<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
GENERAL AUTOMATION, INC.
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(Name of Issuer)
COMMON STOCK
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(Title of Class of Securities)
369-032-107
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(CUSIP Number)
STEPHEN RYAN, ESQ.
LANDELS, RIPLEY & DIAMOND, LLP
300 THE EMBARCADERO, 6TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
(415) 512-8700
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
SEPTEMBER 30, 1999
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
CUSIP No. 369-032-107 PAGE 2 OF 6 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Pacific Mezzanine Fund, L.P.
IRS #94-319-7312
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
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7 SOLE VOTING POWER
4,708,818
NUMBER OF ----------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY None
OWNED BY ----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING (SEE ITEM 7 ABOVE)
PERSON ----------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
(SEE ITEM 7 ABOVE)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
33.5%
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14 TYPE OF REPORTING PERSON*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE RESPONSES TO ITEMS 1-7
<PAGE> 3
SCHEDULE 13D
ITEM 1. SECURITY AND ISSUER
This Schedule 13D, dated September 30, 1999 ("Schedule 13D"), relating
to shares of $.10 par value common stock ("Shares") of General Automation, Inc.
("GA"), a Delaware corporation, whose principal executive offices are located at
17731 Mitchell North, Irvine, California 92614. Shares of GA are traded on the
NASDAQ over-the-counter market.
ITEM 2. IDENTITY AND BACKGROUND
This Schedule 13D is filed by Pacific Mezzanine Fund, L.P., a California
limited partnership ("PMF"). The principal business of PMF is investing. PMF is
a registered Small Business Investment Company. PMF's General Partner is Pacific
Private Capital, a California limited partnership. The principal business of
Pacific Private Capital is serving as the General Partner of PMF. The General
Partner of Pacific Private Capital is Andrew B. Dumke. Mr. Dumke is a U.S.
citizen.
The principal business office of PMF, Pacific Private Capital and Mr.
Dumke is located at 2200 Powell Street, Suite 1250, Emeryville, California
94608.
Over the past five years, none of the foregoing have been (1) convicted
in a criminal proceeding, or (2) been a party to a civil proceeding of a
judicial or administrative body which resulted in a judgment, decree or final
order enjoining future violations of or prohibitions or mandating activities
subject to federal or state securities laws or finding any violations with
respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The total amount of funds required by PMF for the purchase of the
Secured Convertible Promissory Notes and Warrants was $3,150,000 and was
obtained from working capital.
ITEM 4. PURPOSE OF TRANSACTION
PMF loaned GA $3,150,000 in the ordinary course of business for
investment purposes pursuant to a Loan Agreement by and between GA and PMF,
dated as of September 30, 1999 (the "Loan"). The interest rate of the Loan is
10% per annum with a default rate of up to an additional 5% per annum. Interest
is payable monthly in arrears and principal is due and payable on September 30,
2004. In connection with the Loan, GA issued to PMF a Secured Convertible
Promissory Note (the "Note") and a Common Stock Purchase Warrant (the
"Warrant"), each dated as of September 30, 1999. The Note is convertible into up
to 4,315,068 shares of GA's common stock. The Warrant is exercisable into
393,750 shares of GA's common stock at an exercise price of $0.45 per share. The
Note is secured by all of GA's assets pursuant to the terms of a Security
Agreement by and between GA and PMF, dated as of September 30, 1999. PMF agreed
to subordinate the Note to Comerica Bank pursuant to the terms of a
Subordination Agreement by and among GA, PMF and Comerica Bank, dated as of
September 30, 1999. The parties also entered into an Investment Unit Pricing
Agreement dated as of September 30, 1999 with respect to the respective prices
and values of the Note and Warrant.
<PAGE> 4
PMF does not currently have any plans or proposals which relate to or
would result in any of the actions or transactions specified in clauses (a)
though (j) of Item 4 of Schedule 13D. However, PMF may (i) convert the Note into
shares of GA's common stock at any time before the Note is paid in full, (ii)
exercise the Warrant at any time before the expiration thereof, (iii) dispose of
the shares of common stock acquired as described in clauses (I) and (ii) of this
sentence, (iv) view or reconsider its position, (v) change its purpose or (vi)
formulate plans or proposals specified in clauses (a) through (j) of Item 4 of
Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
On September 30, 1999 PMF acquired the Note and the Warrant in
connection with the Loan. The Note is convertible into up to 4,315,068 shares of
GA's common stock and the Warrant is exercisable into 393,750 shares of GA's
common stock at an exercise price of $0.45 per share. PMF beneficially owns a
total of 4,708,818 shares of GA's common stock (which is approximately 33.5% of
the shares outstanding on July 31, 1999, based on the information reported in
GA's Quarterly Report on Form 10-QSB for the quarter ended July 31, 1999 filed
with the Securities and Exchange Commission, plus the shares issuable upon
conversion of the Note and exercise of the Warrant).
PMF has the sole power to vote and dispose of all of the shares of GA's
common stock that it beneficially owns. The power to vote and dispose of shares
of common stock of GA is not shared by PMF with any person.
The response to Item 4 of this Schedule 13D is incorporated herein by
reference. The Loan described above and in Item 4 of this Schedule 13D, is the
only transaction involving securities of GA in which any of the parties
described in Item 1 of this Schedule 13D has been involved in the last 60 days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER
The responses to Items 4 and 5 of this Schedule 13D are incorporated
herein by reference.
In addition to the Loan Agreement, Note, Warrant, Security Agreement and
Subordination Agreement described elsewhere herein, GA and PMF have entered into
an Investors' Rights Agreement, dated as of September 30, 1999 (the "Investors'
Rights Agreement"). Pursuant to the Investors' Rights Agreement, GA is required
to file certain registration statements with the Securities and Exchange
Commission (the "SEC"), registering the shares issuable upon conversion of the
Note and exercise of the Warrant (collectively the "Registrable Shares") held by
PMF and certain eligible assignees (each a "Holder") under the Securities Act of
1933, as amended (the "Securities Act"). Holders are also entitled to include
the Registrable Shares in certain registrations initiated by GA. GA is obligated
to pay the expenses of any such registration, with certain exceptions. GA is
also obligated to nominate two of PMF's nominees to the board of directors at
meetings of its shareholders held for the purpose of electing directors and, if
its nominees are not elected to the board, is granted board visitation rights.
GA also granted PMF rights of first refusal with respect to the issuance of
additional securities in certain transactions.
PMF's rights of first refusal terminate upon the transfer of the
Registrable Securities (the rights are not assignable), the right to nominate
members to the board of directors terminates
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when the Registrable Securities do not constitute at least 10% of the fully
diluted shares of GA, the board visitation rights terminates when the
Registrable Securities do not constitute at least 5% of the fully diluted shares
of GA and the registration rights terminates when the Registrable Securities do
not constitute at least 10% of the fully diluted shares of GA.
The Loan Agreement, Note, Warrant, Security Agreement, Investment Unit
Pricing Agreement, Subordination Agreement and Registration Rights Agreement are
filed as exhibits to this Schedule 13D and are incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following are filed as exhibits to this Schedule 13D:
10.1 Loan Agreement by and between General Automation, Inc. and
Pacific Mezzanine Fund, L.P., dated as of September 30, 1999.
10.2 Secured Convertible Promissory dated as of September 30, 1999,
issued by General Automation, Inc. to Pacific Mezzanine Fund,
L.P.
10.3 Warrant to Purchase Common Stock of General Automation, Inc.
dated as of September 30, 1999, issued by General Automation,
Inc. to Pacific Mezzanine Fund, L.P.
10.4 Security Agreement by and between General Automation, Inc. and
Pacific Mezzanine Fund, L.P., dated as of September 30, 1999.
10.5 Investment Unit Pricing Agreement by and between General
Automation, Inc. and Pacific Mezzanine Fund, L.P., dated as of
September 30, 1999.
10.6 Subordination Agreement by and among General Automation, Inc.,
Comerica Bank and Pacific Mezzanine Fund, L.P., dated as of
September 30, 1999.
10.7 Investors' Rights Agreement by and between General Automation,
Inc. and Pacific Mezzanine Fund, L.P., dated as of September 30,
1999.
SIGNATURE
After reasonable inquiry and to the best of their knowledge and belief,
the undersigned certify that the information set forth in this Amendment is
true, complete and correct.
Date: September 30, 1999 PACIFIC MEZZANINE FUND, L.P.,
a California limited partnership
By: PACIFIC PRIVATE CAPITAL,
A California limited partnership
Its General Partner
By: /s/ ANDREW B. DUMKE
-----------------------------
Andrew B. Dumke
General Partner
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
<S> <C>
10.1 Loan Agreement by and between General Automation, Inc. and Pacific
Mezzanine Fund, L.P., dated as of September 30, 1999.
10.2 Secured Convertible Promissory dated as of September 30, 1999, issued by
General Automation, Inc. to Pacific Mezzanine Fund, L.P.
10.3 Warrant to Purchase Common Stock of General Automation, Inc. dated as of
September 30, 1999, issued by General Automation, Inc. to Pacific
Mezzanine Fund, L.P.
10.4 Security Agreement by and between General Automation, Inc. and Pacific
Mezzanine Fund, L.P., dated as of September 30, 1999.
10.5 Investment Unit Pricing Agreement by and between General Automation,
Inc. and Pacific Mezzanine Fund, L.P., dated as of September 30, 1999.
10.6 Subordination Agreement by and among General Automation, Inc.,
Comerica Bank and Pacific Mezzanine Fund, L.P., dated as of September
30, 1999.
10.7 Investors' Rights Agreement by and between General Automation, Inc. and
Pacific Mezzanine Fund, L.P., dated as of September 30, 1999.
</TABLE>
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EXHIBIT 10.1
LOAN AGREEMENT
This LOAN AGREEMENT (as amended from time to time, this "Agreement"),
dated as of September 30, 1999 (the "Effective Date") is entered into by and
among GENERAL AUTOMATION, INC., a Delaware corporation "Borrower"), and PACIFIC
MEZZANINE FUND, L.P., a California limited partnership ("PMF") (together with
any subsequent Lender pursuant to Section 1.02(e) hereof, each a "Lender" and
collectively, the "Lenders").
ARTICLE I
DEFINITIONS AND RELATED MATTERS
SECTION 1.01 DEFINITIONS. The following terms with initial capital
letters have the following meanings:
"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person. The term
"control" means the possession, directly or indirectly, of the power, whether or
not exercised, to direct or cause the direction of the management or policies of
a Person, whether through the ownership of voting securities or other equity
interests, by contract or otherwise, and the terms "controls", "controlled" and
"common control" have correlative meanings. Notwithstanding the foregoing
provisions of this definition, in no event shall the Lenders or any of their
Affiliates be deemed to be Affiliates of Borrower.
"Agreement" is defined in the Preamble.
"Applicable Law" means all applicable provisions of all (i)
constitutions, treaties, statutes, laws, rules, regulations and ordinances of
any Governmental Authority, (ii) Governmental Approvals and (iii) orders,
decisions, judgments, awards and decrees of any Governmental Authority.
"Bankruptcy Code" means Title II of the United States Code (11 U.S.C.
Section 101 et seq.), as amended from time to time, or any successor statute.
"Base Rate" means, at any time, a rate of interest equal to ten percent
(10%) per annum calculated as specified in Section 2.02.
"Benefit Arrangements" shall have the meaning specified in Section 4.13.
"Best Knowledge" shall mean to the personal knowledge of any officer of
Borrower.
"Borrower" is defined in the Preamble and includes its -successors and
Permitted assigns.
"Borrower's Certificate" means the certificate, executed by Borrower, in
substantially the form of Exhibit D.
"Business Day" any day that is not a Saturday, Sunday or other day on
which banks in San Francisco, California are authorized or obligated to close.
<PAGE> 2
"Capital Expenditure" means, for any period, (i) the aggregate
consolidated capital expenditures (whether paid in cash or accrued as
liabilities) of Borrower for such period, as the same are required to be set
forth, in accordance with GAAP, in the consolidated statement of cash flows of
Borrower for such period and (ii) capitalized lease obligations of Borrower, on
a consolidated basis, incurred during such period.
"Closing" shall mean the time at which Lender makes the Loan.
"Closing Date" means September 30, 1999 or such later date on which all
conditions set forth in Section 3.01 shall have been satisfied or waived in
writing.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means the collateral under, and as defined in, the
Collateral Documents.
"Collateral Documents" means the Security Agreement, the Intercreditor
Agreement, the Deposit Notice and all financing statements and other documents
or instruments executed or delivered from time to time in connection therewith
or otherwise to secure the Obligations, in each case as from time to time
amended.
"Commitment" means the obligation of the Lenders to make the Loan under
this Agreement, on the terms and conditions set forth herein.
"Common Stock" means the common stock, $0.10 par value, of Borrower.
"Contingent Obligation" means, as to any Person, any obligation, direct
or indirect, contingent or otherwise, of such Person with respect to any
Indebtedness or other obligation of another Person, including any direct or
indirect guarantee of such Indebtedness or obligation, to maintain the net
worth, solvency or financial condition of the other Person, or otherwise to
assume or hold harmless the holders of Indebtedness or any other obligation of
another Person against loss in respect thereof.
"Contractual Obligation" means, as applied to any Person, any provision
of any security issued by that Person or of any indenture, mortgage, deed of
trust, contract, undertaking, agreement, or other document or instrument to
which that Person is a party or by which it or any of its assets or properties
is bound or to which it or any of its assets or properties is subject.
"Conversion Rate" means the rate at which the notes convert into shares
of Borrower's Common Stock as set forth in Section 2.08 hereof.
"Current Assets" means, at any particular time, all items which would,
in conformity with GAAP, be classified as current assets on a balance sheet of
Borrower, as at such time.
"Current Liabilities" means, at any particular time, all items which
would, in conformity with GAAP, be classified as current liabilities (including
deferred taxes payable and other deferred liabilities) on a balance sheet of
Borrower, as at such time, with the exception of deferred revenues.
2
<PAGE> 3
"Debt Service Coverage Ratio" means, with respect to any period, the
ratio of (a) Borrower's net income after taxes for such period excluding
Borrower's pre-tax extraordinary gains or losses, plus depreciation and
amortization deducted in determining net income for such period, minus Capital
Expenditures for such period, to (b) current maturities of long term
Indebtedness and capitalized leases paid or scheduled to be paid during such
period.
"Default" means any condition or event that, with the giving of notice
or lapse of time or both, would, unless cured or waived, become an Event of
Default.
"Distribution" means (i) distributions or dividends on or in respect of
the capital stock of Borrower (except distributions solely in additional shares
of such stock) and (ii) the repurchase, purchase, redemption or acquisition of
capital stock of Borrower or of the warrants or rights or other options to
purchase such stock except for the purchase of the Warrants as provided herein.
"Dollars" and "$" mean the lawful money of the United States.
"EBITDA" means Borrower's earnings determined in accordance with GAAP
before interest, taxes, depreciation and amortization.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Employee Benefit Plans" shall have the meaning specified in Section
4.13.
"Event of Default" is defined in Section 7.01.
"Existing Liens" means such Liens which are described on Schedule 1.01.
"Fees and Expenses" is defined in Section 2.04.
"Financial Statements" shall have the meaning specified in Section 4.03.
"Fundamental Event" means with respect to Borrower the occurrence of any
one or more of the following:
(i) any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets of
Borrower, on a consolidated basis, in one transaction or a series of
related transactions;
(ii) the filing with the SEC of any tender or
exchange offer by any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) to acquire, directly or indirectly, voting stock of
Borrower, or the acquisition of voting stock of the Borrower by way of a
tender or exchange offer in a transaction that is exempt from
registration; and
(iii) the occurrence of a merger, sale, joint venture
or other transaction which, in the reasonable opinion of PMF adversely
affects Borrower's ability to generate revenue or earnings.
3
<PAGE> 4
"Funding Date" means the date on which the Lenders make the Loan.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time in the United States.
"Governmental Approval" means an authorization, consent, approval,
permit, license, registration or filing with, any Governmental Authority.
"Governmental Authority" means any nation, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, including
any government authority, agency, department, board, commission or
instrumentality of the United States, any State of the United States or any
political subdivision thereof, and any tribunal or arbitrator of competent
jurisdiction.
"Indebtedness" means, with respect to any Person, without duplication:
(i) all obligations for borrowed money; (ii) all obligations evidenced by bonds,
debentures, notes or other similar instruments; (iii) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business that are not overdue by more than
ninety (90) days or that are being contested in good faith; (iv) all obligations
constituting capitalized lease obligations under GAAP; (v) all obligations or
liabilities of others secured by a Lien on any asset owned by such Person,
whether or not such obligation or liability is assumed; (vi) all obligations of
such Person, contingent or other-wise, in respect of any letters of credit,
bankers! acceptances or similar instruments, and (vii) all Contingent
Obligations.
"Indemnities" is defined in Section 8.02(a).
"Intercreditor Agreement" means that certain Intercreditor Agreement
dated as of the Effective Date by and among the Lenders and acknowledged by the
Borrower.
"Interest Coverage Ratio" means, with respect to any period, the ratio
of (a) Borrower's net income after taxes for such period (excluding pre-tax
extraordinary gains or losses), plus interest, depreciation and amortization
deducted in determining net income for such period, and minus Capital
Expenditures for such period, to (b) interest expense on Indebtedness deducted
in determining net income for such period.
"Investment" means, as applied to any Person, (i) any direct or indirect
acquisition by that Person of securities or partnership interests of any other
Person, or all or any substantial part of the business or assets of any other
Person, and (ii) any direct or indirect loan, advance or capital contribution by
that Person to any other Person.
"Investment Unit Pricing Agreement" means that certain Investment Unit
Pricing Agreement dated as of the Effective Date among Borrower and Lender.
"Investor's Rights Agreement" means that certain Investor's Rights
Agreement dated as of the Effective Date among Borrower and the Lenders.
4
<PAGE> 5
"Lender" is defined in the Preamble and includes its successors and
assigns.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof).
"Loan" shall mean the Loan made by the Lenders pursuant to this
Agreement as defined in Section 2.01(a).
"Loan Account" is defined in Section 2.05(a).
"Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents, the Warrants, the Investment Unit Pricing Agreement, the
Investors' Rights Agreement and any other instrument or other writing executed
or delivered by Borrower in connection herewith, and all amendments, appendices,
exhibits and schedules to any of the foregoing.
"Mandatory Prepayment" shall mean a prepayment of the Loan pursuant to
Section 2.03(b).
"Margin Regulations" means Regulation G, T, U and X of the Board of
Governors of the Federal Reserve System, and any successor regulations thereto,
as in effect from time to time.
"Margin Stock" " means "margin stock" as defined in the Margin
Regulations.
"Material Adverse Effect" or "Material Adverse Change" means a material
adverse effect on or a material adverse change in. as the case may be, the
business, assets, income, financial condition or prospects of Borrower, on a
consolidated basis.
"Maturity Date" means September 30, 2004.
"Multiemployer Plan" means a multiemployer plan, as defined in Sections
3(37) and 4001(a)(3) of ERISA.
"Net Cash Proceeds" means: (i) in the case of a sale of assets or
similar transaction, the cash (or the fair value of any other consideration
received by Borrower in respect of such transaction), net of reasonable
out-of-pocket expenses, and (ii) in the case of any issuance of equity
Securities, the cash (or the fair value of any other consideration received by
Borrower for such securities), net of reasonable costs of issuance.
"Notes" means the certain promissory notes in substantially the form of
Exhibit A of even date herewith executed and issued by Borrower to the Lenders
as such notes may from time to time be amended in a writing signed by Borrower.
"Obligations" means all present and future obligations and liabilities
of Borrower of every type and description arising under or in connection with
this Agreement or any other Loan Document due or to become due to Lender or any
Person entitled to indemnification under any
5
<PAGE> 6
of the Loan Documents, or any of their respective successors or assigns,
including all liability of Borrower for payment of principal, interest, fees,
expense reimbursements and indemnifications, whether voluntary or involuntary,
due or not due, absolute or contingent, secured or unsecured, liquidated or
unliquidated, determined or undetermined, and direct or indirect.
"Payment Date" means the first Business Day of each calendar month,
commencing October 1, 1999, and the Maturity Date.
"Permitted Liens" means, collectively, the Liens permitted under Section
6.01.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or any other entity
or organization, including a Governmental Authority or other government or any
agency or political subdivision thereof.
"PMF's Office" means the office of PMF identified as such on the
signature pages hereto, or such other office as PMF may hereafter designate by
written notice to Borrower.
"Post-Default Rate" means: (i) in the event of failure to pay monetary
sums when due, five percent (5%) per annum above the Base Rate; and (ii) in the
event of Events of Default not involving a failure to pay monetary sums, two and
one-half percent (2 1/2%) per annum above the Base Rate.
"Proprietary Rights" shall mean any and all patents, trademarks, service
marks, trade names, copyrights, trade secrets, proprietary information, source
codes and other proprietary rights and processes.
"Qualifying Offering" means a firmly underwritten public offering of any
of Borrower's securities registered under the Securities Act with aggregate net
proceeds of at least $15,000,000 and a per share offering price of at least
$2.00 (or $3.00 if such offering closes more than 12 months after the Closing
Date).
