required
prepayment. Each such prepayment shall be accompanied by a payment of all
accrued and unpaid interest on the Loans prepaid.
Section 2.8 Revolving Commitment Reduction or Termination. The Borrower
shall have the right at any time and from time to time, upon five (5) Business
Days' prior and irrevocable written notice to the Lender, to terminate or reduce
the Revolving Commitment without premium or penalty, in whole or in part;
provided that the Revolving Commitment may not be reduced to an amount less than
the sum of the aggregate principal amount of outstanding Loans. Any termination
of the Revolving Commitment pursuant to this Section 2.8 is permanent and may
not be reinstated.
SECTION 3. PAYMENTS AND EXPENSES.
Section 3.1 Place and Application of Payments. All payments of principal
of and interest on the Loans and all other amounts payable by the Borrower under
the Credit Documents shall be made by the Borrower to the Lender by no later
than 1:30 p.m. on the due date thereof at the office of the Lender in Dallas,
Texas (or such other location as the Lender may designate to the Borrower). Any
payments received by the Lender from the Borrower after 1:30 p.m. shall be
deemed to have been received on the next Business Day.
Section 3.2 Expenses. The Borrower shall pay to the Lender on or before
the Effective Date his expenses and costs relating to this Agreement and the
transactions contemplated hereby, including the fees and out-of-pocket costs of
his special counsel.
12
SECTION 4. CONDITIONS PRECEDENT.
Section 4.1 Conditions Precedent to Initial Borrowing. The obligation of
the Lender to advance the initial Loans hereunder on the Initial Borrowing Date
is subject to the following conditions precedent, all in form and substance
satisfactory to the Lender:
(a) The Lender shall have received:
(i) Note. The duly executed Note of the Borrower;
(ii) Subsidiary Guaranties. The duly executed Subsidiary
Guaranty of each of the Guarantors;
(iii) Security Agreements. The duly executed Security
Agreement of each of the Borrower and the Guarantors, together with UCC-1
Financing Statements and appropriate filings with respect to the patents
referenced therein;
(iv) Stock Pledge Agreement. The duly executed Stock Pledge
Agreement of the Borrower, together with the stock certificates referenced
therein and undated stock powers with respect thereto;
(v) First Additional Warrant. The duly executed First
Additional Warrant;
(vi) Registration Rights Agreement. The duly executed
Registration Rights Agreement;
(vii) First Amendment to Voting Agreement. The duly executed
First Amendment to Voting Agreement executed by all parties thereto other
than Primo Ilanieri whose signature must be obtained by December 13, 1998;
(viii) Certificate of Officers of Borrower and Guarantors. A
certificate of an officer of each of the Borrower and the Guarantors
containing specimen signatures of the persons authorized to execute Credit
Documents on such Person's behalf or any other documents provided for
herein, together with (x) copies of resolutions of the Board of Directors
of such Person authorizing the execution and delivery of the Credit
Documents and of all other legal documents or proceedings taken by such
Person in connection with the execution and delivery of the Credit
Documents, (y) copies of such Person's Certificate of Incorporation,
certified by the Secretary of State of such Person's jurisdiction of
organization, and Bylaws and (z) a certificate of existence and good
standing from the appropriate governing agency of such Person's
jurisdiction of organization and of all jurisdictions where such Person is
authorized to do business:
(ix) Financial Condition Certificate. A certificate of the
chief financial officer of the Borrower with respect to the financial
condition of the Borrower and the Guarantors;
13
(x) Lien Searches. The results of recent lien searches and
Uniform Commercial Code searches showing no Liens on any of the property
or assets of any of the Borrower or the Guarantors other than Permitted
Liens, or evidence that any such Liens other than Permitted Liens have
been terminated or will be terminated concurrently with the Initial
Borrowing Date, including, without limitation, the termination of any Lien
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ or of DC&A against any assets of the Borrower or any
of its Subsidiaries (it being acknowledged by the Lender that DC&A will
still hold Liens against certain assets of e^2);
(xi) Forgiveness of Indebtedness by DC&A. The forgiveness by
DC&A of all Indebtedness owed by ▇▇▇▇▇▇ Power to it pursuant to the e^2
Financing Documents (it being acknowledged by the Lender that e^2 shall
still owe DC&A Indebtedness pursuant thereto);
(xii) Legal Opinion. An opinion letter of Lev, Berlin & ▇▇▇▇,
P.C., legal counsel to the Borrower and the Guarantors;
(xiii) Other Documents. Such other documents as the Lender may
reasonably request.
(b) All other legal matters incidence to the execution and delivery
of the Credit Documents shall be satisfactory to the Lender.
Section 4.2 Conditions Precedent to all Borrowings. In the case of each
advance of a Borrowing hereunder:
(a) Borrowing Request. The Lender shall have received a Borrowing
Request;
(b) Representations and Warranties True and Correct. Each of the
representations and warranties of the Credit Parties set forth herein and
in the Credit Documents shall be true and correct in all material respects
as of the time of such new Borrowing, except as a result of the
transactions expressly permitted hereunder or thereunder and except to the
extent that any such representation or warranty relates solely to an
earlier date, in which case it shall have been true and correct in all
material respects as of such earlier date;
(c) No Default. No Default or Event of Default shall have occurred
and be continuing or would occur as a result of such Borrowing;
(d) New Litigation and Changes in Pending Litigation. No litigation
(including, without limitation, derivative or injunctive actions),
arbitration proceedings or governmental proceedings shall be pending or
known to be threatened against the Borrower or any of its Subsidiaries
which could reasonably be expected to have a Material Adverse Effect; and
no material development (whether or not disclosed) shall have occurred in
any litigation (including, without limitation, derivative or injunctive
actions), arbitration
14
proceedings or governmental proceedings so disclosed, which could
reasonably be expected to have a Material Adverse Effect;
(e) Laws. The Borrowings to be made by the Borrower shall not result
in any of the Borrower or the Lender being in non-compliance with or in
violation of law and shall not be prohibited by any other legal
requirement imposed by the laws of Texas or the United States of America
or any other laws, and shall not otherwise subject the Lender to a penalty
or other onerous conditions under or pursuant to any legal requirement;
(f) No Material Adverse Effect. There has occurred no event or
effect that has had or could reasonably be expected to have a Material
Adverse Effect; and
(g) Second Additional Warrant. The Lender shall have received the
duly executed Second Additional Warrant if the requested Borrowing,
together with the aggregate principal amount of all Loans then outstanding
plus all Loans converted to common stock of the Borrower pursuant to the
terms and conditions of the Note, shall equal or exceed $2,000,000.
Each request for the advance of a Borrowing shall be deemed to be a
representation and warranty by the Borrower on the date of such Borrowing that
all conditions precedent to such Borrowing have been satisfied or fulfilled
unless the Borrower gives to the Lender written notice to the contrary, in which
case the Lender shall not be required to fund such advances unless the Lender
shall have previously waived in writing such non-compliance.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Organization.
(a) The Borrower and each of its Subsidiaries (i) is a duly
incorporated and existing corporation (or other Person) in good standing
under the laws of the jurisdiction of its organization; (ii) has all
necessary corporate power (or comparable power, in the case of a
Subsidiary that is not a corporation) to own the property and assets it
uses in its business and otherwise to carry on its business as presently
conducted; and (iii) is duly licensed or qualified and in good standing in
each jurisdiction in which the nature of the business transacted by it or
the nature of the property owned or leased by it makes such licensing or
qualification necessary.
(b) As of the Effective Date, the Borrower has no Subsidiaries other
than the Guarantors and e^2, and the Borrower owns one hundred percent
(100%) of each outstanding class of capital stock of each of the
Guarantors and e^2. Communication Service Company is a division of ▇▇▇▇▇▇
Power Systems, Inc.
Section 5.2 Power and Authority; Validity. Each of the Borrower and its
Subsidiaries has the corporate (or comparable power, in the case of a Subsidiary
that is not a corporation)
15
power and authority to execute, deliver and carry out the terms and provisions
of the Credit Documents to which it is a party and has taken all necessary
corporate or comparable action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. Each of the Borrower
and its Subsidiaries has duly executed and delivered each such Credit Document
and each such Credit Document constitutes the legal, valid and binding
obligation of such Person enforceable in accordance with its terms, subject as
to enforcement only to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity, regardless of whether in a proceeding in equity
or at law.
Section 5.3 No Violation. Neither the execution, delivery nor performance
by the Borrower or any of its Subsidiaries of the Credit Documents to which it
is a party nor compliance by any of such Persons with the terms and provisions
thereof, nor the consummation by it of the transactions contemplated herein or
therein, will (i) contravene any applicable provision of any law, statute, rule
or regulation, or any applicable order, writ, injunction or decree of any court
or governmental instrumentality; (ii) conflict with or result in any breach of
any term, covenant, condition or other provision of, or constitute a default
under or result in the creation or imposition of (or the obligation to create or
impose) any Lien other than any Permitted Lien upon any of the property or
assets of the Borrower or its Subsidiaries under the terms of any contractual
obligation to which the Borrower or any of its Subsidiaries is a party or by
which it or any of its properties or assets are bound or to which it may be
subject; or (iii) violate or conflict with any provision of the Certificate of
Incorporation, Bylaws or other governance documents of such Person.
