EXHIBIT 10.20
AMENDED AND RESTATED TERM LOAN AGREEMENT
Dated as of June 29, 2001
between
SVI SOLUTIONS, INC.
and
UNION BANK OF CALIFORNIA, N.A.
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS.................................1
1.1 Defined Terms....................................................1
1.2 Use of Defined Terms............................................18
1.3 Accounting Terms................................................18
1.4 Exhibits and Schedules..........................................18
1.5 References to "Borrower and its Subsidiaries"...................18
1.6 Miscellaneous Terms.............................................18
ARTICLE 2 TERM LOAN.......................................................19
2.1 Term Loan-General...............................................19
2.2 Extension of Maturity Date......................................19
2.3 Optional Termination of Term Loan...............................19
ARTICLE 3 PAYMENTS AND FEES...............................................20
3.1 Principal and Interest..........................................20
3.2 Intentionally Omitted...........................................21
3.3 Loan Extension and Restructuring Fee............................21
3.4 Financial Consultant Fee........................................21
3.5 Increased Commitment Costs......................................22
3.6 Intentionally Omitted...........................................22
3.7 Late Payments...................................................22
3.8 Computation of Interest and Fees................................23
3.9 Non-Banking Days................................................23
3.10 Manner and Treatment of Payments................................23
3.11 Intentionally Omitted...........................................24
3.12 Failure to Charge Not Subsequent Waiver.........................24
3.13 Intentionally Omitted...........................................24
3.14 Fee Determination Detail........................................24
3.15 Survivability...................................................24
ARTICLE 4 REPRESENTATIONS AND WARRANTIES..................................25
4.1 Existence and Qualification; Power; Compliance With Laws........25
4.2 Authority; Compliance With Other Agreements and Instruments
and Government Regulations...................................25
4.3 No Governmental Approvals Required..............................26
4.4 Subsidiaries....................................................26
4.5 Financial Statements............................................27
4.6 No Other Liabilities; No Material Adverse Changes...............27
4.7 Title to and Location of Property; Bank Accounts................27
4.8 Intangible Assets...............................................27
4.9 Public Utility Holding Company Act..............................28
4.10 Litigation......................................................28
-i-
4.11 Binding Obligations.............................................28
4.12 No Default......................................................28
4.13 ERISA...........................................................28
4.14 Regulation U; Investment Company Act............................29
4.15 Disclosure......................................................29
4.16 Tax Liability...................................................29
4.17 Projections and Budget..........................................29
4.18 Hazardous Materials.............................................29
4.19 Security Interests..............................................30
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)...................................................31
5.1 Payment of Taxes and Other Potential Liens......................31
5.2 Preservation of Existence.......................................31
5.3 Maintenance of Properties.......................................31
5.4 Maintenance of Insurance........................................31
5.5 Compliance With Laws............................................31
5.6 Inspection Rights...............................................32
5.7 Keeping of Records and Books of Account.........................32
5.8 Compliance With Agreements......................................32
5.9 Use of Proceeds.................................................32
5.10 Hazardous Materials Laws........................................32
5.11 Future Subsidiaries.............................................33
5.12 Future Real Property............................................33
5.13 Bank Accounts...................................................33
ARTICLE 6 NEGATIVE COVENANTS..............................................34
6.1 Payment of Subordinated Obligations/ICM Notes...................34
6.2 Disposition of Property.........................................34
6.3 Mergers.........................................................34
6.4 Hostile Acquisitions............................................34
6.5 Acquisitions....................................................35
6.6 Distributions...................................................35
6.7 ERISA...........................................................35
6.8 Change in Nature of Business....................................35
6.9 Liens and Negative Pledges......................................35
6.10 Indebtedness and Guaranty Obligations...........................36
6.11 Transactions with Affiliates....................................36
6.12 Investments.....................................................36
6.13 Capital Expenditures............................................37
6.14 Operating Leases................................................37
6.15 Subsidiary Indebtedness.........................................37
6.16 Amendments to Subordinated Obligations..........................38
6.17 Minimum Book Net Worth..........................................38
6.18 Minimum Monthly EBITDA..........................................38
6.19 Additional Mandatory Prepayments................................38
6.20 Amendments, etc.................................................38
-ii-
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS..........................39
7.1 Financial and Business Information..............................39
7.2 Compliance Certificates.........................................41
ARTICLE 8 CONDITIONS......................................................42
8.1 The Loans.......................................................42
8.2 Extension of Maturity Date......................................44
8.3 Release of Collateral re Softline Transaction...................45
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT............46
9.1 Events of Default...............................................46
9.2 Remedies Upon Event of Default..................................48
ARTICLE 10 [INTENTIONALLY OMITTED]........................................49
ARTICLE 11 MISCELLANEOUS..................................................50
11.1 Cumulative Remedies; No Waiver..................................50
11.2 Amendments; Consents............................................50
11.3 Costs, Expenses and Taxes.......................................50
11.4 Intentionally Omitted...........................................51
11.5 Survival of Representations and Warranties......................51
11.6 Notices.........................................................51
11.7 Execution of Loan Documents.....................................51
11.8 Binding Effect; Assignment......................................52
11.9 Right of Setoff.................................................52
11.10 Intentionally Omitted...........................................52
11.11 Indemnity by Borrower...........................................53
11.12 Nonliability of Lender..........................................54
11.13 No Third Parties Benefited......................................54
11.14 Confidentiality.................................................55
11.15 Further Assurances..............................................55
11.16 Integration.....................................................55
11.17 Governing Law; JURISDICTION AND VENUE...........................55
11.18 Severability of Provisions......................................56
11.19 Headings........................................................56
11.20 Time of the Essence.............................................56
11.21 Intentionally Omitted...........................................56
11.22 Hazardous Material Indemnity....................................56
11.23 Waiver of Right to Trial by Jury................................57
11.24 Purported Oral Amendments.......................................57
11.25 General Release.................................................58
11.26 Release of Collateral...........................................58
-iii-
Exhibits
--------
A - Borrower Security Agreement
B - Compliance Certificate
C - Pledge Agreement
D - Projections
E - Budget
F - Subsidiary Guaranty
G - Subsidiary Security Agreement
H - Note
I - Copyright Security Agreement
J - Patent and Trademark Security Agreement
K - Warrant Agreement
L - Intercreditor and Collateral Agency Agreement
Schedules
---------
1.1 ICM Notes
4.4 Subsidiaries
4.6 Material Adverse Changes
4.7A Existing Liens, Negative Pledges and Rights of Others
4.7B Location of Property
4.7C Bank Accounts
4.8 Trade Names
4.10 Material Litigation
4.18 Hazardous Materials Matters
6.10 Existing Indebtedness and Guaranty Obligations
-iv-
Dated as of June 29, 2001
THIS AMENDED AND RESTATED TERM LOAN AGREEMENT is entered into by and
between SVI SOLUTIONS, INC., a Delaware corporation ("Borrower"), and UNION BANK
OF CALIFORNIA, N.A. ("Lender"), with reference to the following facts:
RECITALS
A. SVI Holdings, Inc. a Nevada corporation ("Original Borrower") and
Lender entered into that certain Loan and Security Agreement (as amended, the
"Original Loan Agreement") dated as of July 3, 1999.
B. Original Borrower merged with and into Borrower effective March 1,
2000, with Borrower as the surviving corporation, all pursuant to the terms of
that certain Agreement and Plan of Merger between Borrower and Original Borrower
dated February 20, 2001 (the "Merger Agreement"). In accordance with the Merger
Agreement and Delaware law, Borrower has succeeded to all of Old Borrower's
debts, liabilities and obligations including, without limitation, to Lender
under the Original Loan Agreement.
C. Borrower and Lender have agreed to enter into this amended and
restated loan and security agreement dated as of the date hereof which amends
and restates the Original Loan Agreement on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINED TERMS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated after the Closing Date, by which Borrower
and/or any of its Subsidiaries directly or indirectly (a) acquires any
ongoing business or all or substantially all of the assets of any
Person engaged in any ongoing business, whether through purchase of
assets, merger or otherwise, (b) acquires control of securities of a
Person engaged in an ongoing business representing more than 50% of the
ordinary voting power for the election of directors or other governing
position if the business affairs of such Person are managed by a board
of directors or other governing body or (c) acquires control of more
than 50% of the ownership interest in any partnership, joint venture,
limited liability company, business trust or other Person engaged in an
ongoing business that is not managed by a board of directors or other
governing body.
-1-
"AFFILIATE" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (and
the correlative terms, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise); provided that, in any event, any Person that
owns, directly or indirectly, 10% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation that has more than 100 record holders of such
securities, or 10% or more of the partnership or other ownership
interests of any other Person that has more than 100 record holders of
such interests, will be deemed to be an Affiliate of such corporation,
partnership or other Person.
"AGREEMENT" means this Amended and Restated Term Loan
Agreement, either as originally executed or as it may from time to time
be supplemented, modified, amended, restated or extended.
"ALTERNATE BASE RATE" means, as of any date of determination,
the rate per annum (rounded upwards, if necessary, to the next 1/100 of
1%) equal to the Prime Rate in effect on such date.
"ALTERNATE BASE RATE MARGIN" means 5% (500 basis points).
"BANKING DAY" means any Monday, Tuesday, Wednesday, Thursday
or Friday, other than a day on which banks are authorized or required
to be closed in California.
"BOOK NET WORTH" means, as of any date of determination, the
consolidated total assets of Borrower and its Subsidiaries minus the
consolidated total liabilities of Borrower and its Subsidiaries,
determined in accordance with GAAP, consistently applied.
"BORROWER" has the meaning specified in the introduction to
this Agreement.
"BORROWER SECURITY AGREEMENT" means the amended and restated
security agreement to be executed and delivered pursuant to Article 8
by Borrower, in the form of Exhibit A, either as originally executed or
as it may from time to time be supplemented, modified, amended,
extended or supplanted.
"BUDGET" means (i) initially, the profit and loss budget for
Borrower's fiscal year ending March 31, 2002, prepared by Borrower and
attached hereto as Exhibit E. and (ii) in the event the Maturity Date
is extended pursuant to Section 2.2, the profit and loss budget for
Borrower's fiscal year ending March 31, 2003, prepared by Borrower and
delivered to Lender pursuant to Section 8.2.
"CAPITAL EXPENDITURE" means any expenditure by Borrower or any
of its Subsidiaries for or related to fixed assets or purchased
intangibles that is treated as a capital expenditure under GAAP,
including any amount which is required to be treated as an asset
subject to a Capital Lease Obligation. The amount of Capital
Expenditures in respect of fixed assets purchased or constructed by
Borrower or any of its Subsidiaries in any fiscal period shall be net
of (a) any net sales proceeds received during such fiscal period by
Borrower or such Subsidiary for fixed assets sold by Borrower or such
Subsidiary and (b) any casualty insurance proceeds received during such
fiscal period by Borrower or such Subsidiary for casualties to fixed
assets and applied to the repair or replacement thereof.
-2-
"CAPITAL LEASE OBLIGATIONS" means all monetary obligations of
a Person under any leasing or similar arrangement which, in accordance
with GAAP, is classified as a capital lease.
"CASH" means, when used in connection with any Person, all
monetary and non-monetary items owned by that Person that are treated
as cash in accordance with GAAP, consistently applied.
"CASH EQUIVALENTS" means, when used in connection with any
Person, that Person's Investments in:
(a) Government Securities due within one year after
the date of the making of the Investment;
(b) readily marketable direct obligations of any
State of the United States of America or any political subdivision of
any such State or any public agency or instrumentality thereof given on
the date of such Investment a credit rating of at least AA by ▇▇▇▇▇'▇
Investors Service, Inc. or AA by Standard & Poor's Rating Group (a
division of ▇▇▇▇▇▇-▇▇▇▇, Inc.), in each case due within one year from
the making of the Investment;
(c) certificates of deposit issued by, bank deposits
in, Eurodollar deposits through, bankers' acceptances of, and
repurchase agreements covering Government Securities executed by Lender
or any bank incorporated under the Laws of the United States of
America, any State thereof or the District of Columbia and having on
the date of such Investment combined capital, surplus and undivided
profits of at least $250,000,000, or total assets of at least
$5,000,000,000, in each case due within one year after the date of the
making of the Investment;
(d) certificates of deposit issued by, bank deposits
in, Eurodollar deposits through, bankers' acceptances of, and
repurchase agreements covering Government Securities executed by Lender
or any branch or office located in the United States of America of a
bank incorporated under the Laws of any jurisdiction outside the United
States of America having on the date of such Investment combined
capital, surplus and undivided profits of at least $500,000,000, or
total assets of at least $15,000,000,000, in each case due within one
year after the date of the making of the Investment;
-3-
(e) repurchase agreements covering Government
Securities executed by a broker or dealer registered under Section
15(b) of the Securities Exchange Act of 1934, as amended, having on the
date of the Investment capital of at least $50,000,000, due within 90
days after the date of the making of the Investment; provided that the
maker of the Investment receives written confirmation of the transfer
to it of record ownership of the Government Securities on the books of
a "primary dealer" in such Government Securities or on the books of
such registered broker or dealer, as soon as practicable after the
making of the Investment;
(f) readily marketable commercial paper or other debt
securities issued by corporations doing business in and incorporated
under the Laws of the United States of America or any State thereof or
of any corporation that is the holding company for a bank described in
clause (c) or (d) above given on the date of such Investment a credit
rating of at least P-1 by ▇▇▇▇▇'▇ Investors Service, Inc. or A-1 by
Standard & Poor's Rating Group (a division of ▇▇▇▇▇▇-▇▇▇▇, Inc.), in
each case due within one year after the date of the making of the
Investment;
(g) "money market preferred stock" issued by a
corporation incorporated under the Laws of the United States of America
or any State thereof (i) given on the date of such Investment a credit
rating of at least Aa by ▇▇▇▇▇'▇ Investors Service, Inc. and AA by
Standard & Poor's Rating Group (a division of ▇▇▇▇▇▇-▇▇▇▇, Inc.), in
each case having an investment period not exceeding 50 days or (ii) to
the extent that investors therein have the benefit of a standby letter
of credit issued by Lender or a bank described in clauses (c) or (d)
above; provided that (y) the amount of all such Investments issued by
the same issuer does not exceed $5,000,000 and (z) the aggregate amount
of all such Investments does not exceed $15,000,000;
(h) a readily redeemable "money market mutual fund"
sponsored by a bank described in clause (c) or (d) hereof, or a
registered broker or dealer described in clause (e) hereof, that has
and maintains an investment policy limiting its investments primarily
to instruments of the types described in clauses (a) through (g) hereof
and given on the date of such Investment a credit rating of at least Aa
by ▇▇▇▇▇'▇ Investors Service, Inc. and AA by Standard & Poor's Rating
Group (a division of ▇▇▇▇▇▇-▇▇▇▇, Inc.); and
(i) corporate notes or bonds having an original term
to maturity of not more than one year issued by a corporation
incorporated under the Laws of the United States of America, or a
participation interest therein; provided that (i) commercial paper
issued by such corporation is given on the date of such Investment a
credit rating of at least Aa by ▇▇▇▇▇'▇ Investors Service, Inc. and AA
by Standard & Poor's Rating Group (a division of ▇▇▇▇▇▇-▇▇▇▇, Inc.),
(ii) the amount of all such Investments issued by the same issuer does
not exceed $5,000,000 and (iii) the aggregate amount of all such
Investments does not exceed $15,000,000.
"CASH INCOME TAXES" means, with respect to any fiscal period,
taxes on or measured by the income of Borrower that are paid or
currently payable in Cash by Borrower during that fiscal period.
"CASH INTEREST EXPENSE" means Interest Expense that is paid or
currently payable in Cash.
-4-
"CERTIFICATE" means a certificate signed by a Senior Officer
or Responsible Official (as applicable) of the Person providing the
certificate.
"CHANGE IN CONTROL" means (a) any transaction or series of
related transactions in which any Unrelated Person or two or more
Unrelated Persons acting in concert acquire beneficial ownership
(within the meaning of Rule 13d-3(a)(1) under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of 20% or more of the
outstanding Common Stock, (b) Borrower consolidates with or merges into
another Person or conveys, transfers or leases its properties and
assets substantially as an entirety to any Person or any Person
consolidates with or merges into Borrower, in either event pursuant to
a transaction in which the outstanding Common Stock is changed into or
exchanged for cash, securities or other property, with the effect that
any Unrelated Person becomes the beneficial owner, directly or
indirectly, of 20% or more of Common Stock or that the Persons who were
the holders of Common Stock immediately prior to the transaction hold
less than 80% of the common stock of the surviving corporation after
the transaction, (c) during any period of 24 consecutive months,
individuals who at the beginning of such period constituted the board
of directors of Borrower (together with any new or replacement
directors whose election by the board of directors, or whose nomination
for election, was approved by a vote of at least a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for reelection
was previously so approved) cease for any reason to constitute a
majority of the directors then in office or (d) a "change in control"
as defined in any document governing Indebtedness of Borrower in excess
of $1,000,000 which gives the holders of such Indebtedness the right to
accelerate or otherwise require payment of such Indebtedness prior to
the maturity date thereof provided however that any "Change of Control"
occurring as a result of the consummation of the Softline Transaction
shall be deemed not to be a "Change of Control" for the purposes of
this Agreement.