"SBA" means the United States Small Business Administration.
"Security Agreement" means the Security Agreement between Borrower and
the Lenders in substantially the form of Exhibit B, as it may from time to time
be amended in writing.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means a Senior Loan.
"Senior Loan" means a loan to which Lender has agreed to subordinate
Lender's rights under this Agreement and the Note, pursuant to Section 2.01(d).
"Senior Lender" shall mean any lender whose rights are senior to the
Lenders in accordance with the terms hereof, including Comerica Bank and the
holders of the first and second deeds of trust on Borrower's headquarters and
any transferee or assignee thereof in accordance with the terms hereof.
6
<PAGE> 7
"Shareholder" means each holder of equity securities of Borrower and
"Shareholders" means all such holders of equity securities.
"Subsidiary" shall mean any corporation, partnership or limited
liability company of which Borrower owns or controls, directly or indirectly,
more than fifty percent (50%) of the voting stock or membership interests (as
the case may be) or any partnership, joint venture or other entity or
organization in which Borrower owns or controls, directly or indirectly, more
than a fifty percent (50%) equity interest.
"Tangible Net Worth" shall mean, with respect to any date of
determination, Borrower's net worth as determined in accordance with GAAP minus
(i) intangible assets as determined in accordance with GAAP (including, without
limitation, patents, customer lists, franchise agreements, licenses, goodwill,
non-competition agreements, subscription lists, organizational expenses, prepaid
insurance and deposits), (ii) the net undepreciated portion of leasehold
improvements constituting tangible property, (iii) trade receivables converted
to notes, (iv) monies due from officers and directors, (v) direct or indirect
loans to shareholders and Affiliates, (vi) security deposits, prepaid costs and
expenses, (vii) all contributions to equity in any form other than from
Borrower's net profit after taxes after the date hereof, and (viii) "other
assets" and "other current assets" under Borrower's financial statements
pursuant to GAAP.
"Taxes" means any present and future income and other taxes, charges,
fees, duties, imposts, withholdings and other assessments, together with any
interest and penalties, additions to tax and other additional amounts, imposed
by any Governmental Authority upon any Person.
"Warrants" means the Warrants to acquire Common Stock executed and
issued in appropriate form by Borrower to the Lenders, as it may from time to
time be amended in a writing signed by Borrower.
SECTION 1.02 RELATED MATTERS.
(a) Construction. Unless the context of this Agreement
clearly requires otherwise, references herein to the plural include the
singular, the singular includes the plural, the part includes the whole, the
word "including" is not limiting and all pronouns shall be deemed to cover all
genders. The words "hereof" "herein," "hereby," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. Article, Section, subsection, Exhibit, preamble,
recital and Schedule references are to this Agreement unless otherwise
specified. References in this Agreement to any agreement, other document or law
"as amended" or "as amended from time to time" shall include any amendments,
supplements, waivers, refinancings, renewals or other modifications.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance and
consistent with GAAP.
(c) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California.
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(d) Severability of Provisions. Any provision of this
Agreement that is illegal, invalid or unenforceable for any reason in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity or unenforceability without invalidating or
impairing the remaining provisions hereof or affecting the legality, validity or
enforceability of such provision in any other jurisdiction.
(e) Additional Lenders. The parties acknowledge and agree
that additional parties may lend funds to Borrower under the same terms as PMF
hereunder (up to an additional $1,050,000) with the consent of PMF and Borrower.
Such additional lenders shall execute this Agreement together with an
Intercreditor Agreement (and such additional documents as PMF may reasonably
require) in form and content satisfactory to PMF prior to making such loan.
ARTICLE II
THE LOAN, NOTES AND WARRANTS
SECTION 2.01 LOAN.
(a) The Loan.
(i) Lenders' Commitment. The Lenders agree, upon the
terms and subject to the conditions set forth in this Agreement, to make
to Borrower, upon satisfaction of the conditions precedent set forth in
Article III, a loan in the aggregate original principal amount of a
minimum of Three Million One Hundred Fifty Thousand Dollars ($3,150,000)
and a maximum of Four Million Two Hundred Thousand Dollars ($4,200,000)
(together with the amount loaned by any additional Lenders, the "Loan").
The amount of the Loan funded by PMF shall be Three Million One Hundred
Fifty Thousand Dollars ($3,150,000). Additional Lenders may fund up to
an additional $1,050,000 (unless otherwise agreed by PMF and Borrower).
(ii) Prepayment. Borrower may prepay the Loan at any
time, in whole or in part; provided, that Borrower shall give the
holder(s) of the Note(s) to be prepaid thirty (30) days' written notice
of its intention to prepay one or more Notes, which notice shall set
forth the date on which such prepayment shall be made and the amount of
the prepayment. The holder(s) of the Note(s) to be prepaid may elect to
convert their Notes pursuant to Section 1.08(a) hereof after delivery of
the prepayment notice and before prepayment. In addition, at the time of
any partial prepayment of principal, Borrower shall pay all unpaid Fees
and Expenses and accrued interest on the principal amount being prepaid
(iii) Fundamental Event. The Loan shall immediately
become due and payable or convertible at the sole option of the Lenders,
or any of them, upon the occurrence of a Fundamental Event.
(b) Funding of Loan. Not later than 11:30 am. (San Francisco
time) on the Closing Date and subject to and upon fulfillment of the applicable
conditions set forth in
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Article III as determined by the Lenders, the Lenders shall arrange for a wire
transfer in the amount of the Loan to the account designated by Borrower
pursuant to the wire instructions set forth in the Notice of Borrowing.
(c) Use of Proceeds. The proceeds of the Loan shall be used
to settle Borrower's obligations to Boundless Technologies and Texas Micro
Incorporated as set forth under Section 3.01(d) hereof. No part of the proceeds
of the Loan shall be used directly or indirectly for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock or
maintaining or extending credit to others for such purpose or for any other
purpose that violates the Margin Regulations.
(d) Agreement of Lender to Subordinate. Provided that no
Default or Event of Default has occurred and is continuing and that Borrower has
provided the Lenders with a pro forma compliance certificate (in form acceptable
to the Lenders) demonstrating that no Default or Event of Default will occur
after the incurrence of the proposed Senior Loan, the Lenders agree to
subordinate their rights under this Agreement, the Notes and the Collateral
Documents (including the liens in favor of the Lenders created pursuant to the
Collateral Documents) to one or more Senior Loans; provided that the time of
such subordination, (w) Borrower's EBITDA for the trailing four (4) calendar
quarters exceeds twenty-five percent (25%) of the sum of the maximum amount of
the proposed Senior Loans (including any prior senior Loans permitted hereunder)
plus the Obligations, (x) the terms of the proposed subordination providing such
Senior Loans are substantially similar the terms of the subordination agreement
by and between PMF and Comerica Bank dated September 30, 1999 and (y) the Senior
Lender is approved by PMF (which approval shall not be unreasonably withheld,
delayed or conditioned).
(e) Verification of Use of Proceeds. Within thirty (30) days
after the Closing Date, Borrower shall submit to the Lenders a written statement
in accordance with SBA Regulations and otherwise in form and substance
acceptable to each Lender, verifying that the proceeds of the Loan have been
utilized by Borrower as contemplated in Section 2.01(c).
SECTION 2.02 INTEREST.
(a) Rate.
(i) Subject to Section 2.02 (a)(ii) hereof, the Loan
shall bear, and Borrower agrees to pay, interest on the outstanding
principal balance thereof until due (whether at maturity, by reason of
prepayment or acceleration or otherwise) at an interest rate equal to
the Base Rate.
(ii) From and after the occurrence of an Event of
Default, for as long as such Event of Default shall be continuing,
without notice or demand, the outstanding principal balance of the Loan
(and overdue interest thereon, if any), shall bear interest at a rate
per annum equal to the applicable Post-Default Rate. In addition, all
amounts from time to time payable under the Collateral Documents and not
paid when due shall bear interest at the Post-Default Rate which is
applicable to payment defaults until paid.
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(b) Payment. Interest accrued on the Loan shall be payable
in arrears on each Payment Date and when such Loan shall become due (whether at
maturity, by reason of prepayment, demand, acceleration or otherwise), but only
to the extent then-accrued on the amount then so due; provided that interest
accrued at the Post-Default Rate shall be payable on written demand.
(c) Computations. Interest on the Loan (or other amount due
under the Loan Documents) shall accrue from day-to-day from and including the
Closing Date to and excluding the date of any principal repayment (or payment)
thereon. Interest on the Loan shall be computed on the basis of a three hundred
sixty (360) day year and paid for the actual number of days elapsed.
(d) Maximum Lawful Rate of Interest. The rate of interest
payable on the Loan (or other amount) shall in no event exceed the maximum rate
permissible under Applicable Law. If the rate of interest payable on the Loan
(or other amount) is ever reduced as a result of this subsection and at any time
thereafter the maximum rate permitted by Applicable Law shall exceed the rate of
interest provided for in this Agreement, then the rate provided for in this
Agreement shall be increased to the maximum rate provided by Applicable Law for
such period as is required so that the total amount of interest received by
Lender is that which would have been received by Lender but for the operation of
the first sentence of this subsection.
SECTION 2.03 PRINCIPAL.
(a) Scheduled Principal Payment Dates. No principal payments
shall be due or payable on any Payment Date until the Maturity Date: all unpaid
principal and accrued and unpaid interest shall be due and payable on the
Maturity Date;
(b) Mandatory Prepayments. Upon written request by Lender,
upon the occurrence of a Fundamental Event, Borrower shall immediately prepay
the Loan without Prepayment Penalty, if any.
SECTION 2.04 FEES AND EXPENSES.
(a) In addition to principal and interest with respect to
the Loan, Borrower agrees: (i) to pay PMF on the Closing Date a processing fee
(the "Processing Fee") in an amount equal to two percent (2%) of the Loan
amount, which shall be considered as earned in full at Closing; (ii) on the
Closing Date, to reimburse PMF for (or pay to PMF's counsel directly) the
reasonable fees and expenses of such counsel in connection with the drafting and
negotiation of this Agreement and the other Loan Documents (including a
reasonable estimate of post-closing fees and expenses of such counsel), (iii) to
reimburse the Lenders for (or pay to Lenders' counsel directly) the reasonable
fees and expenses of such counsel in connection with the ongoing administration
of the Loan and the Warrants, whether or not a Default or Event of Default is
continuing; (iv) to reimburse PMF for its reasonable travel and other
out-of-pocket expenses (not including legal fees) incurred in connection with
PMF's due diligence and negotiation of the Loan Documents to the extent that
such expenses exceed the Twenty-Five Thousand Dollars ($25,000) non-refundable
expense deposit (the "Non-refundable Expense Deposit") paid to PMF in connection
with acceptance of the preliminary term sheet with respect
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to the Loan; and (v) to reimburse the Lenders for their reasonable out-of-pocket
costs incurred in administering the Loan and their ownership of the Warrants,
including, without limitation, the out-of-pocket costs incurred in attending
meetings of the Board of Directors of Borrower. To the extent that they are not
paid on the Closing Date, the fees and expenses described in this Section 2.04
(collectively, "Fees and Expenses") shall be payable within thirty (30) days
after invoice by PMF or other Lender, as the case may be and, if not paid within
such period, shall bear interest at the Post-Default Rate. PMF acknowledges that
any portion of the Non-refundable Expense Deposit which is not utilized to
reimburse PMF for its out-of-pocket expenses described in Sections 2.04(a)(v)
and (vi) above will be promptly returned to Borrower.
SECTION 2.05 ADMINISTRATION.
(a) Loan Account. Each of the Lenders shall maintain in
their records a loan account for such Lender's portion of the Loan hereunder
(each, a "Loan Account") in which shall be recorded (i) the original principal
amount of the Loan, (ii) all increases in the principal amount of the Loan, due
to deferred interest payments; (iii) all other appropriate debits and credits as
and when due in accordance with this Agreement, including all Fees and Expenses;
and (iv) all payments made by Borrower on the Loan and the Obligations. All
entries in the Loan Account shall be made in accordance with the customary
accounting practices of such Lender as in effect from time to time. All payments
hereunder shall be applied: First to such Lender's Fees and Expenses; Second to
accrued and unpaid interest; and Third, to principal payments then due and
owing; provided that upon written notice to Borrower, the Lenders may jointly
apply such payments against the Obligations in any other manner which the
Lenders deem proper and in compliance with the terms hereof.
(b) Statements. The Lenders may (but shall not be obligated
to) deliver to Borrower each month a written statement setting forth the balance
of the Loan Account. Each such statement shall be subject to subsequent review
by Borrower but, absent manifest error, shall be presumed to be correct and
shall be binding upon Borrower. Until such written statements are delivered to
Borrower as provided herein, the balance in the Loan Account shall be
rebuttable, presumptive evidence of the amounts due and owing such Lender by
Borrower with respect to the Loan and other Obligations covered thereby.
(c) Reinstatement. To the extent Borrower makes a payment to
a Lender, or a Lender receives any payment or proceeds of Collateral for
Borrower's benefit, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, other law or equitable cause, then, to the extent of such
payment or proceeds received, the Obligations or the part thereof intended to be
satisfied thereby shall be revived and continue in full force and effect,
together with all collateral security therefor, as if such Payment or proceeds
had not been received by such Lender.
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SECTION 2.06 MANNER OF PAYMENT.
(a) Borrower shall make each payment hereunder or under the
other Loan Documents to the Lenders in Dollars and in immediately available
funds without any deduction whatsoever.
(b) If any principal of or any interest on the Loan or any
other amount payable hereunder or under the other Loan Documents falls due on a
date that is not a Business Day, then such due date shall be extended to the
next succeeding Business Day, and interest on such principal, interest or other
amount shall be payable in respect of such extension on such next succeeding
Business Day.
(c) All payments of principal and interest on the Notes
shall be made pro rata to all Note holders.
SECTION 2.07 THE NOTE; REGISTER.
(a) The Notes will be a fully-registered note on the books
of Borrower and will be issued only in fully-registered form.
(b) Borrower will cause to be kept at its principal office a
register for the registration and transfer of the Notes. The name and address of
each holder of a Note (or Notes), the transfer thereof and the names and
addresses of any transferee of a Note (or Notes), or any interest therein, shall
be recorded in such register. Until a transfer of a Note is duly registered on
the books of Borrower, Borrower may treat the registered holder thereof as the
owner for all purposes.
(c) Upon surrender for exchange or registration of transfer
of a Note at the office of Borrower designated for notices in accordance with
Section 8.04 hereof, Borrower shall execute and deliver, at its expense, one or
more new Notes of any authorized denomination requested by Lender (or any
subsequent holder of any Note) in writing, each dated the date to which interest
has been paid on the Note so surrendered, and registered in the name of such
Person as shall be designated in writing by such holder. Every Note surrendered
for registration of transfer shall be duly endorsed, or be accompanied by a
written instrument of transfer duly executed, by the holder of such surrendered
Note. All transfers of Notes must comply with all applicable state and federal
securities laws.
(d) Upon receipt of evidence reasonably satisfactory to
Borrower of the loss, theft, mutilation or destruction of any Note, and in the
case of any such loss, theft or destruction, upon delivery of an indemnity bond
by the holder thereof Borrower shall, without charge, make and deliver a new
Note of like amount in lieu of such lost, stolen or destroyed Note.
Notwithstanding the foregoing, if any such lost, stolen or destroyed Note is
owned by a Lender, then the affidavit of a duly authorized representative of
such Lender setting forth the fact of loss, theft or destruction and its
ownership of the Note at the time of loss, theft or destruction shall be
accepted as satisfactory evidence thereof, together with an indemnification
agreement in form and content reasonably satisfactory to such Lender, and no
indemnity bond shall be required as a condition to the execution and delivery of
the substitute Note.
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SECTION 2.08 CONVERSION OF THE NOTES.
(a) The Notes shall be convertible by the holders thereof in
whole or in part at any time before repayment by Borrower of all principal and
accrued interest into shares of the Company's Common Stock (the "Conversion
Shares") at conversion rate equal to Seventy Three Cents ($0.73) per Conversion
Share (the "Conversion Rate").
(b) Upon the occurrence of any subdivision, combination or
stock dividend of such class or series of stock, the number of Conversion Shares
shall automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such stock by such subdivision, combination or dividend.
SECTION 2.09 THE WARRANTS.
(a) Issuance, Purchase and Sale of Warrants. Concurrently
with the sale and issuance of the Notes, and subject to the terms and conditions
of this Agreement, at the Closing, Borrower will sell and issue to the Lenders
warrants to purchase shares of Common Stock of Borrower in substantially the
form of Exhibit C hereto (each, a "Warrant," and collectively, the "Warrants")
for an aggregate purchase price of $100. Each $8.00 of principal of Notes sold
hereby shall be accompanied by a detachable Warrant to purchase one share of
Common Stock of Borrower (the "Warrant Shares").
(b) Exercise of the Warrants. At the discretion of the
Warrant holder, each Warrant may be exercised into shares of Common Stock at an
exercise price of Forty Five Cents ($0.45) per share. Warrant Holders may elect
to cancel any outstanding debt and/or accrued interest, including the Notes, as
payment of the exercise price of the Warrant. Warrant Holders may also exchange
other securities of Borrower held at the market price thereof in payment of the
exercise price of Warrants. The Warrants shall expire on the earlier of (i) six
years from the date of repayment of the Notes issued together with such
Warrant(s) or (ii) 10 years from the date of original issuance thereof. The
Warrants shall be detachable the Notes and may be exercised, transferred or sold
independently of the Notes (subject to applicable law).
SECTION 2.10 REPRESENTATIONS AND WARRANTIES OF THE LENDERS.
(a) Minority Shareholder. Each of the undersigned Lenders
understand that upon conversion of the Notes or exercise of the Warrants, such
Lender may be a minority shareholder of Borrower, and as such, Lender may have
very limited rights to manage or to control the business of Borrower.
(b) Due Execution. This Agreement has been duly executed and
delivered by the undersigned Lender, and, upon execution and delivery by
Borrower, will be valid and legally enforceable in accordance with their terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting enforcement of creditors' rights,
and except as limited by application of legal principles affecting the
availability of equitable remedies.
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(c) Legends. Each of the undersigned understands that the
Notes, Warrants and the shares issuable upon conversion of the Notes and
exercise of the Warrants will bear restrictive legends as deemed necessary by
Borrower or its counsel with regard to the matters set forth in this Agreement
or otherwise as necessary or appropriate.
(d) Compliance with Securities Laws. Each Lender hereby
represents, warrants and covenants that (1) the Notes and Warrants and any
shares of stock purchased upon conversion of the Notes or exercise of the
Warrants shall be acquired for investment only and not with a view to, or for
sale in connection with, any distribution thereof; (2) the Lender has had such
opportunity as such Lender has deemed adequate to obtain from representatives of
Borrower such information as is necessary to permit the Lender to evaluate the
merits and risks of its investment in Borrower; (3) the Lender is able to bear
the economic risk of holding the Notes, Warrants and such shares as may be
acquired pursuant to conversion of the Notes or exercise of the Warrants for an
indefinite period; and (4) the Lender understands that the Notes, Warrants, and
shares of stock acquired pursuant to conversion of the Notes or exercise of the
Warrants will not be registered under the Securities Act unless and until the
Lenders' rights under the Investors' Rights Agreement are exercised in
accordance with the terms thereof, and until such registration is effected, such
securities will be "restricted securities" within the meaning of Rule 144 under
the 1933 Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of purchase of the Notes and
Warrants or conversion of the Notes or exercise of the Warrants, as the case may
be, and even then will not be available unless a public market then exists for
the stock, adequate information concerning the Company is then available to the
public, and other terms and conditions of Rule 144 are complied with.
(e) Further Notification. Each of the undersigned agrees to
notify Borrower in writing immediately if any of the statements made herein
become untrue.
ARTICLE III
CONDITIONS TO LOAN
SECTION 3.01 CONDITIONS PRECEDENT TO THE CLOSING. The obligation of the
Lenders to make the Loan shall be subject to satisfaction of all of the
following conditions precedent in a manner reasonably acceptable to Lender (in
its discretion):
(a) Closing Date. The Closing Date shall have occurred on or
before September 30, 1999.
(b) Certain Loan Documents. Lender shall have received the
following:
(i) This Agreement, executed by Borrower, together
with all required Schedules and Exhibits hereto;
(ii) The Notes, executed by Borrower;
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(iii) The Security Agreement, executed by Borrower,
covering all Collateral;
(iv) A Borrower's Certificate, dated the Closing Date
and (A) certifying authorization of Borrower for the execution, delivery and
performance of this Agreement and the other Loan Documents, (B) identifying the
officers of Borrower having authority to execute and deliver this Agreement and
the other Loan Documents, (C) certifying the Amended and Restated Bylaws of
Borrower, as amended to the Closing Date, and (D) representing and warranting
that no Default or Event of Default has occurred and is continuing and that the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects;
(v) A file-stamped copy of the Amended and Restated
Articles of Incorporation of Borrower, duly filed with the Delaware Secretary of
State;
(vi) A Certificate of "good standing" with respect to
Borrower from the State of Delaware;
(vii) The Warrants duly executed by Borrower;
(viii) The Investors' Rights Agreement, duly executed
by the parties thereto;
(ix) The Investment Unit Pricing Agreement, duly
executed by the parties thereto;
(x) Small Business Administration Forms 480, 652 and
1031 from Borrower;
(xi) A certificate of Borrower to the effect that
Borrower is aware that PMF is a federal licensee under the Small Business
Investment Act of 1958, as amended;
(xii) Financing statements naming Borrower as "debtor"
for the States of Delaware, California, New York and Massachusetts, in form and
substance reasonably satisfactory to Lenders;
(xiii) The Intercreditor Agreement, duly executed by
the parties thereto; and
(xiv) A subordination agreement in form and content
reasonably satisfactory to PMF.