Section 5.4 Litigation. There are no lawsuits (including, without
limitation, derivative or injunctive actions), arbitration proceedings or
governmental proceedings pending or threatened, involving the Borrower or any of
its Subsidiaries except as listed in Schedule 5.4.
Section 5.5 Use of Proceeds: Margin Regulations. The proceeds of the Loans
may only be used to provide working capital. Neither the Borrower nor any of its
Subsidiaries are engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock. No proceeds of any Loan will be used to
purchase or carry any "margin stock" (as defined in Regulation U of the Board
of Governors of the Federal Reserve System), to extend credit for the purpose of
purchasing or carrying any "margin stock," or for a purpose which violates
Regulations T, U or X of the Board of Governors of the Federal Reserve System.
Section 5.6 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries nor e^2 is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
Section 5.7 Public Utility Holding Company Act. Neither the Borrower nor
any of its Subsidiaries nor e^2 is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 5.8 True and Complete Disclosure. All factual information (not
including estimates, pro forma financial information and other projections)
heretofore or contemporaneously
16
furnished by the Borrower or any of its Subsidiaries in writing to the Lender in
connection with any Credit Document or any transaction contemplated therein, and
all other such factual information hereafter furnished by any such Persons in
writing to the Lender in connection herewith, any of the other Credit Documents
or the Loans, is or will be true and accurate in all material respects, taken as
a whole, on the date of such information and not incomplete by omitting to state
any material fact necessary to make the information therein not misleading at
such time in light of the circumstances under which such information, taken as a
whole, was provided. All estimates, pro forma financial information and other
projections furnished by the Borrower or any of its Subsidiaries in writing to
the Lender in connection with any Credit Document or any transaction
contemplated therein, were prepared by the Borrower in good faith based upon
assumptions believed by the Borrower to be reasonable at the time such
information was prepared, it being recognized by the Lender that such financial
information as it relates to future events is not to be viewed as fact and that
actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein.
Section 5.9 Financial Statements. The financial statements heretofore
delivered to the Lender for the Borrower's fiscal quarter ending September 30,
1998, were prepared on a consolidated basis in accordance with GAAP, and such
financial statements, together with the related notes and schedules, fairly
presents the financial position of the Borrower, its Subsidiaries, and e^2 as of
the date thereof and the results of operations for the period covered thereby,
subject to normal year-end adjustments and omission of certain footnotes. The
Borrower and its Subsidiaries have no material contingent liabilities or
Indebtedness other than those disclosed in such financial statements.
Section 5.10 No Material Adverse Effect. From September 30, 1998, there
has occurred no event or effect that has had, or to the best knowledge of the
Borrower could reasonably be expected to have, a Material Adverse Effect.
Section 5.11 Labor Controversies. There are no labor strikes, lock-outs,
slow downs, work stoppages or similar events pending or, to the best knowledge
of the Borrower, threatened against the Borrower or any of its Subsidiaries.
Section 5.12 Taxes. The Borrower and its Subsidiaries have filed all
federal tax returns and all other material tax returns required to be filed, and
have paid all governmental taxes, rates, assessments, fees, charges and levies
(collectively, "Taxes"), except such Taxes, if any, as are being contested in
good faith and for which reserves have been provided in accordance with GAAP,
and no tax liens have been filed and no claims are being asserted for Taxes. The
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
for Taxes and other governmental charges have been determined in accordance with
GAAP.
Section 5.13 ERISA. With respect to each Plan, the Borrower and its
Subsidiaries have fulfilled their obligations under the minimum funding
standards of, and are in compliance in all material respects with, ERISA and
with the Code to the extent applicable to it, and have not incurred any
liability under Title IV of ERISA to the PBGC or a Plan other than a liability
to the PBGC for premiums under Section 4007 of ERISA, and neither the Borrower
nor any of its Subsidiaries has any contingent liability with respect to any
post-retirement benefits under a
17
welfare plan as defined in ERISA other than liability for continuation coverage
described in Part 6 of Title I of ERISA, in each case except where such
liability could not reasonably be expected to have a Material Adverse Effect.
Section 5.14 Consents. All consents and approvals of, and filings and
registrations with, and all other actions of, all governmental agencies,
authorities or instrumentalities required to consummate the Borrowings
hereunder, on the date of each such Borrowing, have been obtained or made and
are or will be in full force and effect.
Section 5.15 Capitalization. All outstanding shares of the Borrower and
its Subsidiaries have been duly and validly issued, are fully paid and
nonassessable, and neither the Borrower nor any of its Subsidiaries nor e^2 has
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreement providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock, except as listed in Schedule 5.15. Schedule 5.15 accurately
sets forth the capitalization of the Borrower as of the Effective Date. The
Borrower will use its best efforts to (i) make any necessary filings under the
Securities Exchange Act of 1934, as amended, such that it shall become eligible
to file a Form S-3 under the Securities Act of 1933, or (ii) file a registration
statement under the Securities Act of 1933, as amended, in either case, as soon
as practicable.
Section 5.16 Ownership of Property. The Borrower and its Subsidiaries have
good title to or a valid leasehold interest in all of its property except to the
extent, in the aggregate, no Material Adverse Effect could reasonably be
expected to result from the failure to have such title or interest, subject to
no Liens except Permitted Liens. The Borrower and its Subsidiaries own or hold
valid licenses to use all the material patents, trademarks, permits, service
marks and trade names, free of any burdensome restrictions, that are necessary
to the operation of the business of the Borrower and its Subsidiaries as
presently conducted.
Section 5.17 Compliance with Statutes. The Borrower and its Subsidiaries
are in compliance in all material respects with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies and have all necessary permits, licenses and other necessary
authorizations with respect to the conduct of their businesses and the ownership
and operation of their properties.
Section 5.18 Environmental Matters.
(a) The Borrower and its Subsidiaries have complied with, and on the
date of each Borrowing will be in compliance with, all applicable
Environmental Laws and the requirements of any permits issued under such
Environmental Laws except where failure to so comply could not reasonably
be expected to have a Material Adverse Effect. To the best knowledge of
the Borrower, there are no pending, past or threatened Environmental
Claims against the Borrower or any of its Subsidiaries or any property
owned or operated by the Borrower or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect. To the best
knowledge of the Borrower, there are no conditions or occurrences on or
emanating from any property owned or operated by the Borrower or any of
its Subsidiaries or on any property adjoining or in the vicinity of any
such property that could reasonably be expected (i) to form the basis of
an Environmental Claim against the Borrower or any of its Subsidiaries or
any property owned or operated by the Borrower
18
or any of its Subsidiaries; or (ii) to cause any property owned or
operated by the Borrower or any of its Subsidiaries to be subject to any
material restrictions on the ownership, occupancy, the current or intended
use or transferability of such property by the Borrower or any of its
Subsidiaries under any applicable Environmental Law except for any such
condition or occurrence described in clauses (i) or (ii) which could not
reasonably be expected to have a Material Adverse Effect.
(b) To the best knowledge of the Borrower (i) Hazardous Materials
have not at any time been generated, used, treated or stored on, or
transported to or from, any property owned or operated by the Borrower or
any of its Subsidiaries in a manner that has violated or could reasonably
be expected to violate any Environmental Law, except for such violation
which could not reasonably be expected to have a Material Adverse Effect;
and (ii) Hazardous Materials have not at any time been released on or from
any property owned or operated by the Borrower or any of its Subsidiaries
in a matter that has violated or could reasonably be expected to violate
any Environmental Law, except for such violation which could not
reasonably be expected to have a Material Adverse Effect.
Section 5.19 Year 2000 Compliance. All devices, systems, machinery,
information technology, computer software and hardware, and other date sensitive
technology (jointly and severally its "systems") necessary for the Borrower and
its Subsidiaries to carry on their business as presently contemplated to be
conducted will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of their business operations. For
purposes hereof, "Year 2000 Compliant" means that such systems are designed to
be used prior to, during and after the Gregorian calendar year 2000 A.D. and
will operate during each such time period without error relating to date data,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century. The
Borrower and its Subsidiaries will (i) undertake a detailed inventory, review,
and assessment of all areas within their businesses and operations that could be
adversely affected by the failure of the Borrower and its Subsidiaries to be
Year 2000 Compliant on a timely basis; and (ii) develop a detailed plan and
timeline for becoming Year 2000 Compliant on a timely basis. The Borrower will,
as soon as reasonably practicable, make written inquiry of each of its and its
Subsidiaries' key suppliers, vendors, and customers, and will obtain in writing
confirmations from all such Persons, as to whether such Persons have initiated
programs to become Year 2000 Compliant. For purposes hereof, "key suppliers,
vendors, and customers" refers to those suppliers, vendors, and customers of the
Borrower and its Subsidiaries whose business failure could reasonably be
expected to have a Material Adverse Effect. The fair market value of all
Collateral pledged to the Lender as collateral to secure the Loans is not and
shall not be less than currently anticipated or subject to substantial
deterioration in value because of the failure of such Collateral to be Year 2000
Compliant.
SECTION 6. COVENANTS.
The Borrower covenants and agrees that, so long as the Note or any other
Obligation is outstanding or the Revolving Commitment is outstanding hereunder:
19
Section 6.1 Existence. The Borrower and its Subsidiaries will preserve and
maintain their existence except (i) for the dissolution of any Subsidiaries
whose assets are transferred to the Borrower or any of its Subsidiaries, and
(ii) as otherwise expressly permitted herein.