"CLOSING DATE" means the time and Banking Day on which the
conditions set forth in Section 8.1 are satisfied or waived. Lender
shall notify Borrower of the date that is the Closing Date.
"CODE" means the Internal Revenue Code of 1986, as amended or
replaced and as in effect from time to time.
"COLLATERAL" means all of the collateral covered by the
Collateral Documents.
"COLLATERAL DOCUMENTS" means, collectively, the Borrower
Security Agreement, the Pledge Agreement, the Subsidiary Security
Agreement, the Patent and Trademark Security Agreement, the Copyright
Security Agreement and any other security agreement, pledge agreement,
deed of trust, mortgage, notice to or acknowledgment of a registrar or
depositary institution, control agreement or other collateral security
agreement executed and delivered by Borrower or any of its Subsidiaries
(and executed by any third party whose signature is necessary) to
secure the Obligations.
-5-
"COMMON STOCK" means the common stock of Borrower or its
successor.
"COMPLIANCE CERTIFICATE" means a certificate in the form of
Exhibit B, properly completed and signed by a Senior Officer of
Borrower.
"COPYRIGHT SECURITY AGREEMENT" means the amended and restated
copyright security agreement to be executed and delivered pursuant to
Article 8 by Borrower and each of the Domestic Subsidiaries, in the
form of Exhibit I, either as originally executed or as it may from time
to time be supplemented, modified, amended, extended or supplanted.
"CONTRACTUAL OBLIGATION" means, as to any Person, any
provision of any outstanding security issued by that Person or of any
material agreement, instrument or undertaking to which that Person is a
party or by which it or any of its Property is bound.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United
States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws from time to time in effect affecting the rights of
creditors generally.
"DEFAULT" means any event that, with the giving of any
applicable notice or passage of time specified in Section 9.1, or both,
would be an Event of Default.
"DEFAULT RATE" means a fluctuating rate per annum equal to the
sum of (a) the Alternate Base Rate plus (b) the Alternate Base Rate
Margin plus (c) 2%.
"DESIGNATED DEPOSIT ACCOUNT" means a deposit account to be
maintained by Borrower with Union Bank of California, N.A. or one of
its Affiliates, as from time to time designated by Borrower by written
notification to Lender.
"DISQUALIFIED STOCK" means any capital stock, warrants,
options or other rights to acquire capital stock (but excluding any
debt security which is convertible, or exchangeable, for capital
stock), which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, on or prior to the
Maturity Date.
"DISPOSITION" means the sale, transfer or other disposition in
any single transaction or series of related transactions of any asset,
or group of related assets, of Borrower or any of its Subsidiaries (a)
which asset or assets constitute a line of business or substantially
all the assets of Borrower or the Subsidiary or (b) the aggregate
amount of the Net Cash Sales Proceeds of such assets is more than
$100,000, other than (i) inventory or other assets sold or otherwise
disposed of in the ordinary course of business of Borrower or its
Subsidiary, (ii) equipment sold or otherwise disposed of where
substantially similar equipment in replacement thereof has theretofore
been acquired, or thereafter within 90 days is acquired, by Borrower or
its Subsidiary and (iii) obsolete assets no longer useful in the
business of Borrower and its Subsidiaries whose carrying value on the
books of Borrower or such Subsidiary is zero or de minimus.
-6-
"DISTRIBUTION" means, with respect to any shares of capital
stock or any warrant or option to purchase an equity security or other
equity security issued by a Person, (a) the retirement, redemption,
purchase or other acquisition for Cash or for Property by such Person
of any such security, (b) the declaration or (without duplication)
payment by such Person of any dividend in Cash or in Property on or
with respect to any such security, (c) any Investment by such Person in
the holder of 5% or more of any such security if a purpose of such
Investment is to avoid characterization of the transaction as a
Distribution and (d) any other payment in Cash or Property by such
Person constituting a distribution under applicable Laws with respect
to such security.
"DIVERGENT" means SVI Retail (Pty.) Limited, a corporation
incorporated under the laws of Australia.
"DOLLARS" or "$" means United States of America dollars.
"DOMESTIC SUBSIDIARY" means any Subsidiary of Borrower that is
not a Foreign Subsidiary.
"EBITDA" means with respect to any fiscal period, the sum of
(a) Net Income for that period, plus (b) any non-operating
non-recurring loss reflected in such Net Income, minus (c) any
non-operating non-recurring gain reflected in such Net Income, plus (d)
Interest Expense of Borrower and its Subsidiaries for that period, plus
(e) the aggregate amount of federal and state taxes on or measured by
income of Borrower and its Subsidiaries for that period (whether or not
payable during that period), minus (f) the aggregate amount of federal
and state credits against taxes on or measured by income of Borrower
and its Subsidiaries for that period (whether or not usable during that
period), plus (g) depreciation, amortization and all other non-cash
expenses of Borrower and its Subsidiaries for that period, in each case
as determined in accordance with GAAP, consistently applied.
"ERISA" means the Employee Retirement Income Security Act of
1974, and any regulations issued pursuant thereto, as amended or
replaced and as in effect from time to time.
"ERISA Affiliate" means each Person (whether or not
incorporated) which is required to be aggregated with Borrower pursuant
to Section 414 of the Code.
"EVENT OF DEFAULT" shall have the meaning provided in Section
9.1.
"FISCAL MONTH" shall have the meaning provided in Section 7.1.
"FISCAL QUARTER" means the fiscal quarter of Borrower ending
on each June 30, September 30, December 31 and March 31.
-7-
"FISCAL YEAR" means the fiscal year of Borrower ending on each
March 31.
"FOREIGN SUBSIDIARY" means a Subsidiary of Borrower that (a)
is organized under the Laws of a country (or political subdivision
thereof) other than the United States of America and (b) holds all or
substantially all of its assets outside the United States of America.
"GAAP" means, as of any date of determination, accounting
principles (a) set forth as generally accepted in then currently
effective Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (b) set forth as generally
accepted in then currently effective Statements of the Financial
Accounting Standards Board or (c) that are then approved by such other
entity as may be approved by a significant segment of the accounting
profession in the United States of America. The term "consistently
applied," as used in connection therewith, means that the accounting
principles applied are consistent in all material respects with those
applied at prior dates or for prior periods.
"GOVERNMENT SECURITIES" means readily marketable (a) direct
full faith and credit obligations of the United States of America or
obligations guaranteed by the full faith and credit of the United
States of America and (b) obligations of an agency or instrumentality
of, or corporation owned, controlled or sponsored by, the United States
of America that are generally considered in the securities industry to
be implicit obligations of the United States of America.
"GOVERNMENTAL AGENCY" means (a) any international, foreign,
federal, state, county or municipal government, or political
subdivision thereof, (b) any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or
public body or (c) any court or administrative tribunal of competent
jurisdiction.
"GUARANTY OBLIGATION" means, as to any Person, any (a)
guarantee by that Person of Indebtedness of, or other obligation
performable by, any other Person or (b) assurance given by that Person
to an obligee of any other Person with respect to the performance of an
obligation by, or the financial condition of, such other Person,
whether direct, indirect or contingent, including any purchase or
repurchase agreement covering such obligation or any collateral
security therefor, any agreement to provide funds (by means of loans,
capital contributions or otherwise) to such other Person, any agreement
to support the solvency or level of any balance sheet item of such
other Person or any "keep-well" or other arrangement of whatever nature
given for the purpose of assuring or holding harmless such obligee
against loss with respect to any obligation of such other Person;
provided, however, that the term Guaranty Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guaranty Obligation in respect of
Indebtedness shall be deemed to be an amount equal to the stated or
determinable amount of the related Indebtedness (unless the Guaranty
Obligation is limited by its terms to a lesser amount, in which case to
the extent of such amount) or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as
-8-
determined by the Person in good faith. The amount of any other
Guaranty Obligation shall be deemed to be zero unless and until the
amount thereof has been (or in accordance with Financial Accounting
Standards Board Statement No. 5 should be) quantified and reflected or
disclosed in the consolidated financial statements (or notes thereto)
of Borrower.
"HAZARDOUS MATERIALS" means substances defined as "hazardous
substances" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 ▇.▇.▇.▇▇. 9601 et seq., or
as "hazardous", "toxic" or "pollutant" substances or as "solid waste"
pursuant to the Hazardous Materials Transportation Act, 49 ▇.▇.▇.▇▇.
1801, et seq., the Resource Conservation and Recovery Act, 42 ▇.▇.▇.▇▇.
6901, et seq., or as "friable asbestos" pursuant to the Toxic
Substances Control Act, 15 ▇.▇.▇.▇▇. 2601 et seq. or any other
applicable Hazardous Materials Law, in each case as such Laws are
amended from time to time.
"HAZARDOUS MATERIALS LAWS" means all Laws governing the
treatment, transportation or disposal of Hazardous Materials applicable
to any of the Real Property.
"ICM NOTES" means, collectively, the convertible promissory
notes set forth on Schedule 1.1 attached hereto.
"IBIS NOTE" means that certain promissory note dated December
31, 1998 made by Kielduff Investments Limited in the original principal
amount of $18,108,000 in favor of SVI Holdings, Inc. (predecessor by
merger to Borrower), as such note may be supplemented, amended,
extended or supplanted.
"INDEBTEDNESS" means, as to any Person (without duplication),
(a) indebtedness of such Person for borrowed money or for the deferred
purchase price of Property (excluding trade and other accounts payable
in the ordinary course of business in accordance with ordinary trade
terms), including any Guaranty Obligation for any such indebtedness,
(b) indebtedness of such Person of the nature described in clause (a)
that is non-recourse to the credit of such Person but is secured by
assets of such Person, to the extent of the fair market value of such
assets as determined in good faith by such Person, (c) Capital Lease
Obligations of such Person, (d) indebtedness of such Person arising
under bankers' acceptance facilities or under facilities for the
discount of accounts receivable of such Person, (e) any direct or
contingent obligations of such Person under letters of credit issued
for the account of such Person, and (f) any net obligations of such
Person under Interest Rate Protection Agreements.
"INTANGIBLE ASSETS" means assets that are considered
intangible assets under GAAP, including customer lists, goodwill,
covenants not to compete, copyrights, trade names, trademarks and
patents.
"INTEGRITY SHARES" means the common shares of Integrity
Software, Inc. pledged as collateral security for the repayment of the
IBIS Note and any proceeds thereof.
-9-
"INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT" means the
intercreditor and collateral agency agreement to be executed and
delivered pursuant to Article 8 by Borrower and Softline, substantially
in the form of Exhibit L, with such changes as Lender may reasonably
request following its review of the Softline Transaction documents,
either as originally executed or as it may from time to time be
supplemented, modified, amended, extended or supplanted.
"INTEREST EXPENSE" means, with respect to any Person and as of
the last day of any fiscal period, the sum of (a) all interest, fees,
charges and related expenses (in each case as such expenses are
calculated according to GAAP) paid or payable (without duplication) for
that fiscal period by that Person to a lender in connection with
borrowed money (including any obligations for fees, charges and related
expenses payable to the issuer of any letter of credit) or the deferred
purchase price of assets that are considered "interest expense" under
GAAP plus (b) the portion of rent paid or payable (without duplication)
for that fiscal period by that Person under Capital Lease Obligations
that should be treated as interest in accordance with Financial
Accounting Standards Board Statement No. 13.
"INVESTMENT" means, when used in connection with any Person,
any investment by or of that Person, whether by means of purchase or
other acquisition of stock or other securities of any other Person or
by means of a loan, advance creating a debt, capital contribution,
guaranty or other debt or equity participation or interest in any other
Person, including any partnership and joint venture interests of such
Person. The amount of any Investment shall be the amount actually
invested (minus any return of capital with respect to such Investment
which has actually been received in Cash or has been converted into
Cash), without adjustment for subsequent increases or decreases in the
value of such Investment.
"JOINT VENTURE" means any Investment by Borrower in any Person
that is not a Wholly-Owned Subsidiary of Borrower, which Person is
engaged in the same or a similar line of business as Borrower.
"LAWS" means, collectively, all international, foreign,
federal, state and local statutes, treaties, rules, regulations,
ordinances, codes and administrative or judicial precedents.
"LENDER" has the meaning specified in the introduction to this
Agreement.
"LENDER'S OFFICE" means Lender's address as set forth on the
signature page of this Agreement, or such other address as Lender
hereafter may designate by written notice to Borrower.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest, encumbrance,
lien or charge of any kind, whether voluntarily incurred or arising by
operation of Law or otherwise, affecting any Property, including any
conditional sale or other title retention agreement, any lease in the
nature of a security interest, and/or the filing of any financing
statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the
Uniform Commercial Code or comparable Law of any jurisdiction with
respect to any Property.
-10-
"LOAN DOCUMENTS" means, collectively, this Agreement, the
Notes, the Subsidiary Guaranty, the Collateral Documents, the Warrant
Agreement, the Intercreditor and Collateral Agency Agreement and any
other agreements of any type or nature hereafter executed and delivered
by Borrower or any of the Subsidiary Guarantors to Lender in any way
relating to or in furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be
supplemented, modified, amended, restated, extended or supplanted.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation U.
"MATERIAL ADVERSE EFFECT" means any set of circumstances or
events which (a) has had or could reasonably be expected to have any
material adverse effect whatsoever upon the validity or enforceability
of any Loan Document, (b) has been or could reasonably be expected to
be substantial and adverse to the business or condition (financial or
otherwise) of Borrower and its Subsidiaries, taken as a whole or (c)
has materially impaired or could reasonably be expected to materially
impair the ability of Borrower to perform the Obligations.
"MATURITY DATE" means May 1, 2002, or such later date as the
Maturity Date may be extended pursuant to Section 2.2.
"MONTHLY PAYMENT DATE" means the first day of each calendar
month.
"MULTIEMPLOYER PLAN" means any employee benefit plan of the
type described in Section 4001(a)(3) of ERISA to which Borrower or any
of its ERISA Affiliates contributes or is obligated to contribute.
"NEGATIVE PLEDGE" means a Contractual Obligation which
contains a covenant binding on Borrower or any of its Subsidiaries that
prohibits Liens on any of its Property, other than (a) any such
covenant contained in a Contractual Obligation granting or relating to
a particular Lien which affects only the Property that is the subject
of such Lien and (b) any such covenant that does not apply to Liens
securing the Obligations.
"NET CASH ISSUANCE PROCEEDS" means, with respect to the
issuance of any debt security or equity security by Borrower or any of
its Subsidiaries, the Cash proceeds received by or for the account of
Borrower or such Subsidiary in consideration of such issuance net of
(a) underwriting discounts and commissions actually paid to any Person
not an Affiliate of Borrower and (b) professional fees and
disbursements actually paid in connection therewith.
-11-
"NET CASH SALES PROCEEDS" means, with respect to any
Disposition, the sum of (a) the Cash proceeds received by or for the
account of Borrower and its Subsidiaries from such Disposition plus (b)
the amount of Cash received by or for the account of Borrower and its
Subsidiaries upon the sale, collection or other liquidation of any
proceeds that are not Cash from such Disposition, in each case net of
(i) any amount required to be paid to any Person owning an interest in
the assets disposed of, (ii) any amount applied to the repayment of
Indebtedness secured by a Lien permitted under Section 6.9 on the asset
disposed of, (iii) any transfer, income or other taxes payable as a
result of such Disposition, (iv) professional fees and expenses, fees
due to any Governmental Agency, broker's commissions and other
out-of-pocket costs of sale actually paid to any Person that is not an
Affiliate of Borrower attributable to such Disposition and (v) any
reserves established in accordance with GAAP in connection with such
Disposition.
"NET INCOME" means, with respect to any fiscal period, the
consolidated net income of Borrower and its Subsidiaries for that
period, determined in accordance with GAAP, consistently applied.
"NOTE" means the amended and restated term loan note in the
original principal amount of $7,359,605.24 executed by Borrower to the
order of Lender, substantially in the form of Exhibit "H", either as
originally executed or as the same may from time to time be
supplemented, modified, amended, extended or supplanted.