(c) Fees and Expenses. Borrower shall have paid PMF's
Processing Fee and the reasonable fees and disbursements of counsel for PMF
incurred in connection with the drafting and negotiation of the Loan Documents.
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(d) Boundless Technologies and Texas Micro Incorporated
Conversion.
(i) Borrower shall have converted its obligations to
Boundless Technologies as set forth in the letter agreement by and
between Borrower and Boundless Technologies attached hereto as Schedule
3.01(d)(i); and
(ii) Borrower shall have converted its obligations to
Texas Micro Incorporated as set forth in the letter agreement by and
between Borrower and Texas Micro Incorporated attached hereto as
Schedule 3.01(d)(ii).
(e) Financial Statements and Projections. The Lenders shall
have received the Financial Statements described in Section 4.03 an opening
balance sheet (prepared in accordance with GAAP) showing the pro forma financial
condition of Borrower after giving effect to the Loan, the payment of
transactional expenses, and financial projections demonstrating management's
good faith "most likely case" financial performance for the next twelve (12)
months and the next two (2) years.
(f) Solvency Balance Sheet. The Lenders shall have received
a solvency balance sheet demonstrating (based on the fair market value of
Borrower's assets) that after giving effect to the Loan and the payment of
transactional expenses, Borrower will be a solvent entity.
(g) Representations and Warranties. The representations and
warranties of Borrower or the Shareholders, as the case may be, contained in
this Agreement, the Collateral Documents and the Warrants, shall be true on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
(h) Performance. Borrower shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement, the
Security Agreement, the Warrants and the Loan Documents that are required to be
performed or complied with by them on or before the Closing Date.
(i) No Other Required Approvals. No Governmental Approval or
consent or approval necessary to avoid default under any material Contractual
Obligations of Borrower shall be required in connection with the consummation of
the transactions contemplated by this Agreement and the other Loan Documents,
except for Governmental Approvals and contractual consents that have been
obtained and filings necessary to perfect liens in favor of the Lenders.
(j) Opinion of Counsel. The Lenders shall have received from
Messrs. Higham, McConnell & Dunning, LLP, counsel for Borrower, an opinion,
dated as of the Closing Date, in form and substance satisfactory to Lender,
addressing the matters set forth in Exhibit E.
(k) Absence of Material Adverse Change. There shall not have
occurred any interruption or change in the continued operation of the business
of Borrower in the ordinary course, which in the reasonable judgment of PMF is
material, or any event or condition of any character which might, in the
reasonable judgment of PMF, result in a Material Adverse Change.
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(l) Absence of Litigation Events. There shall not have been
issued any injunction, order or decree that prohibits or limits any of the
transactions contemplated by any of the Loan Documents and there shall not be
any action, suit, proceeding or investigation pending or, to the Best Knowledge
of Borrower, currently threatened against Borrower or any of the Lenders which
(i) questions the validity of this Agreement or any other Loan Document or the
right of Borrower or any of the Lenders to enter into this Agreement or any
other Loan Document or to consummate the transactions contemplated hereby or
thereby, (ii) might result, either individually or in the aggregate, in any
Material Adverse Change, or (iii) might result in any change in the current
equity ownership of Borrower.
(m) Searches of UCC and Other Records. Borrower shall have
provided the Lenders (at least five (5) Business Days prior to the Closing
Date), with original Official searches of Uniform Commercial Code filings in the
States of California, New York and Massachusetts as to liens of record naming
Borrower as "debtor."
(n) Litigation Searches. Borrower shall have provided the
Lenders (at least five (5) Business Days before the Closing Date) with a search
report (by an independent company acceptable to Lender) as to litigation in
Federal or state courts in the States of California, New York and Massachusetts,
naming Borrower as defendant.
(o) Sources and Uses Certificate. The Lenders shall have
received a certificate executed by the Chief Executive Officer and Chief
Financial Officer of Borrower, setting forth in reasonable detail the sources
and uses of funds in the transactions contemplated herein and in the other Loan
Documents.
(p) Communication with Accountants. The Lenders shall have
received a copy of a letter from Borrower addressed to its independent certified
public accountants authorizing such accountants to disclose to representatives
of the Lenders, and each of them, (but not to its assigns) any and all financial
information concerning Borrower as the Lenders may from time to time reasonably
request in order to determine Borrower's compliance with any of the financial
covenants set forth in Article VI.
(q) No Default. No Default or Event of Default shall have
occurred and be continuing or result from the Loan.
(r) [omitted]
(s) Board Representation. (i) The resignations of at least
two (2) of the current members of the Board of directors shall have been
tendered to and accepted by Borrower and (ii) the appointment or election of
PMF's nominee and the Lenders' nominee to Borrower's Board of Directors,
pursuant to the terms of the Investors' Rights Agreement, shall have been
consummated effective as of the Closing Date.
(t) General. All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed or recorded in form and substance reasonably satisfactory to
the Lenders and the Lenders shall have received all
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such counterpart originals or certified copies thereof as the Lenders may have
reasonably requested.
SECTION 3.02 POST CLOSING OBLIGATIONS. In addition to the other duties
and obligations of Borrower set forth herein, Borrower shall perform the
following:
(a) Brokers' Fees. Borrower shall not pay any brokers' fees
relating to the transactions contemplated hereby, including in connection with
settlement of any claim made by e*offering, without the written consent of PMF
(which shall not be unreasonably withheld, delayed or conditioned).
(b) Refinancing/Sale of Headquarters. Borrower shall, as
soon as practicable after the Closing Date, refinance or sell its headquarters
building located in 17731 North Irvine, Irvine, California 92614, under terms
reasonably acceptable to PMF.
(c) Board Representation. At the next annual meeting of its
shareholders, and at each subsequent meeting of the shareholders until the
termination of Section 1.2 of the Investors' Rights Agreement, Borrower shall
nominate and recommend for election the nominees for the board of directors of
PMF and the Lenders, and shall, if necessary, recommend amendment of its charter
to provide for a Board consisting of not more than five (5) directors.
(d) Patent and Copyright Security Agreements. Should
Borrower enter into or execute any security agreement or instrument granting or
purporting to grant any lien or security interest with respect to any patents,
trademarks, copyrights or other intellectual property of Borrower with any party
or parties, including, without limitation, Comerica Bank, Borrower shall (i)
disclose the terms of such agreements to the Lenders prior to the execution
thereof and (ii) name the Lenders as secured parties, junior only to the Senior
Lenders, in any such agreement or instrument.
(e) Pledge of Securities. Should Borrower enter into or
execute any pledge agreement or instrument granting or purporting to grant any
lien or security interest with respect to securities of Borrower or any of its
subsidiaries with any party or parties, including, without limitation, Comerica
Bank, Borrower shall (i) disclose the terms of such agreements to the Lenders
prior to the execution thereof and (ii) name the Lenders as secured parties,
junior only to the Senior Lenders, in any such agreement or instrument.
(f) Insurance. Borrower shall maintain general liability and
business interruption insurance adequate for a business of its size and type
during all time in which the Loan remains outstanding. In addition, Borrower
shall maintain Directors' and Officers' Insurance adequate for a business of its
size and type for all periods during which the Lenders have a right to nominate
a member or member of the board of directors pursuant to the Investors' Rights
Agreement.
(g) Source Code. Borrower shall, as soon as practicable
after the Closing Date, place the source code for Borrower's proprietary
software in a mutually acceptable source-code escrow, which escrow shall name
PMF as a secured party (together with the Senior Lenders, if any).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lenders as follows:
SECTION 4.01 ORGANIZATION, POWERS AND GOOD STANDING. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, and having its principal place of business in, the State of
California, and has all requisite corporate power and authority and the legal
right to own and operate its properties and to carry on its business as
heretofore conducted and as proposed to be conducted. Borrower is duly qualified
to transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a Material Adverse Effect Borrower has all
requisite power and authority to eater into this Agreement and the other Loan
Documents to which it is a party and to carry out the transactions contemplated
hereby and thereby.
SECTION 4.02 AUTHORIZATION, BINDING EFFECT NO CONFLICT, ETC.
(a) All corporate action on the part of Borrower, its
directors and shareholders, necessary for the authorization, execution and
delivery of this Agreement, the Notes the Warrants, and the other Loan
Documents, the performance of all of their obligations hereunder and thereunder
and the authorization, issuance (or reservation for issuance) and delivery of
the Notes, the Warrants and the Common Stock issuable upon the exercise of the
Warrants and conversion of the Notes has been taken or will be taken on or prior
to the Closing Date. Each of the Loan Documents has been (or on the Closing Date
will be) duly executed and delivered by Borrower. Each Loan Document is a legal,
valid and binding obligation of Borrower, enforceable against it in accordance
with its respective terms, except as may be affected by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or by equitable principles
relating to or limiting the rights of creditors generally.
(b) The execution, delivery and performance by Borrower of
each of the Loan Documents, and the consummation of the transactions
contemplated thereby (including the issuance of the Notes, the Warrants and the
Common Stock issuable upon exercise of the Warrants and conversion of the
Notes), do not and cannot (i) conflict with any provision of Borrower's Articles
of Incorporation or Bylaws, (ii) conflict with, result in a breach of, or
constitute (or, with the giving of notice or lapse of time or both, would
constitute) a default under, or require the approval or consent of any Person
pursuant to, any Contractual Obligation of Borrower (except as disclosed in
Schedule 4.02 which consents have been obtained and are in full force and
effect), or violate any provision of Applicable Law binding on Borrower, or
(iii) result in the creation or imposition of any Lien upon any asset of such
Person, except for Liens in favor of the Lenders.
(c) Except for filings and recordings in connection with the
perfection of Liens created by the Collateral Documents, which in each case have
been accurately completed and executed and delivered by Borrower, no
Governmental Approval is or will be required in connection with the execution,
delivery and performance by Borrower of any Loan Document to
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which it is party or the transactions contemplated thereby or to ensure the
legality, validity or enforceability thereof.
SECTION 4.03 FINANCIAL INFORMATION RELATING TO BORROWER. Borrower has
delivered to the Lenders the audited financial statements (balance sheet,
statement of operations and statement of cash flows) of Borrower at and for the
year ended December 31, 1998, audited by _____________, and the unaudited
financial statements (balance sheet and statement of operations) of Borrower at
and for the three (3) month period ended June 30, 1999 (collectively, the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects, subject to the absence of footnotes, the absence of a
statement of cash flows and normal year-end adjustments in the case of the June
30, 1999 financial statements, and have been prepared in accordance with GAAP.
Without limiting the foregoing, the Financial Statements accurately set out and
describe the financial condition and operating results of Borrower as of the
dates, and for the periods, indicated therein.
SECTION 4.04 LITIGATION. Except as disclosed in Schedule 4.04, there are
no actions, suits or proceedings pending or, to the Best Knowledge of Borrower,
threatened against or affecting Borrower, or its assets or properties before any
Governmental Authority (i) that, if adversely determined, could have a Material
Adverse Effect, (ii) that in any manner draw into question the validity or the
enforceability of this Agreement, any other Loan Document or any transaction
contemplated hereby or thereby, or (iii) that might result in any change in the
current equity ownership of Borrower, nor to Borrower's Best Knowledge is there
any basis for any matter described in the foregoing Sections 4.04(i). (ii) or
(iii). Schedule 4.04 includes, as of the Closing Date, any actions pending or
threatened (or any basis therefor known to Borrower) involving the prior
employment of any of Borrower's employees, their use in connection with the
businesses of Borrower of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. On the Closing Date, except as set forth in Schedule 4.04,
Borrower is not a party or subject to the provisions of any order (except as
imposed by laws of general application), writ, injunction, judgment or decree
(except as imposed by laws of general application) of any court, Governmental
Authority or government agency or instrumentality, Except as set forth in
Schedule 4.04, on the Closing Date there is no action, suit, proceeding or
investigation by Borrower currently pending or which Borrower intends to
initiate (as plaintiff), which, if adversely determined, would be material to
Borrower or its business or prospects.
SECTION 4.05 DISCLOSURE. Borrower has fully provided the Lenders with
all of the information which the Lenders has requested for deciding whether to
enter into the transactions contemplated by the Loan Documents. The information
in any document, certificate or written statement furnished to Lender by or on
behalf of Borrower with respect to the business, assets, results of operation,
financial condition or prospects of Borrower for use in connection with the
transactions contemplated by this Agreement and the other Loan Documents is,
when considered as a whole, true and correct and does not omit to state any
material fact required to be stated therein to make the furnished information
not misleading. To Borrower's Best Knowledge, there is no fact (other than
matters of a general economic nature) that has materially and adversely affected
or could reasonably be expected to have a Material Adverse Effect, which has not
been disclosed herein or in such other documents, certificates and statements.
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SECTION 4.06 SHAREHOLDERS. Schedule 4.06 hereto sets forth a complete
and accurate list of each: (i) Warrant holder with number of shares of Common
Stock the Warrant is convertible into, exercise price, and expiration date; (ii)
all classes of Preferred Stock (if any) and the number of shares of Common Stock
such Preferred is convertible into; (iii) the total number of Common Stock
existing. Schedule 4.06 sets forth an aggregate number of option shares and the
number of Common Shares such option represent.
SECTION 4.07 SUBSIDIARIES. Borrower does not presently own or control,
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity other than as set forth in Borrower's Form
10-K for the fiscal year ended September 30, 1998. Each of Borrower's
subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it was organized and operates. Each of such
subsidiaries has all requisite power and authority and the legal right to own
its property and carry on its business as heretofore conducted and as proposed.
Each of such subsidiaries is qualified to transact business and is in good
standing in each jurisdiction in which failure to do so would have a Material
Adverse Effect.
SECTION 4.08 VALID ISSUANCE. The outstanding shares of the Common Stock
have been duly authorized, issued and delivered and are validly outstanding,
fully paid and nonassessable. The Warrants, when issued, sold and delivered on
the Closing Date, will be duly and validly issued, fully paid and nonassessable.
The Common Stock issuable upon exercise of the Warrants and conversion of the
Notes has been duly and validly reserved for issuance, and, upon issuance in
accordance with the applicable exercise terms thereof will be duly and validly
issued, fully paid and nonassessable. Borrower represents and warrants that the
issuance and sale of the Notes and the Warrants and the Common Stock issuable
upon conversion of the Warrants and conversion of the Notes are exempt from the
registration requirements of Section 5 of the Securities Act by reason of the
exemption from registration set forth in Section 4(2) of the Securities Act. The
parties acknowledge that Borrower's warranty provided in the preceding sentence
is based upon the Lenders' representations and warranties set forth in Section
2.10 hereof.
SECTION 4.09 PATENTS, TRADEMARKS AND COPYRIGHTS. Except as set forth in
Schedule 4.09 hereto, Borrower has no patents, trademarks and registered
copyrights material to Borrower's business as now conducted and as proposed to
be conducted. Borrower has not received any written communications alleging that
Borrower has violated or, by conducting its business as proposed, could violate
any of the patents, trademarks and copyrights of any other Person. To Borrower's
Best Knowledge, none of Borrower's employees are obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement
or subject to any judgment, decree (except as imposed by laws of general
application) or order (except as imposed by laws of general application) of any
court, Governmental Authority or administrative agency, that would interfere
with the use of his or her best efforts to promote the interests of Borrower or
that would conflict with its business as proposed to be and as currently
conducted. To the best knowledge of Borrower, there is no material violation by
any Person of any right of Borrower with respect to any patents, trademarks and
copyrights owned or used by it.
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SECTION 4.10 COMPLIANCE WITH LAWS AND AGREEMENTS. Except as set forth in
Schedule 4.10 hereto, Borrower is not in violation or default of any provisions
of any Contractual Obligations to which it is a party or by which it is bound or
of any provision of any Applicable Law, which violation or default could have a
Material Adverse Effect.
SECTION 4.11 CONTRACTUAL OBLIGATIONS AND RECENT ACTION. Except as set
forth on Schedule 4.11 hereto, as of the Closing Date there will be no
Contractual Obligations to which Borrower is a party or by which it is bound
which involve (i) obligations of, or payments by the Borrower in excess of Two
Hundred Fifty Thousand Dollars ($250,000), (ii) the license of any of its
Proprietary Rights, (iii) material obligations to any of Borrower's officers,
directors or Affiliates or (iv) any other agreement material to the business,
operations, or prospects of Borrower. Since June 30, 1999 and prior to the
Closing Date, Borrower has not (i) declared, authorized, paid or made any
Distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any Indebtedness for money borrowed or incurred any other
liabilities individually in excess of One Hundred Thousand Dollars ($100,000) or
in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate,
other than the Obligations under this Agreement and the other Loan Documents,
(iii) made any loans or advances to any Person, other than ordinary advances for
travel expenses, (iv) made any amendments or other modifications to any
Contractual Obligations which have or could have a Material Adverse Effect, or
(v) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the license or sale of its software products in the ordinary course of
business.
SECTION 4.12 TITLE TO PROPERTY. Borrower owns its property and assets
free and clear of all Liens, except for Permitted Liens. With respect to the
property it leases, Borrower is in compliance with the material provisions of
all such leases and will hold a valid leasehold interest free of any material
Liens.
SECTION 4.13 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.13 sets forth all employee benefit plans, as
defined in Section 3(3) of ERISA, that are sponsored or contributed to by
Borrower covering employees or former employees of it (collectively, "Employee
Benefit Plans") and all material benefit arrangements that are not Employee
Benefit Plans, including each arrangement providing for insurance coverage,
workers' compensation benefits, incentive bonuses, deferred bonus arrangements
and equity compensation plans maintained by Borrower covering employees or
former employees (collectively, "Benefit Arrangements").
(b) Borrower does not sponsor, maintain or contribute to, or
within the five (5) years prior to the Closing Date, has not sponsored,
maintained or contributed to, and does not have an obligation to sponsor,
maintain or contribute to any "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA that is subject to Title IV of ERISA. No Employee
Benefit Plan has participated in, engaged in or been a party to any non-exempt
"prohibited transaction" (as defined in ERISA or the Code) and Borrower has not
incurred any liability for taxes under Code Sections 4971, 4972, 4975, 4976,
4977, 4979, 4980 or 4980B, or for penalties under ERISA Section 502(c)(i) or
(1), with respect to any Employee Benefit Plan. No officer, director or employee
of Borrower has committed a material breach of any responsibility or
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obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan. There is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code with respect to any Employee
Benefit Plan. Each Employee Benefit Plan and Benefit Arrangement has at all
times prior hereto been maintained in all material respects, by its terms and in
operation, in accordance with its terms and all Applicable Laws.
(c) With respect to each Employee Benefit Plan and each
Benefit Arrangement, other than ordinary claims for benefits pursuant to the
terms of any Employee Benefit Plan or any Benefit Arrangement, there is no claim
pending or, to the best knowledge of Borrower, threatened, against or involving
any Employment Benefit Plan or any Benefit Arrangement by any Person or any
Governmental Authority.
SECTION 4.14 ABSENCE OF MATERIAL ADVERSE CHANGE. Since June 30, 1999,
other than as disclosed in the Schedules hereto, there has not occurred any
event or condition of any character which could result in a Material Adverse
Change involving Borrower.
SECTION 4.15 TAX RETURNS AND PAYMENT. Except as set forth in Schedule
4.15 (i) Borrower has filed all tax returns and reports as required by
Applicable Law, (ii) those returns and reports are true and complete in all
material respects, and (iii) Borrower has paid all taxes and other assessments
due prior to the time penalties would have accrued thereon. The provision for
taxes of Borrower reflected on its most recent financial statements is adequate
for taxes due or accrued as of the date thereof.
SECTION 4.16 MINUTE BOOKS. The minute books of Borrower provided to the
Lenders for review, together with the certified resolutions delivered on the
Closing Date, contain an accurate and appropriate summary of all meetings of
Borrower's Board of Directors, Committees and stockholders since the date of
incorporation through the Closing Date and reflect all transactions referred to
in such minutes accurately in all material respects.
SECTION 4.17 LABOR AGREEMENTS AND ACTIONS. Borrower is not bound by or
subject to (and none of its assets will be bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested in writing or, to the best knowledge of
Borrower, sought to represent any of the employees of Borrower. There is no
strike or other labor dispute involving Borrower pending, or, to the best
knowledge of Borrower, threatened, which could have a Material Adverse Effect.