Section 6.2 Maintenance. The Borrower and its Subsidiaries will maintain,
preserve and keep their material plants, properties and equipment necessary to
the proper conduct of their businesses in reasonably good repair, working order
and condition (normal wear and tear excepted) and will from time to time make
all reasonably necessary repairs, renewals, replacements, additions and
betterments thereto consistent with usual and customary business practices so
that at all times such plants, properties and equipment are reasonably preserved
and maintained, in each case with such exceptions as could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect;
provided, however, that nothing in this Section 6.2 shall prevent the Borrower
or any of its Subsidiaries from discontinuing the operation or maintenance of
any such plants, properties or equipment if such discontinuance is, in the
judgment of the Borrower or any such Subsidiary, as applicable, desirable in the
conduct of its business and not materially disadvantageous to the Lender.
Section 6.3 Taxes. The Borrower and its Subsidiaries will duly pay and
discharge all Taxes upon or against them or their properties before penalties
accrue thereon, unless and to the extent that the same is being contested in
good faith and by appropriate proceedings and reserves have been established in
conformity with GAAP.
Section 6.4 ERISA. The Borrower and its Subsidiaries will promptly pay and
discharge all obligations and liabilities arising under ERISA or otherwise with
respect to each Plan of a character which if unpaid or unperformed might result
in the imposition of a material Lien against any properties or assets of the
Borrower or any of its Subsidiaries and will promptly notify the Lender of (i)
the occurrence of any reportable event (as defined in ERISA) relating to a Plan
other than any such event with respect to which the PBGC has waived notice by
regulation; (ii) receipt of any notice from PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor; (iii) the
Borrower's or any of its Subsidiary's intention to terminate or withdraw from
any Plan if such termination or withdrawal would result in liability under Title
IV of ERISA; and (iv) the occurrence of any event that could reasonably be
expected to result in the incurrence of any material liability, fine or penalty,
or any material increase in the contingent liability of the Borrower or any of
its Subsidiaries, in connection with any post-retirement benefit under a welfare
plan benefit (as defined in ERISA).
Section 6.5 Insurance. The Borrower and its Subsidiaries will maintain or
cause to be maintained with responsible insurance companies, insurance against
any loss or damage to all material insurable property and assets owned by them,
such insurance to be of a character and in or in excess of such amounts as are
customarily maintained by well-insured companies similarly situated and
operating like property or assets (subject to self-insured retentions and
deductibles acceptable to the Lender in its sole discretion), all of which
policies shall provide that no policy shall terminate without at least thirty
(30) days' advance written notice to the Lender, shall name the Lender as named
assured and loss payee and be reasonably acceptable to the Lender. The Borrower
and each of its Subsidiaries will also insure employers' and public and product
liability
20
risks with responsible insurance companies (naming the Lender as an additional
assured), all as reasonably acceptable to the Lender.
Section 6.6 Financial Reports and Other Information.
(a) The Borrower and its Subsidiaries will maintain a system of
accounting in such manner as will enable preparation of financial
statements in accordance with GAAP and will furnish to the Lender and his
authorized representatives such information about the business and
financial condition of the Borrower and its Subsidiaries as the Lender may
reasonably request, including, without limitation, any corporate documents
and records, within such time period as the Lender may reasonably request;
and, without any request, will furnish to the Lender:
(i) within thirty (30) days after the end of each fiscal month
of each fiscal year of the Borrower, the consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at the end of such
fiscal month and the related consolidated and consolidating statements of
income and retained earnings and of cash flows for such fiscal month and
for the portion of the fiscal year ended with the last day of such fiscal
month, all of which shall be in reasonable detail and certified by an
officer of the Borrower acceptable to the Lender that such financial
reports fairly present the financial condition of the Borrower and its
Subsidiaries as of the dates indicated and the results of their operations
and changes in their cash flows for the periods indicated and that they
have been prepared in accordance with GAAP, in each case, subject to
normal year-end audit adjustments and the omission of footnotes; and
(ii) within ninety (90) days after the end of each fiscal year
of the Borrower, consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as at the end of such fiscal year and the
related consolidated and consolidating statements of income and retained
earnings and of cash flows for such fiscal year and setting forth
consolidated comparative figures for the preceding fiscal year, all of
which shall be in reasonable detail and certified by an officer of the
Borrower acceptable to the Lender that such financial statements fairly
present the financial condition of the Borrower and its Subsidiaries as of
the dates indicated and the results of their operations and changes in
their cash flows for the periods indicated and that they have been
prepared in accordance with GAAP, and audited with an unqualified opinion
by an independent nationally-recognized accounting firm acceptable to the
Lender.
(b) Each financial statement furnished to the Lender pursuant to
subsection (i) of Section 6.6(a) shall be accompanied by (i) a written
certificate signed by an officer of the Borrower acceptable to the Lender
to the effect that (x) no Default or Event of Default has occurred during
the period covered by such statements or, if any such Default or Event of
Default has occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if any, taken
by the Borrower to remedy the same, and (y) the representations and
warranties contained herein are true and correct in all material respects
as though made on the date of such certificate; and (ii) a Borrowing Base
Certificate, together with an aged accounts receivable and accounts
payable listing.
21
(c) Promptly upon receipt thereof, the Borrower will provide the
Lender with a copy of each report or "management letter" submitted to the
Borrower or any of its Subsidiaries by its independent accountants or
auditors in connection with any annual, interim or special audit made by
them of the books and records of the Borrower or any of its Subsidiaries.
(d) Promptly after obtaining knowledge of any of the following, the
Borrower will provide the Lender with written notice in reasonable detail
of: (i) any pending or threatened material Environmental Claim against the
Borrower or any of its Subsidiaries or any property owned or operated by
the Borrower or any of its Subsidiaries; (ii) any condition or occurrence
on any property owned or operated by the Borrower or any of its
Subsidiaries that results in material noncompliance by the Borrower or any
of its Subsidiaries with any Environmental Law; and (iii) the taking of
any material removal or remedial action in response to the actual or
alleged presence of any Hazardous Material on any property owned or
operated by the Borrower or any of its Subsidiaries.
(e) The Borrower will promptly and in any event, within two (2)
days, give written notice to the Lender of: (i) any pending or threatened
litigation or proceeding against the Borrower or any of its Subsidiaries
asserting any uninsured claim or claims against any of same in excess of
$25,000 in the aggregate; (ii) the occurrence of any Default or Event of
Default; and (iii) any circumstance that could reasonably be expected to
have a Material Adverse Effect.
(f) Within five (5) days after the sending thereof, the Borrower
will provide the Lender with copies of all financial statements or
projections, documents and other communications that the Borrower sends to
its stockholders generally.
(g) The Borrower and its Subsidiaries will maintain a fiscal year
ending December 31.
(h) The Borrower will (i) furnish such additional information,
statements and other reports with respect to the Borrower's compliance
(and its approach to and progress towards achieving compliance) with
Section 5.19 as the Lender may request from time to time; (ii) in the
event of any change in circumstances that causes or will likely cause any
of the Borrower's representations and warranties set forth in Section
5.19, to no longer be true, the Borrower shall promptly, and in any event
within ten (10) days of receipt of information regarding a change in
circumstances, provide the Lender with written notice that describes in
reasonable detail the change in circumstances and any additional
information the Lender requests of the Borrower in connection therewith;
and (iii) give any representative of the Lender access during all business
hours to, and permit such representative to examine, copy or make excerpts
from, any and all books, records and documents in the possession of the
Borrower and its Subsidiaries and relating to their affairs, and to
inspect any of the properties and systems of the Borrower and its
Subsidiaries, and to project test its systems to determine if they are
Year 2000 Compliant in an integrated environment, all at the sole cost and
expense of the Borrower.
22
Section 6.7 Lender Inspection Rights. Upon reasonable notice from the
Lender, the Borrower will permit the Lender (and such Persons as the Lender may
reasonably designate), at the Borrower's expense during normal business hours
following reasonable notice to visit and inspect any of the properties of the
Borrower or any of its Subsidiaries, to examine all of their books and records,
to make copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision, the Borrower authorizes such accountants to
discuss with the Lender, and such Persons as the Lender may designate, the
affairs, finances and accounts of the Borrower and its Subsidiaries, all at such
reasonable times and as often as may be reasonably requested.
Section 6.8 Conduct of Business. The Borrower and its Subsidiaries will
not engage in any line of business other than the existing lines of business of
the Borrower and its Subsidiaries or businesses reasonably related thereto
(each, a "Permitted Business").
Section 6.9 New Subsidiaries. The Borrower shall cause any direct or
indirect Subsidiary which is formed or acquired after the Effective Date to
become a Guarantor with respect to, and jointly and severally liable with all
other Guarantors for, all of the Obligations under this Agreement and the Note
pursuant to a Subsidiary Guaranty. In addition, each such new Subsidiary shall
▇▇▇▇▇ ▇ ▇▇▇▇ upon all of its property and assets pursuant to a Security
Agreement, and if applicable, a Stock Pledge Agreement, and shall execute and
deliver to the Lender UCC-1 financing statements with respect thereto and such
other documentation as reasonably requested by the Lender to perfect its Lien
upon such property and assets. All such documents shall be executed and
delivered within fifteen (15) days of the formation or acquisition of such new
Subsidiary.