"OBLIGATIONS" means all present and future obligations of
every kind or nature of Borrower or any of the Subsidiary Guarantors at
any time and from time to time owed to Lender under any one or more of
the Loan Documents, whether due or to become due, matured or unmatured,
liquidated or unliquidated, or contingent or noncontingent, including
obligations of performance as well as obligations of payment, and
including interest that accrues after the commencement of any
proceeding under any Debtor Relief Law by or against Borrower or any of
the Subsidiary Guarantors.
"ORIGINAL LOAN AGREEMENT" has the meaning specified in the
recitals to this Agreement.
"ORIGINAL LOANS" shall have the meaning provided in Section
2.1(a).
"OTHER INITIAL OBLIGATIONS" means all Obligations as defined
in, and under, the Original Loan Agreement other than the principal
amounts referred to in clauses 2.1(a)(i) and 2.1(a)(ii).
"PARTY" means any Person other than Lender or Lender's
successor which now or hereafter is a party to any of the Loan
Documents.
"PATENT AND TRADEMARK SECURITY AGREEMENT" means the amended
and restated patent and trademark security agreement to be executed and
delivered pursuant to Article 8 by Borrower and each of its Domestic
Subsidiaries, in the form of Exhibit J, either as originally executed
or as it may from time to time be supplemented, modified, amended,
extended or supplanted.
-12-
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"PENSION PLAN" means any "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA), other than a
Multiemployer Plan, which is subject to Title IV of ERISA and is
maintained by Borrower or to which Borrower contributes or has an
obligation to contribute.
"PERMITTED ENCUMBRANCES" means:
(a) Liens for taxes and assessments on Property which
are not yet past due; or Liens for taxes and assessments on Property
for which adequate reserves have been set aside and are being contested
in good faith by appropriate proceedings and have not proceeded to
judgment, provided that, by reason of nonpayment of the obligations
secured by such Liens, no such Property is subject to a material
impending risk of loss or forfeiture;
(b) defects and irregularities in title to any
Property which in the aggregate do not materially impair the fair
market value or use of the Property for the purposes for which it is or
may reasonably be expected to be held;
(c) rights reserved to or vested in any Governmental
Agency to control or regulate, or obligations or duties to any
Governmental Agency with respect to, the use of any Property;
(d) rights reserved to or vested in any Governmental
Agency to control or regulate, or obligations or duties to any
Governmental Agency with respect to, any right, power, franchise,
grant, license, or permit;
(e) statutory Liens, other than those described in
clauses (a) or (b) above, arising in the ordinary course of business
with respect to obligations which are not delinquent or are being
contested in good faith, provided that, if delinquent, adequate
reserves have been set aside with respect thereto and, by reason of
nonpayment, no Property is subject to a material impending risk of loss
or forfeiture;
(f) covenants, conditions, and restrictions affecting
the use of Property which in the aggregate do not materially impair the
fair market value or use of the Property for the purposes for which it
is or may reasonably be expected to be held;
(g) Liens consisting of pledges or deposits to secure
obligations under workers' compensation laws or similar legislation,
including Liens of judgments thereunder which are not currently
dischargeable;
(h) Liens consisting of pledges or deposits of
Property to secure performance in connection with operating leases made
in the ordinary course of business, provided the aggregate value of all
such pledges and deposits in connection with any such lease does not at
any time exceed 20% of the annual fixed rentals payable under such
lease;
-13-
(i) [intentionally omitted]
(j) Liens in favor of Lender consisting of any right
of offset, or statutory bankers' lien, on bank deposit accounts
maintained in the ordinary course of business so long as such bank
deposit accounts are not established or maintained for the purpose of
providing such right of offset or bankers' lien;
(k) Liens consisting of deposits of Property to
secure statutory obligations of Borrower;
(l) Liens consisting of deposits of Property to
secure (or in lieu of) surety, appeal or customs bonds;
(m) Liens created by or resulting from any litigation
or legal proceeding in the ordinary course of business which is
currently being contested in good faith by appropriate proceedings,
provided that, adequate reserves have been set aside and no material
Property is subject to a material impending risk of loss or forfeiture;
(n) other non-consensual Liens incurred in the
ordinary course of business but not in connection with the incurrence
of any Indebtedness, which do not in the aggregate, when taken together
with all other Liens, materially impair the fair market value or use of
the Property for the purposes for which it is or may reasonably be
expected to be held; and
(o) from and after the consummation of the Softline
Transaction, the Lien in favor of Softline in the Softline Pledged
Shares securing Borrower's obligation to repay the Softline Note.
"PERMITTED RIGHT OF OTHERS" means a Right of Others consisting
of (a) an interest (other than a legal or equitable co-ownership
interest, an option or right to acquire a legal or equitable
co-ownership interest and any interest of a ground lessor under a
ground lease), that does not materially impair the fair market value or
use of Property for the purposes for which it is or may reasonably be
expected to be held, (b) an option or right to acquire a Lien that
would be a Permitted Encumbrance, (c) the subordination of a lease or
sublease in favor of a financing entity and (d) a license, or similar
right, of or to Intangible Assets granted in the ordinary course of
business.
"PERSON" means any individual or entity, including a trustee,
corporation, limited liability company, general partnership, limited
partnership, joint stock company, trust, estate, unincorporated
organization, business association, firm, joint venture, Governmental
Agency, or other entity.
-14-
"PLEDGE AGREEMENT" means the amended and restated pledge
agreement to be executed and delivered pursuant to Article 8 by
Borrower, in the form of Exhibit C, either as originally executed or as
it may from time to time be supplemented, modified, amended, extended
or supplanted.
"PLEDGED COLLATERAL" means (a) the certificates evidencing
100% of the shares of capital stock held by Borrower in all Domestic
Subsidiaries and (b) certificates evidencing 65% of the shares of
capital stock held by Borrower in all Foreign Subsidiaries and (c) from
and after the consummation of the Softline Transaction, the Softline
Pledged Shares.
"PRIME RATE" means the rate of interest publicly announced
from time to time by Lender in San Francisco, California (or other
headquarters city of Lender) as its "reference rate." The "reference
rate" is one of several base rates used by Lender and serves as the
basis upon which effective rates of interest are calculated for loans
and other credits making reference thereto. The "reference rate" is not
necessarily the lowest base interest rate used by Lender. The
"reference rate" is evidenced by the recording thereof after its
announcement in such internal publication or publications as Lender may
designate. Any change in the Prime Rate announced by Lender shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"PROJECTIONS" means the consolidated cash flow projections of
Borrower for its Fiscal Year ended March 31, 2002, prepared by Borrower
and attached hereto as Exhibit D.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"REAL PROPERTY" means, as of any date of determination, all
real property then or theretofore owned, leased or occupied by any of
Borrower.
"REGULATION D" means Regulation D, as at any time amended, of
the Board of Governors of the Federal Reserve System, or any other
regulation in substance substituted therefor.
"REGULATION U" means Regulation U, as at any time amended, of
the Board of Governors of the Federal Reserve System, or any other
regulation in substance substituted therefor.
"REQUIREMENT OF LAW" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any Law, or judgment, award,
decree, writ or determination of a Governmental Agency, in each case
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"RESPONSIBLE OFFICIAL" means (a) any Senior Officer of
Borrower and (b) any other responsible official of Borrower so
designated in a written notice thereof from a Senior Officer to Lender.
Lender shall be entitled to conclusively rely upon any document or
certificate that is signed or executed by a Responsible Official of
Borrower or any of its Subsidiaries as having been authorized by all
necessary corporate, partnership and/or other action on the part of
Borrower or such Subsidiary.
-15-
"RIGHT OF OTHERS" means, as to any Property in which a Person
has an interest, any legal or equitable right, title or other interest
(other than a Lien) held by any other Person in that Property, and any
option or right held by any other Person to acquire any such right,
title or other interest in that Property, including any option or right
to acquire a Lien; provided, however, that (a) no covenant restricting
the use or disposition of Property of such Person contained in any
Contractual Obligation of such Person and (b) no provision contained in
a contract creating a right of payment or performance in favor of a
Person that conditions, limits, restricts, diminishes, transfers or
terminates such right shall be deemed to constitute a Right of Others.
"SENIOR OFFICER" means (a) the chief executive officer, (b)
the president, (c) any executive vice president, (d) the chief
financial officer or (e) the treasurer, in each case of Borrower.
"SOFTLINE" means Softline Limited, a South African
corporation.
"SOFTLINE NOTE" means that certain promissory note issued by
the Borrower to Softline dated October 10, 2000, in the original
principal amount of $10,000,000.00 either as originally executed or as
it may from time to time be supplemented, modified, amended, extended
or supplanted.
"SOFTLINE PLEDGED SHARES" means the common shares of Borrower
currently owned by, and registered in the name of, Softline, to be
repurchased by Borrower and pledged to Softline as collateral security
for the Softline Note all pursuant to the Softline Transaction. .
"SOFTLINE TRANSACTION" means a contemplated transaction
between Borrower and Softline pursuant to which Borrower shall
repurchase all or substantially all of the common shares of Borrower
currently owned by, and registered in the name of, Softline, in
consideration for certain non-cash consideration, consisting of
Borrower's right, title and interest in Divergent, the IBIS Note and
the Integrity Shares, which transaction shall be on terms and
conditions satisfactory to Lender.
"STOCKHOLDERS' EQUITY" means, as of any date of determination
and with respect to any Person, the consolidated stockholders' equity
of the Person as of that date determined in accordance with GAAP;
provided that there shall be excluded from Stockholders' Equity any
amount attributable to Disqualified Stock.
"SUBORDINATED OBLIGATIONS" means (i) any Indebtedness of
Borrower that (a) does not have any scheduled principal payment,
mandatory principal prepayment or sinking fund payment due prior to the
date that is one year after the Maturity Date, (b) is not secured by
any Lien on any Property of Borrower or any of its Subsidiaries, (c) is
not guaranteed by any Subsidiary of Borrower, (d) is subordinated by
its terms in right of payment to the Obligations pursuant to provisions
acceptable to Lender, (e) is subject to such financial and other
covenants and events of defaults as may be acceptable to Lender and (f)
is subject to customary interest blockage and delayed acceleration
provisions as may be acceptable to Lender and (ii) the Indebtedness of
Borrower to Softline as evidenced by, and subordinated by its terms in
right of payment to the Obligations pursuant to, the Softline Note.
-16-
"SUBSIDIARY" means, as of any date of determination and with
respect to any Person, any corporation, limited liability company or
partnership (whether or not, in any case, characterized as such or as a
"joint venture"), whether now existing or hereafter organized or
acquired: (a) in the case of a corporation or limited liability
company, of which a majority of the securities having ordinary voting
power for the election of directors or other governing body (other than
securities having such power only by reason of the happening of a
contingency) are at the time beneficially owned by such Person and/or
one or more Subsidiaries of such Person, or (b) in the case of a
partnership, of which a majority of the partnership or other ownership
interests are at the time beneficially owned by such Person and/or one
or more of its Subsidiaries.
"SUBSIDIARY GUARANTORS" means all Domestic Subsidiaries.
"SUBSIDIARY GUARANTY" means the amended and restated
continuing guaranty of the Obligations to be executed and delivered
pursuant to Article 8 by the Subsidiary Guarantors, in the form of
Exhibit F, either as originally executed or as it may from time to time
be supplemented, modified, amended, extended or supplanted.
"SUBSIDIARY SECURITY AGREEMENT" means the amended and restated
security agreement to be executed and delivered pursuant to Article 8
by the Subsidiary Guarantors, in the form of Exhibit G, either as
originally executed or as it may from time to time be supplemented,
modified, amended, extended or supplanted.
"TERM LOAN" means the term loan in the original principal
amount of $7,359,605.24 to be provided by Lender to Borrower pursuant
to Section 2.1(a).
"TO THE BEST KNOWLEDGE OF" means, when modifying a
representation, warranty or other statement of any Person, that the
fact or situation described therein is known by the Person (or, in the
case of a Person other than a natural Person, known by a Responsible
Official of that Person) making the representation, warranty or other
statement, or with the exercise of reasonable due diligence under the
circumstances (in accordance with the standard of what a reasonable
Person in similar circumstances would have done) would have been known
by the Person (or, in the case of a Person other than a natural Person,
would have been known by a Responsible Official of that Person).
"WARRANT AGREEMENT" means the warrant agreement to be executed
and delivered pursuant to Article 8 by Borrower, substantially in the
form of Exhibit K, with such changes as Lender may reasonably request
following its review of the Softline Transaction documents, either as
originally executed or as it may from time to time be supplemented,
modified, amended, extended or supplanted.
-17-
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of Borrower, 100%
of the capital stock or other equity interest of which is owned,
directly or indirectly, by Borrower, except for director's qualifying
shares required by applicable Laws.
"UCC" or "Uniform Commercial Code" means the Uniform
Commercial Code in effect, and as from time to time amended, in the
State of California
1.2 USE OF DEFINED TERMS. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used in
the singular shall refer to any one or more of the members of the relevant
class.
1.3 ACCOUNTING TERMS. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, GAAP applied on a consistent basis, except as otherwise
specifically prescribed herein. In the event that GAAP changes during the term
of this Agreement such that the covenants contained in this Agreement would then
be calculated in a different manner or with different components, (a) Borrower
and Lender agree to amend this Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating Borrower's financial
condition to substantially the same criteria as were effective prior to such
change in GAAP and (b) Borrower shall be deemed to be in compliance with the
covenants contained in the aforesaid Sections if and to the extent that Borrower
would have been in compliance therewith under GAAP as in effect immediately
prior to such change, but shall have the obligation to deliver each of the
materials described in Article 7 to Lender, on the dates therein specified, with
financial data presented in a manner which conforms with GAAP as in effect
immediately prior to such change.
1.4 EXHIBITS AND SCHEDULES. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
1.5 REFERENCES TO "BORROWER AND ITS SUBSIDIARIES". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to Borrower during such times, if any, as Borrower shall have no
Subsidiaries.
1.6 MISCELLANEOUS TERMS. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory; the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply to
males. The term "including" is by way of example and not limitation.
-18-
ARTICLE 2
TERM LOAN
---------
2.1 TERM LOAN-GENERAL.
(a) Pursuant to the terms of the Original Loan Agreement,
Lender has made (i) a term loan, the outstanding principal balance of which is
$4,150,000.00 immediately prior to the Closing Date, and (ii) certain revolving
loans, the outstanding aggregate principal balance of which is $2,999,598.60
immediately prior to the Closing Date (such term loan and revolving loans,
collectively, the "Original Loans") to Borrower. Subject to the terms and
conditions set forth in this Agreement, on the Closing Date, Lender shall be
deemed to have made the Term Loan to Borrower the proceeds of which shall be
used solely to refinance the Original Loans and $210,006.64 of the Other Initial
Obligations. For greater certainty, the balance of the Other Initial
Obligations, not included in the amount of $210,006.64 referred to above, if
any, shall not be extinguished upon the effectiveness of this Agreement but
shall remain as Obligations of the Borrower under this Agreement.
(b) The Term Loan shall be evidenced by the Note.
2.2 EXTENSION OF MATURITY DATE. Borrower may, by notice delivered to
Lender at any time prior to May 1, 2002 (an "Extension Request Notice"), request
that the Maturity Date be extended. Subject to Borrower's satisfaction of each
of the conditions precedent set forth in Section 8.2, Lender agrees that the
Maturity Date shall be extended to November 1, 2002.
2.3 OPTIONAL TERMINATION OF TERM LOAN. Following the occurrence of a
Change in Control, Lender may in its sole and absolute discretion elect, during
the thirty (30) day period immediately subsequent to the later of (a) such
occurrence or (b) the earlier of (i) receipt of Borrower's written notice to
Lender of such occurrence or (ii) if no such notice has been received by Lender,
the date upon which Lender has actual knowledge thereof, to terminate the Term
Loan, in which case the Term Loan shall be terminated and shall be repaid,
effective on the date which is thirty (30) days subsequent to written notice
from Lender to Borrower thereof.
-19-
ARTICLE 3
PAYMENTS AND FEES
-----------------
3.1 PRINCIPAL AND INTEREST.
(a) Interest shall be payable on the outstanding daily unpaid
principal amount of the Term Loan from the Closing Date until payment in full is
made and shall accrue and be payable at the rates set forth or provided for
herein before and after Default, before and after maturity, before and after
judgment, and before and after the commencement of any proceeding under any
Debtor Relief Law, with interest on overdue interest at the Default Rate to the
fullest extent permitted by applicable Laws.