Prior to the Closing Date, Borrower has not made any material change in any
compensation arrangements or agreements with any employees that would
substantially increase aggregate salary and employee expenses beyond amounts
reflected in the Financial Statements. Borrower is not a party to any employment
agreement or any agreement with any consultant or adviser performing services
for Borrower, except for the agreements listed in Schedule 4.17. Borrower is not
aware that any officer or key employee (other than the Selling Shareholder), or
that any group of key employees, intends to terminate their employment with
Borrower, nor does Borrower have a present intention to terminate the employment
of any of the foregoing.
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SECTION 4.18 STATUS UNDER CERTAIN STATUTES. Borrower is not subject to
regulation under the Investment Company Act of 1940, as amended, or any other
statute, law, rule or regulation that limits the ability of Borrower to incur
indebtedness.
SECTION 4.19 ABSENCE OF DEFAULTS. No Default or Event of Default exists
as of the Closing Date.
SECTION 4.20 MARGIN REGULATIONS. No part of the proceeds of the Loan
will be used, directly or indirectly, for the purpose of buying or carrying any
Margin Stock within the meaning of the Margin Regulations or for the purpose of
buying, carrying or trading in any securities under such circumstances as to
involve Borrower or any broker or dealer in a violation of the Margin
Regulations. Margin Stock does not constitute more than ten percent (10%) of the
value of the assets of Borrower on the Closing Date and Borrower does not have
any present intention that Margin Stock will constitute more than ten percent
(10%) of the value of such assets at any time while the Loan is outstanding.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants and agrees that, so long as any Obligations shall
remain unpaid, Borrower shall perform all of the following:
SECTION 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower shall
deliver to Lenders:
(a) As soon as available and in any event within ninety (90)
days after the end of each fiscal year and fiscal quarter of Borrower, a
consolidated balance sheet of Borrower and its Subsidiaries, if any, as of the
end of such period and the related consolidated statements of operations and
cash flow for such period, setting forth in each case in comparative form the
figures for the previous fiscal year or quarter and comparison to budget, and,
in the case of the fiscal year end, accompanied by an audit report thereon of
independent public accountants of nationally recognized standing reasonably
satisfactory to the Lenders;
(b) As soon as available and in any event within twenty (20)
days after the end of each month, internal financial statements reasonably
acceptable to PMF. These statements must show reasonable estimates of gross
revenue, expenses, and current assets and liabilities. On a monthly basis,
Borrower will send the Lenders copies of all reports sent to Senior Lenders;
(c) Simultaneously with the delivery of each set of
financial statements referred to in Sections 5.01 (a) and (b) above, a
certificate of the Chief Executive Officer and the Chief Financial Officer of
Borrower stating whether any Default or Event of Default exists on the date of
such certificate and, if any Default or Event of Default then-exists, setting
forth the material details thereof and the action which Borrower is taking or
proposes to take with respect thereto;
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(d) By the forty-fifth (45th) day of each fiscal year,
Borrower shall deliver to the Lenders a comprehensive business plan for such
fiscal year approved by its Board of Directors, in such form and addressing such
matters as may be reasonably requested by any Lender, including projected
balance sheets, statements of operations and statements of cash flow for such
fiscal year and each calendar quarter thereof and a comparison and explanation
of the results of the preceding fiscal year to the projections contained in the
business plan for such fiscal year;
(e) Within five (5) days after any officer of Borrower
obtains knowledge of any Default or Event of Default, a certificate of the Chief
Executive Officer and the Chief Financial Officer of Borrower setting forth the
material details thereof and the action which Borrower is taking or proposes to
take with respect thereto;
(f) Promptly after the release thereof, copies of any press
releases issued by Borrower;
(g) Within five (5) days after any executive Officer Of
Borrower obtains actual knowledge of the threat or commencement of any
litigation, or any material development in any litigation, against Borrower,
that includes allegations of damages in excess of One Hundred Thousand Dollars
($100,000) or that otherwise could have a Material Adverse Effect in Borrower's
judgment, notice providing reasonable details about the threat or commencement
of such litigation or providing reasonable details on such material development;
(h) Periodically, upon written request by any Lender, Small
Business Administration Form 1031 and such other forms or information as such
the Lender may from time to time request in writing to comply with Small
Business Administration regulations or requests in writing;
(i) Within one hundred twenty (120) days after the end of
each fiscal year of Borrower, and at such other times as a Lender may request in
writing, a capitalization table describing: (v) all outstanding securities of
Borrower; (w) all outstanding options, warrants, or other rights to purchase
securities of Borrower; (x) the names of the owners thereof, (y) the type and
amount of securities held by each such owner; and (z) such other information
regarding the ownership of securities of Borrower as a Lender may reasonably
request.
(j) From time to time such additional information regarding
Borrower as any Lender may reasonably request. The Lenders acknowledge that the
information received by them or their designee(s) pursuant to this Agreement may
be confidential and is for the Lenders' use only. The Lenders will not use such
confidential information in violation of the Securities Exchange Act of 1934, as
amended, or other applicable securities laws, or reproduce, disclose or
disseminate such information to any other person or entity (other than its
officers, partners, employees or agents or other Lenders having a need to know
the contents of such information, and its attorneys, provided such persons also
agree in writing to keep such information confidential), except in connection
with the exercise of rights or remedies under this Agreement, the Investors'
Rights Agreement or any other agreement referred to herein, unless the Company
has made such information available to the public generally or, if the Lender
gives the Company
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written notice at least twenty (20) days prior to disclosure (or such shorter
notice that may be reasonable in the circumstances), the Lender is required to
disclose such information by a governmental body.
SECTION 5.02 ANNUAL BUDGET AND MILESTONE GOALS. Promptly following
receipt of the business plan described in Section 5.01(d), the Lenders and
Borrower shall jointly agree on a budget for the succeeding fiscal year, which
will reflect the following order of priority: (i) first, compliance with the
terms of this Agreement and the other Loan Documents, and (ii) second, such
other goals as Borrower may desire to pursue. The approval of the budget by the
Lenders shall not be unreasonably withheld. In connection with such budget, the
Lenders and Borrower shall also agree on reasonable "Milestone" goals for
Borrower for such fiscal year, which shall reflect goals to be achieved in
addition to compliance with the budget. The Lenders' approval of the Milestone
goals shall not be unreasonably withheld.
SECTION 5.03 MAINTENANCE OF EXISTENCE, ETC. Until such time as the
Obligations have been fully-performed, Borrower will preserve and keep in full
force and effect its corporate existence and any rights and franchises material
to its business.
SECTION 5.04 MAINTENANCE OF PROPERTIES. Borrower shall maintain or cause
to be maintained in good repair, working order and condition (ordinary wear and
tear excepted), all of the assets or properties useful or reasonably necessary
to its business, and from time to time Borrower shall make or cause to be made
all appropriate repairs, renewals and replacements thereto.
SECTION 5.05 COMPLETE INFORMATION. All data, certificates, reports,
statements, documents and other information furnished to Lender in connection
with this Agreement or the other Loan Documents shall be subject to the
assumptions and qualifications stated therein and, at the time such information
is so furnished, not contain any untrue statement of a material fact, shall be
complete and correct in all material respects to the extent necessary to give
Lender sufficient and accurate knowledge of the subject matter thereof, and
shall not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
SECTION 5.06 INSPECTION. Upon reasonable written notice at least one (1)
Business Day in advance, Borrower shall permit any Lender, any holder of a Note
or a Warrant and one or more representatives of the SBA, at such reasonable
times (during normal business hours) as may be requested by any Lender in
writing, to examine Borrower's books of account and records, to inspect
Borrower's properties and to discuss Borrower's business, affairs, finances and
accounts with its officers, auditors and investment bankers. If an Event of
Default shall have occurred and be continuing, Borrower shall reimburse the
Lenders for their reasonable out-of-pocket expenses incurred in connection with
an inspection under this Section 5.06. Otherwise, any such inspection shall be
at the expense of the Lenders.
SECTION 5.07 COMMUNICATIONS WITH ACCOUNTANTS. Borrower will at all times
permit the Lenders to communicate with Borrower's accountant as contemplated by
Section 3.01(g). If for any reason the letter provided to the Lenders pursuant
to Section 3.01 (g) expires
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or if Borrower engages new accountants, Borrower will provide such new
accountants with written instructions (similar to those provided in Section
3.01(g)) that, upon written request of any Lender, they are directed to
communicate with the Lenders directly.
SECTION 5.08 GOVERNMENTAL APPROVALS. Borrower will at all times obtain
and keep in full force and effect all Governmental Approvals that are necessary
for the ownership, maintenance and operation of its properties and conduct of
its business as now conducted and proposed to be conducted, and shall at all
times operate and comply with such Governmental Approvals.
SECTION 5.09 SOURCE CODE. Borrower will update all source code in escrow
pursuant to Section 3.01(t) promptly following any amendments or modifications
to the source code to Borrower's proprietary software.
ARTICLE VI
NEGATIVE COVENANTS OF BORROWER
SECTION 6.01 LIENS. Borrower shall not, directly or indirectly (or
permit any Subsidiary, if any, to), create, incur, assume or permit to exist any
Lien on or with respect to any of its assets or properties, except the following
("Permitted Liens"):
(a) Liens securing the Obligations;
(b) Existing Liens as of the Closing Date;
(c) Liens securing purchase money indebtedness and
capitalized lease obligations; provided that such liens affect only the assets
acquired with such purchase money indebtedness or capitalized lease obligations;
and provided further that the aggregate amount of Indebtedness secured by such
liens at any time shall not exceed Two Million Dollars ($2,000,000);
(d) Liens securing Senior Indebtedness;
(e) Liens for taxes, assessments or charges of any
Governmental Authority for claims not yet due or which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP;
(f) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than any Lien
imposed under ERISA) imposed by Applicable Law and created in the ordinary
course of business and Liens on deposits made to obtain the release of such
Liens if (i) the underlying obligations are not overdue for a period of more
than sixty (60) days or (ii) such Liens are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP;
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(g) Liens (other than any Lien imposed under ERISA) incurred
on deposits made in the ordinary course of business (including, without
limitation, surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social security
benefits, statutory obligations and other similar obligations;
(h) Easements (including, without limitation, reciprocal
easement agreements and utility agreements), nights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere materially with
the ordinary conduct of the business of Borrower and which do not materially
detract from the value of the property to which they attach or materially impair
the use thereof to Borrower;
(i) Building restrictions, zoning laws and other statutes,
laws, rules, regulations, ordinances and restrictions, and any amendments
thereto, now or at any time hereafter adopted by any Governmental Authority
having jurisdiction;
(j) Any attachment or judgment Lien unless it constitutes an
Event of Default;
(k) Other Liens incidental to the conduct of the business or
the ownership of the assets or property of Borrower which were not incurred in
connection with borrowed money and which do not in the aggregate materially
detract from the value of the assets or property or materially impair the use
thereof in the operation of the Borrower's business and which, in any event, do
not secure obligations aggregating in excess of Twenty-Five Thousand Dollars
($25,000).
SECTION 6.02 INDEBTEDNESS. Borrower shall not, directly or indirectly,
incur, create, issue, assume or guarantee any Indebtedness except:
(a) The Obligations;
(b) Senior Indebtedness not to exceed Five Million Dollars
($5,000,000) (in addition to debt secured by Borrower's headquarters) which
Borrower incurs pursuant to Section 2.01 (d)(ii);
(c) Purchase money indebtedness and capitalized lease
obligations; provided that the aggregate amount of such Indebtedness shall not
exceed Two Million Dollars ($2,000,000);
(d) Trade indebtedness incurred in the ordinary course of
Borrower's business; provided that at the time of incurrence of such trade
indebtedness, Borrower is not delinquent in the repayment of a material amount
of any previously-incurred trade indebtedness.
SECTION 6.03 CURRENT RATIO. Borrower shall not permit the ratio of its
Current Assets to Current Liabilities to be less than (i) 1.00:1.00 at any time
during the period commencing on the Closing Date and ending on December 31,
1999; and (ii) 1.05:1.00 for the period commencing on January 1, 2000 and at all
times thereafter.
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SECTION 6.04 DEBT SERVICE COVERAGE RATIO. Borrower shall not permit its
Debt Service Coverage Ratio for any calendar quarter to be less than 1.00:1.00.
SECTION 6.05 FUNDAMENTAL CHANGES. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not voluntarily liquidate or dissolve, or (whether in a single transaction
or a series of transactions) consolidate or merge with any other Person, or
permit any other Person to consolidate or merge with it, or sell, lease,
transfer or otherwise dispose of all or substantially all of any of its
properties or assets (whether now owned or hereafter acquired) to any other
Person.
SECTION 6.06 NATURE OF BUSINESS. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not, directly or indirectly (or permit any Subsidiary, if any, to), engage
in any line of business in which it is not currently engaged or otherwise alter
its manner of conducting business from that existing as of the Closing Date,
except that Borrower may engage in activities that are ancillary, incidental or
necessary to its ongoing business as presently conducted. For the avoidance of
doubt, it is understood that Borrower is currently in the business of the
development and marketing of software and related hardware and consulting
services.
SECTION 6.07 CAPITAL EXPENDITURES. Except with the consent of the
Lenders (which shall not be unreasonably withheld, delayed or conditioned),
Borrower shall not permit Capital Expenditures for any fiscal year to exceed One
Million Dollars ($1,000,000).
SECTION 6.08 INVESTMENTS. Borrower shall not, directly or indirectly (or
permit any Subsidiary, if any, to), make any advances or loans to, or other
investments in, any other Person other than:
(a) Ordinary advances for travel expenses;
(b) Advances in payment of salaries already earned;
(c) Deposits in commercial. banks to which a Deposit Notice
has been received and acknowledged; and
(d) Loans to employees made in the ordinary course of
business and not exceeding Fifty Thousand Dollars ($50,000) in the aggregate at
any time.
Without limiting the foregoing, Borrower shall not make loans or other
advances to any of its Shareholders or to any Affiliates or relatives of its
Shareholders.
SECTION 6.09 Borrower shall not purchase, redeem or retire any stock or
equity security in Borrower, whether now or hereafter outstanding, or pay,
directly or indirectly, any dividends or distributions to its Shareholders (or
Affiliates thereof) in the form of cash, stock or other securities, or other
property other than stock dividends, provided that if no Default or Event of
Default has occurred and is continuing (or will occur after giving effect
thereto), Borrower may redeem stock as permitted in the Amended and Restated
Articles of Incorporation.
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SECTION 6.10 AMENDMENTS OF CHARTER AND BYLAWS. Borrower will not amend
its Amended and Restated Articles of Incorporation or Amended and Restated
Bylaws in any way with respect to authorized capital, the Board of Directors or
authorization of corporate action or in any other respect that could have an
adverse effect on any Lender or the ability of Borrower to meet its obligations
under the Loan Documents, without obtaining the prior written consent of the
Lenders, which consent shall not be unreasonably withheld, delayed or
conditioned.
SECTION 6.11 TRANSACTIONS WITH AFFILIATES. Borrower, its officers,
directors or employees shall not, directly or indirectly, engage in any material
transactions with any Affiliate or any relatives of any Affiliate.
SECTION 6.12 EMPLOYMENT CONTRACTS AND EXPENSES. Other than with respect
to senior management pursuant to Section 6.12 below,, Borrower shall not,
directly or indirectly, enter into any employment contract with any officer or
employee involving payment in any fiscal year of more than Two Hundred Thousand
Dollars ($200,000).
SECTION 6.13 MANAGEMENT COMPENSATION. Borrower shall not, directly or
indirectly, provide any of its senior managers with an aggregate compensation in
excess of: (i) a base salary of Two Hundred Thousand Dollars ($200,000) per
year; (ii) if no Default or Event of Default has occurred and is continuing, a
bonus not to exceed 100% of base salary per year; (iii) health insurance and
other fringe benefits, to the extent that they are made available to Borrower's
employees generally; (iv) Ten Thousand Dollars ($10,000) of annual expenses
(including lease payments, maintenance expenses, insurance and all other
expenses) associated with a leased vehicle for personal and business use. Any
bonus to be paid pursuant to Clause 6.13(ii) shall be approved by the Chairman
of the Compensation Committee of Borrower's Board of Directors, which chairman
shall be an "independent" director.
SECTION 6.14 EMPLOYEE BENEFIT PLANS. Borrower will not sponsor or
contribute to any new Employee Benefit Plan, make any change to any existing
Employee Benefit Plan that would increase its obligations in any material
respect or incur any obligations in respect of any Multiemployer Plan.
SECTION 6.15 ACCOUNTING PRINCIPLES. Borrower will not make any material
change in the accounting principles underlying the Financial Statements, except
for changes mandated by GAAP or applicable federal or state securities laws.
SECTION 6.16 SUBSIDIARIES. Borrower will not create or acquire any new
Subsidiaries, transfer any assets to any Subsidiary except if.
(a) Borrower provides the Lenders with at least sixty (60)
days prior written notice of its intent to form such a Subsidiary;
(b) All of the capital stock of the Subsidiary is pledged to
the Lenders to secure the Obligations pursuant to a pledge agreement in form and
substance acceptable to Lender;
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(c) The Subsidiary guarantees the obligations pursuant to a
guaranty agreement and provides a lien on all of the Subsidiary's assets to
secure the guaranty, in each case pursuant to documentation in form and
substance acceptable to the Lenders; and
(d) At the time of formation of such Subsidiary no Event of
Default or Default has occurred and is continuing.
In addition, if at any time Borrower's revenues are less than seventy
percent (70%) of the consolidated revenues of Borrower and its subsidiaries,
Borrower shall execute and cause each of its subsidiaries to execute, security
and co-borrower agreements and instruments, in substantially the same form as
this Agreement and the Loan Documents, which, among other things, grants the
Lenders a lien and security interest in all of the assets of Borrower's
subsidiaries as security for the Loan.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an event of default (an "Event of Default"):
(a) Borrower shall fail to pay when due any principal
(whether at stated maturity, upon acceleration, upon demand, upon required
prepayment or otherwise); or
(b) Borrower shall fail to pay within five (5) Business Days
of when due, interest payable hereunder or under the other Loan Documents, or
(c) Borrower shall fail to pay within fifteen (15) days
after written notice any fees, costs, expenses or other amounts payable
hereunder or the other Loan Documents; or
(d) Borrower (i) shall default in the payment, beyond any
period of grace provided therefor, of any principal of or interest on any
indebtedness in an amount exceeding One Hundred Five Thousand Dollars
($105,000), or (ii) shall commit any breach of or default under any other term
of any agreement, indenture or instrument relating to any indebtedness in an
amount exceeding One Hundred Five Thousand Dollars ($105,000), if the effect of
such breach or default is to cause, or to permit the holder or holders of such
indebtedness (or a Person on behalf of such holder or holders) to cause (upon
the giving of notice or the lapse of time or both, or otherwise), any such
indebtedness to become or be declared due and payable prior to its stated
maturity (or to be, or become required to be, purchased or redeemed prior to its
stated maturity) or to cause, or to permit the holder or holders thereof to
cause, Borrower to be deprived of any of Borrower's assets or property, unless
such default is waived by PMF (which waiver shall not be unreasonably withheld,
delayed or conditioned) (notwithstanding anything to the contrary herein,
Borrower shall not be in default hereof with respect to the Forbearance
Agreement by and between Borrower and Comerica Bank dated _________ or the
event(s) of default set forth therein for which Comerica Bank has agreed to
waive or forebear; or
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(e) Borrower shall fail to perform, comply with or observe
any agreement or obligation to be performed or complied with by it pursuant to
Section 2.01(c), Section 5.01(e), Section 5.05 or any Section of Article VI
hereof; provided that, in the case of any failure to comply with Section 6.03
(Current Ratio) hereof, such failure shall not have been remedied within sixty
(60) days after written notice thereof from a Lender; or
(f) Any representation or warranty or certification made or
furnished by Borrower under this Agreement, the other Loan Documents or any
agreement, instrument or document contemplated thereby shall prove to have been
false or incorrect in any material respect when made (or deemed made); or
(g) Borrower shall fail to perform, comply with or observe
any agreement or obligation to be performed or complied with by it under this
Agreement (other than those provisions referred to in Sections 7.01(a), (b),
(c), and (e) above) or any other Loan Document, and such failure shall not have
been remedied within thirty (30) days after written notice thereof from a Lender
to the Borrower or after the Borrower otherwise becomes aware of such failure;
or
(h) The Lien of the Lenders on the Collateral shall for any
reason fail to constitute a perfected security interest thereon, prior to all
other Liens, except only the Lien of the Senior Lender, or Borrower (or its
counsel) makes an assertion that any Lender's Lien does not constitute such a
security interest; or
(i) There shall be commenced against Borrower an involuntary
case seeking the liquidation or reorganization of Borrower under Chapter 7, 11
or 13, respectively, of the Bankruptcy Code or any similar proceeding under any
other Applicable Law or an involuntary case or proceeding seeking the
appointment of a receiver, liquidator, sequestrator, custodian, trustee or other
officer having similar powers of Borrower or to take possession of all or a
substantial portion of its property or assets or to operate all or a substantial
portion of its business, and any of the following events occur: (i) Borrower
consents in writing to the institution of the involuntary case or proceeding;
(ii) the petition commencing the involuntary case or proceeding is not timely
controverted, (iii) the petition commencing the involuntary case or proceeding
remains undismissed and unstayed for a period of sixty (60) days, or (iv) an
order for relief shall have been issued or entered therein; or
(j) Borrower shall commence a voluntary case seeking
liquidation or reorganization under Chapter 7, 11 or 13, respectively, of the
Bankruptcy Code or any similar proceeding under any other Applicable Law, or
shall consent in writing thereto; or shall consent to the conversion of an
involuntary case to a voluntary case; or shall file a petition, answer a
complaint or otherwise institute any proceeding seeking, or shall consent or
acquire to the appointment of, a receiver, liquidator, sequestrator, custodian,
trustee or other officer having similar powers of Borrower or to take possession
of all or a substantial portion of its property or assets or to operate all or a
substantial portion of its business; or
(k) Borrower shall suffer any money judgments, writs or
warrants of attachment or similar processes that shall continue unsatisfied and
unstayed. for a period of thirty (30) days or, in any event, within ten (10)
days of the date of any proposed sale thereunder, or a
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judgment creditor shall obtain possession of any of the property or assets of
Borrower having an aggregate value exceeding Two Hundred Fifty Thousand Dollars
($250,000) by any means, including by levy, distraint, replevin or self-help,
unless waived by PMF (which waiver shall not be unreasonably withheld, delayed
or conditioned);
(l) Any of the Loan Documents, or any material provisions in
any of them, shall cease to be in full force and effect as against Borrower for
any reason other than a release or termination thereof upon the full payment and
satisfaction of the Obligations thereunder pursuant to its terms, or Borrower
shall contest or purport to repudiate or disavow any of its obligations
thereunder or the validity or enforceability thereof;
SECTION 7.02 REMEDIES. Upon the occurrence of an Event of Default, any
Lender may, at its election, without notice of its election and without demand,
do any one or more of the following, all of which is authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, such Lender's the Note, any of the other Loan Documents, immediately
due and payable; provided however that all Obligations shall be immediately due
and payable without notice or demand upon an Event of Default under Section
7.01(i) or Section 7.01(j) hereof caused by an insolvency proceeding involving
Borrower;
(b) Without notice to or demand upon Borrower, make such
payments and do such acts as such Lender considers necessary or reasonable to
protect its Lien in the Collateral. Borrower agrees subject to the rights of any
Senior Lender to assemble the Collateral if such Lender so requires in writing,
and to make the Collateral available to such Lender at such location within
California as such Lender may designate in writing. Borrower authorizes such
Lender to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest or compromise any Lien which in the reasonable opinion of such Lender
appears to be prior or superior to its Lien and to pay all reasonable expenses
incurred in connection therewith; and
(c) Exercise such Lender's rights and remedies under the
Collateral Documents.