Section 6.10 Dividends; Negative Pledges.
(a) The Borrower shall not pay or make any dividends or other
distributions on its capital stock or set aside funds for any such
purpose. The Borrower shall not redeem, purchase or otherwise acquire any
shares of its capital stock.
(b) Except as otherwise permitted herein, neither the Borrower nor
any of its Subsidiaries shall, directly or indirectly, create or otherwise
permit to exist or become effective any restriction on the ability of any
Subsidiary of the Borrower to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation
in its profits owned by the Borrower or to pay any Indebtedness owed to
the Borrower; or (ii) make loans or advances to the Borrower or any of its
Subsidiaries, except in either case for restrictions existing under or by
reason of applicable law, this Agreement and the other Credit Documents.
Neither the Borrower nor any of its Subsidiaries shall enter into any
agreement other than this Agreement and the Credit Documents prohibiting
the creation or assumption of any Lien upon its properties, revenues or
assets, whether now owned or hereafter acquired or prohibiting or
restricting the ability of the Borrower or any of its Subsidiaries to
amend or otherwise modify this Agreement or any Credit Document.
23
Section 6.11 Restrictions on Fundamental Changes. Neither the Borrower nor
any of its Subsidiaries shall be a party to any merger into or consolidation
with, make an acquisition or otherwise purchase or acquire all or substantially
all of the assets or stock of, any other Person, or sell all or substantially
all of its assets or stock, except the Borrower may purchase or otherwise
acquire all or substantially all of the stock or assets of, or otherwise acquire
by merger or consolidation, any of its Subsidiaries, and any such Subsidiary may
merge into, or consolidate with, or purchase or otherwise acquire all or
substantially all of the assets or stock of or sell all or substantially all of
its assets or stock to, any other Subsidiary of the Borrower or the Borrower, in
each case so long as the Borrower shall be the surviving entity to any such
merger or consolidation if the transaction is with the Borrower. Except as
otherwise permitted in this Section 6.11, the Borrower shall not sell or dispose
of any capital stock of or its ownership interest in any of the Guarantors or
any other Subsidiaries which it may form or acquire.
Section 6.12 Environmental Laws. The Borrower and its Subsidiaries shall
comply in all respects with all Environmental Laws (including, without
limitation, obtaining and maintaining all necessary permits, licenses and other
necessary authorizations) applicable to or affecting the properties or business
operations of the Borrower or any of its Subsidiaries.
Section 6.13 Liens. The Borrower and its Subsidiaries shall not create,
incur, assume or suffer to exist any Lien of any kind on any of their properties
or assets of any kind except the following (collectively, the "Permitted
Liens"):
(a) Liens arising in the ordinary course of business by operation of
law in connection with workers' compensation, unemployment insurance, old
age benefits, social security obligations, taxes, assessments, statutory
obligations or other similar charges, good faith deposits, pledges or
other Liens in connection with (or to obtain letters of credit in
connection with) bids, performance bonds, contracts or leases to which the
Borrower or its Subsidiaries are a party or other deposits required to be
made in the ordinary course of business; provided that in each case the
obligation secured is not for Indebtedness and is not overdue or, if
overdue, is being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP have been provided therefor;
(b) mechanics', workmen, materialmen, landlords', carriers' or other
similar Liens arising in the ordinary course of business (or deposits to
obtain the release of such Liens) related to obligations not due or, if
due, that are being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP have been provided therefor;
(c) inchoate Liens under ERISA and Liens for Taxes not yet due or
which are being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP have been provided therefor;
(d) Liens arising out of judgments or awards against the Borrower or
any of its Subsidiaries, or in connection with surety or appeal bonds or
the like in connection with bonding such judgments or awards, the time for
appeal from which or petition for
24
rehearing of which shall not have expired or for which the Borrower or
such Subsidiary shall be prosecuting on appeal or proceeding for review
and for which it shall have obtained a stay of execution or the like
pending such appeal or proceeding for review; provided that the aggregate
amount of uninsured or underinsured liabilities (including interest,
costs, fees and penalties, if any) of the Borrower and its Subsidiaries
secured by such Liens shall not exceed $25,000 at any one time outstanding
and provided further there is adequate assurance, in the sole discretion
of the Lender, that the insurance proceeds attributable thereto shall be
paid promptly upon the expiry of such time period or resolution of such
proceeding if necessary to remove such Liens;
(e) rights of a common owner of any interest in property held by a
Person and such common owner as tenants in common or through other common
ownership;
(f) easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any property or rights-of-way of
a Person for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines, removal of gas, oil, coal,
metals, steam, minerals, timber or other natural resources, and other like
purposes, or for the joint or common use of real property, rights-of-way,
facilities or equipment, or defects, irregularity and deficiencies in
title of any property or rights-of-way which do not materially diminish
the value of or the ability to use such property;
(g) financing statements filed by lessors of property (but only with
respect to the property so leased) and Liens under any conditional sale or
title retention agreements entered into in the ordinary course of
business;
(h) Liens securing Indebtedness permitted by Section 6.14(c) on any
assets acquired; and
(i) any existing Liens of W. ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ against
certain patents of Logic Labs, which must be released in full on or before
January 13, 1999;
(j) any existing Liens of ▇▇▇▇▇▇▇▇▇ and ACL against certain patents
of Logic Labs, all of which expire (including, without limitation, any
reversionary interest therein) on December 3 1, 1999, assuming compliance
by the Borrower with the Royalty Agreement; and
(k) the existing Lien of BankBoston, N.A. against a certificate of
deposit of the Borrower in the approximate amount of $22,000.
Section 6. 14 Indebtedness. The Borrower and its Subsidiaries shall not
contract, assume or suffer to exist any Indebtedness (including, without
limitation, any Guaranties), except:
(a) Indebtedness under the Credit Documents;
25
(b) unsecured intercompany loans and advances from the Borrower to
any of its Subsidiaries and unsecured intercompany loans and advances from
any of such Subsidiaries to the Borrower or any other Subsidiaries of the
Borrower, provided that the Borrower will not make any loans or advances
to e^2;
(c) Capitalized Lease Obligations and purchase money Indebtedness on
assets acquired in an aggregate amount not to exceed $250,000 at any one
time outstanding; and
(d) existing Indebtedness as disclosed on the Borrower's
consolidated financial statements for the fiscal quarter ending September
30, 1998, as renewed, extended or refinanced from time to time; provided
that the amount of such Indebtedness shall not be increased, the interest
rate payable or accrued thereon shall not be increased, the scheduled
payments thereon shall not be increased, the maturity date thereof shall
not be made sooner in time and any other terms thereof shall not be
amended so as to be more onerous than the terms hereof unless approved by
the Lender in his sole discretion.
Section 6.15 Loans, Advances and Investments. The Borrower and its
Subsidiaries shall not lend money or make advances to any Person, or purchase or
acquire any stock, indebtedness, obligations or securities of, or any other
interest in, or make any capital contribution to, any Person (any of the
foregoing, an "Investment") other than:
(a) Investments in Cash Equivalents;
(b) receivables owing to the Borrower or its Subsidiaries created or
acquired in the ordinary course of business and payable on customary trade
terms of the Borrower or such Subsidiary and in compliance with the
requirements of Section 6.17;
(c) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising
in the ordinary course of business;
(d) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases;
(e) as permitted by Section 6.14(b); and
(f) loans in the ordinary course of business to employees of the
Borrower or any of its Subsidiaries, provided that all such loans shall
not exceed $25,000 at any one time outstanding.
Section 6.16 Capital Expenditures. The Borrower shall not make any Capital
Expenditures in excess of $____________ in any twelve (12) month period without
the prior written consent of the Lender in his sole discretion.
26
Section 6.17 Transfer of Assets. The Borrower and its Subsidiaries shall
not permit any sale, transfer, conveyance, assignment or other disposition of
any asset of the Borrower or any of its Subsidiaries except:
(a) transfers of inventory, equipment and other assets in the
ordinary course of business;
(b) the retirement or replacement of assets (with assets of equal or
greater value) in the ordinary course of business; and
(c) transfers of any assets among the Borrower and any of its
Subsidiaries provided that no transfers of assets may be made to e2.
Section 6.18 Transactions with Affiliates. Except as otherwise
specifically permitted herein, the Borrower and its Subsidiaries shall not enter
into or be a party to any material transaction or arrangement or series of
related transactions or arrangements which in the aggregate would be material
with any Affiliate of such Person, including without limitation, the purchase
from, sale to or exchange of property with or the rendering of any service by or
for, any Affiliate, except pursuant to the reasonable requirements of such
entity's business and upon fair and reasonable terms no less favorable to such
entity than would be able to be obtained in a comparable arm's-length
transaction with a Person other than an Affiliate.
Section 6.19 Compliance with Laws. The Borrower and its Subsidiaries shall
conduct their businesses and otherwise be in compliance in all material respects
with all applicable laws, regulations, ordinances and orders of all
governmental, judicial and arbitral authorities applicable to them and shall
obtain and maintain all necessary permits, licenses and other authorizations
necessary to conduct their businesses and own and operate their properties.