(b) Interest accrued on the Term Loan shall be due and payable
on each Monthly Payment Date. Except as otherwise provided in Sections 3.1(d)
and 3.7, the unpaid principal amount of the Term Loan shall bear interest at a
fluctuating rate per annum equal to the Alternate Base Rate plus the Alternate
Base Rate Margin. Each change in the interest rate under this Section 3.1(b) due
to a change in the Alternate Base Rate shall take effect simultaneously with the
corresponding change in the Alternate Base Rate.
(c) Intentionally Omitted.
(d) During the existence of an Event of Default, the Term Loan
shall bear interest at a rate equal to the Default Rate.
(e) If not sooner paid, the principal Indebtedness evidenced
by the Note shall be payable as follows:
(i) On the date which is the earlier of (a) 45 days
following the Closing Date and (b) the date of the equity
issuance referred to in the proviso to Section 3.1(f),
Borrower shall make a payment of principal Indebtedness in an
amount equal to $210,006.64 and concurrent with such payment,
Borrower shall repay the balance of any Other Initial
Obligations, if any, outstanding on such date; and
(ii) A. In the event the Maturity Date is not
extended past May 1, 2002 pursuant to Section 2.2 hereof
Borrower shall (a) make seven (7) equal consecutive monthly
installment payments of $50,000.00 each, commencing on October
1, 2001 and continuing on the each Monthly Payment Date
thereafter through and including the Maturity Date and (b) pay
the entire remaining unpaid principal balance of the Term
Loan, and all accrued and unpaid interest thereon, on the
Maturity Date; or
-20-
B. In the event the Maturity Date is extended
pursuant to Section 2.2 hereof Borrower shall (a) make seven
(7) equal consecutive monthly installment payments of
$50,000.00 each, commencing on October 1, 2001 and continuing
on each Monthly Payment Date thereafter through and including
April 1, 2002; (b) make equal consecutive monthly installment
payments of $100,000.00 each, commencing on May 1, 2002 and
continuing on each Monthly Payment Date thereafter through and
including the Maturity Date and (c) pay the entire remaining
unpaid principal balance of the Term Loan, and all accrued and
unpaid interest thereon, on the Maturity Date;
(f) The principal Indebtedness evidenced by the Note shall be
prepaid on or before the third Banking Day following the receipt by Borrower or
any of its Subsidiaries of (i) Net Cash Issuance Proceeds from the issuance of
debt securities of Borrower or any of its Subsidiaries by an amount equal to
100% of such Net Cash Issuance Proceeds and (ii) Net Cash Issuance Proceeds from
the issuance of equity securities of Borrower or any of its Subsidiaries (except
an issuance of equity securities to Borrower or to a Wholly-Owned Subsidiary or
to employees or former employees of Borrower pursuant to an employee stock
option plan maintained by Borrower), by an amount equal to 100% of such Net Cash
Issuance Proceeds provided that notwithstanding the foregoing, Borrower may
retain, in aggregate, up to $6,000,000 of the Net Cash Issuance Proceeds from
the issuance of equity securities of Borrower provided such proceeds are
utilized solely for Borrower's working capital purposes. The amount of any
prepayment hereunder shall be applied to the principal balance of the Note in
the inverse order of maturity of payment thereof (ie. without relieving Borrower
of its obligations to make the next succeeding principal installment payable
under the Note).
(g) The principal Indebtedness evidenced by the Note may, at
any time and from time to time, voluntarily be paid or prepaid in whole or in
part without premium or penalty, except that with respect to any voluntary
prepayment under this Subsection, (i) any partial prepayment shall be not less
than $100,000 and shall be an integral multiple of $25,000 and (ii) Lender shall
have received written notice of any prepayment by 9:00 a.m. California time on
the date that is one (1) Banking Day before the date of prepayment (which must
be a Banking Day).
3.2 INTENTIONALLY OMITTED.
3.3 LOAN EXTENSION AND RESTRUCTURING FEE. On May 1, 2002, Borrower
shall pay to Lender a loan extension and restructuring fee in the sum of
$200,000 provided that (a) if all Obligations of Borrower to Lender hereunder
have been repaid in full prior to May 1, 2002, Lender will waive such loan
extension and restructuring fee and (b) in the event that the Maturity Date is
extended past May 1, 2002 pursuant to Section 2.2, Borrower shall pay such loan
extension and restructuring fee in two installments; the first, in the amount of
$150,000, shall be due and payable on May 1, 2002; and the second, in the amount
of $50,000 shall be due and payable on the Maturity Date. Such fee shall be
fully-earned when paid and shall thereafter be non-refundable.
-21-
3.4 FINANCIAL CONSULTANT FEE. Lender shall have the right to engage a
financial consultant to examine, audit and review the Borrower's books, records
and collateral and Borrower agrees that such consultant shall have the
inspection rights set forth in Section 5.6. Borrower shall reimburse Lender up
to a maximum of $50,000, for all costs and expenses incurred by Lender from and
after July 15, 2001, in connection with the engagement of such consultant
(including without limitation, all fees and expenses incurred by such
consultant) in two installments as follows: (a) up to $25,000 of such costs and
expenses shall be due and payable within three Banking Days of delivery by
Lender to Borrower of its invoice in connection with such costs and expenses and
(b) the balance of such costs and expenses, if any shall be due and payable on
May 1, 2002.
3.5 INCREASED COMMITMENT COSTS. If Lender shall determine in good faith that the
introduction after the Closing Date of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change therein or any change in the
interpretation or administration thereof by any central bank or other
Governmental Agency charged with the interpretation or administration thereof,
or compliance by Lender or any corporation controlling Lender, with any request,
guideline or directive regarding capital adequacy (whether or not having the
force of Law) of any such central bank or other authority not imposed as a
result of Lender's or such corporation's failure to comply with any other Laws,
affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling Lender and (taking into
consideration Lender's or such corporation's policies with respect to capital
adequacy and Lender's desired return on capital) determines in good faith that
the amount of such capital is increased, or the rate of return on capital is
reduced, as a consequence of its obligations under this Agreement, then, within
five (5) Banking Days after demand of Lender, Borrower shall pay to Lender, from
time to time as specified in good faith by Lender, additional amounts sufficient
to compensate Lender in light of such circumstances, to the extent reasonably
allocable to such obligations under this Agreement, provided that Borrower shall
not be obligated to pay any such amount which arose prior to the date which is
ninety (90) days preceding the date of such demand or is attributable to periods
prior to the date which is ninety (90) days preceding the date of such demand.
Lender's determination of such amounts shall be conclusive in the absence of
manifest error.
3.6 INTENTIONALLY OMITTED.
3.7 LATE PAYMENTS. If any payment of principal or interest or any fee
or cost or other amount payable under any Loan Document to Lender is not paid
when due, it shall thereafter bear interest at a fluctuating interest rate per
annum at all times equal to the sum of the Alternate Base Rate plus the
Alternate Base Rate Margin plus 2%, to the fullest extent permitted by
applicable Laws. Accrued and unpaid interest on past due amounts (including,
without limitation, interest on past due interest) shall be compounded monthly,
on the last day of each calendar month, to the fullest extent permitted by
applicable Laws.
3.8 COMPUTATION OF INTEREST AND FEES. Computation of interest and fees
under this Agreement shall be calculated on the basis of a year of 360 days and
the actual number of days elapsed. Interest shall accrue on the Term Loan for
the day on which the Term Loan is made; interest shall not accrue on the Term
Loan, or any portion thereof, for the day on which the Term Loan or such portion
is paid. Notwithstanding anything in this Agreement to the contrary, interest in
excess of the maximum amount permitted by applicable Laws shall not accrue or be
payable hereunder or under the Note, and any amount paid as interest hereunder
or under the Note which would otherwise be in excess of such maximum permitted
amount shall instead be treated as a payment of principal.
-22-
3.9 NON-BANKING DAYS. If any payment to be made by Borrower or any
other Party under any Loan Document shall come due on a day other than a Banking
Day, payment shall instead be considered due on the next succeeding Banking Day
and the extension of time shall be reflected in computing interest and fees.
3.10 MANNER AND TREATMENT OF PAYMENTS.
(a) Each payment hereunder (except payments pursuant to
Sections 3.5, 11.3, 11.11 and 11.22) or on the Note or under any other
Loan Document shall be made to Lender at Lender's Office in immediately
available funds not later than 11:00 a.m. California time, on the day
of payment (which must be a Banking Day). All payments received after
such time, on any Banking Day, shall be deemed received on the next
succeeding Banking Day. All payments shall be made in lawful money of
the United States of America.
(b) Borrower hereby authorizes Lender to debit the general
operating bank account of Borrower (either manually or by the
establishment of an automatic debit mechanism) to effect any payment
due to Lender pursuant to this Agreement. Borrower hereby agrees to
assist and cooperate with Lender in arranging the automatic debit of
such account to effect any such payment. Any resulting overdraft in
such account shall be payable by Borrower to Lender on the next
following Banking Day.
(c) Lender shall use its best efforts to keep a record (in
writing or by an electronic data entry system) of the Term Loan and
payments received by it with respect thereto and such record shall, as
against Borrower, be presumptive evidence of the amount of the
Obligations. Notwithstanding the foregoing sentence, the failure by
Lender to keep such a record shall not affect Borrower's obligation to
pay the Obligations.
(d) Each payment of any amount payable by Borrower or any
other Party under this Agreement or any other Loan Document shall be
made free and clear of, and without reduction by reason of, any taxes,
assessments or other charges imposed by any Governmental Agency,
central bank or comparable authority, excluding (i) taxes imposed on or
measured in whole or in part by its overall net income by (A) any
jurisdiction (or political subdivision thereof) in which it is
organized or maintains its principal office or (B) any jurisdiction (or
political subdivision thereof) in which it is "doing business" and (ii)
any withholding taxes or other taxes based on gross income imposed by
the United States of America for any period with respect to which it
has failed to provide Borrower with the appropriate form or forms
required by applicable Laws (all such non-excluded taxes, assessments
or other charges being hereinafter referred to as "Taxes"). To the
-23-
extent that Borrower is obligated by applicable Laws to make any
deduction or withholding on account of Taxes from any amount payable to
Lender under this Agreement, Borrower shall (i) make such deduction or
withholding and pay the same to the relevant Governmental Agency and
(ii) pay such additional amount to Lender as is necessary to result in
Lender's receiving a net after-tax amount equal to the amount to which
Lender would have been entitled under this Agreement absent such
deduction or withholding. If and when receipt of such payment results
in an excess payment or credit to Lender on account of such Taxes, that
Lender shall promptly refund such excess to Borrower.
3.11 INTENTIONALLY OMITTED.
3.12 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by Lender
not to require payment of any interest (including interest arising under Section
3.7), fee, cost or other amount payable under any Loan Document, or to calculate
any amount payable by a particular method, on any occasion shall in no way limit
or be deemed a waiver of Lender's right to require full payment of any interest
(including interest arising under Section 3.7), fee, cost or other amount
payable under any Loan Document, or to calculate an amount payable by another
method that is not inconsistent with this Agreement, on any other or subsequent
occasion.
3.13 INTENTIONALLY OMITTED.
3.14 FEE DETERMINATION DETAIL. Lender shall provide reasonable detail
to Borrower regarding the manner in which the amount of any payment due to
Lender under Article 3 has been determined, concurrently with demand for such
payment.
3.15 SURVIVABILITY. All of Borrower's obligations under Section 3.5
shall survive for the ninety (90) day period following the date on which the
Term Loan is fully paid and Borrower shall remain obligated thereunder for all
claims under such Sections made by Lender to Borrower prior to the expiration of
such period.
-24-
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lender as follows with
respect to Borrower and its Subsidiaries:
4.1 EXISTENCE AND QUALIFICATION; POWER; COMPLIANCE WITH LAWS. Borrower
is a corporation duly formed, validly existing and in good standing under the
Laws of Delaware. Borrower is duly qualified or registered to transact business
and is in good standing in California and each other jurisdiction in which the
conduct of its business or the ownership or leasing of its Properties makes such
qualification or registration necessary, except where the failure so to qualify
or register and to be in good standing would not constitute a Material Adverse
Effect. Borrower has all requisite power and authority to conduct its business,
to own and lease its Properties and to execute and deliver each Loan Document to
which it is a Party and to perform its Obligations. The chief executive offices
of Borrower are located in California. All outstanding shares of capital stock
of Borrower are duly authorized, validly issued, fully paid and non-assessable,
and no holder thereof has any enforceable right of rescission under any
applicable state or federal securities Laws. Borrower is in compliance with all
Laws and other legal requirements applicable to its business, has obtained all
authorizations, consents, approvals, orders, licenses and permits from, and has
accomplished all filings, registrations and qualifications with, or obtained
exemptions from any of the foregoing from, any Governmental Agency that are
necessary for the transaction of its business, except where the failure so to
comply, obtain authorizations, etc., file, register, qualify or obtain
exemptions does not constitute a Material Adverse Effect.
4.2 AUTHORITY; COMPLIANCE WITH OTHER AGREEMENTS AND INSTRUMENTS AND
GOVERNMENT REGULATIONS. The execution, delivery and performance by each of
Borrower and the Subsidiary Guarantors of the Loan Documents to which it is a
Party have been duly authorized by all necessary corporate action, and do not
and will not:
(a) Require any consent or approval not heretofore obtained of
any partner, director, stockholder, security holder or creditor of such
Party;
(b) Violate or conflict with any provision of such Party's
charter, articles of incorporation or bylaws, as applicable;
(c) Result in or require the creation or imposition of any
Lien (other than pursuant to the Loan Documents) or Right of Others
upon or with respect to any Property now owned or leased or hereafter
acquired by such Party;
(d) Violate any Requirement of Law applicable to such Party;
(e) Result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other Contractual
Obligation to which such Party is a party or by which such Party or any
of its Property is bound or affected;
-25-
and such Party is not in violation of, or default under, any Requirement of Law
or Contractual Obligation, or any indenture, loan or credit agreement described
in Section 4.2(e), in any respect that constitutes a Material Adverse Effect.
4.3 NO GOVERNMENTAL APPROVALS REQUIRED. Except as previously obtained
or made, no authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, any Governmental Agency is or will
be required to authorize or permit under applicable Laws the execution, delivery
and performance by Borrower or any Subsidiary Guarantor of the Loan Documents to
which it is a Party.
4.4 SUBSIDIARIES.
(a) Schedule 4.4 hereto correctly sets forth the names, form
of legal entity, number of shares of capital stock issued and
outstanding, number of shares owned by Borrower or a Subsidiary of
Borrower (specifying such owner) and jurisdictions of organization of
all Subsidiaries of Borrower and specifies which thereof, as of the
Closing Date, are inactive Subsidiaries. Except as described in
Schedule 4.4, Borrower does not own any capital stock, equity interest
or debt security which is convertible, or exchangeable, for capital
stock or equity interest in any Person. Unless otherwise indicated in
Schedule 4.4, all of the outstanding shares of capital stock, or all of
the units of equity interest, as the case may be, of each Subsidiary
are owned of record and beneficially by Borrower, there are no
outstanding options, warrants or other rights to purchase capital stock
of any such Subsidiary, and all such shares or equity interests so
owned are duly authorized, validly issued, fully paid and
non-assessable, and were issued in compliance with all applicable state
and federal securities and other Laws, and are free and clear of all
Liens, except for Permitted Encumbrances.
(b) Each Subsidiary is a legal entity of the type described in
Schedule 4.4 duly formed, validly existing and in good standing under
the Laws of its jurisdiction of organization, is duly qualified to do
business as a foreign organization and is in good standing as such in
each jurisdiction in which the conduct of its business or the ownership
or leasing of its Properties makes such qualification necessary (except
where the failure to be so duly qualified and in good standing does not
constitute a Material Adverse Effect), and has all requisite power and
authority to conduct its business and to own and lease its Properties.
(c) Each Subsidiary is in compliance with all Laws and other
requirements applicable to its business and has obtained all
authorizations, consents, approvals, orders, licenses, and permits
from, and each such Subsidiary has accomplished all filings,
registrations, and qualifications with, or obtained exemptions from any
of the foregoing from, any Governmental Agency that are necessary for
the transaction of its business, except where the failure to be in such
compliance, obtain such authorizations, consents, approvals, orders,
licenses, and permits, accomplish such filings, registrations, and
qualifications, or obtain such exemptions, does not constitute a
Material Adverse Effect.
-26-
4.5 FINANCIAL STATEMENTS. Borrower has furnished to Lender the audited
financial statements of Borrower for the Fiscal Year ended March 31, 2000. The
financial statements fairly present in all material respects the financial
condition, results of operations and changes in financial position of Borrower
as of such dates and for such periods in conformity with GAAP consistently
applied.