SECTION 7.03 CUMULATIVE REMEDIES. Each Lenders rights and remedies under
this Agreement, a other Loan Documents and all other agreements with Borrower
shall be cumulative. Such Lender shall have all other rights and remedies not
inconsistent herewith as provided under the California Uniform Commercial Code,
by law or in equity. No exercise by a Lender of one right or remedy shall be
deemed an election, and no waiver by Lender of any Event of Default shall be
deemed a continuing waiver. No delay by any Lender shall constitute a waiver,
election or acquiescence by it.
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SECTION 7.04 APPOINTMENT OF PMF AS LENDERS' AGENT.
The parties hereto acknowledge that the Lenders have appointed PMF as
its Agent pursuant to that certain Intercreditor Agreement of even date
herewith. Subject to the terms and conditions of such agreement, PMF is
authorized to exercise the rights granted the Lenders hereby on behalf of such
Lenders. The parties agree that Borrower may rely on any waiver, approval or
consent granted by PMF.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 EXPENSES. Borrower agrees to pay on written demand therefor
all reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by the Lenders in any workout, restructuring or similar
arrangements requested by Borrower or after an Event of Default in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of any of the other Loan Documents or of its rights hereunder or
thereunder or in connection with any foreclosure, collection or bankruptcy
proceedings.
SECTION 8.02 INDEMNIFICATION.
(a) Borrower agrees to indemnify, defend and hold harmless
each of the Lenders and their officers, directors, employees, agents, attorneys
and Affiliates of the Lenders (collectively, the "Indemnities") from and against
(A) all transfer taxes, documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Agreement
and the other Loan Documents or the making of the Loan, and (B) all liabilities,
losses, damages, penalties, judgments, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by or asserted against such Indemnitee, in any manner
directly or proximately relating to or arising out of this Agreement or any
other Loan Document, the Loan made hereunder or the use or intended use of the
proceeds of the Loan; provide that no Indemnitee shall have the right to be
indemnified or held harmless hereunder for any liabilities, tosses, damages,
penalties, judgments, claims, costs or expenses which are a direct result of its
own gross negligence or willful misconduct.
(b) The obligations of Borrower under this Section 8.02
shall survive the termination of this Agreement and the discharge of Borrower's
other obligations hereunder.
SECTION 8.03 AMENDMENTS AND OTHER MODIFICATIONS. No amendment of any
provision of this Agreement (including a waiver thereof or consent relating
thereto) shall be effective unless the same shall be in writing and signed by
the Lenders and Borrower. Any waiver or consent relating to any provision of
this Agreement shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar
circumstances.
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SECTION 8.04 NOTICES.
(a) All notices and other communications under this
Agreement shall be in writing and (except for financial statements, other
related informational documents and routine communications, which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
courier, by overnight, registered or certified mail (postage prepaid), or by
telefax or telegram and shall be deemed to be given when received by the
intended recipient thereof, or, if the address of the recipient is unknown, five
(5) Business Days after such notice is mailed by United States certified mail
(postage prepaid) to the last known address of the intended recipient. Unless
otherwise specified in a notice given in accordance with this Section 8.04,
notices and other communications shall be given to the parties hereto at their
respective addresses (or to their respective telephone or telefax numbers)
indicated on the signature page hereof.
(b) Borrower shall notify each Lender in a writing
substantially in the form of Borrower's Certificate of the names of its officers
authorized to execute certificates and agreements deliverable hereunder on
behalf of Borrower, and shall provide each Lender with a specimen signature of
each such officer. The Lenders shall be entitled to rely conclusively on such
officers' authority to request the Loan on behalf of Borrower and on such
officers' authority to execute and deliver such certificates and agreements
until Lender receives written notice to the contrary. The Lenders shall have no
duty to verify the authenticity of any signature appearing on any notice,
certificate or agreement delivered hereunder, including, without limitation, the
Borrower's Certificate.
SECTION 8.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and, subject to the next sentence, inure to the benefit of the parties
hereto and their respective successors and assigns, subject to applicable state
and federal securities laws. Borrower may not assign or transfer any interest
hereunder without the prior written consent of the Lenders. Each Lender may
assign or transfer all or any portion of its rights and obligations under this
Agreement and the other Loan Documents to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to such Lender herein or otherwise (and each Lender shall be released
from obligations assumed by such Person) Notwithstanding the foregoing sentence:
(i) any Lender may not assign or transfer any portion of its rights under the
Loan having a principal balance of less than Five Hundred Thousand Dollars
($500,000); and (ii) a Lender may not assign its rights to appoint a member of
Borrower's Board of Directors.
SECTION 8.06 SET OFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, the Lenders are
hereby irrevocably authorized by Borrower at any time or from time to time,
without notice to Borrower, any such notice being hereby expressly waived, to
set off and to appropriate and to apply any credits, indebtedness or claims, in
each case whether direct or indirect or contingent or matured or unmatured, at
any time held or owing by the Lenders to or for the credit or the account of
Borrower, against and on account of the Obligations of Borrower to the Lenders
under this Agreement and the other Loan
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Documents, irrespective of whether or not the Lenders shall have made any demand
for payment and although such Obligations may be contingent and unmatured.
SECTION 8.07 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loan hereunder and
the execution and delivery of the other Loan Documents and, except as otherwise
expressly provided herein, shall continue until repayment arid performance of
all Obligations, and any investigation at any time made by or on behalf of
Lender shall not diminish the right of Lender to rely thereon.
SECTION 8.08 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and ail of which counterparts,
taken together, shall constitute but one and the same agreement. This Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto.
SECTION 8.09 COMPLETE AGREEMENT. This Agreement, together with the
Exhibits and Schedules to this Agreement and the other Loan Documents, is
intended by the parties as a final expression of their agreement regarding the
subject matter hereof and is intended as a complete statement of the terms and
conditions of such agreement.
SECTION 8.10 LIMITATION OF LIABILITY. No claim may be made by Borrower
against Lender or any of its Affiliates, officers, directors, employees, agents
or attorneys for any special, indirect, consequential or punitive damages in
respect of any breach or wrongful conduct (whether the claim is based on
contract or tort or duty imposed by law) arising out of or related to the
transactions contemplated by this Agreement or the other Loan Documents or any
act, omission or event occurring in connection therewith. Borrower hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor. The foregoing provisions of this Section 8.10 are not intended to
preclude Borrower from bringing a legal action against Lender for Borrower's
direct, actual damages.
SECTION 8.11 WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDER WAIVE
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OTHER ACTION ARISING OUT OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
SECTION 8.12 VENUE. The parties hereby submit to the exclusive
jurisdiction of the Superior Court of the State of California, sitting in San
Francisco, California, or the United States District Court for the Northern
District of California for the adjudication of all disputes relating to this
Agreement or any of the other Loan Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
Borrower:
GENERAL AUTOMATION, INC.,
a Delaware corporation
By:________________________________
Name: ____________________________
Title: ____________________________
Borrower's principal office:
___________________________________
___________________________________
___________________________________
Lenders:
PACIFIC MEZZANINE FUND, L.P.,
a California limited partnership
By. Pacific Private Capital, its General Partner
By:________________________________
Name: ____________________________
Title: General Partner
Lender's principal office:
2200 Powell Street, Suite 1250
Emeryville, California 94608
Attention: Andrew B. Dumke
Telephone: (510) 595-9800
Telefax: (510) 595-9801
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EXHIBIT 10.2
THE SECURED CONVERTIBLE PROMISSORY NOTE EVIDENCED OR CONSTITUTED HEREBY,
AND ALL SHARES OF COMMON STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT UNLESS EITHER (i) MAKER HAS
RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
MAKER, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH
DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES
AND EXCHANGE COMMISSION RULE 144.
SECURED CONVERTIBLE PROMISSORY NOTE
$3,150,000 September 30, 1999
FOR VALUE RECEIVED, the undersigned, GENERAL AUTOMATION, INC., a
Delaware corporation ("Maker"), promises to pay to the order of PACIFIC
MEZZANINE FUND, L.P., a California limited partnership ("Payee", Payee and any
subsequent holder(s) hereof are hereinafter referred to collectively as
"Holder"), at the office of Payee at 2200 Powell Street, Suite 1250, Emeryville,
California 94608, or at such other place as Holder may designate to Maker in
writing from time to time, the principal sum of THREE MILLION, ONE HUNDRED FIFTY
THOUSAND DOLLARS ($3,150,000), together with interest on the outstanding
principal balance hereof from the date hereof at the Base Rate (as such term is
defined in the Loan Agreement by and between Maker and Payee of even date
herewith (the "Loan Agreement")). All interest hereunder shall be calculated
based on a 360-day year and paid for the actual number of days elapsed.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of November, 1999, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until the Maturity Date
(as such term is defined in the Loan Agreement), at which time the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty, subject to the terms of the
Loan Agreement. Any such prepayments shall be credited first to any accrued and
unpaid interest and then to the outstanding principal balance hereof.
This Note will be a fully-registered note on the books of Maker and will
be issued only in fully-registered form. Maker will cause to be kept at its
principal office a register for the registration and transfer of the Notes. The
name and address of each Holder hereof, the transfer thereof and the names and
addresses of any transferee hereof, or any interest therein, shall be recorded
in such register. Until a transfer hereof is duly registered on the books of
Maker, Maker
<PAGE> 2
may treat the registered Holder thereof as the owner for all purposes. This Note
is subject to the restrictions on transfer set forth herein and in the Loan
Agreement.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured following the giving of any
applicable notice and within five (5) business days; or in the event that any
default or event of default shall occur under the Loan Agreement, which default
or event of default is not cured following the giving of any applicable notice
and within any applicable cure period set forth in said Loan Agreement; or
should any default by Maker be made in the performance or observance of any
covenants or conditions contained in any other instrument or document now or
hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced hereby (subject to any applicable notice and cure period provisions
that may be set forth therein); then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the loan agreement and/or under any other
instrument or document now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid interest
accrued thereon, shall, at the option of Holder and without notice to Maker, at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at the Default Rate (as such term is defined in
the Loan Agreement), regardless of whether or not there has been an acceleration
of the payment of principal as set forth herein. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any indorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
2
<PAGE> 3
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement.
Payment of this Note is secured by a security interest in all assets of
Maker pursuant to a Security Agreement, a Pledge Agreement, a Patent and
Trademark Security Agreement and Copyright Security Agreement, each dated as of
the date hereof (collectively, the "Security Agreements").
All or any portion of this Note, including accrued interest, is
convertible at the option of the Holder at any time prior to the Maturity Date
into shares of Maker's Common Stock ("Conversion Stock") at the Conversion Rate
(as such term is defined in the Loan Agreement) and shall also automatically
convert at the Conversion Rate under certain circumstances more particularly
described in the Loan Agreement. The Holder of this Note shall give Maker five
(5) business days' written notice of his election to convert setting forth the
name and address of such Holder and the amount of the principal and accrued
interest of the Note to be converted. Holder shall tender this Note to Maker
together with such election. Maker shall deliver the shares issuable upon
conversion hereof within fifteen (15) business days after receipt of such
conversion notice. If less than all of this Note is converted in shares of
stock, Maker shall issue to Holder a new note for the remaining principal amount
together with an acknowledgment of the remaining accrued interest hereon.
The Holder, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the 1933 Act, covering the
disposition or sale of this Note or the Conversion Stock issued or issuable upon
conversion hereof, as the case may be, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer, pledge,
or hypothecate any or all such Note or Conversion Stock, as the case may be,
unless either (i) Maker has received an opinion of counsel, in form and
substance reasonably satisfactory to Maker, to the effect that such registration
is not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to SEC Rule 144.
By acceptance of this Note, the Holder hereby represents, warrants and
covenants that any shares of stock purchased upon conversion of this Note shall
be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof; that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
Maker such information as is necessary to permit the Holder to evaluate the
merits and risks of its investment in Maker; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the
conversion of this Note for an indefinite period; that the Holder understands
that the shares of stock acquired pursuant to conversion of this Note will not
be registered under the 1933 Act (unless otherwise required pursuant to exercise
by the Holder of the registration rights granted to the Holder) and will be
"restricted securities" within the meaning of Rule 144 under the 1933 Act and
that the exemption from registration under Rule 144 will not be available for at
least one year from the date of conversion of this Note, and even then will not
be available unless a public market then exists for the stock, adequate
information concerning Maker is then available to the public, and other terms
and conditions of Rule 144 are
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<PAGE> 4
complied with; and that all stock certificates representing shares of stock
issued to the Holder upon conversion of this Note may have affixed thereto a
legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
All shares of common stock issuable upon conversion of this Note shall
be "Registrable Securities" or such other definition of securities entitled to
registration rights pursuant to the Investors' Rights Agreement dated September
30, 1999, by and among the Maker and the original Payee hereof.
Subject to and under the circumstances set forth in the Loan Agreement,
Payee has agreed to subordinate its rights under the Loan Agreement, this Note
and the Loan Documents (as such term is defined in the Loan Agreement) to
certain senior debt, capital lease and similar obligations.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the maximum rate of interest allowed by law (the "Maximum
Rate"). If, from any circumstances whatsoever, the fulfillment of any provision
of this Note or any other agreement or instrument now or hereafter evidencing,
securing or in any way relating to the indebtedness evidenced hereby shall
involve the payment of interest in excess of the Maximum Rate, then, ipso facto
the obligation to pay interest hereunder shall be reduced to the Maximum Rate;
and if from any circumstance whatsoever, Holder shall ever receive interest, the
amount of which would exceed the amount collectible at the Maximum Rate, such
amount as would be excessive interest shall be applied to the reduction of the
principal balance remaining unpaid hereunder and not to the payment of interest.
This provision shall control every other provision in any and all other
agreements and instruments
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<PAGE> 5
existing or hereafter arising between Maker and Holder with respect to the
indebtedness evidenced hereby:
This Note is tended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of California, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
MAKER:
GENERAL AUTOMATION, INC.,
a Delaware corporation
By:
___________________________
Title:
5
<PAGE> 1
EXHIBIT 10.3
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON
STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION
UNDER THE ACT UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION
RULE 144.
WARRANT TO PURCHASE COMMON STOCK OF GENERAL AUTOMATION, INC.
(Subject to Adjustment)
NO. ___________
THIS CERTIFIES THAT, for value received, Pacific Mezzanine Fund, L.P., a
California limited partnership, or its permitted registered assigns ("Holder"),
is entitled, subject to the terms and conditions of this warrant, at any time or
from time to time after the date of issuance hereof and before the expiration
date specified in section 2.8 (the "Expiration Date"), to purchase from General
Automation, Inc., a Delaware corporation (the "Company"), Three Hundred Ninety
Three Thousand, Seven Hundred Fifty (393,750) shares of Warrant Stock (as
defined in section 1 below) of the company at a price per share of Forty Five
Cents ($0.45) (the "Purchase Price"). Both the number of shares of Warrant Stock
purchasable upon exercise of this Warrant and the Purchase Price are subject to
adjustment and change as provided herein. This Warrant is issued in connection
with that certain Loan Agreement, dated September 30, 1999 (the "Agreement"),
between the Company and Holder.
1. CERTAIN DEFINITIONS. As used in this Warrant the following terms
shall have the following respective meanings:
1.1 "Fair Market Value" of a share of Common Stock as of a
particular date shall mean:
(a) If traded on a securities exchange or the Nasdaq
National Market, the Fair Market Value shall be deemed to be the average of the
closing prices of the Common Stock of the Company on such exchange or market
over the 5 business days ending immediately prior to the applicable date of
valuation;
(b) If actively traded over-the-counter, the Fair
Market Value shall be deemed to be the average of the closing bid prices over
the 30-day period ending immediately prior to the applicable date of valuation;
and
<PAGE> 2
(c) If there is no active public market, the Fair
Market Value shall be the value thereof, as determined in good faith by the
Company's board of directors; provided, however, that if the Holder objects in
good faith to such determination, then such value shall be determined by an
independent valuation firm experienced in valuing businesses such as that of the
Company and jointly selected in good faith by the Company and the Holder. Fees
and expenses of the valuation firm shall be shared equally by the Company and
the Holder.
(d) If the Company has entered into an agreement or
has received a binding letter of intent for a proposed Acquisition Transaction
(as such term is defined in Section 4.6 hereof), the Fair Market Value shall be
the price per share of the Common Stock in the Acquisition Transaction,
regardless of whether such transaction has been publicly announced or
consummated. Whenever the consideration to be paid in any Acquisition
Transaction is assets other than cash or securities, the value thereof shall be
determined in good faith by the Company's board of directors; provided, however,
that if the Holder objects in good faith to such determination, then such value
shall be determined by an independent valuation firm experienced in valuing
businesses such as that of the Company and jointly selected in good faith by the
Company and the Holder. Fees and expenses of the valuation firm shall be shared
equally by the Company and the Holder. If the consideration to be paid in any
Acquisition Transaction is securities, the value of such securities shall be
determined in substantially the same manner used to determine the value of the
Company's Common Stock set forth in Section 1.1(a), (b) and (c) above.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Registered Holder" shall mean any Holder in whose name this Warrant is
registered upon the books and records maintained by the Company.
"Warrant" as used herein, shall include this Warrant and any warrant
delivered in substitution or exchange therefor as provided herein.
"Warrant Stock" shall mean the Common Stock of the Company and any other
securities at any time receivable or issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1 Payment. Subject to compliance with the terms and
conditions of this Warrant and applicable securities laws, this Warrant may be
exercised, in whole or in part at any time or from time to time, on or before
the Expiration Date by the delivery (including, without limitation, delivery by
facsimile) of the form of Notice of Exercise attached hereto as Exhibit 1 (the
"Notice of Exercise"), duly executed by the Holder, at the principal office of
the Company, and as soon as practicable after such date, surrendering
(a) this Warrant at the principal office of the
Company, and
(b) payment, (i) in cash (by check) or by wire
transfer, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder; (iii) by exchange of
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<PAGE> 3
the Company's securities held by Holder, at the Fair Market Value thereof or
(iv) by a combination of (i), (ii) and (iii), of an amount equal to the product
obtained by multiplying the number of shares of Warrant Stock being purchased
upon such exercise by the then effective Purchase Price (the "Exercise Amount"),
except that if Holder is subject to HSR Act Restrictions (as defined in Section
2.5 below), the Exercise Amount shall be paid to the Company within five (5)
business days of the termination of all HSR Act Restrictions.
2.2 Net Issue Exercise. In lieu of the payment methods set
forth in Section 2.1(b) above, the Holder may elect to exchange all or some of
the Warrant for shares of Warrant Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of Warrant Stock computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
Holder.
Y = the number of shares of Warrant Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date
of such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such
calculation).