Section 6.20 Royalties. The Borrower or Logic Labs will pay timely all
royalties owing to ▇▇▇▇▇▇▇▇▇ under the Royalty Agreement. Neither the Borrower
nor Logic Labs shall amend, supplement or resale the Royalty Agreement without
the consent of the Lender in his sole discretion.
Section 6.21 Corporate Governance Documents. Neither the Borrower nor any
of its Subsidiaries shall amend its corporate governance documents in any manner
materially disadvantageous to the Lender.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES.
Section 7.1 Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) default by the Borrower in the payment of the principal amount
of any Loan or any interest thereon or any fees payable hereunder or any
other Credit Document on the date when due;
27
(b) default by the Borrower in the observance or performance of any
covenant agreement or obligation set forth in (i) Sections 6.6(e) (ii) or
(iii), 6.10, 6. 11 or 6. 16 of this Agreement, or (ii) in either the Note,
the First Additional Warrant, the Second Additional Warrant or the
Registration Rights Agreement;
(c) default by any Credit Party in the observance or performance of
any provision hereof or of any other Credit Document not mentioned in (a)
or (b) above, which is not remedied within thirty (30) days after the
earlier of (i) such default or event of default first becoming known to
any officer of the Borrower, or (ii) notice to the Borrower by the Lender
of the occurrence of such default or event of default;
(d) any representation or warranty made or deemed made herein, in
any other Credit Document or in any financial or other report or document
furnished in compliance herewith or therewith by the Borrower or any of
its Subsidiaries proves untrue in any material respect as of the date of
the issuance or making, or deemed issuance or making thereof;
(e) default occurs in the payment when due (after any applicable
grace period) of Indebtedness of the Borrower or any of its Subsidiaries
to another Person, or the occurrence of any other default, which with the
passage of time or notice would permit the holder or beneficiary of such
Indebtedness, or a trustee therefor, to cause the acceleration of the
maturity of any such Indebtedness or any mandatory unscheduled prepayment,
purchase, or other early funding thereof;
(f) the Borrower or any of its Subsidiaries (i) has entered
involuntarily against it an order for relief under the United States
Bankruptcy Code or a comparable action is taken under any bankruptcy or
insolvency law of another country or political subdivision of such
country; (ii) generally does not pay, or admits its inability generally to
pay, its debts as they become due; (iii) makes a general assignment for
the benefit of creditors; (iv) applies for, seeks, consents to, or
acquiesces in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its property; (v) institutes any proceeding seeking to have entered
against it an order for relief under the United States Bankruptcy Code or
any comparable law, to adjudicate it insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors or fails to file an
answer or other pleading denying the material allegations of any such
proceeding filed against it; (vi) makes any board of directors resolution
in direct furtherance of any matter described in clauses (i)-(v) above; or
(vii) fails to contest in good faith any appointment or proceeding
described in Section 7.1(f);
(g) a custodian, receiver, trustee, examiner, liquidator or similar
official is appointed for the Borrower or any of its Subsidiaries or any
substantial part of its property, or a proceeding described in Section
7.l(f)(v) is instituted against the Borrower or any of
28
its Subsidiaries, and such appointment continues undischarged or such
proceeding continues undismissed or unstayed for a period of sixty (60)
days;
(h) the Borrower or any of its Subsidiaries fails within thirty (30)
days (or such earlier date as any steps to execute on such judgment or
order take place) to pay, bond or otherwise discharge, or to obtain an
indemnity against on terms and conditions satisfactory to the Lender in
its sole discretion, any one or more judgments or orders for the payment
of money in excess of $25,000 in the aggregate which is uninsured or
underinsured by at least such amount (provided that there is adequate
assurance, in the sole discretion of the Lender, that the insurance
proceeds attributable thereto shall be paid promptly upon the expiration
of such time period or resolution of such proceeding), which is not stayed
on appeal or otherwise being appropriately contested in good faith in a
manner that stays execution;
(i) the Borrower or any of its Subsidiaries fails to pay when due an
amount aggregating in excess of $25,000 that it is liable to pay to the
PBGC or to a Plan under Title IV of ERISA; or a notice of intent to
terminate a Plan having Unfunded Vested Liabilities of the Borrower or any
of its Subsidiaries in excess of $250,000 (a "Material Plan") is filed
under Title IV of ERISA; or the PBGC institutes proceedings under Title IV
of ERISA to terminate or to cause a trustee to be appointed to administer
any Material Plan; or a proceeding is instituted by a fiduciary of any
Material Plan against the Borrower or any of its Subsidiaries to collect
any liability under Section 515 or 4219(c)(5) of ERISA and such proceeding
is not dismissed within thirty (30) days thereafter; or a condition exists
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated;
(j) the Borrower, any Guarantor, e^2 or any Person acting on behalf
of the Borrower, any Guarantor or e^2 or any governmental, judicial or
arbitral authority challenges the validity of any Credit Document or any
Person's obligations thereunder, or any Credit Document ceases to be in
full force and effect in all material respects or ceases to give to the
Lender the rights, powers and Liens purported to be granted in its favor
thereby in all material respects;
(k) any Person or two or more Persons acting in concert (other than
the Lender or any Affiliate of the Lender) shall acquire beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act
of 1934), directly or indirectly, of securities of the Borrower (or other
securities convertible into such securities) representing fifty percent
(50%) or more of the combined voting power of all outstanding securities
of the Borrower entitled to vote in the election of directors or a
majority of the directors of the Board of Directors of the Borrower on the
Effective Date shall fail to constitute a majority of the Board of
Directors at any time other than as a result of any directors nominated by
the Lender;
(l) a default or an event of default shall occur under the Royalty
Agreement; and
29
(m) a default or an event of default shall occur under the Voting
Agreement.
Section 7.2 Non-Bankruptcy Defaults. When any Event of Default other than
those described in subsections (f) or (g) of Section 7. 1 with respect to the
Borrower has occurred and is continuing, the Lender may, by notice to the
Borrower (i) terminate the remaining Revolving Commitment and all other
obligations of the Lender hereunder on the date stated in such notice (which may
be the date thereof); (ii) declare the principal of and the accrued interest on
the Note to be forthwith due and payable and thereupon the Note, including both
principal and interest thereon, shall be and become immediately due and payable
together with all other amounts payable under the Credit Documents without
further demand, presentment, protest or notice of any kind, including, without
limitation, notice of intent to accelerate and notice of acceleration, each of
which is expressly waived by the Borrower; and (iii) convert all or any portion
of the outstanding principal amount of the Loans into common stock of the
Borrower pursuant to the terms and conditions of the Note.
Section 7.3 Bankruptcy Defaults. When any Event of Default described in
subsections (f) or (g) of Section 7.1 has occurred and is continuing with
respect to the Borrower, then (i) the Note shall immediately become due and
payable together with all other amounts payable under the Credit Documents
without presentment, demand, protest or notice of any kind, each of which is
expressly waived by the Borrower; and (ii) all obligations of the Lender to
extend further credit pursuant to any of the terms hereof shall immediately
terminate.
Section 7.4 Application of Proceeds. After the occurrence of and during
the continuance of an Event of Default, any payment to the Lender hereunder or
from the proceeds of any Collateral or cash Collateral shall be applied as the
Lender shall elect in its sole discretion.
SECTION 8. MISCELLANEOUS.
Section 8.1 No Waiver of Rights. No delay or failure on the part of the
Lender, or on the part of the holder or holders of the Note, in the exercise of
any power, right or remedy under any Credit Document shall operate as a waiver
thereof or as an acquiescence in any default, nor shall any single or partial
exercise thereof preclude any other or further exercise of any other power,
right or remedy. To the fullest extent permitted by applicable law, the powers,
rights and remedies under the Credit Documents of the Lender and the holder or
holders of the Note are cumulative to, and not exclusive of, any rights or
remedies any of them would otherwise have.
Section 8.2 Non-Business Day. If any payment of principal or interest on
any Loan or of any other Obligation shall fall due on a day which is not a
Business Day, interest or fees (as applicable) at the rate, if any, such Loan or
other Obligation bears for the period prior to maturity shall continue to accrue
in the manner set forth herein on such Obligation from the stated due date
thereof to and including the next succeeding Business Day on which the same
shall be payable.
Section 8.3 Documentary Taxes. The Borrower agrees that it will pay any
documentary, stamp or similar taxes payable with respect to any Credit Document,
including interest and
30
penalties, in the event any such taxes are assessed irrespective of when such
assessment is made and regardless whether any credit is then in use or available
hereunder.
Section 8.4 Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Credit Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as the Borrower have any Obligation hereunder or the
Revolving Commitment is in effect.
Section 8.5 Setoff. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of, and throughout the continuance of, any Default or Event of
Default, the Lender and each subsequent holder of any of the Note is hereby
authorized by the Borrower at any time or from time to time, without notice to
the Borrower, any Guarantor or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured, but not
including trust accounts, and in whatever currency denominated) and any other
Indebtedness at any time held or owing by the Lender or that subsequent holder
to or for the credit or the account of the Borrower, whether or not matured,
against and on account of the obligations and liabilities of the Borrower to the
Lender or that subsequent holder under the Credit Documents, including, but not
limited to, all claims of any nature or description arising out of or connected
with the Credit Documents, irrespective of whether or not (i) the Lender or that
subsequent holder shall have made any demand hereunder, or (ii) the principal of
or the interest on the Loans or the Note and other amounts due hereunder shall
have become due and payable hereunder and although said obligations and
liabilities, or any of them, may be contingent or unmatured.