4.6 NO OTHER LIABILITIES; NO MATERIAL ADVERSE CHANGES. Borrower and its
Subsidiaries do not have any material liability or material contingent liability
required under GAAP to be reflected or disclosed, and not reflected or
disclosed, in the balance sheet described in Section 4.5(b), other than
liabilities and contingent liabilities arising in the ordinary course of
business since the date of such financial statements. Except as set forth on
Schedule 4.6, as of the Closing Date, no circumstance or event has occurred that
constitutes a Material Adverse Effect since March 31, 2001.
4.7 TITLE TO AND LOCATION OF PROPERTY; BANK ACCOUNTS. Borrower and its
Subsidiaries have valid title to the Property (other than assets which are the
subject of a Capital Lease Obligation) reflected in the balance sheet described
in Section 4.5(b), other than items of Property or exceptions to title which are
in each case immaterial and Property subsequently sold or disposed of in the
ordinary course of business. Such Property is free and clear of all Liens and
Rights of Others, other than Liens or Rights of Others described in Schedule
4.7A and Permitted Encumbrances and Permitted Rights of Others. All Property of
Borrower and its Subsidiaries is located at one of the locations described in
Schedule 4.7B. Schedule 4.7C sets forth all of the deposit accounts maintained
by Borrower or any of its Subsidiaries on the Closing Date and correctly sets
forth the bank name and address, account name and number of each such deposit
account listed thereon.
4.8 INTANGIBLE ASSETS. To the best of Borrower's knowledge after due
investigation, Borrower and its Subsidiaries own, or possess the right to use to
the extent necessary in their respective businesses, all material trademarks,
trade names, copyrights, patents, patent rights, computer software, licenses and
other Intangible Assets that are used in the conduct of their businesses as now
operated, and no such Intangible Asset conflicts with the valid trademark, trade
name, copyright, patent, patent right or Intangible Asset of any other Person to
the extent that such conflict constitutes a Material Adverse Effect. Except as
set forth in Schedule 4.8, Borrower has not used any trade name, trade style or
"dba" during the five year period ending on the Closing Date. Except as set
forth in the Schedules to the Patent and Trademark Security Agreement and the
Copyright Security Agreement, neither Borrower nor any of its Subsidiaries own
or possess any material trademarks, trade names, copyrights, patents, patent
rights or licenses relating to any of the foregoing.
4.9 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Borrower nor any of its
Subsidiaries 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.
-27-
4.10 LITIGATION. Except for (a) any matter fully covered as to subject
matter and amount (subject to applicable deductibles and retentions) by
insurance for which the insurance carrier has not asserted lack of subject
matter coverage or reserved its right to do so, (b) any matter, or series of
related matters, involving a claim against Borrower or any of its Subsidiaries
of less than $100,000, (c) matters of an administrative nature not involving a
claim or charge against Borrower or any of its Subsidiaries and (d) matters set
forth in Schedule 4.10, there are no actions, suits, proceedings or
investigations pending as to which Borrower or any of its Subsidiaries have been
served or have received notice or, to the best knowledge of Borrower, threatened
against or affecting Borrower or any of its Subsidiaries or any Property of any
of them before any Governmental Agency.
4.11 BINDING OBLIGATIONS. Each of the Loan Documents to which Borrower
and any Subsidiary Guarantor is a Party will, when executed and delivered by
such Party, constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms, except as
enforcement may be limited by Debtor Relief Laws or equitable principles
relating to the granting of specific performance and other equitable remedies as
a matter of judicial discretion.
4.12 NO DEFAULT. No event has occurred and is continuing that is a
Default or Event of Default.
4.13 ERISA.
(a) With respect to each Pension Plan:
(1) such Pension Plan complies in all material
respects with ERISA and any other applicable Laws to the
extent that noncompliance could reasonably be expected to have
a Material Adverse Effect;
(2) such Pension Plan has not incurred any
"accumulated funding deficiency" (as defined in Section 302 of
ERISA) that could reasonably be expected to have a Material
Adverse Effect;
(3) no "reportable event" (as defined in Section 4043
of ERISA, but excluding such events as to which the PBGC has
by regulation waived the requirement therein contained that it
be notified within thirty days of the occurrence of such
event) has occurred that could reasonably be expected to have
a Material Adverse Effect; and
(4) neither Borrower nor any of its Subsidiaries has
engaged in any non-exempt "prohibited transaction" (as defined
in Section 4975 of the Code) that could reasonably be expected
to have a Material Adverse Effect.
(b) Neither Borrower nor any of its Subsidiaries has incurred
or expects to incur any withdrawal liability to any Multiemployer Plan
that could reasonably be expected to have a Material Adverse Effect.
4.14 REGULATION U; INVESTMENT COMPANY ACT. No part of the proceeds of
the Loans will be used to purchase or carry, or to extend credit to others for
the purpose of purchasing or carrying, any Margin Stock in violation of
Regulation U. Neither Borrower nor any of its Subsidiaries is or is required to
be registered as an "investment company" under the Investment Company Act of
1940.
-28-
4.15 DISCLOSURE. No written statement made by a Senior Officer to
Lender in connection with this Agreement, as of the date thereof contained any
untrue statement of a material fact or omitted a material fact necessary to make
the statement made not misleading in light of all the circumstances existing at
the date the statement was made.
4.16 TAX LIABILITY. Borrower and its Subsidiaries have filed all tax
returns which are required to be filed, and have paid, or made provision for the
payment of, all taxes with respect to the periods, Property or transactions
covered by said returns, or pursuant to any assessment received by Borrower or
any of its Subsidiaries, except (a) such taxes, if any, as are being contested
in good faith by appropriate proceedings and as to which adequate reserves have
been established and maintained and (b) immaterial taxes so long as no material
Property of Borrower or any of its Subsidiaries is at impending risk of being
seized, levied upon or forfeited.
4.17 PROJECTIONS AND BUDGET. As of the Closing Date, to the best
knowledge of Borrower, the assumptions set forth in each of the Projections and
the Budget are reasonable and consistent with each other and with all facts
known to Borrower, and each of the Projections and the Budget are reasonably
based on such assumptions. Nothing in this Section 4.17 shall be construed as a
representation or covenant that the Projections in fact will be achieved.
4.18 HAZARDOUS MATERIALS. Except as described in Schedule 4.18, as of
the Closing Date (a) neither Borrower nor any of its Subsidiaries at any time
has disposed of, discharged, released or threatened the release of any Hazardous
Materials on, from or under the Real Property in violation of any Hazardous
Materials Law that would individually or in the aggregate constitute a Material
Adverse Effect, (b) to the best knowledge of Borrower, no condition exists that
violates any Hazardous Material Law affecting any Real Property except for such
violations that would not individually or in the aggregate constitute a Material
Adverse Effect, (c) no Real Property or any portion thereof is or has been
utilized by Borrower or any of its Subsidiaries as a site for the manufacture of
any Hazardous Materials and (d) to the extent that any Hazardous Materials are
used, generated or stored by Borrower or any of its Subsidiaries on any Real
Property, or transported to or from such Real Property by Borrower or any of its
Subsidiaries, such use, generation, storage and transportation are in compliance
with all Hazardous Materials Laws except for such non-compliance that would not
constitute a Material Adverse Effect or be materially adverse to the interests
of Lender.
4.19 SECURITY INTERESTS. Upon the execution and delivery of the
Borrower Security Agreement, the Subsidiary Security Agreement, the Patent and
Trademark Security Agreement and the Copyright Security Agreement, such
documents will create a valid first priority security interest in the Collateral
described therein securing the Obligations (subject only to Permitted
Encumbrances, Permitted Rights of Others and other matters permitted by Section
6.9 and to such qualifications and exceptions as are contained in the Uniform
Commercial Code with respect to the priority of security interests perfected by
means other than the filing of a financing statement or with respect to the
creation of security interests in Property to which Division 9 of the Uniform
Commercial Code does not apply) and all actions necessary to perfect the
security interests so created, other than filing of the UCC-1 financing
statements delivered to Lender pursuant to Section 8.1 with the appropriate
Governmental Agency, have been taken and completed. Upon the execution and
delivery of the Pledge Agreement, the Pledge Agreement will create a valid first
priority security interest in the Pledged Collateral and upon delivery of the
Pledged Collateral to Lender all action necessary to perfect the security
interest so created will have been taken and completed.
-29-
ARTICLE 5
AFFIRMATIVE COVENANTS
---------------------
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
----------------------
So long as the Term Loan or other Obligation remains unpaid, Borrower
shall, and shall cause its Subsidiaries to, unless Lender otherwise consents:
5.1 PAYMENT OF TAXES AND OTHER POTENTIAL LIENS. Pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
any of them, upon their respective Property or any part thereof and upon their
respective income or profits or any part thereof, except that Borrower and its
Subsidiaries shall not be required to pay or cause to be paid (a) any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings so long as the relevant entity has
established and maintains adequate reserves for the payment of the same or (b)
any immaterial tax so long as no material Property of Borrower or its
Subsidiaries is at impending risk of being seized, levied upon or forfeited.
5.2 PRESERVATION OF EXISTENCE. Preserve and maintain their respective
existences in the jurisdiction of their formation and all material
authorizations, rights, franchises, privileges, consents, approvals, orders,
licenses, permits, or registrations from any Governmental Agency that are
necessary for the transaction of their respective business and qualify and
remain qualified to transact business in each jurisdiction in which such
qualification is necessary in view of their respective business or the ownership
or leasing of their respective Properties except (a) a merger permitted by
Section 6.3 or as otherwise permitted by this Agreement and (b) where the
failure to so qualify or remain qualified would not constitute a Material
Adverse Effect.
5.3 MAINTENANCE OF PROPERTIES. Maintain, preserve and protect all of
their respective Properties in good order and condition, subject to wear and
tear in the ordinary course of business, and not permit any waste of their
respective Properties, except that the failure to maintain, preserve and protect
a particular item of Property that is at the end of its useful life or that is
not of significant value, either intrinsically or to the operations of Borrower,
shall not constitute a violation of this covenant.
5.4 MAINTENANCE OF INSURANCE. Maintain liability, casualty and other
insurance (subject to customary deductibles and retentions) with responsible
insurance companies in such amounts and against such risks as is carried by
responsible companies engaged in similar businesses and owning similar assets in
the general areas in which Borrower and its Subsidiaries operate and, from and
after July 15, 2001, maintain Lender as an additional insured and loss payee
under each such policy of insurance.
5.5 COMPLIANCE WITH LAWS. Comply with all Requirements of Law
noncompliance with which constitutes a Material Adverse Effect, except that
Borrower and its Subsidiaries need not comply with a Requirement of Law then
being contested by any of them in good faith by appropriate proceedings.
-30-
5.6 INSPECTION RIGHTS. Upon reasonable notice, at any time during
regular business hours and as often as reasonably requested (but not so as to
materially interfere with the business of Borrower or any of its Subsidiaries)
permit Lender, or any authorized employee, agent, auditor or representative
thereof, to examine, audit and make copies and abstracts from the records and
books of account of, and to visit and inspect the Properties of, Borrower and
its Subsidiaries and to discuss the affairs, finances and accounts of Borrower
and its Subsidiaries with any of their officers, key employees or accountants.
Borrower agrees to pay on demand all of the costs and expenses incurred by
Lender (including, without limitation, the fees and expenses of any such
employee, agent, auditor or representative) in connection with any such
examination, audit, visitation or inspection.
5.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep adequate records and
books of account reflecting all financial transactions in conformity with GAAP,
consistently applied, and in material conformity with all applicable
requirements of any Governmental Agency having regulatory jurisdiction over
Borrower and its Subsidiaries.
5.8 COMPLIANCE WITH AGREEMENTS. Promptly and fully comply with all
Contractual Obligations to which any one or more of them is a party, except for
any such Contractual Obligations (a) the performance of which would cause a
Default or (b) then being contested by any of them in good faith by appropriate
proceedings or (c) if the failure to comply does not constitute a Material
Adverse Effect.
5.9 USE OF PROCEEDS. Use the proceeds of the Term Loan to refinance the
Original Loans and the Other Initial Obligations.
5.10 HAZARDOUS MATERIALS LAWS. Keep and maintain all Real Property and
each portion thereof in compliance in all material respects with all applicable
Hazardous Materials Laws and promptly notify Lender in writing (attaching a copy
of any pertinent written material) of (a) any and all material enforcement,
cleanup, removal or other governmental or regulatory actions instituted,
completed or threatened in writing by a Governmental Agency pursuant to any
applicable Hazardous Materials Laws, (b) any and all material claims made or
threatened in writing by any Person against Borrower relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials and (c) discovery by any Senior Officer of any of Borrower
or any of its Subsidiaries of any material occurrence or condition on any real
Property adjoining or in the vicinity of such Real Property that could
reasonably be expected to cause such Real Property or any part thereof to be
subject to any restrictions on the ownership, occupancy, transferability or use
of such Real Property under any applicable Hazardous Materials Laws.
5.11 FUTURE SUBSIDIARIES. Pledge all of the capital stock of any
Domestic Subsidiary, and 65% of the capital stock of any Foreign Subsidiary
formed or acquired after the Closing Date pursuant to the Pledge Agreement, and
cause each such future Domestic Subsidiary to execute and deliver an appropriate
joinder to the Subsidiary Guaranty, the Subsidiary Security Agreement, the
Patent and Trademark Security Agreement and the Copyright Security Agreement.
-31-
5.12 FUTURE REAL PROPERTY. Promptly following its acquisition of any
fee simple real property, execute and deliver to Lender a deed of trust or
mortgage in form and substance acceptable to Lender creating a first priority
Lien on such real property securing the Obligations, and provide to the Lender
such customary lender's title insurance policies, appraisals, environmental
reports and other related documents as Lender may reasonably request.
5.13 BANK ACCOUNTS. Maintain all of its deposit accounts (whether now
in existence or opened after the Closing Date) with Lender provided that
Borrower may maintain its account number ▇▇▇▇▇▇▇▇▇▇ at California Bank and Trust
until July 15, 2001 provided further that (i) the balance of such account shall
not exceed at any time $15,000.00 and (ii) Lender shall receive a valid first
priority security interest in the funds on deposit in such account .
5.14 ICM NOTES. If the ICM Notes are then outstanding, on or before August 29,
2001 deliver to Lender an Intercreditor and Subordination Agreement duly
executed the holders of the ICM Notes subordinating the debt evidenced thereby
to the Obligations all on terms and conditions satisfactory to Lender.
-32-
ARTICLE 6
NEGATIVE COVENANTS
------------------
So long as the Term Loan or other Obligation remains unpaid, Borrower
shall not, and shall not permit any of its Subsidiaries to, unless Lender
otherwise consents:
6.1 PAYMENT OF SUBORDINATED OBLIGATIONS/ICM NOTES. (a) Pay any
principal (including sinking fund payments), interest, fee, premium or any other
amount with respect to any Subordinated Obligation, or purchase or redeem (or
offer to purchase or redeem) any Subordinated Obligation, or deposit any monies,
securities or other Property with any trustee or other Person to provide
assurance that the principal or any portion thereof of any Subordinated
Obligation will be paid when due or otherwise to provide for the defeasance of
any Subordinated Obligation; or (b) pay any principal (including sinking fund
payments), interest, fee, premium or any other amount with respect to any ICM
Notes, or purchase or redeem (or offer to purchase or redeem) any ICM Notes, or
deposit any monies, securities or other Property with any trustee or other
Person to provide assurance that the principal or any portion thereof of any ICM
Notes will be paid when due or otherwise to provide for the defeasance of any
ICM Notes provided that Borrower and its Subsidiaries may permit the holders of
the ICM Notes to exercise its conversion rights pursuant to the terms thereof.
6.2 DISPOSITION OF PROPERTY. Make any Disposition of its Property,
whether now owned or hereafter acquired, except a Disposition by Borrower to a
Wholly-Owned Subsidiary, or by a Subsidiary to Borrower or a Wholly-Owned
Subsidiary.
6.3 MERGERS. Merge or consolidate with or into any Person, except (a)
mergers and consolidations of a Subsidiary of Borrower into Borrower or a
Wholly-Owned Subsidiary or of Subsidiaries with each other and (b) a merger or
consolidation of a Person into Borrower or with or into a Wholly-Owned
Subsidiary of Borrower which constitutes an Acquisition permitted by Section
6.5; provided that (i) Borrower or a Wholly-Owned Subsidiary is the surviving
entity, (ii) no Change in Control results therefrom, (iii) no Default or Event
of Default then exists or would result therefrom, (iv) Borrower shall have
provided Lender with not less than 15 Banking Days prior notice of such merger
or consolidation and (v) Borrower and each of the Subsidiary Guarantors execute
such amendments to the Loan Documents as Lender may reasonably determine are
appropriate as a result of such merger.