All references herein to an "exercise" of the Warrant shall include an exchange
pursuant to this Section 2.2.
2.3 "Easy Sale" Exercise. In lieu of the payment methods set
forth in Section 2.1(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Purchase Price through
a "same day sale" commitment from the Holder (and if applicable a broker-dealer
that is a member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Shares so purchased to pay for the Purchase Price and the
NASD Dealer commits upon receipt of such Shares to forward the Purchase Price
directly to the Company.
2.4 Stock Certificates; Fractional Shares. As soon as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of whole shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share equal to such fraction of the
current Fair Market Value of one whole share of Common Stock as of the date of
exercise of this
3
<PAGE> 4
Warrant. No fractional shares or scrip representing fractional shares shall be
issued upon an exercise of this Warrant.
2.5 HSR Act. The Company hereby acknowledges that exercise
of this Warrant by Holder may subject the Company and/or the Holder to the
filing requirements of the HSR Act and that Holder may be prevented from
exercising this Warrant until the expiration or early termination of all waiting
periods imposed by the HSR Act ("HSR Act Restrictions"). If on or before the
Expiration Date Holder has sent the Notice of Exercise to Company and Holder has
not been able to complete the exercise of this Warrant prior to the Expiration
Date because of HSR Act Restrictions, the Holder shall be entitled to complete
the process of exercising this Warrant in accordance with the procedures
contained herein notwithstanding the fact that completion of the exercise of
this Warrant would take place after the Expiration Date.
2.6 Partial Exercise; Effective Date of Exercise. In case of
any partial exercise of this Warrant, the Company shall cancel this Warrant upon
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Warrant Stock purchasable hereunder. Any
partial exercise of this Warrant, other than the final exercise, shall be for a
minimum of 1,000 shares of Warrant Stock. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above together with the payment of the
exercise price pursuant to Sections 2.1, 2.2 and 2.3 hereof. However, if Holder
is subject to HSR Act filing requirements this Warrant shall be deemed to have
been exercised on the date immediately following the date of the expiration of
all HSR Act Restrictions. The person entitled to receive the shares of Warrant
Stock issuable upon exercise of this Warrant shall be treated for all purposes
as the holder of record of such shares as of the close of business on the date
the Holder is deemed to have exercised this Warrant.
2.7 Expiration Date; Notice of Expiration. The Company shall
deliver to Holder a written Notice of Expiration in the form attached hereto as
Exhibit 2 at least thirty (30) days but not more than sixty (60) days before the
Expiration Date. Subject to Section 4.6 hereof, this Warrant shall expire on the
earliest to occur of the following: (i) the tenth (10th) anniversary of that
date of issuance hereof or (ii) the sixth (6th) anniversary of the date of
repayment in full or conversion of the promissory note issued contemporaneously
herewith pursuant to the Loan Agreement (the "Expiration Date"); provided,
however, that the Expiration Date shall be extended until the date thirty (30)
days after delivery of the Notice of Expiration.
3. VALID ISSUANCE; TAXES. All shares of Warrant Stock issued upon
the exercise of this Warrant shall be validly issued, fully paid and
non-assessable, and the Company shall pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery thereof. The
Company shall not be required to pay any tax or other charge imposed in
connection with any transfer involved in the issuance of any certificate for
shares of Warrant Stock in any name other than that of the Registered Holder of
this Warrant, and in such case the Company shall not be required to issue or
deliver any stock certificate or security until such tax or other charge has
been paid, or it has been established to the Company's reasonable satisfaction
that no tax or other charge is due.
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<PAGE> 5
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of
shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of
stock or other securities or property receivable or issuable upon exercise of
this Warrant) and the Purchase Price are subject to adjustment upon occurrence
of the following events:
4.1 Adjustment for Stock Splits, Stock Subdivisions or
Combinations of Shares. The Purchase Price of this Warrant shall be
proportionally decreased and the number of shares of Warrant Stock issuable upon
exercise of this Warrant (or any shares of stock or other securities at the time
issuable upon exercise of this Warrant) shall be proportionally increased to
reflect any stock split or subdivision of the Company's Common Stock. The
Purchase Price of this Warrant shall be proportionally increased and the number
of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares
of stock or other securities at the time issuable upon exercise of this Warrant)
shall be proportionally decreased to reflect any combination of the Company's
Common Stock.
4.2 Adjustment for Dividends or Distributions of Stock or
Other Securities or Property. In case the Company shall make or issue, or shall
fix a record date for the determination of eligible holders entitled to receive,
a dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Warrant Stock (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon such
date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Section 4.
4.3 Reclassification. If the Company, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Purchase Price therefore shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any
conversion or redemption of the Common Stock which is the subject of Section
4.5.
4.4 Adjustment for Capital Reorganization. In case of any
capital reorganization of the capital stock of the Company (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), then, as a part of such reorganization, lawful provision
shall be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon
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<PAGE> 6
payment of the Purchase Price then in effect, the number of shares of stock or
other securities or property of the successor corporation resulting from such
reorganization that a holder of the shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization, if this
Warrant had been exercised immediately before such reorganization, all subject
to further adjustment as provided in this Section 4. The foregoing provisions of
this Section 4.4 shall similarly apply to successive reorganizations and to the
stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to the
Holder hereof for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Company's Board of Directors. In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
4.5 Conversion of Common Stock. In case all or any portion
of the authorized and outstanding shares of Common Stock of the Company are
redeemed or converted or reclassified into other securities or property pursuant
to the Company's Articles of Incorporation or otherwise, or the Common Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Common Stock is so
redeemed or converted, reclassified or ceases to exist (the "Termination Date"),
shall receive, in lieu of the number of shares of Common Stock that would have
been issuable upon such exercise immediately prior to the Termination Date, the
securities or property that would have been received if this Warrant had been
exercised in full and the Common Stock received thereupon had been
simultaneously converted immediately prior to the Termination Date, all subject
to further adjustment as provided in this Warrant. Additionally, the Purchase
Price shall be immediately adjusted to equal the quotient obtained by dividing
(x) the aggregate Purchase Price of the maximum number of shares of Common Stock
for which this Warrant was exercisable immediately prior to the Termination Date
by (y) the number of shares of Common Stock of the Company for which this
Warrant is exercisable immediately before the Termination Date, all subject to
further adjustment as provided herein.
4.6 Acquisition Transactions. Notwithstanding anything to
the contrary herein, in the event that the Company proposes to enter into any
transaction, or series of transactions, in which substantially all of its
securities are to be acquired by another entity or entities for cash, securities
of another entity or other assets (collectively, an "Acquisition Transaction"),
then the Company shall provide to the Holder thirty (30) days' written notice of
the Acquisition Transaction, which notice shall describe the transaction in
reasonable detail, including the consideration to be paid for the Company's
securities by the acquiring entities and the date of the closing of the
Acquisition Transaction (the "Closing Date"), and the Company shall not
consummate the Acquisition Transaction(s) until after the expiration of such
notice period. The Holder shall have the right to exercise this Warrant at any
time before the Closing Date. If Holder fails to exercise this Warrant before
the Closing Date, this Warrant shall expire on the Closing Date. In addition, if
Holder elects to exercise this Warrant and pay the exercise price, or any
portion thereof, with securities of the Company during any period in which the
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<PAGE> 7
Company has entered into discussions regarding an Acquisition Transaction or
otherwise has proposed or received a proposal for such a transaction (and prior
to the delivery of a notice of such transaction as set forth above), the Company
shall (i) inform Holder of such proposal or discussions prior to effectuating
such exercise and (ii) give Holder the option of terminating or delaying the
exercise hereof until an agreement or binding commitment regarding such
Acquisition Transaction is entered into, if any.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in
the Purchase Price, or number or type of shares issuable upon exercise of this
Warrant, the Chief Financial Officer or Controller of the Company shall compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Purchase
Price. The Company shall promptly send (by facsimile and by either first class
mail, postage prepaid or overnight delivery) a copy of each such certificate to
the Holder.
6. LOSS OR MUTILATION. Upon receipt of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of this Warrant, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver in lieu thereof a new Warrant of like tenor
as the lost, stolen, destroyed or mutilated Warrant.
7. RESERVATION OF COMMON STOCK. The Company hereby covenants that
at all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company as are from time to time issuable upon exercise of this
Warrant and, from time to time, will take all steps necessary to amend its
Articles of Incorporation to provide sufficient reserves of shares of Common
Stock issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of all
preemptive rights, except encumbrances or restrictions arising under federal or
state securities laws. Issuance of this Warrant shall constitute full authority
to the Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant.
8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of
this Warrant and compliance with all applicable securities laws, this Warrant
and all rights hereunder may be transferred to any Registered Holder's parent,
subsidiary or affiliate, in whole or in part, on the books of the Company
maintained for such purpose at the principal office of the Company referred to
above, by the Registered Holder hereof in person, or by duly authorized
attorney, upon surrender of this Warrant together with a properly endorsed form
of Notice of Assignment attached hereto as Exhibit 3 and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Upon any permitted partial transfer, the Company will issue and deliver to the
Registered Holder a new Warrant or Warrants with respect to the shares of
Warrant Stock not so transferred. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that when this Warrant shall
have been so endorsed, the person in possession of this Warrant may be treated
by the Company, and all other
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<PAGE> 8
persons dealing with this Warrant, as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented hereby, any notice
to the contrary notwithstanding; provided, however that until a transfer of this
Warrant is duly registered on the books of the Company, the Company may treat
the Registered Holder hereof as the owner for all purposes.
9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof,
agrees that, absent an effective registration statement filed with the SEC under
the Securities Act of 1933, as amended (the "1933 Act"), covering the
disposition or sale of this Warrant or the Warrant Stock issued or issuable upon
exercise hereof, as the case may be, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer, pledge,
or hypothecate any or all such Warrants or Warrant Stock, as the case may be,
unless either (i) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such
registration is not required in connection with such disposition or (ii) the
sale of such securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant,
the holder hereby represents, warrants and covenants that any shares of stock
purchased upon exercise of this Warrant or acquired upon conversion thereof
shall be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof; that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
the Company such information as is necessary to permit the Holder to evaluate
the merits and risks of its investment in the Company; that the Holder is able
to bear the economic risk of holding such shares as may be acquired pursuant to
the exercise of this Warrant for an indefinite period; that the Holder
understands that the shares of stock acquired pursuant to the exercise of this
Warrant or acquired upon conversion thereof will not be registered under the
1933 Act (unless otherwise required pursuant to exercise by the Holder of the
registration rights, if any, previously granted to the Registered Holder) and
will be "restricted securities" within the meaning of Rule 144 under the 1933
Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of exercise of this Warrant,
subject to any special treatment by the SEC for exercise of this Warrant
pursuant to Section 2.2, and even then will not be available unless a public
market then exists for the stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and that all stock certificates representing shares of stock
issued to the Holder upon exercise of this Warrant may have affixed thereto a
legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
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INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
11. REGISTRATION RIGHTS. All shares of Warrant Stock issuable upon
exercise of this Warrant shall be "Registrable Securities" or such other
definition of securities entitled to registration rights pursuant to the
Investors' Rights Agreement dated September 30, 1999, by and among the Company,
the Holder and other holders of the Company's securities.
12. NOTICES. All notices and other communications from the Company
to the Holder shall be given in accordance with the Agreement.
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the laws of the State of California.
15. NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or bylaws, or through reorganization, consolidation,
merger, dissolution, issue or sale of securities, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Registered Holder
of this Warrant against impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
stock issuable upon the exercise of this Warrant above the amount payable
therefor upon such exercise, and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non- assessable shares of Common Stock upon exercise of this
Warrant.
16. NOTICES OF RECORD DATE. In case:
16.1 the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant), for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities or to receive any other
right; or
16.2 of any consolidation or merger of the Company with or
into another corporation, any capital reorganization of the Company, any
reclassification of the Common Stock of the Company, or any conveyance of all or
substantially all of the assets of the Company
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to another corporation in which holders of the Company's stock are to receive
stock, securities or property of another corporation; or
16.3 of any voluntary dissolution, liquidation or winding-up
of the Company; or
16.4 of any redemption of all outstanding Common Stock; then,
and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock or (such stock or
securities as at the time are receivable upon the exercise of this Warrant),
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities), for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
17. SEVERABILITY. If any term, provision, covenant or restriction of
this Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
18. NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Warrant enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of this Warrant or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.
19. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on
a Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.
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IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the Effective Date.
GENERAL AUTOMATION, INC.
By: ______________________________ By: _________________________________
SIGNATURE PAGE TO WARRANT
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EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
General Automation, Inc. WARRANT NO. ___
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, the securities of General Automation, Inc., as provided for therein,
and (check the applicable box):
Tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the amount of
$____________ for _________ such securities.
Elects the Net Issue Exercise option pursuant to Section 2.2 of the
Warrant, and accordingly requests delivery of a net of ______________ of such
securities, according to the following calculation:
X = Y (A-B)( ) = (____) [(_____) - (_____)]
-----------
A (_____)
Where X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date
of such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such
calculation).
Elects the Easy Sale Exercise option pursuant to Section 2.4 of the
Warrant, and accordingly requests delivery of a net of ______________ of such
securities.
Please issue a certificate or certificates for such securities in the
name of, and pay any cash for any fractional share to (please print name,
address and social security number):
Name: ______________________________________
Address: ______________________________________
Signature: ______________________________________
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
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EXHIBIT 2
NOTICE OF EXPIRATION
General Automation, Inc. WARRANT NO. ___
Dated:
To __________________, the Holder of this Warrant:
You are hereby notified that the Warrant will expire on
___________________________ (the "Expiration Date"). The Expiration Date is
(check one):
(i) ________ The sixth (6th) anniversary of the payment in full or
conversion of the note issued together with the Warrant.
(ii) ________ The tenth (10th) anniversary of the date of issuance of
the Warrant.
(iii) ________ Thirty (30) days after the date of delivery of this
Notice (if later than (i) and (ii) above).
In order to exercise the Warrant, you must comply with the provisions of
Section 2 thereof on or before the Expiration Date.
GENERAL AUTOMATION, INC.
By: _____________________________
_____________________________
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EXHIBIT 3
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
WARRANT NO. ___
For value received, _________________ hereby sells, assigns and
transfers unto _________________ the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint __________________ ___________________ attorney, to transfer said
Warrant Certificate on the books of the within-named Company with respect to the
number of Warrants set forth below, with full power of substitution in the
premises:
- --------------------------------------------------------------------------------
NAME(S) OF ASSIGNEE(S) ADDRESS # OF WARRANTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
And if said number of Warrants shall not be all the Warrants represented
by the Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the Warrants registered by
said Warrant Certificate.
Dated: ___________________________
Signature: ___________________________
Notice: The signature to the foregoing Assignment must correspond to the name as
written upon the face of this security in every particular, without alteration
or any change whatsoever; signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to Securities and Exchange Commission Rule 17Ad-15.
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EXHIBIT 10.4
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of September 30, 1999 (as amended from
time to time, this "Agreement "), by and among GENERAL AUTOMATION, INC., a
Delaware corporation (the "Borrower"), and PACIFIC MEZZANINE FUND, L.P., a
California limited partnership ("PMF") (together with any subsequent Lender
pursuant to Section 1.2.6 hereof, each a "Secured Party" and collectively, the
"Secured Parties").
R E C I T A L S
A. Borrower and the Secured Parties have entered into that certain
Loan Agreement dated as of September 30, 1999 (as amended from time to time, the
"Loan Agreement") pursuant to which the Secured Parties have agreed to make a
Loan to the Borrower.
B. It is a condition to the closing of the Loan Agreement that the
Borrower execute this Agreement granting to the Secured Parties a security
interest in the collateral described herein, as set forth herein.
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND RELATED MATTERS
Section 1.1. Definitions. Terms with initial capital letters not
otherwise defined in this Agreement have the meanings set forth in the Loan
Agreement (except as otherwise provided herein). In addition, the following
terms with initial capital letters have the following meanings:
"Account Debtor" means any Person who is or may become obligated to the
Borrower on any Receivable.
"Accounts" is defined in Section 2.1.1.
"Agreement" is defined in the Preamble.
"Approvals" is defined in Section 2.1.10.5.
"Bank" shall mean Comerica Bank.
"Borrower" is defined in the Preamble.
"Charges" means all federal, state, county, city, municipal or other
taxes, liens, assessments or charges that, if not paid when due, may result in a
Lien of any Government Authority.
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"Chattel Paper" is defined in Section 2.1.3.
"Collateral" is defined in Section 2.1.
"Documents" is defined in Section 2.1.8.
"Equipment" is defined in Section 2.1.6.
"Event of Default" is defined in Section 5.1.
"Fixtures" is defined in section 2.1.7.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" is defined in Section 2. 1. 10.
"Intercreditor Agreement" means that certain Intercreditor Agreement by
and among the Secured Parties and acknowledged by the Borrower.
"Inventory" is defined in Section 2.1.5.
"Notes Receivable" is defined in Section 2.1.2.
"Pledged Collateral" is defined in Section 4.8.
"Proceeds" is defined in Section 2.1.14.
"Receivables" means Accounts, Notes Receivable, Chattel Paper and other
rights to the payment of money.
"Secured Documents" means, collectively, the Loan Agreement, the Notes,
the Collateral Documents, and any other instrument or other writing executed or
delivered by the Borrower in connection therewith, and all amendments,
appendices, exhibits and schedules to any of the foregoing, other than the
Warrants, the Investors' Rights Agreement, and the Investment Unit Pricing
Agreement.
"Secured Obligations" is defined in Section 2.2.
"Securities" is defined in Section 2.1.9.
"Security Interest" is defined in Section 2.1.
"Senior Lender" shall mean any Lender whose rights are senior to the
Secured Parties in accordance with the terms of the Loan Agreement, including
the Bank and the holders of the first and second deeds of trust on the Company's
headquarters and any transferee or assignee thereof in accordance with the terms
hereof.
"Special Depository Account" shall mean the bank account established
pursuant to the Special Depository Account Agreement.
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"Special Depository Account Agreement" shall mean that certain Special
Depository Account Agreement dated as of the date hereof between the Borrower,
the Secured Parties and the Bank.
"Supplemental Documentation" means financing statements, continuation
statements, warehouse receipts, bills of lading, assignments of accounts,
patents, trademarks or copyrights, schedules of Collateral, mortgages and other
instruments or documents necessary or requested by the Secured Parties (i) to
create, perfect and maintain perfected the Security Interest in any Collateral
or (ii) to enable the Secured Parties to receive all interest, dividends and
distributions from time to time paid with respect to, and all Proceeds of, all
Collateral which the Secured Parties is entitled to receive hereunder.
"UCC" means the Uniform Commercial Code (as amended from time to time)
of the State of California.
Section 1.2. Related Matters.
1.2.1. Terms Used in the UCC. Unless the context clearly
otherwise requires, all lower-case terms used and not otherwise defined herein
that are used or defined in Division 9 (or any equivalent subpart) of the UCC
have the same meanings herein.
1.2.2. Constructions. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular, the
singular includes the plural, the part includes the whole, "including" is not
limiting and "or" has inclusive meaning represented by the phrase "and/or". The
words "hereof," "herein," "hereby," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole (including the Preamble, the
Recitals and all Schedules and Exhibits attached hereto) and not to any
particular provision of this Agreement. Article, Section, subsection, Exhibit,
Recital, Preamble and Schedule references in this Agreement are to this
Agreement unless otherwise specified. References in this Agreement to any
agreement, other document or law "as amended" or "as amended from time to time,"
or to amendments of any document or law, shall include any amendments,
supplements, replacements, renewals or other modifications not prohibited by the
Loan Documents.
1.2.3. Governing Law. Except to the extent otherwise required
by Applicable Law, the UCC shall govern the attachment, perfection, priority and
enforcement of the Security Interest and all other matters to which the UCC
applies pursuant to the terms thereof. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
1.2.4. Headings. The Article and Section headings used in this
Agreement are for convenience of reference only and shall not affect the
construction hereof.
1.2.5. Severability. If any provision of this Agreement or any
Lien or other right hereunder shall be held to be invalid, illegal or
unenforceable under Applicable Law in any jurisdiction, such provision, Lien or
other right shall be ineffective only to the extent of such invalidity,
illegality or unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity, legality or
enforceability of such provision, Lien or right in any other jurisdiction.
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1.2.6. Additional Secured Parties. The parties acknowledge and
agree that additional parties may lend funds to Borrower under the Loan
Agreement. Such additional lenders shall execute this Agreement together with
such additional documents as PMF may reasonably require in form and content
satisfactory to PMF prior to making such loan.
ARTICLE 2
THE SECURITY INTEREST; SECURED OBLIGATIONS
Section 2.1. Security Interest.