Section 8.6 Notices. Except as otherwise specified herein, all notices
under the Credit Documents shall be in writing (including cable, telecopy or
telex) and shall be given to a party hereunder at its address, telecopier number
or telex number set forth below or such other address, telecopier number or
telex number as such party may hereafter specify by notice to the Lender or the
Borrower, as applicable, given by courier, overnight delivery, United States
certified or registered mail or telegram or by other telecommunication device
capable of creating a written record of such notice and its receipt. Notices
under the Credit Documents shall be addressed to the Lender and to the Borrower
as follows:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
31
with a copy to:
Gardere & ▇▇▇▇▇, L.L.P.
Attention: M. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
Elgin Technologies, Inc.
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Lev, Berlin & ▇▇▇▇, P.C.
Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇, x15
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 9.7 and a confirmation of receipt of such telecopy has
been received by the sender, (ii) if given by telex, when such telex is
transmitted to the telex number specified in this Section 9.7 and the answer
back is received by sender, (iii) if given by courier or overnight delivery,
when delivered, (iv) if given by mail, five (5) days after such communication is
deposited in the mail, registered with return receipt requested, addressed as
aforesaid or (v) if given by any other means, when delivered at the addresses
specified in this Section 9.7; provided that any notice given pursuant to
Section 2 shall be effective only upon receipt and, provided further, that any
notice that but for this provision would be effective after the close of
business on a Business Day or on a day that is not a Business Day shall be
effective at the opening of business on the next Business Day.
Section 8.7 Counterparts. This Agreement may be executed in any number of
counterparts, and by the different parties on different counterpart signature
pages, each of which when executed shall be deemed an original but all such
counterparts taken together shall constitute one and the same Agreement.
32
Section 8.8 Successors and Assigns. This Agreement shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, including any subsequent holder of any of the Note. The
Borrower may not assign any of its rights or obligations under any Credit
Document without the consent of the Lender.
Section 8.9 Participations in Borrowings and Note; Transfers of Borrowings
and Note.
(a) The Lender may at any time sell to one or more Persons
("Participants"), participating interests in any Borrowing owing to the
Lender, the Note, the Revolving Commitment or any other interest of the
Lender hereunder, provided that the Lender shall not transfer, grant or
assign any participation under which the Participant shall have rights to
vote upon or consent to any matter to be decided by the Lender hereunder
or under any Credit Document or approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment
or waiver would (i) increase the amount of the Lender's Revolving
Commitment and such increase would affect such Participant, (ii) reduce
the principal of, or interest on, the Lender's Loans, or any fees or other
amounts payable to the Lender hereunder and such reduction would affect
such Participant, or (iii) postpone any date fixed for any scheduled
payment of principal of, or interest on, the Lender's Loans, or any fees
or other amounts payable to the Lender hereunder and such postponement
would affect such Participant. In the event of any such sale by the Lender
of participating interests to a Participant, the Lender's obligations
under this Agreement to the Borrower shall remain unchanged, the Lender
shall remain solely responsible for the performance thereof, the Lender
shall remain the holder of the Note for all purposes under this Agreement
and the Borrower shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this
Agreement. The Borrower agrees that if amounts outstanding under this
Agreement and the Note are due and unpaid, or shall have been declared or
shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this
Agreement and the Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement or the Note.
(b) The Lender may sell all or any part of its rights and
obligations under this Agreement and the Note to one or more other Persons
at any time. If any such sale occurs, the purchasing Lender shall be
considered for all purposes as a Lender hereunder.
Section 8.10 Amendments. Any provision of the Credit Documents may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the Borrower and the Lender.
Section 8.11 Headings. Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
33
Section 8.12 Legal Fees. Other Costs and Indemnification. The Borrower,
upon demand by the Lender, agrees to pay the reasonable fees and disbursements
of legal counsel to the Lender in connection with the preparation and execution
of the Credit Documents, any amendment, waiver or consent related thereto,
whether or not the transactions contemplated therein are consummated, any
Default or Event of Default by the Borrower hereunder and any enforcement of any
of the Credit Documents. The Borrower further agrees to indemnify the Lender,
his Affiliates and their respective directors, officers, shareholders,
employees, representatives and attorneys (collectively, the "Indemnified
Parties"), against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including, without limitation, all reasonable
attorneys' fees and other reasonable expenses of litigation or preparation
therefor, whether or not the Indemnified Party is a party thereto) which any of
them may pay or incur arising out of or relating to (i) any Credit Document, the
Loans or the application or proposed application by any of the Borrower of the
proceeds of any Loan, REGARDLESS OF WHETHER SUCH CLAIMS OR ACTIONS ARE FOUNDED
IN WHOLE OR IN PART UPON THE ALLEGED SIMPLE, SOLE OR CONTRIBUTORY NEGLIGENCE OF
ANY OF THE INDEMNIFIED PARTIES AND/OR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, SHAREHOLDERS, EMPLOYEES OR ATTORNEYS, (ii) any investigation of any
third party or any governmental authority involving the Lender and related to
any use made or proposed to be made by the Borrower of the proceeds of the
Borrowings, or any transaction financed or to be financed in whole or in part,
directly or indirectly with the proceeds of any Borrowing, and (iii) any
investigation of any third party or any governmental authority, litigation or
proceeding, related to any environmental cleanup, audit, compliance or other
matter relating to any Environmental Law or the presence of any Hazardous
Material (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any Environmental
Law) with respect to any of the Borrower, regardless of whether caused by, or
within the control of, any of the Borrower; provided, however, that the Borrower
shall not be obligated to indemnify any Indemnified Party for any of the
foregoing arising out of such Indemnified Party's gross negligence or willful
misconduct. The Borrower, upon demand by the Indemnified Party at any time,
shall reimburse the Indemnified Party for any legal or other expenses incurred
in connection with investigating or defending against any of the foregoing
except if the same is excluded from indemnification pursuant to the provisions
of the foregoing sentence.
Section 8.13 Governing Law: Submission to Jurisdiction: Waiver of Jury
Trial: Arbitration.
(a) This Agreement and the other Credit Documents, and the rights
and duties of the parties thereto, shall be construed in accordance with
and governed by the internal laws of the State of Texas.
(b) THE LENDER AND THE BORROWER EACH HEREBY WAIVES ITS RIGHT TO
RESOLVE DISPUTES, CLAIMS, AND CONTROVERSIES ARISING FROM THIS AGREEMENT,
ANY OTHER CREDIT DOCUMENT OR ANY MATTER IN CONNECTION THEREWITH,
INCLUDING, WITHOUT LIMITATION, CONTRACT DISPUTES AND TORT CLAIMS, THROUGH
ANY COURT PROCEEDING OR LITIGATION AND ACKNOWLEDGES THAT ALL
34
SUCH DISPUTES, CLAIMS AND CONTROVERSIES SHALL BE RESOLVED PURSUANT TO THIS
SECTION, EXCEPT THAT EQUITABLE RELIEF AND CERTAIN OTHER RIGHTS AND
REMEDIES SET FORTH BELOW MAY BE SOUGHT FROM ANY COURT OF COMPETENT
JURISDICTION. THE BORROWER REPRESENTS TO THE LENDER AND THE LENDER
REPRESENTS TO THE BORROWER THAT THIS WAIVER IS MADE KNOWINGLY AND
VOLUNTARILY AFTER CONSULTATION WITH AND UPON ADVICE OF ITS COUNSEL AND IS
A MATERIAL PART OF THIS AGREEMENT. ALL SUCH DISPUTES, CLAIMS AND
CONTROVERSIES SHALL BE RESOLVED BY BINDING ARBITRATION PURSUANT TO THE
COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). Any
arbitration proceeding held pursuant to this arbitration provision shall
be conducted in Dallas, Texas or at any other place selected by mutual
agreement of the Lender and the Borrower. No act to take or dispose of any
collateral shall constitute a waiver of this arbitration agreement or be
prohibited by this arbitration agreement. This arbitration provision shall
not limit the right of either party during any dispute, claim or
controversy to seek, use, and employ ancillary, or preliminary rights
and/or remedies, judicial or otherwise, for the purposes of realizing
upon, preserving, protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal
property, and any such action shall not be deemed an election of remedies.
Such remedies include, without limitation, obtaining injunctive relief or
a temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property,
including exercising the right of set-off, or taking or disposing of such
property with or without judicial process pursuant to the Uniform
Commercial Code. Any disputes, claims or controversies concerning the
lawfulness or reasonableness of an act, or exercise of any right or remedy
concerning any collateral, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral, shall also be
arbitrated; provided, however that no arbitrator shall have the right or
the power to enjoin or restrain any act of either party. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of any action for these purposes. The federal arbitration act (Title 9 of
the United States Code) shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
(c) To the fullest extent permitted by applicable law, each party
hereto agrees that any court proceeding or litigation permitted by Section
8. 13(b) may be brought and maintained in the courts of the State of Texas
sitting in Dallas County or the United States District Court for the
Northern District of Texas. To the fullest extent permitted by applicable
law, the Borrower hereby expressly and irrevocably submits to the
jurisdiction of the courts of the State of Texas and the United States
District Court for the Northern District of Texas for the purpose of any
such litigation as set forth above and irrevocably
35
agrees to be bound by any judgment rendered thereby in connection with
such litigation. To the fullest extent permitted by applicable law, the
Borrower further irrevocably consents to the service of process, by
registered mail, postage prepaid, or by personal service within or without
the state of Texas. To the fullest extent permitted by applicable law, the
Borrower hereby expressly and irrevocably waives any objection which it
may have or hereafter may have to the laying of venue of any such
litigation brought in any such court referred to above and any claim that
any such litigation has been brought in an inconvenient forum. To the
extent that the Borrower has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the
Borrower hereby irrevocably waives to the fullest extent permitted by
applicable law, such immunity in respect of its obligations under this
Agreement and the other Credit Documents.