6.4 HOSTILE ACQUISITIONS. Directly or indirectly use the proceeds of
the Loans in connection with the acquisition of part or all of a voting interest
of five percent (5%) or more in any corporation or other business entity if such
acquisition is opposed by the board of directors of such corporation or business
entity.
6.5 ACQUISITIONS. Make any Acquisition.
6.6 DISTRIBUTIONS. Make any Distribution, whether from capital, income
or otherwise, and whether in Cash or other Property, except Distributions by any
Subsidiary of Borrower to Borrower or any Wholly-Owned Domestic Subsidiary.
-33-
6.7 ERISA. At any time, permit any Pension Plan to: (i) engage in any
non-exempt "prohibited transaction" (as defined in Section 4975 of the Code);
(ii) fail to comply with ERISA or any other applicable Laws; (iii) incur any
material "accumulated funding deficiency" (as defined in Section 302 of ERISA);
or (iv) terminate in any manner, which, with respect to each event listed above,
could reasonably be expected to result in a Material Adverse Effect or (b)
withdraw, completely or partially, from any Multiemployer Plan if to do so could
reasonably be expected to result in a Material Adverse Effect.
6.8 CHANGE IN NATURE OF BUSINESS. Make any material change in the
nature of the business of Borrower and its Subsidiaries, taken as a whole.
6.9 LIENS AND NEGATIVE PLEDGES. Create, incur, assume or suffer to
exist any Lien or Negative Pledge of any nature upon or with respect to any of
their respective Properties, or engage in any sale and leaseback transaction
with respect to any of their respective Properties, whether now owned or
hereafter acquired, except:
(a) Liens and Negative Pledges existing on the Closing Date
and disclosed in Schedule 4.7 and any renewals/extensions or amendments
thereof, provided that the obligations secured or benefited thereby are
not increased;
(b) Liens and Negative Pledges under the Loan Documents;
(c) Permitted Encumbrances;
(d) Liens on Property acquired by Borrower or any of its
Subsidiaries that were in existence at the time of the acquisition of
such Property and were not created in contemplation of such
acquisition;
(e) Liens securing Indebtedness permitted by Section 6.10(d)
on and limited to the capital assets acquired, constructed or financed
with the proceeds of such Indebtedness or with the proceeds of any
Indebtedness directly or indirectly refinanced by such Indebtedness;
and
(f) Non-consensual Liens securing Indebtedness of not more
than $200,000, provided that such Liens are discharged within thirty
(30) days after their incurrence by Borrower.
6.10 INDEBTEDNESS AND GUARANTY OBLIGATIONS. Create, incur or assume any
Indebtedness or Guaranty Obligation except:
(a) Indebtedness and Guaranty Obligations existing on the
Closing Date and disclosed in Schedule 6.10, and refinancings,
renewals, extensions or amendments that do not increase the amount
thereof;
(b) Indebtedness and Guaranty Obligations under the Loan
Documents;
-34-
(c) Indebtedness and Guaranty Obligations owed to Borrower or
any of its Subsidiaries;
(d) The ICM Notes;
(e) Subordinated Obligations in such amount as may be approved
in writing by Lender;
(f) Indebtedness consisting of debt securities for which the
Net Cash Issuance Proceeds will be applied as a mandatory prepayment
pursuant to Section 3.1(f); and
(g) Guaranty Obligations in support of the obligations of a
Wholly-Owned Subsidiary, provided that such obligations are not
prohibited by this Agreement.
6.11 TRANSACTIONS WITH AFFILIATES. Enter into any transaction of any
kind with any Affiliate of Borrower other than (a) salary, bonus, employee stock
option and other compensation arrangements with directors or officers in the
ordinary course of business, (b) transactions that are fully disclosed to the
board of directors (or executive committee thereof) of Borrower and expressly
authorized by a resolution of the board of directors (or executive committee) of
Borrower which is approved by a majority of the directors (or executive
committee) not having an interest in the transaction, (c) transactions (other
than inter-company loans) between or among Borrower and its Subsidiaries and (d)
transactions on overall terms at least as favorable to Borrower or its
Subsidiaries as would be the case in an arm's-length transaction between
unrelated parties of equal bargaining power provided however that the Softline
Transaction shall not be prohibited by this Agreement.
6.12 INVESTMENTS. Make or suffer to exist any Investment, other than:
(a) Investments in existence on the Closing Date and disclosed
on Schedule 6.12;
(b) Investments consisting of Cash Equivalents;
(c) Investments in a Person that is the subject of an
Acquisition permitted by Section 6.5;
(d) Investments consisting of advances to officers, directors
and employees of Borrower and its Subsidiaries for travel,
entertainment, relocation, anticipated bonus and analogous ordinary
business purposes not to exceed, in aggregate, $100,000 over the term
of this Agreement;
(e) Investments in a Domestic Subsidiary that is a
Wholly-Owned Subsidiary;
(f) Investments in Divergent;
-35-
(g) Investments consisting of the extension of credit to
customers or suppliers of Borrower and its Subsidiaries in the ordinary
course of business and any Investments received in satisfaction or
partial satisfaction thereof;
(h) Investments received in connection with the settlement of
a bona fide dispute with another Person;
(i) Investments representing all or a portion of the sales
price of Property sold or services provided to another Person;
(j) Investments by Foreign Subsidiaries in any other
Subsidiary of Borrower (whether a Domestic Subsidiary or a Foreign
Subsidiary); and
(k) Investments not described above not in excess of $50,000
during the term of this Agreement.
6.13 CAPITAL EXPENDITURES. Make any Capital Expenditure if to do so
would result in the aggregate of all Capital Expenditures made during the term
of this Agreement to exceed $250,000.
6.14 OPERATING LEASES. Incur any obligation to pay rent under an
operating lease during the term of this Agreement if to do so would result in
the aggregate obligation of Borrower and its Subsidiaries to pay rent under all
operating leases during the term of this Agreement to exceed $125,000 per month.
6.15 SUBSIDIARY INDEBTEDNESS. Permit (whether or not otherwise
permitted under Section 6.10) any Subsidiary to create, incur, assume or suffer
to exist any Indebtedness or Guaranty Obligation, except (a) Indebtedness and
Guaranty Obligations in existence on the Closing Date, (b) a Guaranty Obligation
required by Section 5.11, (c) Indebtedness owed to Borrower or another
Subsidiary of Borrower, and (d) Capital Lease Obligations and purchase money
obligations of a Subsidiary in respect of Property used by that Subsidiary.
6.16 AMENDMENTS TO SUBORDINATED OBLIGATIONS. Amend or modify any term
or provision of any indenture, agreement or instrument evidencing or governing
any Subordinated Obligation in any respect that will or may adversely affect the
interests of Lender.
6.17 MINIMUM BOOK NET WORTH. Permit Book Net Worth to be less than the
sum of (i) $22,500,000 or (ii) the consolidated net profit after taxes of
Borrower and its Subsidiaries for each Fiscal Quarter ending on or after the
Closing Date.
6.18 MINIMUM MONTHLY EBITDA. Permit EBITDA for any month to be (a) if
projected EBITDA is a positive number, less than 90% of Borrower's projected
EBITDA and (b) if projected EBITDA is a negative number, a negative EBITDA the
absolute value of which is greater than 110% of the absolute value of Borrower's
projected EBITDA for such month as reflected in the Budget.
-36-
6.19 ADDITIONAL MANDATORY PREPAYMENTS. In addition to Borrower's
prepayment obligations under Section 3.1(f), Borrower shall apply 100% of the
Net Cash Sales Proceeds realized by Borrower from any sale of Borrower's
holdings of shares of Integrity Software, Inc. to reduce the Term Loan in the
inverse order of maturity of payment thereof (i.e., without relieving Borrower
of its obligation to make the next succeeding principal payment required under
the Note) until the Term Loan is paid in full.
6.20 AMENDMENTS, ETC. Amend or modify any term or provision of any its
certificate of incorporation, bylaws or other constitutive documents, in any
respect that will or may adversely affect the interests of Lender provided that
any such amendment shall be delivered to Lender not less than ten Banking Days
before the date such amendment becomes effective.
-37-
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
--------------------------------------
7.1 FINANCIAL AND BUSINESS INFORMATION. So long as any Loan or other
Obligation remains unpaid, Borrower shall, unless Lender otherwise consents, at
Borrower's sole expense, deliver the following to Lender:
(a) As soon as practicable, and in any event within 30 days
after the end of each fiscal month of Borrower consisting of a calendar
month (each a "Fiscal Month") (other than the twelfth Fiscal Month in
any Fiscal Year), the consolidated and consolidating balance sheet of
Borrower and its Subsidiaries as at the end of such Fiscal Month and
the consolidated and consolidating statements of operations and cash
flows for such Fiscal Month, and the portion of the Fiscal Year ended
with such Fiscal Month, all in reasonable detail. Such financial
statements shall be certified by the chief financial officer of
Borrower as fairly presenting the financial condition, results of
operations and cash flows of Borrower and its Subsidiaries in
accordance with GAAP (other than footnote disclosures), consistently
applied, as at such date and for such periods, subject only to normal
year-end accruals and audit adjustments;
(b) As soon as practicable, and in any event within 90 days
after the end of Borrower's Fiscal Year ended March 31, 1999, the
consolidated and consolidating balance sheet of Borrower and its
Subsidiaries as at the end of such Fiscal Year and the consolidated and
consolidating statements of operations, stockholders' equity and cash
flows, in each case of Borrower and its Subsidiaries for such Fiscal
Year, all in reasonable detail. Such financial statements shall be
prepared in accordance with GAAP, consistently applied, and such
consolidated financial statements shall be accompanied by a report of
Deloitte & Touche LLP or other independent public accountants of
recognized standing selected by Borrower and reasonably satisfactory to
Lender, which report shall be prepared in accordance with generally
accepted auditing standards as at such date, and shall not be subject
to any qualifications or exceptions as to the scope of the audit nor to
any other qualification or exception determined by Lender in its good
faith business judgment to be adverse to the interests of Lender. Such
accountants' report shall be accompanied by a certificate stating that,
in making the examination pursuant to generally accepted auditing
standards necessary for the certification of such financial statements
and such report, such accountants have obtained no knowledge of any
Default then existing or, if, in the opinion of such accountants, any
such Default shall exist, stating the nature and status of such
Default, and stating that such accountants have reviewed Borrower's
financial calculations as at the end of such Fiscal Year (which shall
accompany such certificate) under Sections 6.12 through 6.18, have read
such Sections (including the definitions of all defined terms used
therein) and that nothing has come to the attention of such accountants
in the course of such examination that would cause them to believe that
the same were not calculated by Borrower in the manner prescribed by
this Agreement;
-38-
(c) Promptly after request by Lender, copies of any detailed
audit reports by independent accountants, together with any management
letters issued in connection therewith, in connection with the accounts
or books of Borrower or any of its Subsidiaries, or any audit of any of
them;
(d) Promptly after the same are available, and in any event
within five (5) Banking Days after filing with the Securities and
Exchange Commission, copies of each annual report, proxy or financial
statement or other report or communication sent to the stockholders of
Borrower, and copies of all annual, regular, periodic and special
reports and registration statements which Borrower may file or be
required to file with the Securities and Exchange Commission under
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
and not otherwise required to be delivered to the Lenders pursuant to
other provisions of this Section 7.1;
(e) Promptly after request by Lender, copies of any other
report or other document that was filed by Borrower with any
Governmental Agency;
(f) Promptly upon a Senior Officer becoming aware, and in any
event within five (5) Banking Days after becoming aware, of the
occurrence of any (i) "reportable event" (as such term is defined in
Section 4043 of ERISA, but excluding such events as to which the PBGC
has by regulation waived the requirement therein contained that it be
notified within thirty days of the occurrence of such event) or (ii)
non-exempt "prohibited transaction" (as such term is defined in Section
406 of ERISA or Section 4975 of the Code) involving any Pension Plan or
any trust created thereunder, telephonic notice specifying the nature
thereof, and, no more than two (2) Banking Days after such telephonic
notice, written notice again specifying the nature thereof and
specifying what action Borrower is taking or proposes to take with
respect thereto, and, when known, any action taken by the Internal
Revenue Service with respect thereto;
(g) As soon as practicable, and in any event within two (2)
Banking Days after a Senior Officer becomes aware of the existence of
any condition or event which constitutes a Default or Event of Default,
telephonic notice specifying the nature and period of existence
thereof, and, no more than two (2) Banking Days after such telephonic
notice, written notice again specifying the nature and period of
existence thereof and specifying what action Borrower is taking or
proposes to take with respect thereto;
(h) Promptly upon a Senior Officer becoming aware that (i) any
Person has commenced a legal proceeding with respect to a claim against
Borrower that is $100,000 or more in excess of the amount thereof that
is fully covered by insurance, (ii) any creditor under a credit
agreement involving Indebtedness of $100,000 or more or any lessor
under a lease involving aggregate rent of $100,000 or more has asserted
a default thereunder on the part of Borrower or, (iii) any Person has
commenced a legal proceeding with respect to a claim against Borrower
under a contract that is not a credit agreement or material lease with
respect to a claim of in excess of $100,000 or which otherwise may
reasonably be expected to result in a Material Adverse Effect, a
written notice describing the pertinent facts relating thereto and what
action Borrower is taking or proposes to take with respect thereto;
-39-
(i) (a) As soon as practicable, and in any event within thirty
(30) days after the end of Each Fiscal Month and (b) from time to time,
promptly after requested by Lender, Borrower shall provide Lender with
the following financial information which shall be presented both on a
consolidated basis and by Subsidiary and shall otherwise be in form and
substance acceptable to Lender :
(i) rolling 13-week cash flow statements;
(ii) sales and backlog reports; and
(iii) accounts receivable and accounts payable agings
reports.
(j) Copies of each material transaction document relating to
the issuance of equity securities of Borrower or its Subsidiaries
giving rise to a prepayment obligation pursuant to Section 3.1(f) (or
which would have given rise to such an obligation except for the
proviso to Section 3.1(f)) promptly, after the same are available, and
in any event not less than ten (10) Banking Days prior to the closing
of any such transaction; and
(k) Such other data and information relating to the financial
condition of Borrower as from time to time may be reasonably requested
by Lender.
7.2 COMPLIANCE CERTIFICATES. So long as the Term Loan or other
Obligation remains unpaid or unperformed, Borrower shall, at Borrower's sole
expense, deliver to Lender concurrently with the financial statements required
pursuant to Sections 7.1(a) and 7.1(b), a Compliance Certificate signed by a
Senior Officer.
-40-
ARTICLE 8
CONDITIONS
----------
8.1 THE LOAN. The effectiveness of this Agreement and the obligations
of the Lender hereunder, including without limitation the obligation of Lender
to make the Term Loan, is subject to the following conditions precedent, each of
which shall be satisfied prior to the making of the Term Loan (unless Lender, in
its sole and absolute discretion, shall agree otherwise):
(a) Lender shall have received all of the following, each of
which shall be originals unless otherwise specified, each properly
executed by a Responsible Official of each party thereto, each dated as
of the Closing Date and each in form and substance satisfactory to
Lender and its legal counsel (unless otherwise specified or, in the
case of the date of any of the following, unless Lender otherwise
agrees or directs):
(1) at least one (1) executed counterpart of this
Agreement;
(2) the Note, executed by Borrower to the order of
Lender;
(3) the Borrower Security Agreement executed by
Borrower;
(4) the Subsidiary Guaranty executed by the
Subsidiary Guarantors;
(5) the Subsidiary Security Agreement executed by the
Subsidiary Guarantors;
(6) the Patent and Trademark Security Agreement,
together with executed undated powers of attorney, as required
pursuant to the terms thereof, each duly executed by the
Borrower and its Domestic Subsidiaries;
(7) the Copyright Security Agreement, together with
executed undated powers of attorney, as required pursuant to
the terms thereof, each duly executed by the Borrower and its
Domestic Subsidiaries;
(8) the Pledge Agreement duly executed by Borrower
and its Domestic Subsidiaries;
(9) the Pledged Collateral, together with executed
undated stock powers relating thereto;
(10) such financing statements on Form UCC-1 executed
by Borrower and the Subsidiary Guarantors with respect to the
Borrower Security Agreement and the Subsidiary Security
Agreements as Lender may request;
-41-
(11) with respect to Borrower and the Subsidiary
Guarantors, such documentation as Lender may reasonably
require to establish the due organization, valid existence and
good standing of Borrower and the Subsidiary Guarantors, their
qualification to engage in business in each material
jurisdiction in which they are engaged in business and
required to be so qualified, their authority to execute,
deliver and perform the Loan Documents to which each is a
Party, the identity, authority and capacity of each
Responsible Official thereof authorized to act on its behalf,
including certified copies of articles of incorporation and
amendments thereto, bylaws and amendments thereto,
certificates of good standing and/or qualification to engage
in business, tax clearance certificates, certificates of
corporate resolutions, incumbency certificates, Certificates
of Responsible Officials, and the like;
(12) a Certificate of the chief financial officer of
Borrower certifying that the representation contained in
Section 4.17 is, to the best of his or her knowledge, true and
correct;
(13) a Certificate of the chief financial officer of
Borrower certifying that the conditions specified in Sections
8.1(d)and 8.1(e) have been satisfied; and;
(b) Lender shall be reasonably satisfied that, upon the filing
of the financing statements described in Section 8.1(a)(10) with the
appropriate Governmental Agencies, Lender will hold a first priority
perfected Lien in the Collateral, subject only to Permitted
Encumbrances.