To secure the payment and performance of the Secured Obligations as and
when due, the Borrower hereby grants, conveys, pledges, assigns and transfers to
the Secured Parties a security interest (the "Security Interest") in, all right,
title, claim, estate and interest of the Borrower in and to all property,
wherever located, and interests of the Borrower, tangible or intangible, whether
now owned and existing or hereafter acquired or arising (such property and
interests in property being collectively referred to herein as the
"Collateral"), including the following:
2.1.1. Any and all rights to payment for goods sold or leased
or for services rendered, including any such rights evidenced by Chattel Paper,
whether due or to become due and whether or not earned by performance (excluding
any such rights evidenced by Notes Receivable) (the "Accounts");
2.1.2. Any and all negotiable instruments, promissory notes,
acceptances, drafts, checks, letters of credit, certificates of deposit and
other writings that evidence a right to the payment of money by any other
Person, including (the "Notes Receivable");
2.1.3. Any and all chattel paper, including writings that
evidence both a monetary obligation and a security interest in or lease of
specific goods (the "Chattel Paper");
2.1.4. Any and all rights to payment of money not listed above
and any and all rights, titles, interests, securities, Liens and guaranties
evidencing, securing, guaranteeing payment of or in any way relating to any
Receivables;
2.1.5. Any and all goods that may at any time be held for sale
or lease or furnished under any contract of service, or are sold, leased or
furnished under any contract of service, or constitute raw materials,
work-in-process, parts, supplies or materials that are or might be used or
consumed in a business or in connection with the manufacture, selling or leasing
of such goods ("Inventory");
2.1.6. Any and all equipment and other goods (excluding
Inventory), including the following personal property: machinery, machine tools,
office machinery (including computers, typewriters and duplicating machines),
motor vehicles, trailers, rolling stock, motors, pumps, controls, tools, parts,
works of art, furniture, furnishings and trade fixtures, all athletic equipment
and supplies and all molds, dies, drawings, blueprints, reports, catalogs and
computer programs related to any of the above (together with all related
property described in Section 2.1.12, the "Equipment");
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2.1.7. Any and all fixtures, including machinery, equipment or
appliances for generating, storing or distributing air, water, heat,
electricity, light, fuel or refrigeration, for ventilating or sanitary purposes,
elevators, safes, laundry, kitchen and athletic equipment, trade fixtures, and
telephone, television and other communications equipment (the "Fixtures");
2.1.8. Any and all documents, whether or not negotiable,
including bills of lading, warehouse receipts, trust receipts and the like (the
"Documents");
2.1.9. Any and all stocks, bonds, general and limited
partnership interests, limited liability company interests, joint venture
interests and other securities, subscription rights, options, warrants, puts,
calls and other rights with respect thereto, and investment and brokerage
accounts (the "Securities");
2.1.10. Any and all general intangibles, contract rights and
other property described below (together with any property listed under Section
2.1.4 above, the "General Intangibles"), including the following:
2.1.10.1. deposit and other accounts, including demand,
time savings, passbook and like accounts maintained with any bank, savings and
loan association, credit union, brokerage or other institution (including the
deposit accounts listed on Schedule 2.1.10.1), the Special Depository Account
and any and all money, instruments and other property from time to time
deposited therein or credited thereto, or received, receivable or otherwise
distributed therefrom, in respect thereof or in exchange therefor, including all
interest accruing thereon;
2.1.10.2. insurance policies and all rights and claims
therein or thereunder (including prepaid and unearned premiums), including
insurance against casualty (including by fire or earthquake) or liability
(including against environmental cleanup costs), title insurance, business
interruption insurance and builders risk insurance, whether covering personal or
real property;
2.1.10.3. any rights, claims, judgments, awards, orders
or decrees arising out of or in connection with any judicial action, litigation,
arbitration, mediation or other proceedings;
2.1.10.4. any and all leases of real or personal
property, licensing agreements and other contracts, and all guarantees,
warranties, royalties, license fees and rights under such contracts;
2.1.10.5. any and all Governmental Approvals, including
permits, licenses, certificates of use and occupancy (or their equivalents) and
zoning and other approvals, and tax and other refunds, compensation, awards,
payments and relief given or made by any Governmental Authority (including
condemnation awards) (the "Approvals");
2.1.10.6. deposits, surety and other bonds, and choses
and things in action;
2.1.10.7. computer programs, computer software
(including all source and object codes, all media of any type or nature on which
such source or object codes are
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reproduced, copied, stored or maintained), technology processes, proprietary
information, patents, patent applications, copyrights, copyright applications,
trademarks, trademark applications, service marks, trade and other names, trade
secrets, customer lists, the entire goodwill of or associated with the business
now or hereafter conducted by the Borrower, and other Proprietary Rights,
including the intellectual property rights listed on Schedule 2.1.10.8 (the
"Intellectual Property Collateral").
2.1.11. Any and all books and records (including
ledgers, correspondence, credit files, computer software, computer storage media
and electronically recorded data) pertaining to the Borrower or any of the
foregoing and all equipment receptacles, containers and cabinets therefor;
2.1.12. Any and all accessions, appurtenances,
components, repairs, repair parts, spare parts, renewals, improvements,
replacements, substitutions and additions to, of or with respect to any of the
foregoing;
2.1.13. Any and all rights, remedies, powers and
privileges of the Borrower with respect to any of the foregoing; and
2.1.14. Any and all proceeds and products of any of the
foregoing, whether now held and existing or hereafter acquired or arising
(collectively, the "Proceeds"). "Proceeds" shall include (i) whatever is now or
hereafter received by the Borrower upon the sale, lease, license, exchange,
collection, other disposition or operation of any item of Collateral, whether
such proceeds constitute accounts, general intangibles, instruments, securities,
documents, letters of credit, chattel paper, deposit accounts, money, goods or
other personal property, (ii) any items that are now or hereafter acquired by
the Borrower with any Proceeds of Collateral, (iii) any amounts now or hereafter
payable under any insurance policy by reason of any loss of or damage to any
Collateral or the business of the Borrower, (iv) all rights to payment for the
sale of services or products in connection with the business of the Borrower,
(v) all royalties, rights to payment, accounts receivable and proceeds of
infringement suits in connection with the Intellectual Property Collateral, and
(vi) the right to further transfer, including by pledge, mortgage, license,
assignment or sale, any of the foregoing.
Section 2.2. Secured Obligations.
The Security Interest shall secure the due and punctual payment and
performance by the Borrower of any and all present and future obligations of the
Borrower under the Secured Documents, including without limitation, all
obligations and liabilities of the Borrower of every type or description to the
Secured Parties, or any Person entitled to indemnification under the Loan
Agreement, and any other Secured Document:
2.2.1. arising under or in connection with the Loan Agreement
or the Notes whether for principal of or premium (if any) or interest on the
Loan, expenses, indemnities or other amounts (including attorneys' fees and
expenses); or
2.2.2. arising under or in connection with the Loan Agreement,
this Agreement or any other Secured Document, including for reimbursement of
amounts permitted to be
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advanced or expended by the Secured Parties (i) to satisfy amounts required to
be paid by the Borrower under this Agreement or any other Secured Document for
claims and Charges, together with interest thereon to the extent provided, or
(ii) to maintain or preserve any Collateral or to create, perfect, continue or
protect any Collateral or the Security Interest therein, or their priority;
in each case whether due or not due, direct or indirect, joint and/or several,
absolute or contingent, voluntary or involuntary, liquidated or unliquidated,
determined or undetermined, now or hereafter existing, renewed or restructured,
whether or not from time to time decreased or extinguished and later increased,
created or incurred, whether or not arising after the commencement of a
proceeding under the Bankruptcy Code (including post-petition interest) and
whether or not recovery of any such obligation or liability may be barred by a
statute of limitations or such obligation or liability may otherwise be
unenforceable (all obligations and liabilities described in this Section 2.2.
are collectively referred to as the "Secured Obligations").
ARTICLE 3
WARRANTIES AND REPRESENTATIONS
The Borrower represents and warrants that all representations and
warranties made with respect to it, its assets and its obligations in the Loan
Agreement are true and correct and makes the following additional
representations and warranties, all of which shall survive until the termination
of this Agreement pursuant to Section 6.7.
Section 3.1. Filings. Etc.
3.1.1. Duly executed financing statements containing a correct
description of the Collateral have been delivered to the Secured Parties for
filing in every governmental office in every state, county and other
jurisdiction in which the principal or any other place of business or the chief
executive office of the Borrower, or any portion of the Collateral, is located
and in each jurisdiction in which such action is necessary to establish a valid
and perfected Lien in favor of the Secured Parties in all Collateral in which a
Lien may be perfected by filing, and no further or subsequent filing, recording
or registration is necessary in any such jurisdiction, except as provided under
Applicable Law with respect to the filing of continuation statements.
3.1.2. In the event that any filing is made with the United
States Patent and Trademark Office (the "PTO") or the United States Copyright
Office (the "Copyright Office") with respect to the Collateral, Borrower shall
make file such documents or instruments with the PTO or Copyright Office, as the
case may be, as are reasonably necessary to perfect the Security Interest with
respect to such Collateral, junior only to the Senior Lenders.
Section 3.2. Locations of Collateral, Offices and Names.
(i) The Borrower's chief executive office and principal place of
business is located at the address set forth on Schedule 3.2, (ii) all other
places of business of the Borrower and all other locations at which any tangible
Collateral or books and records related to any Collateral are (or during the
past four months were) located are set forth on Schedule 3.2, and (iii) there
are no
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prior or current trade or legal names used to identify the Borrower in its
business or in the ownership of its properties other than those set forth on
Schedule 3.2.
Section 3.3. Title to Collateral; Validity and Perfection of Security
Interest; Absence of Other Liens.
3.3.1. The Borrower has good and marketable title to, or valid
and subsisting leasehold interests in, all Collateral reflected on its financial
statements as being owned or leased by it and "rights" in all other Collateral
within the meaning of Section 9203 of the UCC. For any Intellectual Property
Collateral for which the Borrower is a licensee pursuant to a license or
licensing agreement regarding such Intellectual Property Collateral, each such
license or licensing agreement is in full force and effect; the Borrower is not
in default of any of its obligations thereunder; and all such licenses material
to the operation of the Borrower's business arise under agreements included as
General Intangibles.
3.3.2. The Security Interest constitutes a valid and, upon the
filing of financing statements covering the Collateral and other documents
referred to in Section 3.1 with the appropriate Governmental Authorities or
other Persons referred to in such Section, perfected Lien in all of the
Collateral securing payment and performance of the Secured Obligations. The
Collateral is free and clear of all Liens other than the Security Interest and
the security interests of the Senior Lenders permitted under the Loan Agreement.
3.3.3. Except for financing statements in favor of the Secured
Parties and the Permitted Liens (as defined in the Loan Agreement), the Borrower
has filed no now-effective financing statement covering the Collateral or any
part thereof.
Section 3.4. Notes Receivable.
Schedule 2.1.2. lists all Notes Receivable of the Borrower. There are no
setoffs or counterclaims or disputes existing or asserted with respect to any
such Notes Receivable.
Section 3.5. Patents, Trademarks and Copyrights.
3.5.1. Schedule 2.1.10.8 lists all Proprietary Rights in which
the Borrower has an interest. Except as disclosed on Schedule 2.1.10.8, all
Proprietary Rights are valid and enforceable and the Borrower is the sole and
exclusive owner of each of the Proprietary Rights, free and clear of any Liens
(other than Liens in favor of the Secured Parties).
3.5.2. Except for filings or recordations in favor of the
Secured Parties and the Senior Lenders, the Borrower has filed or recorded no
now-effective mortgages, transfers or assignments covering the Proprietary
Rights or any part thereof.
3.5.3. Except as set forth on Schedule 2.1.10.8, the Borrower
(directly or through any Subsidiary) does not own, possess or use under any
licensing arrangement any copyrights, patents, trademarks or service marks, nor
is there currently pending before any Governmental Authority any copyright
registration or any application for registration of any patent, trademark or
servicemark.
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3.5.4. All of the Borrower's Proprietary Rights are subsisting
and have not been adjudged invalid or unenforceable in whole or in part.
3.5.5. All maintenance fees required to be paid on account of
any of the Borrower's patents or patent applications (or any related Collateral)
have been timely paid for maintaining such Collateral in force, and, to the
Borrower's Best Knowledge, each of its patents is valid and enforceable and the
Borrower has notified the Secured Parties in writing of all prior art (including
public uses and sales) of which it is aware.
3.5.6. To the Borrower's Best Knowledge, no material
infringement or unauthorized use is being made of any Intellectual Property
Collateral by any Person.
3.5.7. The past present and contemplated future use of the
Intellectual Property Collateral by the Borrower has not, does not, and will not
infringe or violate any right, privilege or license agreement of or with any
other Person.
3.5.8. The Borrower owns, has material rights under, is a party
to, or an assignee of a party to, all material licenses, patents, patent
applications, copyrights, service marks, servicemark applications, trademarks,
trademark applications, trade names, and all other Intellectual Property
Collateral necessary to continue to conduct its business as heretofore
conducted.
3.5.9. The Borrower has taken and will continue to take all
reasonable steps to protect and preserve the secrecy of all trade secrets
relating to any of its unpublished Intellectual Property Collateral and
Proprietary Rights.
Section 3.6. Investment Property
The names and addresses of all securities intermediaries (as such term
is defined in Section 8102(a)(14) of the UCC) with whom the Borrower maintains
any investment property (as such term is defined in Section 9115(l)(f) of the
UCC), and the account numbers and account names of any securities accounts (as
such term is defined in Section 8501 of the UCC) holding any investment
property, are set forth in Schedule 3.6. Except as set forth in Schedule 3.6,
the Borrower does not have any right, title or interest in or to any investment
property.
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ARTICLE 4
COVENANTS AND AGREEMENTS
Section 4.1. Further Assurances.
The Borrower shall, at its own expense, perform such acts as may be
necessary, or that the Secured Parties may request in writing at any time, to
assure the attachment and perfection of the Security Interest to exercise the
rights and remedies of the Secured Parties hereunder or to carry out the intent
of this Agreement. The Security Interest shall be junior only to the security
interests of the Senior Lenders. Without limitation, the Borrower shall execute
and deliver (or cause any third party to execute and deliver) to the Secured
Parties, at any time and from time to time, all Supplemental Documentation in
form and substance acceptable to the Secured Parties.
Section 4.2. Inspection and Verification.
The Borrower shall keep or cause to be kept accurate and complete
records of the Collateral at the Borrower's chief executive office. The Secured
Parties and their employees and agents shall have the right, at all times during
the Borrower's usual business hours upon reasonable written notice, but in no
event less than two (2) Business Days' notice (or such shorter period as may be
necessary during the continuance of an Event of Default), to (i) inspect, and
verify the quality, quantity, value and condition of, or any other matter
relating to, the Collateral, (ii) inspect all records relating thereto and to
make (or require the Borrower to provide) copies of such records, and (iii)
enter upon all premises upon which any of the Collateral is located.
Notwithstanding the foregoing, the Secured Parties shall not contact third
parties in making such inspection or verification (and then only after notice to
the Borrower) unless an Event of Default shall then exist.
Section 4.3. Power of Attorney.
The Borrower hereby irrevocably appoints the Secured Parties and their
employees and agents as the Borrower's true and lawful attorneys-in-fact, with
full power of substitution, (i) to do all things required to be done by the
Borrower under this Agreement or the other Loan Documents and (ii) to do all
things that the Secured Parties may deem necessary or advisable to assure the
attachment, perfection and priority of the Security Interest or otherwise to
exercise the rights and remedies of the Secured Parties hereunder or carry out
the intent of this Agreement, provided that the Secured Parties shall not
exercise any of their rights under the foregoing power of attorney unless a
Default or an Event of Default shall have occurred and be continuing. Without
limitation, the Secured Parties and their officers and agents shall be entitled
to do all of the following, as fully as the Borrower might:
4.3.1. to sign the name of the Borrower on any Supplemental
Documentation and to deliver and file such Supplemental Documentation to or with
such Persons as the Secured Parties, in their discretion, may elect;
4.3.2. to sign any certificate of ownership, registration card,
application therefor, affidavits or documents necessary to transfer title to any
of the Collateral, to receive and receipt for all licenses, registration cards
and certificates of ownership;
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4.3.3. to affix, by facsimile signature or otherwise, the
general or special endorsement of the Borrower, in such manner as the Secured
Parties shall deem advisable, to any Pledged Collateral that has been delivered
to or obtained by the Secured Parties without appropriate endorsement or
assignment; and
4.3.4. during the existence of an Event of Default, upon not
less than three (3) business days written notice to the Borrower and at such
time or times as the Secured Parties in their discretion may determine, in the
Borrower's or in the Secured Parties' name:
4.3.4.1. to collect any and all amounts due to the
Borrower from Account Debtors with respect to Receivables by legal proceedings
or otherwise;
4.3.4.2. to make, settle and adjust any claims under
insurance policies, and make any decisions with respect thereto;
4.3.4.3. to attend and vote at any and all meetings of
the holders of Securities and to execute any and all written consents of such
holders with the same effect as if the Borrower had personally attended and
voted at such meetings or had personally signed such consents; and
4.3.4.4. to execute any and all applications, documents,
papers and instruments necessary for the Secured Parties to use the Intellectual
Property Collateral and to grant or issue any exclusive or non-exclusive license
or sublicense with respect to any Intellectual Property Collateral.
The Secured Parties shall be under no obligation whatsoever to take any
of the foregoing actions, and absent bad faith, gross negligence or willful
misconduct, the Secured Parties and their Affiliates, shareholders, directors,
officers, employees and agents shall have no liability or responsibility for any
act taken or omitted with respect thereto. A copy of this Agreement and, if
applicable, a written statement by the Secured Parties that an Event of Default
exists shall be conclusive evidence of the Secured Parties' right to act under
this Section 4.3 as against all third parties.
Section 4.4. Changes of Locations of Collateral, Offices, Name or
Structure.
The Borrower shall not remove any Collateral, books or records related
to, or keep any Collateral, books or records related thereto or do business at,
a location not set forth on Schedule 3.2, adopt a trade name or change its name,
chief executive office, principal place of business, identity or corporate
structure (other than the changes in structure contemplated by the Loan
Documents) without the prior written consent of the Secured Parties which won't
be unreasonably withheld, delayed or conditioned, except sales in the ordinary
course of business.
Section 4.5. Payment of Charges and Claims.
The Borrower shall pay (i) all Charges lawfully imposed upon any
Collateral and (ii) all claims (including claims for labor, services and
materials) that have become due and payable and, under Applicable Law, have or
may become Liens upon any Collateral, in each case before any material penalty
shall be incurred with respect thereto; provided that, unless foreclosure,
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levy or similar proceedings shall have commenced, the Borrower need not pay or
discharge any such Charges or claims so long as adequate reserves therefor have
been established in accordance with GAAP. If the Borrower fails to pay or obtain
the discharge of any Charge, claim or Lien required to be paid or discharged
under this Section 4.5, the Secured Parties may, at any time and from time to
time, in their discretion and without waiving or releasing any obligation of the
Borrower under this Agreement or the other Loan Documents or waiving any Default
or Event of Default, make such payment, obtain such discharge or take such other
action with respect thereto as the Secured Parties deems advisable.
Section 4.6. Continuing Obligations of the Borrower; Indemnity.
4.6.1. The Borrower shall remain liable to observe and perform
all agreements and other obligations relating to or included in the Collateral
(the "Contractual Obligations") in accordance with their respective terms. The
Secured Parties shall not have any duty, obligation or liability under or with
respect to any such Contractual Obligations, whether by reason or arising out of
this Agreement, the receipt by the Secured Parties of any payment relating to
any such Contractual Obligation or otherwise, and the Borrower agrees to
indemnify and hold harmless the Secured Parties from any and all such
obligations and liabilities.
4.6.2. The Secured Parties shall not have any duty of care with
respect to the Collateral, other than an obligation to exercise reasonable care
with respect to Collateral in their possession or under their control; provided
that (i) the Secured Parties shall be deemed to have exercised reasonable care
if Collateral in their possession is accorded treatment substantially comparable
to that which such the Secured Parties accords their own property, and (ii) the
Secured Parties shall have no obligation to take any actions to preserve rights
against other parties or property with respect to any Collateral. Without
limitation, the Secured Parties shall (a) bear no risk or expense with respect
to any Collateral and (b) have no duty with respect to calls, conversions,
presentments, maturities, notices or other matters relating to Pledged
Collateral, or to maximize interest or other returns with respect thereto.
4.6.3. The Secured Parties may at any time deliver or redeliver
the Collateral or any part thereof to the Borrower and the receipt of any of the
same by the Borrower shall be complete and full acquittance for the Collateral
so delivered, and the Secured Parties thereafter shall be discharged from any
liability or responsibility therefor.
4.6.4. The Borrower hereby agrees to indemnify and hold
harmless the Secured Parties and their Affiliates, shareholders, directors,
officers, employees and agents against any and all claims, actions, liabilities,
costs and expenses of any kind or nature whatsoever (including reasonable fees
and disbursements of counsel) that may be imposed on, incurred by, or asserted
against any of them, in any way relating to or arising out of this Agreement or
any action taken or omitted by them hereunder, except to the extent a court
holds in a final and nonappealable judgment that they resulted from the gross
negligence or willful misconduct of such Persons.