(d) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY
HERETO VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY (BY THEIR
ACCEPTANCE HEREOF) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING PERMITTED BY SECTION 8.13(B) AND WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT
OR OTHERWISE) ARISING OUT OF THIS AGREEMENT, ANY OTHER CREDIT DOCUMENT,
ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN THE LENDER, THE
BORROWER AND/OR ANY GUARANTOR, AND AGREES THAT ANY SUCH ACTION, PROCEEDING
OR DISPUTE SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE LENDER TO PROVIDE THE LOANS AND
THE LETTERS OF CREDIT.
Section 8. 14 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 8.15 Effective Date. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrower and the Lender have each
signed and delivered such document.
Section 8.16 Notice. The Credit Documents constitute the entire
understanding among the Borrower and the Lender and supersede all earlier or
contemporaneous agreements, whether written or oral, concerning the subject
matter of the Credit Documents. THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER
CREDIT DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THIS WRITTEN
36
AGREEMENT REPRESENTS TILE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
BORROWER:
ELGIN TECHNOLOGIES, INC.
By: /s/ Mosconi
-------------------------------------
Name: Mosconi
-----------------------------------
Title: President & CEO
----------------------------------
LENDER:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
/s/ [ILLEGIBLE]
----------------------------------------
37
SCHEDULE 5.4
LIST OF LITIGATION
[TO COME]
SCHEDULE 5.11
CAPITALIZATION
ELGIN COMMON STOCK FINAL (7/6/98)
▇▇▇▇▇ ▇▇▇▇▇▇▇ 2,999,122
▇▇▇▇▇▇ ▇▇▇▇▇ 62,745
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 31,272
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 31,372
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 31,372
▇▇▇▇▇▇▇ ▇▇▇▇▇ 94,117
---------
TOTAL ELGIN INSIDERS 3,250,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,000,000
PUBLIC FLOAT (SEE 15 C-2)
▇▇▇ ▇▇▇▇ 12,000
▇▇▇▇▇▇ ▇▇▇▇ 12,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 12,000
▇▇ ▇▇▇▇ 3,600
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 3,600
▇▇▇▇▇▇ ▇▇▇▇▇▇ 3,600
▇▇▇▇▇▇▇ ▇▇▇▇ 2,400
▇▇▇▇▇ ▇▇▇▇ 3,800
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 1,200
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 2,400
▇▇▇▇▇ ▇▇▇▇▇▇ 3,600
▇▇▇▇▇ FONT 13,000
▇▇▇▇▇▇ ▇▇▇▇▇▇ 1,200
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 2,400
▇▇▇ ▇▇▇▇ 1,200
▇▇▇▇ ▇▇▇▇▇▇▇▇ 3,600
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 3,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 7,200
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 3,800
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 3,600
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 3,600
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 3,600
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 3,600
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,400
▇▇▇▇▇ ▇▇▇▇▇▇ 3,600
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 12,000
▇▇▇▇ ▇▇▇▇▇▇▇ 1,200
▇▇▇▇▇ MAY 18,000
▇▇▇ ▇▇▇▇ 18,000
▇▇▇▇▇▇ ▇▇▇▇ 6,000
▇▇▇▇▇▇ MONSEHEIN 2,400
▇▇▇▇▇ ▇▇▇▇▇▇▇ 18,000
ANGELIQUE PIREZZI 3,600
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 1,200
▇▇▇ ZEIDENWEBBER 2,400
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 396,000
-------
TOTAL FREE TRADING [ILLEGIBLE]
▇▇▇▇▇ ▇▇▇▇▇▇▇ 150,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 75,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 65,000
▇▇▇▇ ▇▇▇▇ 45,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 25,000
OTHER EMPLOYEES 145,000
▇▇▇▇▇ ▇▇▇▇▇▇ 15,000
▇▇▇▇ ▇▇▇▇ 15,000
▇ ▇ ▇▇▇▇▇▇▇▇ 2,333,333
▇▇▇▇▇ ▇▇▇▇▇▇▇ 100,000
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ (CONVERSION) 50,000
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ (LOAN GUARANTEE:ASCOM) 50,000
GREATER MEDlA 152,000
STANHOPE CAPITAL 50,000
▇▇▇▇▇ ▇▇▇▇▇ (M & A: LOGIC & CSC) 45,000
▇▇▇▇▇ ▇▇▇▇▇ (M & A: ▇▇▇▇▇▇) 105,000
▇▇▇ ▇▇▇▇▇ 4,125
▇▇▇▇▇ ▇▇▇▇▇ & AFFILIATES (STOCK COMP) 405,482
OPTION II CONVERTED DEBTHOLDERS
REM ELECTRONICS 226,182
CGL 36,878
AMERICAN ELECTRIC CABLE 38,138
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 163,334
---------
TOTAL 4,296,282
PREVIOUS TOTALS 10,145,082
TOTAL $1 CASHLESS WARRANTS 6,875,000
TOTAL $3 CASHLESS WARRANTS 890,342
BRIDGEHOLDERS CONVERSION 321,875
----------
GRAND TOTAL SHARES OUTSTANDING 18,032,899
▇▇▇▇▇▇▇▇'▇ WARRANTS ($3 TO BE PAID IN) 300,000
▇▇▇▇▇ ▇▇▇▇▇▇▇ ($1 TO BE PAID IN) 221,966
▇▇▇▇▇ ▇▇▇▇▇'▇ WARRANTS ($1 TO BE PAID IN) 496,034
V ▇▇▇▇▇'▇ WARRANTS ($1 TO BE PAID IN) 50,000
▇▇▇▇▇ ▇▇▇▇▇'▇ WARRANTS ($3 TO BE PAID IN) 90,000
REM ELECTRONICS ($3 TO BE PAID IN) 75,000
CGL ($3 TO BE PAID IN) 10,000
AMERICAN ELECTRIC CABLE ($3 TO BE PAID IN) 10,000
---------
TOTAL ADDITIONAL DILUTION 1,253,000
FULLY DILUTED [ILLEGIBLE]
Sheet 1
($1.00 Warrant) ▇▇▇▇▇ ▇▇, INC 12/30/97
PRIVATE PLACEMENT
CERT # NAME STATE WARRANTS
------ ---- ----- --------
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 10,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 5,000
221 R ▇▇▇▇ NY $ 15,000
▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇ $ 100,000
▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇ $ 100,000
219 R ▇▇▇▇ NY $ 10,000
201 L NIGHT OH $ 100,000
303 CONCEPT VA $ 100,000
240 H ▇▇▇▇▇ FL $ 10,000
208 L ▇▇▇▇▇▇▇▇ FL $ 80,000
214 L ▇▇▇▇▇▇▇▇ FL $ 10,000
200 ▇▇▇▇▇▇▇▇ ▇▇▇ FL $ 100,000
▇▇▇ ▇ ▇▇▇▇▇ ▇▇ $ 20,000
218 P ▇▇▇▇ FL $ 10,000
232 P ▇▇▇▇ FL $ 5,000
211 R ▇▇▇▇▇ CA $ 50,000
231 H ▇▇-▇▇▇▇▇ VA $ 100,000
▇▇▇ ▇ ▇▇▇▇ ▇▇ $ 10,000
226 P ▇▇▇▇▇▇ JR NY $ 250,000
▇▇▇ ▇ ▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇ ▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇▇ ▇▇ $ 50,000
241 T ▇▇▇▇▇▇ NY $ 25,000
260 H ▇▇▇▇▇▇▇ NY $ 30,000
▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇ $ 10,000
▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇ $ 10,000
213 H ▇▇▇▇ NY $ 50,000
248 B ▇▇▇ ▇▇▇ NY $ 150,000
245 D WASH NY $ 15,000
229 R ▇▇▇▇▇▇▇▇ FL $ 50,000
246 P ▇▇▇▇▇▇▇▇▇▇ NY $ 50,000
222 M ▇▇▇▇ NY $ 15,000
▇▇▇ ▇ ▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇ ▇▇▇▇▇ ▇▇ $ 25,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇ $ 30,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 10,000
279 B HElM IL $ 60,000