(c) The reasonable costs and expenses of Lender in connection
with the preparation of the Loan Documents payable pursuant to Section
11.3, and invoiced to Borrower prior to the Closing Date, shall have
been paid or provided to be paid on the Closing Date.
(d) The representations and warranties of Borrower contained
in Article 4 shall be true and correct in all material respects.
(e) Borrower and any other Parties shall be in compliance with
all the terms and provisions of the Loan Documents, and giving effect
to the Term Loan, no Default or Event of Default shall have occurred
and be continuing.
(f) Lender shall have been satisfied with each of: (i) its due
diligence investigation of Borrower, its Subsidiaries and their
respective assets; (ii) its audit of the books and records of Borrower
and its Subsidiaries; (iii) its review of the budget of Borrower and
its Subsidiaries for Capital Expenditures; (iv) its review of the
Projections and the Budget (v) its review of the operating financial
statements of Borrower and its Subsidiaries; and (vi) its review of the
material agreements, including management agreements, of Borrower and
its Subsidiaries.
(g) The Softline Note shall have been subordinated to the
Obligations on terms and conditions satisfactory to Lender and the
maturity date of the Softline Note shall have been extended to at least
May 1, 2003.
-42-
(h) [Intentionally Reserved].
(i) All legal matters relating to the Loan Documents shall be
reasonably satisfactory to Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP,
special counsel to Lender.
8.2 EXTENSION OF MATURITY DATE. The obligation of Lender to extend the
Maturity Date pursuant to Section 2.2 is subject to the following conditions
precedent (unless Lender, in its sole and absolute discretion, shall agree
otherwise):
(a) except (i) for representations and warranties which
expressly speak as of a particular date or are no longer true and
correct as a result of a change which is permitted by this Agreement or
(ii) as disclosed by Borrower and approved in writing by Lender, the
representations and warranties contained in Article 4 (other than
Sections 4.4, 4.6 (first sentence), 4.10 and 4.17) shall be true and
correct in all material respects on and as of the Maturity Date as
though made on that date;
(b) no circumstance or event shall have occurred that
constitutes a Material Adverse Effect since the Closing Date;
(c) other than matters described in Schedule 4.10 or not
required as of the Closing Date to be therein described, there shall
not be then pending or threatened any action, suit, proceeding or
investigation against or affecting Borrower or any of its Subsidiaries
or any Property of any of them before any Governmental Agency that
constitutes a Material Adverse Effect;
(d) No Event of Default shall have occurred (except to the
extent Lender has waived such Event of Default) and Borrower shall not
have failed to make any payment of principal, interest, fees or any
other amount payable under the Note or any other Loan Document when
due;
(e) Lender shall have received, in form and substance
reasonably satisfactory to Lender, the Budget for Borrower's Fiscal
Year ending March 31, 2003;
(f) EBITDA for Borrower's Fiscal Year ending March 31, 2002
shall not be less than $1,928,000; and
(g) Lender shall have received, in form and substance
reasonably satisfactory to Lender, such other assurances, certificates,
documents or consents related to the foregoing as the Lenders
reasonably may require.
8.3 RELEASE OF COLLATERAL RE SOFTLINE TRANSACTION. The obligation of
Lender to release its collateral interest in Divergent, the IBIS Note and the
Integrity Shares pursuant to Section 11.26 is subject to the following
conditions precedent (unless Lender in its sole and absolute discretion, shall
agree otherwise):
(a) Lender shall have received all of the following, each of
which shall be originals unless otherwise specified, each properly
executed by a Responsible Officer of each party thereto, and each in
form and substance satisfactory to Lender and its legal counsel):
-43-
(1) the Warrant Agreement executed by Borrower; and
(2) the Intercreditor and Collateral Agency Agreement
executed by Borrower and Softline.
(b) Softline, Divergent and Borrower shall have entered into a
non-competition agreement in form and substance satisfactory to Lender;
(c) Lender shall have received satisfactory evidence of the
termination of Borrower's guaranty of the loan obligations of Divergent
to National Australia Bank Limited;
(d) Lender shall have received such reports, data and other
information relating to Divergent as it shall reasonably request,
including, without limitation, the financial statements of Divergent
for its fiscal year ended March 31, 2001, such financial statements and
all such reports, data and other information to be satisfactory to
Lender;
(e) Lender shall have obtained a security interest in the
Softline Pledged Shares ranking second in priority only to the first
priority security interest of Softline;
(f) Lender shall have received copies of all of the Softline
Transaction legal documents prior to the closing of the Softline
Transaction and such documents, and the terms of the Softline
Transaction, shall be acceptable to Lender;
(g) No Event of Default shall have occurred and be continuing
hereunder; and
(h) Borrower shall have received not less than $4,000,000 of
gross proceeds
from the issuance of equity securities of Borrower, such issuance to be
on terms and conditions satisfactory to Lender.
-44-
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
----------------------------------------------------
9.1 EVENTS OF DEFAULT. The existence or occurrence of any one or more
of the following events, whatever the reason therefor and under any
circumstances whatsoever, shall constitute an Event of Default:
(a) Borrower fails to pay any principal on the Note, or any
portion thereof, on the date when due; or
(b) Borrower fails to pay any interest on the Note within two
(2) Banking Days after the date when due, or any fees under Sections
3.3, 3.4 or 3.5, or any portion thereof within two (2) Banking Days
after demand therefor; or fails to pay any other fee or amount payable
to Lender under any other Loan Document, or any portion thereof, within
three (3) Banking Days after demand therefor; or
(c) Borrower fails to comply with any of the covenants
contained in Article 6, unless such default (other than any breach of
Section 6.13, 6.14, 6.17, 6.18 or any financial covenant which
hereafter may be added to this Agreement) can be cured and Borrower
remedies such default within seven (7) calendar days after Borrower's
receipt of written notice thereof from Lender; or
(d) Borrower fails to comply with Section 7.1(g) in any
respect that is materially adverse to the interests of Lender; or
(e) Borrower or any other Party fails to perform or observe
any other covenant or agreement (not specified in clause (a), (b), (c)
or (d) above) contained in any Loan Document on its part to be
performed or observed within twenty (20) Banking Days after the giving
of notice by Lender of such Default or, if such Default is not
reasonably susceptible of cure within such period, within such longer
period as is reasonably necessary to effect a cure so long as such
Borrower or such Party continues to diligently pursue cure of such
Default but not in any event in excess of forty (40) Banking Days; or
(f) Any representation or warranty of Borrower or any other
Party made in any Loan Document, or in any certificate or other writing
delivered by Borrower or such Party pursuant to any Loan Document,
proves to have been materially incorrect when made or reaffirmed in any
respect that will have a materially adverse effect on the interests of
Lender; or
(g) Borrower (i) without cause fails to pay the principal, or
any principal installment, of any present or future Indebtedness of
$1,000,000 or more, or any guaranty of present or future Indebtedness
of $1,000,000 or more, on its part to be paid, when due (or within any
stated grace period or extended due date), whether at the stated
maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant
or agreement on its part to be performed or observed, or suffers any
event of default to occur, in connection with any present or future
Indebtedness of $1,000,000 or more, or of any guaranty of present or
future Indebtedness of $1,000,000 or more, if as a result of such
-45-
failure or sufferance any holder or holders thereof (or an agent or
trustee on its or their behalf) has the right to declare such
Indebtedness due before the date on which it otherwise would become due
or the right to require Borrower to redeem or purchase, or offer to
redeem or purchase, all or any portion of such Indebtedness; or
(h) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement or action (or
omission to act) of Lender or satisfaction in full of all the
Obligations, ceases to be in full force and effect or is declared by a
court of competent jurisdiction to be null and void, invalid or
unenforceable in any respect which is materially adverse to the
interests of Lender; or any Collateral Document ceases (other than by
action or inaction of Lender) to create a valid and effective Lien in
any material portion of the Collateral; or any Party thereto denies in
writing that it has any or further liability or obligation under any
Loan Document, or purports to revoke, terminate or rescind same; or
(i) A final judgment against Borrower is entered for the
payment of money in excess of $100,000 (not covered by insurance or for
which an insurer has reserved its rights) and, absent procurement of a
stay of execution, such judgment remains unsatisfied for thirty (30)
calendar days after the date of entry of judgment, or in any event
later than five (5) days prior to the date of any proposed sale
thereunder; or any writ or warrant of attachment or execution or
similar process is issued or levied against all or any material part of
the Property of Borrower and is not released, vacated or fully bonded
within sixty (60) calendar days after its issue or levy; or
(j) Borrower institutes or consents to the institution of any
proceeding under a Debtor Relief Law relating to it or to all or any
material part of its Property, or is unable or admits in writing its
inability to pay its debts as they mature, or makes an assignment for
the benefit of creditors; or applies for or consents to the appointment
of any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer for it or for all or any material part
of its Property; or any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer is appointed without the
application or consent of that Person and the appointment continues
undischarged or unstayed for sixty (60) calendar days; or any
proceeding under a Debtor Relief Law relating to any such Person or to
all or any part of its Property is instituted without the consent of
that Person and continues undismissed or unstayed for sixty (60)
calendar days; or
(k) The occurrence of an Event of Default (as such term is or
may hereafter be specifically defined in any other Loan Document) under
any other Loan Document; or
(l) Any Pension Plan maintained by Borrower is finally
determined by the PBGC to have a material "accumulated funding
deficiency" as that term is defined in Section 302 of ERISA in excess
of an amount equal to 5% of the consolidated total assets of Borrower
as of the most-recently ended Fiscal Quarter; or
-46-
(m) Lender determines in good faith that a circumstance or
event has occurred that constitutes a Material Adverse Effect.
9.2 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other rights
or remedies of Lender provided for elsewhere in this Agreement, or the other
Loan Documents, or by applicable Law, or in equity, or otherwise:
(a) Upon the occurrence, and during the continuance, of any
Event of Default, other than an Event of Default described in Section
9.1(j), Lender may declare all or any part of the unpaid principal of
the Note, all interest accrued and unpaid thereon and all other amounts
payable under the Loan Documents to be forthwith due and payable,
whereupon the same shall become and be forthwith due and payable,
without protest, presentment, notice of dishonor, demand or further
notice of any kind, all of which are expressly waived by Borrower.
(b) Upon the occurrence of any Event of Default described in
Section 9.1(j), the entire unpaid principal balance of the Term Loan,
all interest accrued and unpaid thereon and all other amounts payable
under the Loan Documents shall be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice of
any kind, all of which are expressly waived by Borrower.
(c) Upon the occurrence of any Event of Default, Lender,
without notice to (except as expressly provided for in any Loan
Document) or demand upon Borrower, which are expressly waived by
Borrower (except as to notices expressly provided for in any Loan
Document), may proceed to protect, exercise and enforce its rights and
remedies under the Loan Documents against Borrower and any other Party
and such other rights and remedies as are provided by Law or equity.
(d) The order and manner in which Lender's rights and remedies
are to be exercised shall be determined by Lender in its sole
discretion, and all payments received by Lender shall be applied first
to the costs and expenses (including reasonable attorneys' fees and
disbursements and the reasonably allocated costs of attorneys employed
by Lender) of Lender, and thereafter to the other Obligations. For the
purpose of computing Borrower's Obligations hereunder and under the
Note, payments shall be applied first, to the costs and expenses of
Lender, as set forth above, second, to the payment of accrued and
unpaid interest due under any Loan Documents to and including the date
of such application and third, to the payment of all other amounts
(including principal and fees) then owing to Lender under the Loan
Documents. No application of payments will cure any Event of Default,
or prevent acceleration, or continued acceleration, of amounts payable
under the Loan Documents, or prevent the exercise, or continued
exercise, of rights or remedies of Lender hereunder or thereunder or at
Law or in equity.
-47-
ARTICLE 10
[INTENTIONALLY OMITTED]
-----------------------
-48-
ARTICLE 11
MISCELLANEOUS
-------------
11.1 CUMULATIVE REMEDIES; NO WAIVER. The rights, powers, privileges and
remedies of Lender provided herein or in the Note or any other Loan Document are
cumulative and not exclusive of any right, power, privilege or remedy provided
by Law or equity. No failure or delay on the part of Lender in exercising any
right, power, privilege or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power, privilege
or remedy preclude any other or further exercise of the same or any other right,
power, privilege or remedy.
11.2 AMENDMENTS; CONSENTS. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by Borrower or any other Party therefrom, may in any event be
effective unless in writing signed by Lender, and then only in the specific
instance and for the specific purpose given.
11.3 COSTS, EXPENSES AND TAXES. Borrower shall pay within five (5)
Banking Days after demand, accompanied by an invoice therefor, the reasonable
costs and expenses of Lender in connection with the negotiation, preparation,
execution and delivery of the Loan Documents and any amendment thereto or waiver
thereof. Borrower shall also pay on demand, accompanied by an invoice therefor,
the reasonable costs and expenses of Lender in connection with the refinancing,
restructuring, reorganization (including a bankruptcy reorganization) and
enforcement or attempted enforcement of the Loan Documents, and any matter
related thereto. The foregoing costs and expenses shall include filing fees,
appraisal fees, search fees, and other out-of-pocket expenses and the reasonable
fees and out-of-pocket expenses of any legal counsel (including reasonably
allocated costs of legal counsel employed by Lender), independent public
accountants and other outside experts retained by Lender, whether or not such
costs and expenses are incurred or suffered by Lender in connection with or
during the course of any bankruptcy or insolvency proceedings of any of Borrower
or any Subsidiary thereof. Borrower shall pay any and all documentary and other
taxes, excluding (i) taxes imposed on or measured in whole or in part by
Lender's overall net income imposed on it by (A) any jurisdiction (or political
subdivision thereof) in which it is organized or maintains its principal office
or (B) any jurisdiction (or political subdivision thereof) in which it is "doing
business" or (ii) any withholding taxes or other taxes based on gross income
imposed by the United States of America for any period with respect to which it
has failed to provide Borrower with the appropriate form or forms required by
applicable Laws, and all costs, expenses, fees and charges payable or determined
to be payable in connection with the filing or recording of this Agreement, any
other Loan Document or any other instrument or writing to be delivered hereunder
or thereunder, or in connection with any transaction pursuant hereto or thereto,
and shall reimburse, hold harmless and indemnify on the terms set forth in 11.11
Lender from and against any and all loss, liability or legal or other expense
with respect to or resulting from any delay in paying or failure to pay any such
tax, cost, expense, fee or charge or that any of them may suffer or incur by
reason of the failure of any Party to perform any of its Obligations. Any amount
payable to Lender under this Section 11.3 shall bear interest from the fifth
Banking Day following the date of demand for payment at the Default Rate.
-49-
11.4 Intentionally Omitted.
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or in any other Loan Document, or in any
certificate or other writing delivered by or on behalf of any one or more of the
Parties to any Loan Document, will survive the making of the Loans hereunder and
the execution and delivery of the Note, and have been or will be relied upon by
Lender, notwithstanding any investigation made by Lender.
11.6 NOTICES. Except as otherwise expressly provided in the Loan
Documents, all notices, requests, demands, directions and other communications
provided for hereunder or under any other Loan Document must be in writing and
must be mailed, telegraphed, telecopied, dispatched by commercial courier or
delivered to the appropriate party at the address set forth on the signature
page of this Agreement or other applicable Loan Document or, as to any party to
any Loan Document, at any other address as may be designated by it in a written
notice sent to all other parties to such Loan Document in accordance with this
Section. Except as otherwise expressly provided in any Loan Document, if any
notice, request, demand, direction or other communication required or permitted
by any Loan Document is given by mail it will be effective on the earlier of
receipt or the fourth Banking Day after deposit in the United States mail with
first class or airmail postage prepaid; if given by telegraph or cable, when
delivered to the telegraph company with charges prepaid; if given by telecopier,
when sent; if dispatched by commercial courier, on the scheduled delivery date;
or if given by personal delivery, when delivered.