258 B HElM IL $ 50,000
▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇ $ 10,000
▇▇▇ ▇ ▇▇▇▇▇▇ ▇▇ $ 5,000
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇ $ 100,000
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 500,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 250,000
239 V ▇▇▇▇▇ NC $ 400,000
Page 1
Sheet 1
262 Z ▇▇▇▇▇ NC $ 450,000
263 Z ▇▇▇▇▇ NC $ 200,000
238 ▇▇▇▇▇▇ IN $ 25,000
284 ▇▇▇▇▇▇ IN $ 100,000
280 P ▇▇▇▇▇▇ JR NY $1,000,000
252 P ▇▇▇▇▇▇ JR NY $1,000,000
▇▇▇ ▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇ $ 50,000
▇▇▇ ▇▇▇ ▇▇▇ ▇▇ $ 25,000
251 J FAWBERT GB $ 50,000
▇▇▇ ▇ ▇▇▇▇▇▇ ▇▇ $ 10,000
255 A PRAEGER NY $ 15,000
▇▇▇ ▇ ▇▇▇▇▇▇ ▇▇ $ 7,000
271 MAXIM NZ $ 10,000
257 B VERDICCHIO NZ $ 10,000
272 MOANA MANAGE NZ $ 45,000
261 S HARGREAVES NZ $ 6,000
▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇ $ 25,000
273 S ▇▇▇▇▇▇▇ NZ $ 10,000
274 M ▇▇▇▇▇▇▇ NZ $ 3,000
275 M ▇▇▇▇▇▇▇▇▇ NZ $ 7,000
276 G ▇▇▇▇ NZ $ 4,000
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ $ 15,000
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇ $ 203,000
▇▇▇ ▇▇▇▇▇▇ ▇▇ $ 100,000
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ LTD NY $ 25,000
TOTAL $6,675,000
$3.00 CASHLESS WARRANTS
Sheet 1
Cert # Invester State Warrant Amount Date Wire/Check
▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ 9,000 27,000 12/31/97
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ 3,000 9,000 12/31/97
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇ 3,000 9,000 12/31/97
604 ▇. ▇▇▇▇▇▇ NZ 2,000 8,000 1/21/98 Check
605 ▇. ▇▇▇▇▇ CA 50,000 150,000 1/23/98 Check
606 A. Llsyansky NY 5,000 15,000 1/22/98 Check
▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇ 5,000 15,000 1/22/98 Check
608 ▇▇▇▇▇ ▇▇▇▇ Botherway 10,000 30,000 12/8/97 Wire
609 Profit Sharing Trust F/B/▇ ▇▇▇▇▇▇ GI 15,000 45,000 12/1/97
610 ▇▇▇▇▇▇▇ ▇▇▇▇▇ 75,000 225,000 12/8/97 Check
611 ▇▇▇▇▇ ▇▇▇▇▇▇ 6,000 18,000 12/23/97
612 ▇▇▇▇▇▇ ▇▇▇▇▇ 3,000 9,000 12/23/97
613 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇. 16,000 48,000 12/10/97
614 Dr. ▇▇▇▇▇▇▇▇ Verhery 33333.33 100,000 12/7/97
615 ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇. 25,000 75,000 12/4/97 Wire
616 R.H. & ▇.▇. ▇▇▇▇▇▇▇ 25,000 75,000 12/4/97 Wire
617 Mr. & ▇▇▇. ▇▇▇▇▇▇▇ 16,667 50,001 12/4/97 Wire
618 Hay Trust 3,000 9,000 12/11/97
619 ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 33333.33 100,000 12/8/97
620 ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 4,000 12,000 12/10/97
621 ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ NY 15,000 45,000 12/26/97 Check
▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇ 8,000 24,000 12/29/97 Check
623 ▇▇▇▇▇ ▇▇▇▇▇▇ MD IA 10,000 30,000 1/9/97 Check
624 R. O'▇▇▇▇▇▇ ▇▇▇ CA 0 0 12/31/97 VOID TO 624A
624A R. O'▇▇▇▇▇▇ ▇▇▇ CA 10,000 30,000
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ 10,000 30,000 12/31/97
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ 10,000 30,000 1/12/97
▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ 11,000 33,000 12/31/97
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ 10,000 30,000 1/6/98
629 ▇▇▇▇▇ ▇. ▇▇▇ CT 0 0 1/6/98 VOID TO 629A+B
▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇ ▇▇ 5,000 15,000
629B ▇▇▇▇▇▇▇ ▇▇▇▇▇ VA 5,000 15,000
630 ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CA 3,500 10,500 29-Jan Check
631 ▇▇▇ ▇▇▇▇▇▇▇▇▇ CA 3,500 10,500 1/29/98 Check
632 ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CA 18,000 54,000 1/29/98 Check
633 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ MD 5,433 18,300 3/5/98
634 ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ NY 13,333 40,000 3/6/98 Wire
635 ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ NY 13,333 40,000 3/6/98 Wire
636 ▇▇▇▇▇▇ ▇. ▇▇▇ CT 0 0 2/6/98 Wire VOID TO 6
636A ▇▇▇▇▇▇ ▇. ▇▇▇ ▇▇▇ CT 27,000 81,000
637 ▇▇▇▇▇▇ ▇▇▇▇▇ NC 42,000 126,000 2/10/98 Wire
638 Cedar Capital NZ 50,000 150,000
639 ▇. ▇▇▇▇▇▇▇ NY 15,000 45,000 3/11/98 Check
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇ 5,000 15,000 3/10/98 Check
641 ▇. ▇▇▇▇▇ FL 5,000 15,000 3/9/98 Check
642 ▇▇▇▇▇▇▇ ▇▇▇ NY 8,000 24,000 3/11/98 Check
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ 8,000 24,000 3/11/98
653 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ MS 0 0 VOID TO ▇▇▇▇,▇,▇
▇▇▇▇ ▇ & ▇ ▇▇▇▇▇▇▇ ▇▇ 15,000 45,000
653B ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ MS 10,000 30,000
Page 1
Sheet 1
653C ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇. MS 15,000 45,000
654 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇. FL 25,000 75,000
655 ▇▇▇▇▇▇ ▇▇▇▇▇ VA 5,000 15,000
656 ▇. ▇▇▇▇▇▇▇▇▇ 0 0 VOID TO 656A
656A BEN & ▇▇▇ ▇▇▇▇▇▇▇▇▇ 17,000 51,000
657 ▇▇▇▇ ▇▇▇▇▇▇ UK 25,000 75,000
658 ▇. ▇▇▇▇▇ Profit Sharing CA 15,000 45,000
659 ▇. ▇▇▇▇▇▇ OH 5,500 16,500
▇▇▇ ▇▇▇▇▇▇ Trust NZ 5,000 15,000
Note Cedar Capital NZ 63,334 190,000
Note Cedar Capital NZ 22,075 56,224
661 ▇. ▇▇▇▇▇ VA 0 0 Void to 661A
661A D. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ NY 10,000 30,000
▇. ▇▇▇▇▇▇▇▇▇ NZ 1,000 3,000 warrant not done yet
▇. ▇▇▇▇▇▇ NY 3,000 9,000 warrant not done yet
------- ---------
880,342 2,671,025
REVISED 5/5/98
Page 2
Sheet 1
ELGIN BRIDGE LOAN RECAP
NAME LOAN AMOUNT DATE WARRANTS
▇. ▇▇▇▇▇▇ ▇▇.* * 3/13/96 CONVERTED
▇. ▇▇▇▇▇▇ $ 25,000.00 10/8/96 6,250
▇. ▇▇▇▇▇▇▇▇ $ 37,500.00 5/30/96 9,375
▇. ▇▇▇▇▇▇ $ 25,000.00 10/14/96 6,250
▇. ▇▇▇▇▇▇▇▇ $ 100,000.00 2/7/96 25,000
M. VON GERKHAN $ 150,000.00 6/21/96 37,500
9/20/96
▇. ▇▇▇▇▇▇▇ $ 25,000.00 3/28/96 6,250
▇. ▇▇▇▇ $ 100,000.00 6/10/96 25,000
▇. ▇▇▇▇▇▇▇ $ 25,000.00 5/9/96 6,250
▇. ▇▇▇▇▇▇ $ 100,000.00 2/12/96 25,000
▇.▇. ▇▇▇▇▇▇ $ 50,000.00 3/27/96 12,500
$ 50,000.00 5/5/96 12,500
▇. ▇▇▇▇▇▇ $ 75,000.00 4/30/96 18,750
▇. ▇▇▇ $ 25,000.00 8/21/96 6,250
L. GOPAL $ 25,000.00 8/21/96 6,250
▇. ▇▇▇▇▇▇▇▇▇ $ 25,000.00 8/26/96 6,250
▇. ▇▇▇▇▇ $ 25,000.00 8/23/97 1,250
▇. ▇▇▇▇▇▇ Bought from ▇. ▇▇▇▇▇ 4,000
B. Surpezenski Bought from ▇. ▇▇▇▇▇ 1,000
▇. ▇▇▇▇▇ $ 25,000.00 9/3/96 6,250
▇▇▇▇▇▇ ▇▇▇▇▇ $ 25,000.00 8/23/96 6,250
▇. ▇▇▇▇▇ $ 25,000.00 2/29/96 6,250
S. & ▇. ▇▇▇▇▇▇▇▇ $ 25,000.00 5/4/96 6,250
▇. ▇▇▇▇ $ 50,000.00 5/26/96 12,500
3/26/96
▇. ▇▇▇▇ $ 25,000.00 4/20/96 6,250
▇. ▇▇▇▇▇▇ $ 50,000.00 7/1/96 12,500
S. TAL $ 75,000.00 9/20/96 18,750
RIDGELAND $ 50,000.00 6/13/96 12,500
N. HUKKAWALA $ 25,000.00 6/25/96 6,250
CONCEPT MINING $ 50,000.00 6/13/96 12,500
TOTALS $1,287,500.00 321,875
Page 1