11.7 EXECUTION OF LOAN DOCUMENTS. Unless Lender otherwise specifies
with respect to any Loan Document, (a) this Agreement and any other Loan
Document may be executed in any number of counterparts and any party hereto or
thereto may execute any counterpart, each of which when executed and delivered
will be deemed to be an original and all of which counterparts of this Agreement
or any other Loan Document, as the case may be, when taken together will be
deemed to be but one and the same instrument and (b) execution of any such
counterpart may be evidenced by a telecopier transmission of the signature of
such party. The execution of this Agreement or any other Loan Document by any
party hereto or thereto will not become effective until counterparts hereof or
thereof, as the case may be, have been executed by all the parties hereto or
thereto.
11.8 BINDING EFFECT; ASSIGNMENT.
(a) This Agreement and the other Loan Documents to which
Borrower is a Party will be binding upon and inure to the benefit of
Borrower, Lender, and their respective successors and assigns, except
that Borrower may not assign its rights hereunder or thereunder or any
interest herein or therein without the prior written consent of Lender.
Lender represents that it is not acquiring the Note with a view to the
distribution thereof within the meaning of the Securities Act of 1933,
as amended (subject to any requirement that disposition of such Notes
must be within the control of Lender). Lender may at any time pledge
the Notes or any other instrument evidencing its rights under this
Agreement to a Federal Reserve Bank, but no such pledge shall release
Lender from its obligations hereunder or grant to such Federal Reserve
Bank the rights of Lender hereunder absent foreclosure of such pledge.
-50-
(b) Lender may from time to time grant participations to one
or more banks or other financial institutions in a portion of the Term
Loan; provided, however, that (i) Lender's obligations under this
Agreement shall remain unchanged, (ii) Lender shall remain solely
responsible for the performance of such obligations, (iii) the
participating banks or other financial institutions shall not be a
lender hereunder for any purpose except, if the participation agreement
so provides, for the purposes of Sections 3.5, 3.7, 11.11 and 11.22,
but only to the extent that the cost of such benefits to Borrower does
not exceed the cost which Borrower would have incurred in respect of
such participant absent the participation, (iv) Borrower and Lender
shall continue to deal solely and directly with each other in
connection with Lender's rights and obligations under this Agreement,
and (v) the consent of the holder of such participation interest shall
not be required for amendments or waivers of provisions of the Loan
Documents other than those which (A) extend the Maturity Date (other
than in accordance with Section 2.2 above) or any other date upon which
any payment of money is due to Lender, (B) reduce the rate of interest
on the Note, any fee or any other monetary amount payable to Lender,
(C) release any material Subsidiary Guaranty, or (D) release any
material Collateral from the Lien of the Collateral Documents, except
if such release of material Collateral occurs in connection with a
Disposition permitted under Section 6.2, in which case such release
shall not require the consent of either Lender or any holder of a
participation interest in the Loans.
11.9 RIGHT OF SETOFF. If an Event of Default has occurred and is
continuing, Lender may exercise its rights under Article 9 of the Uniform
Commercial Code and other applicable Laws and, to the extent permitted by
applicable Laws, apply any funds in any deposit account maintained with it by
Borrower and/or any Property of Borrower in its possession against the
Obligations.
11.10 INTENTIONALLY OMITTED.
11.11 INDEMNITY BY BORROWER. Borrower agrees to indemnify, save and
hold harmless Lender and its directors, officers, agents, attorneys and
employees (collectively the "Indemnitees") from and against: (a) any and all
claims, demands, actions or causes of action (except a claim, demand, action, or
cause of action for any amount excluded from the definition of "Taxes" in
Section 3.10(d)) if the claim, demand, action or cause of action arises out of
or relates to any act or omission (or alleged act or omission) of Borrower, its
Affiliates or any of its officers, directors or stockholders relating to the
Term Loan or the use or contemplated use of proceeds of the Term Loan; (b) any
administrative or investigative proceeding by any Governmental Agency arising
out of or related to a claim, demand, action or cause of action described in
clause (a) above; and (c) any and all liabilities, losses, reasonable costs or
expenses (including reasonable attorneys' fees and the reasonably allocated
costs of attorneys employed by any Indemnitee and disbursements of such
attorneys and other professional services) that any Indemnitee suffers or incurs
as a result of the assertion of any foregoing claim, demand, action or cause of
action; provided that no Indemnitee shall be entitled to indemnification for any
-51-
loss caused by its own gross negligence or willful misconduct or for any loss
asserted against it by another Indemnitee. If any claim, demand, action or cause
of action is asserted against any Indemnitee, such Indemnitee shall promptly
notify Borrower, but the failure to so promptly notify Borrower shall not affect
Borrower's obligations under this Section unless such failure materially
prejudices Borrower's right to participate in the contest of such claim, demand,
action or cause of action, as hereinafter provided. Such Indemnitee may (and
shall, if requested by Borrower in writing) contest the validity, applicability
and amount of such claim, demand, action or cause of action and shall permit
Borrower to participate in such contest. Any Indemnitee that proposes to settle
or compromise any claim or proceeding for which Borrower may be liable for
payment of indemnity hereunder shall give Borrower written notice of the terms
of such proposed settlement or compromise reasonably in advance of settling or
compromising such claim or proceeding and shall obtain Borrower's prior consent
(which shall not be unreasonably withheld or delayed). In connection with any
claim, demand, action or cause of action covered by this Section 11.11 against
more than one Indemnitee, all such Indemnitees shall be represented by the same
legal counsel (which may be a law firm engaged by the Indemnitees or attorneys
employed by an Indemnitee or a combination of the foregoing) selected by the
Indemnitees and reasonably acceptable to Borrower; provided, that if such legal
counsel determines in good faith that representing all such Indemnitees would or
could result in a conflict of interest under Laws or ethical principles
applicable to such legal counsel or that a defense or counterclaim is available
to an Indemnitee that is not available to all such Indemnitees, then to the
extent reasonably necessary to avoid such a conflict of interest or to permit
unqualified assertion of such a defense or counterclaim, each affected
Indemnitee shall be entitled to separate representation by legal counsel
selected by that Indemnitee and reasonably acceptable to Borrower, with all such
legal counsel using reasonable efforts to avoid unnecessary duplication of
effort by counsel for all Indemnitees; and further provided that (as an
Indemnitee) shall at all times be entitled to representation by separate legal
counsel (which may be a law firm or attorneys employed by Lender or a
combination of the foregoing). Any obligation or liability of Borrower to any
Indemnitee under this Section 11.11 shall survive the expiration or termination
of this Agreement and the repayment of all Loans and the payment and performance
of all other Obligations owed to Lender.
11.12 NONLIABILITY OF LENDER. Borrower acknowledges and agrees that:
(a) Inspections of any Property of Borrower made by or through
Lender are for the purpose of administration of the Loans only and
Borrower is not entitled to rely upon the same (whether or not such
inspections are at the expense of Borrower);
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to Lender pursuant to the Loan
Documents, Lender shall not be deemed to have warranted or represented
the sufficiency, legality, effectiveness or legal effect of the same,
or of any term, provision or condition thereof, and such acceptance or
approval thereof shall not constitute a warranty or representation to
anyone with respect thereto by Lender;
-52-
(c) The relationship between Borrower and Lenders is, and
shall at all times remain, solely that of borrower and lender; Lender
shall not under any circumstance be construed to be a partner or joint
venturer of Borrower or its Affiliates; Lender shall not under any
circumstance be deemed to be in a relationship of confidence or trust
or a fiduciary relationship with Borrower or its Affiliates, or to owe
any fiduciary duty to Borrower or its Affiliates; Lender does not
undertake or assume any responsibility or duty to Borrower or its
Affiliates to select, review, inspect, supervise, pass judgment upon or
inform Borrower or its Affiliates of any matter in connection with
their Property or the operations of Borrower or its Affiliates;
Borrower and its Affiliates shall rely entirely upon their own judgment
with respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by
Lender in connection with such matters is solely for the protection of
Lender and neither Borrower nor any other Person is entitled to rely
thereon; and
(d) Lender shall not be responsible or liable to any Person
for any loss, damage, liability or claim of any kind relating to injury
or death to Persons or damage to Property caused by the actions,
inaction or negligence of Borrower and/or its Affiliates and Borrower
hereby indemnifies and holds Lender harmless on the terms set forth in
Section 11.11 from any such loss, damage, liability or claim.
11.13 NO THIRD PARTIES BENEFITED. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
Borrower and Lender in connection with the Term Loan, and is made for the sole
benefit of Borrower, and Lender, and the Lender's successors and assigns. Except
as provided in Sections 11.8 and 11.11, no other Person shall have any rights of
any nature hereunder or by reason hereof.
11.14 CONFIDENTIALITY. Lender agrees to hold any confidential
information that it may receive from Borrower pursuant to this Agreement in
confidence, except for disclosure: (a) to Affiliates of Lender; (b) to legal
counsel and accountants for Borrower or any Lender; (c) to other professional
advisors to Borrower or Lender, provided that the recipient has accepted such
information subject to a confidentiality agreement substantially similar to this
Section 11.14; (d) to regulatory officials having jurisdiction over Lender; (e)
as required by Law or legal process, provided that Lender agrees to notify
Borrower of any such disclosures unless prohibited by applicable Laws, or in
connection with any legal proceeding to which Lender and Borrower are adverse
parties; and (f) to another financial institution in connection with a
disposition or proposed disposition to that financial institution of all or part
of Lender's interests hereunder or a participation interest in the Note,
provided that the recipient has accepted such information subject to a
confidentiality agreement substantially similar to this Section 11.14. For the
purpose of the foregoing, "confidential information" shall mean any information
respecting Borrower or its Subsidiaries reasonably considered by Borrower to be
confidential, other than (i) information previously filed with any Governmental
Agency and available to the public, (ii) information previously published in any
public medium from a source other than, directly or indirectly, Lender, and
(iii) information previously disclosed by Borrower to any Person not associated
with Borrower which does not owe a professional duty of confidentiality to
Borrower or which has not executed an appropriate confidentiality agreement with
Borrower. Nothing in this Section shall be construed to create or give rise to
any fiduciary duty on the part of Lender to Borrower.
-53-
11.15 FURTHER ASSURANCES. Borrower shall, at its expense and without
expense to Lender take, execute and deliver such further acts and documents as
Lender from time to time reasonably requires for the assuring and confirming
unto Lender of the rights hereby created or intended now or hereafter so to be,
or for carrying out the intention or facilitating the performance of the terms
of any Loan Document. 11.16 Integration. This Agreement the other Loan Documents
comprise the complete and integrated agreement of the parties on the subject
matter hereof and supersede all prior agreements, written or oral, on the
subject matter hereof. In the event of any conflict between the provisions of
this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of Lender in any other Loan Document shall not be
deemed a conflict with this Agreement. Each Loan Document was drafted with the
joint participation of the respective parties thereto and shall be construed
neither against nor in favor of any party, but rather in accordance with the
fair meaning thereof.
11.17 GOVERNING LAW; JURISDICTION AND VENUE. Except to the extent
otherwise provided therein, each Loan Document shall be governed by, and
construed and enforced in accordance with, the Laws of California applicable to
contracts made and performed in California. THE PARTIES AGREE THAT ALL ACTIONS
OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN A CALIFORNIA STATE COURT IN LOS ANGELES OR SAN DIEGO OR THE
U.S. DISTRICT COURT (CENTRAL OR SOUTHERN DISTRICT OF CALIFORNIA). THE PARTIES
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED IN ANY SUCH COURT, AND THE PARTIES HEREBY WAIVE ANY
OBJECTION THEY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION AND HEREBY
CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY ANY SUCH COURT. FURTHERMORE, THE PARTIES HEREBY WAIVE, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT THEY MAY HAVE TO ASSERT THE
DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.17.
11.18 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid as to any party or in
any jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
11.19 HEADINGS. Article and Section headings in this Agreement and the
other Loan Documents are included for convenience of reference only and are not
part of this Agreement or the other Loan Documents for any other purpose.
-54-
11.20 TIME OF THE ESSENCE. Time is of the essence of the Loan
Documents.
11.21 INTENTIONALLY OMITTED.
11.22 HAZARDOUS MATERIAL INDEMNITY. Borrower hereby agrees to
indemnify, hold harmless and defend (by counsel reasonably satisfactory to
Lender and its directors, officers, employees, agents, successors and assigns
from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind, and
all reasonable costs and expenses incurred in connection therewith (including
but not limited to reasonable attorneys' fees and the reasonably allocated costs
of attorneys employed by Lender, and expenses to the extent that the defense of
any such action has not been assumed by Borrower), arising directly or
indirectly out of (i) the presence on, in, under or about any Real Property of
any Hazardous Materials, or any releases or discharges of any Hazardous
Materials on, under or from any Real Property and (ii) any activity carried on
or undertaken on or off any Real Property by Borrower or any of its predecessors
in title, whether prior to or during the term of this Agreement, and whether by
Borrower or any predecessor in title or any employees, agents, contractors or
subcontractors of Borrower or any predecessor in title, or any third persons at
any time occupying or present on any Real Property, in connection with the
handling, treatment, removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Materials at any time located or present on, in, under
or about any Real Property. The foregoing indemnity shall further apply to any
residual contamination on, in, under or about any Real Property, or affecting
any natural resources, and to any contamination of any Property or natural
resources arising in connection with the generation, use, handling, storage,
transport or disposal of any such Hazardous Materials, and irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable Laws, but the foregoing indemnity shall not apply to Hazardous
Materials on any Real Property, the presence of which is caused by Lender.
Borrower hereby acknowledges and agrees that, notwithstanding any other
provision of this Agreement or any of the other Loan Documents to the contrary,
the obligations of Borrower under this Section shall be unlimited corporate
obligations of Borrower and shall not be secured by any Lien on any Real
Property. Any obligation or liability of Borrower to any Indemnitee under this
Section 11.22 shall survive the expiration or termination of this Agreement and
the repayment of all Loans and the payment and performance of all other
Obligations owed to Lender.
11.23 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO OR ANY OF THEM WITH
RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
-55-
11.24 PURPORTED ORAL AMENDMENTS. BORROWER EXPRESSLY ACKNOWLEDGES THAT
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR
THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN
WRITING THAT COMPLIES WITH SECTION 11.2. BORROWER AGREES THAT IT WILL NOT RELY
ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS
BY ANY REPRESENTATIVE OF LENDER THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT
AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.
11.25 GENERAL RELEASE. Borrower hereby releases, discharges and acquits
Lender and its past and present agents, servants, employees, representatives,
successors and assigns from any and all debts, claims, demands, liabilities,
obligations, cause or causes of action, known or unknown, against them which
Borrower now owns or holds, or has at any time heretofore owned or held, by
reason of any action, matter, cause or thing whatsoever done prior to the date
of this Agreement, including, specifically, but not exclusively and without
limitation, any and all claims, demands, rights and causes of action whatsoever
arising out of, or which could be alleged to arise out of the Original Loan
Agreement or any of the other Loan Documents (as defined in the Original Loan
Agreement).
It is the intention of Borrower in executing this Agreement that this
document shall be effective as a bar to each and every claim, demand and cause
of action hereinabove specified, and in furtherance of this intention, Borrower
hereby waives and relinquishes all rights and benefits under Section 1542 of the
Civil Code of the State of California, which provides:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him might
have materially affected his settlement with the debtor."
Borrower hereby acknowledges that it may hereafter discover facts
different from, or in addition to, those now known or believed to be true with
respect to such claims, demands, or causes of action, and agrees that this
Agreement shall be, and remain, effective in all respects notwithstanding any
such differences or additional facts.
11.26 RELEASE OF COLLATERAL. Subject to Borrower's satisfaction of each
of the conditions precedent set forth in Section 8.3, Lender agrees that it
shall release its collateral interest in Divergent, the IBIS Note and the
Integrity Shares upon the closing of the Softline Transaction.
-56-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BORROWER:
SVI SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇ ▇'▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇'▇▇▇▇▇
Chief Financial Officer
Address:
SVI Solutions, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
LENDER:
UNION BANK OF CALIFORNIA, N.A.,
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
Vice President
By:
--------------------------------
Vice President
Address:
Union Bank of California, N.A.
Special Assets Department
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
-57-