4.6.5. The Secured Parties agrees not to disclose any
proprietary information of the Borrower that is by its nature confidential,
including, but not limited to, information concerning technology, software,
source codes, financial information, and other confidential or proprietary
business information. This Section 4.6.5 shall not apply to information that is
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demonstrably in the knowledge of the Secured Parties prior to their receipt from
the Borrower, that is in the public domain on the date of its disclosure without
any breach of this Section 4.6.5 or unauthorized disclosure of such information,
that is rightfully received by the Secured Parties from a third party without
confidentiality limitations, that is required to be disclosed by law or in
connection with a judicial or arbitration proceeding, or that is necessary or
required to be disclosed by the Secured Parties in connection with the exercise
of their remedies hereunder or under any other Loan Document. In addition, this
Section 4.6.5 shall not apply to information that the Secured Parties furnishes
to participants, successors or assigns, or potential participants, successors or
assigns, provided that no information shall be furnished without the written
undertaking of the recipient to keep such information confidential in accordance
with this Section 4.6.5.
Section 4.7. Sale of Collateral; Further Encumbrances.
The Borrower shall not (i) except for dispositions of Inventory, and
other dispositions of Collateral in the ordinary course of the Borrower's
business not prohibited by the Loan Documents (collectively, "Permitted Sales"),
sell, assign, lease, license, sublicense, or otherwise dispose of any
Collateral, or any interest therein, or (ii) except for Liens permitted under
the Loan Agreement, grant or suffer to exist any Lien in or on any Collateral,
or (iii) except as permitted under the Loan Agreement or any other Loan
Document, sign or authorize the filing of any financing statement or the filing
or recordation of any mortgage, transfer or assignment or the delivery of any
notice with respect to any of the Collateral. Concurrently with any Permitted
Sale, the Security Interest shall automatically be released from the Collateral
so disposed of; provided, however, that the Security Interest shall continue in
the Proceeds thereof. If any Collateral, or any interest therein, is disposed of
in violation of these provisions, the Security Interest shall continue in such
Collateral or interest notwithstanding such disposition, the Person to which the
Collateral or interest is being transferred shall be bound by this Agreement and
the Borrower shall deliver all Proceeds thereof to the Secured Parties to be
held as Collateral hereunder.
Section 4.8. Protection of Security; Notice of Levy.
The Borrower shall, at its own cost and expense, take any and all
actions necessary to defend title to the Collateral against all Persons and
against all claims and demands and to preserve, protect and defend the Security
Interest and the priority thereof, against any adverse Liens (other than those
of the Senior Lenders). The Borrower will promptly notify the Secured Parties of
any attachment or other legal process levied against any Collateral.
Section 4.9. Equipment and Fixtures.
The Borrower, at its expense, shall cause the Equipment and Fixtures to
be maintained and preserved in substantially the same condition, repair and
working order as when new, ordinary wear and tear excepted. Notwithstanding the
foregoing sentence, the Borrower shall not be required to maintain and repair
Equipment and Fixtures to the extent that they are either obsolete or the cost
of maintaining them exceeds their fair market value. In the case of any loss or
damage to any of the Equipment or Fixtures, the Borrower shall, as promptly as
practicable after the occurrence thereof, make or cause to be made all repairs,
replacements and other
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improvements in connection therewith that are necessary or desirable to such end
and promptly furnish to the Secured Parties a written report with respect to any
loss or damage in excess of $5,000 to any Equipment or Fixtures.
Section 4.10. Securities.
4.10.1. Subject to the rights of the Senior Lenders, the
Borrower shall immediately notify the Secured Parties upon being issued a
Security (including an interest in a general or limited partnership or in a
limited liability company that by its terms is a security governed by Division 8
of the UCC) and shall, at its own cost and expense, take such actions as are
necessary, or that the Secured Parties requests, to cause the Secured Parties to
have "control" over that Security (within the meaning of Section 9115(l)(e) of
the UCC).
4.10.2. Without limiting the foregoing, in the event that any
securities intermediary (other than the Senior Lenders) receives or holds any
investment property in favor of the Borrower as an entitlement holder, the
Borrower will execute and deliver and cause such securities intermediary to
execute and deliver to the Secured Parties a control agreement in form and
substance satisfactory to the Secured Parties in order (among other things) to
establish and maintain control over and to acknowledge the priority of the
Security Interest in such investment property in favor of the Secured Parties.
Without the prior written consent of the Secured Parties, the Borrower shall not
deliver any investment property to any Person other than the Secured Parties,
the Senior Lenders or a securities intermediary that has executed and delivered
a control agreement in favor of the Secured Parties.
Section 4.11. Intellectual Property Collateral.
4.11.1. If any of the Borrower's Intellectual Property
Collateral, including any source code or other Proprietary Rights and including
any Intellectual Property Collateral for which the Borrower is a licensee, is or
shall become subject to any escrow agreement, the Borrower shall give such
notices and obtain such acknowledgments and waivers from such escrow holder and
any other Person who is a beneficiary of any such escrow agreement as the
Secured Parties may request in order to perfect, preserve and protect the
interest and priority of the Secured Parties in such Intellectual Property
Collateral, and each such escrow agreement shall be included as a General
Intangible.
4.11.2. The Borrower will not (without the prior consent of the
Secured Parties) (i) enter into any agreement (including any license or royalty
agreement) pertaining to any Intellectual Property Collateral except in the
ordinary course of the Borrower's business or (ii) allow or suffer any
Intellectual Property Collateral to become abandoned, nor any registration
thereof to be terminated, forfeited, expired or dedicated to the public.
4.11.3. The Borrower will diligently prosecute all applications
for patents, copyrights and trademarks, and file and prosecute any and all
continuations, continuations-in-part, applications for reissue, applications for
certificate of correction and like matters as shall be reasonable and
appropriate in accordance with prudent business practice, and promptly and
timely pay any and all maintenance, license, registration and other fees, taxes
and expenses incurred in connection with any Intellectual Property Collateral.
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4.11.4. Without limiting the foregoing, the Borrower shall at
its expense do any and all acts reasonably necessary or desirable to preserve,
renew and maintain all rights in all copyrights, registrations and copyright
rights. The Borrower promptly shall give the Secured Parties written notice at
least once each calendar year of any such work or such rights of material value
to the Borrower or the operation of its business. If the Company files an
application for any registration for any copyright, the Borrower shall execute,
deliver and record in all places where this Agreement or any memorandum hereof
may be recorded and such other places as the Secured Parties may reasonably
request an appropriate security agreement, with appropriate modifications, in
form and substance satisfactory to the Secured Parties, pursuant to which the
Borrower shall grant and reaffirm its grant of a Security Interest to the extent
of its interest in such registration as provided herein to the Secured Parties.
4.11.5. Except as provided in Article 5, and notwithstanding
Article 2, the Borrower shall have the right and obligation to commence and
diligently prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such suits, proceedings or other actions for
infringement or other damage as are reasonably necessary to protect the
Intellectual Property Collateral (or any material portion thereof) or any of the
Borrower's material rights therein. The Secured Parties may be joined as parties
to such proceedings if in their sole discretion it is satisfied that it will not
incur any risk of liability or loss as a consequence thereof, and the Borrower
shall provide at its expense representation acceptable to the Secured Parties
for the common interest of the Borrower and the Secured Parties with respect to
such proceedings. The Borrower shall, promptly upon its becoming aware thereof,
notify the Secured Parties in writing of the written threat of, institution of,
or any adverse determination in, any proceeding, application, suit or action of
any kind regarding the Borrower's claim of ownership in or rights to any of the
Intellectual Property Collateral, its right to register any of the same, or its
right to keep and maintain such registration, whether before the Copyright
Office, the PTO or any United States or foreign court or governmental agency.
The Borrower shall provide promptly to the Secured Parties any information with
respect thereto reasonably requested from time to time by the Secured Parties.
Section 4.12. Subordination.
Subject to and under the circumstances set forth in the Loan Agreement,
the Secured Parties agrees to subordinate the lien created pursuant to this
Agreement in favor of one or more Senior Lenders. The rights of the Lenders
granted hereby shall be subject to the rights of the Senior Lenders. If any
conditions hereof or any rights granted hereby conflict with any conditions of
the security interests granted the Senior Lenders, or any of their rights, then
the Senior Lenders' rights and the conditions of their security interests shall
control.
ARTICLE 5
EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
Section 5.1. Event of Default.
The occurrence of one or more "Events of Default" (as defined in the
Loan Agreement) shall constitute an "Event of Default" hereunder.
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Section 5.2. Remedies.
If an Event of Default occurs and so long as such Event of Default is
continuing, then, whether or not all the Secured Obligations shall have become
immediately due and payable:
5.2.1. In addition to all their other rights, powers and
remedies under this Agreement and Applicable Law, the Secured Parties shall
have, and may exercise, any and all of the rights, powers and remedies of a
Secured Parties under the UCC, all of which rights, powers and remedies shall be
cumulative and not exclusive, to the extent permitted by Applicable Law.
5.2.2. The Secured Parties shall have the right, all at the
Secured Parties' sole option and as the Secured Parties in their discretion may
deem necessary or advisable, to do any or all of the following:
5.2.2.1. to foreclose the Security Interest by any
available judicial procedure or without judicial process;
5.2.2.2. to enter upon the premises of the Borrower or
any other place or places where Collateral is located through self-help and
without judicial process, without giving the Borrower notice and opportunity for
a hearing on the validity of the Secured Parties' claim and without any
obligation to pay rent;
5.2.2.3. to inspect and appraise the Collateral and to
prepare, repair, assemble or process the Collateral for sale, lease or other
disposition;
5.2.2.4. to remove Collateral to the premises of the
Secured Parties or any other location selected by the Secured Parties, for such
time as the Secured Parties may desire, for any purpose not prohibited hereby;
5.2.2.5. to apply any Collateral or any other assets of
the Borrower in the possession of the Secured Parties to the Secured
Obligations;
5.2.2.6. to notify Account Debtors and other obligors on
the Collateral in writing that the Collateral has been assigned to the Secured
Parties and that all payments thereon are to be made directly and exclusively to
or as specified by the Secured Parties in writing;
5.2.2.7. to collect by legal proceedings or otherwise
all dividends, distributions, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral;
5.2.2.8. to enter into any extension or reorganization
agreement or any other agreement relating to or affecting the Collateral and, in
connection therewith, deposit or surrender control of any Collateral or accept
other property in exchange therefor;
5.2.2.9. to settle, compromise or release, on terms
acceptable to the Secured Parties, in whole or in part, any amounts owing on the
Collateral or any insurance thereof or relating thereto or any disputes with
respect thereto or such insurance;
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5.2.2.10. to receive, open and dispose of all mail
addressed to the Borrower and notify postal authorities to change the address
for delivery thereof to such address as the Secured Parties may designate,
provided that the Secured Parties agrees that it will promptly deliver over to
the Borrower any such opened mail as does not relate to the Collateral;
5.2.2.11. to exercise all rights and powers under
Contractual Obligations included in the Collateral, including any right of
termination;
5.2.2.12. to use or transfer any of the Borrower's
rights and interests in any Intellectual Property Collateral, by license, by
sublicense (to the extent permitted by an applicable license) or otherwise, on
such conditions and in such manner as the Secured Parties may determine;
5.2.2.13. to exercise any and all other rights, powers,
privileges and remedies of an owner of the Collateral; and
5.2.2.14. to apply (on one or more occasions) any or all
of the funds in the Special Depository Account toward full or partial prepayment
of the Loan and/or payment of any of the other Secured Obligations in such order
as the Secured Parties may determine.
5.2.3. The Borrower shall, at the Secured Parties' written
request, assemble the Collateral and make it available to the Secured Parties at
a place in the State of California to be designated by the Secured Parties in
writing. The Borrower shall make available to the Secured Parties in the State
of California all computer and other equipment of the Borrower containing books
and records pertaining to the Collateral (and the assistance of the employees of
the Borrower having responsibility for such equipment) and to use such computer
and other equipment at no charge for the purpose of obtaining information
pertaining to the Collateral, including by making copies of computer and other
files and records.
5.2.4. Until the Secured Parties is able to effect a sale,
lease or other disposition of Collateral or any part thereof, the Secured
Parties shall have the right to use, process or operate the Collateral or any
part thereof to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by the Secured Parties. The Secured Parties shall have the right, without notice
or demand, either in person or by agent, and without regard to the adequacy of
any security for the Secured Obligations, to take possession of the Collateral
or any part thereof and to collect and receive the rents, issues, profits,
income and proceeds thereof. Taking possession of the Collateral shall not cure,
waive or affect an Event of Default or notice thereof or invalidate any act done
pursuant to such notice.
5.2.5. The Secured Parties may, if it so elects, as a matter of
strict right and without regard to the then fair market value of the Collateral,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of the Secured Parties' remedies with respect to such
appointment without prior notice or hearing. The rights, remedies and powers of
any receiver appointed by a court shall be as ordered by the court.
5.2.6. The Secured Parties shall have the right to sell, lease
or otherwise dispose of all or any Collateral in its then existing condition, or
after any further assembly, manufacturing or processing thereof, at public or
private sale or sales, with such notice as may be
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required by Section 5.4, in lots or in bulk, for cash or on credit, with or
without representations or warranties, all as the Secured Parties, in their
discretion, may deem advisable. The Secured Parties shall not be obligated to
make any sale of the Collateral regardless of notice of sale having been given.
If sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Secured Parties until
the sale price is paid by the purchaser or purchasers thereof, but the Secured
Parties shall not incur any liability in case any such purchaser or purchasers
thereof shall fail to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may be sold again upon like notice. The
Secured Parties shall have the right to conduct such sales on the Borrower's
premises or elsewhere and shall have the right to use the Borrower's premises
without charge for such sales for such duration as the Secured Parties deem
necessary or advisable. The Collateral need not be present at any such sale. To
the extent necessary or desirable, in the judgment of the Secured Parties, to
enable the Secured Parties to dispose of Collateral following an Event of
Default, the Secured Parties is authorized, without any obligation for rent,
license fees or other charge, to use the supplies, equipment, facilities and
space at the Borrower's place of business and is hereby granted a license or
other right to use, without charge, the Proprietary Rights, trade secrets,
names, trade names, customer lists, labels, advertising matter, and all property
of a similar nature that the Borrower owns or is entitled to use, as it pertains
to any Collateral, in preparing, repairing, assembling, processing, advertising
for sale or lease or otherwise in connection with the disposition of any
Collateral, and the Borrower's rights under all licenses and all franchise
agreements shall to such extent and for such purpose inure to the Secured
Parties' benefit. The Secured Parties may purchase all or any part of the
Collateral at public or, if permitted by Applicable Law, private sale, and in
lieu of actual payment of the purchase price, the Secured Parties may apply
against such purchase price any amount of the Secured Obligations. The Borrower
agrees that any sale of Collateral conducted by the Secured Parties in
accordance with the foregoing provisions of this Section and Section 5.3 shall
be deemed to be a commercially reasonable sale under Section 9504 of the UCC.
5.2.7. For the purpose of enabling the Secured Parties to
exercise their rights and remedies under this Article 5 or otherwise in
connection with this Agreement, the Borrower hereby grants to the Secured
Parties an irrevocable, nonexclusive and assignable license (exercisable without
payment or royalty or other compensation to the Borrower) to use, license or
sublicense any Intellectual Property Collateral and any other Collateral. The
Secured Parties agrees not to exercise such license except following the
occurrence of an Event of Default.
Section 5.3. Application of Proceeds.
5.3.1. Any cash proceeds received by the Secured Parties in
respect of any sale of, collection from, or other realization upon, all or any
part of the Collateral following the occurrence of an Event of Default
(including insurance proceeds) shall be applied as follows:
5.3.1.1. first, to the Secured Parties to pay all
advances, charges, costs and expenses payable to the Secured Parties pursuant to
Section 6.1; and
5.3.1.2. second, to pay the Secured Obligations in the
order determined by the Secured Parties.
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5.3.2. The Borrower shall pay to the Secured Parties on written
demand any deficiency with regard to the Secured Obligations that may remain
after such sale, collection or realization of, from or upon the Collateral.
5.3.3. Payments received from any third party on account of any
Collateral shall not reduce the Secured Obligations until paid in cash to the
Secured Parties. The application of proceeds by the Secured Parties shall be
without prejudice to the Secured Parties' rights as against the Borrower or
other Persons with respect to any Secured Obligations that may then be or remain
unpaid.
5.3.4. If at any time after an Event of Default the Borrower
receives any collections upon or other Proceeds of any Collateral, whether in
the form of cash, Notes Receivable or otherwise, such Proceeds shall be received
in trust for the Secured Parties and the Borrower shall keep all such Proceeds
separate and apart from all other funds and property so as to be capable of
identification as the property of the Secured Parties and, except as otherwise
provided in the Special Depository Account Agreement, promptly deliver such
Proceeds to the Secured Parties in the identical form received.
Section 5.4. Notice of Sale.
Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, the Secured
Parties will send or otherwise make available to the Borrower reasonable written
notice of the time and place of any public sale or of the time on or after which
any private sale of any Collateral is to be made. The Borrower agrees that any
notice required to be given by the Secured Parties of a sale or other
disposition of collateral, or any other intended action by the Secured Parties,
that is received in accordance with the provisions set forth in Section 6.4 ten
(10) days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to the Borrower. The Secured Parties may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Borrower hereby waives any
right to receive notice of any public or private sale of any Collateral or other
security for the Secured Obligations except as expressly provided for in this
Section 5.4.
ARTICLE 6
GENERAL
Section 6.1. The Secured Parties' Expenses, Including Attorneys' Fees.
Regardless of the occurrence of an Event of Default, the Borrower agrees
to pay to the Secured Parties any and all advances, charges, costs and expenses,
including the reasonable fees and expenses of counsel and any experts or agents,
that the Secured Parties may reasonably incur in connection with (i) the
protection of the perfection, continuation or priority of the Security Interest
or protection of the Collateral, including the discharging of any prior or
junior Lien or adverse claim against the Collateral or any part thereof, (ii)
the custody, preservation or sale of, collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement
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of any of the rights, powers or remedies of the Secured Parties under this
Agreement or under Applicable Law (including reasonable attorneys' fees and
expenses incurred by the Secured Parties in the collection of Collateral
deposited with the Secured Parties and amounts incurred in connection with the
operation, maintenance or foreclosure of the Security Interest) or any
bankruptcy proceeding, or (iv) the failure by the Borrower to perform or observe
any of the provisions hereof All such amounts and all other amounts payable
hereunder shall be payable on written demand, together with interest for the
period from the date of demand at a rate of interest equal to the lesser of (x)
the Post-Default Rate or (y) the maximum rate allowed by Applicable Law, from
and including the due date to and excluding the date of payment.
Section 6.2. Amendments and Other Modifications.
No amendment of any provision of this Agreement (including a waiver
thereof or consent relating thereto) shall be effective unless the same shall be
in writing and signed by the Borrower and PMF. Any waiver or consent relating to
any provision of this Agreement shall be effective only in the specific instance
and for the specific purpose for which given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar circumstances.
Section 6.3. Cumulative Remedies; Failure or Delay.
The rights and remedies provided for under this Agreement are cumulative
and are not exclusive of any rights and remedies that may be available to the
Secured Parties under Applicable Law, the other Loan Documents or otherwise. No
failure or delay on the part of the Secured Parties in the exercise of any
power, right or remedy under this Agreement shall impair such power, right or
remedy or shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or remedy preclude other or further exercise
of such or any other power, right or remedy.
Section 6.4. Notices, Etc.
All notices and other communications under this Agreement shall be in
writing and shall be personally delivered or sent by prepaid overnight courier,
by registered or certified mail (postage prepaid), or by telecopy, and shall be
deemed given when received by the intended recipient thereof. Unless otherwise
specified in a notice given in accordance with the foregoing provisions of this
Section 6.4. notices and other communications shall be given to the parties
hereto at their respective addresses (or to their respective telecopier numbers)
indicated on the signature pages of the Loan Agreement.
Section 6.5. Successors and Assigns.
This Agreement shall be binding upon and, subject to the next sentence,
inure to the benefit of the Borrower and the Secured Parties and their
respective successors and assigns. The Borrower shall not assign or transfer any
of its rights or obligations hereunder without the prior written consent of the
Secured Parties. The benefits of this Agreement shall pass automatically with
any assignment of the Secured Obligations (or any portion thereof), to the
extent of such assignment.
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<PAGE> 21
Section 6.6. Payments Set Aside.
Notwithstanding anything to the contrary herein contained, this
Agreement, the Secured Obligations and the Security Interest shall continue to
be effective or be reinstated, as the case may be, if at any time any payment,
or any part thereof, of any or all of the Secured Obligations is rescinded,
invalidated, declared to be fraudulent or preferential or otherwise required by
Applicable Law to be restored or returned by the Secured Parties in connection
with any bankruptcy, reorganization or similar proceeding involving the
Borrower, any other party liable with respect to the Secured Obligations or
otherwise, if the proceeds of any Collateral are required by Applicable Law to
be returned by the Secured Parties under any such circumstances, or if the
Secured Parties elects to return any such payment or proceeds or any part
thereof in their discretion, all as though such payment had not been made or
such proceeds not been received. Without limiting the generality of the
foregoing, if prior to any such rescission, invalidation, declaration,
restoration or return, this Agreement shall have been canceled or surrendered or
the Security Interest or any Collateral shall have been released or terminated
in connection with such cancellation or surrender, this Agreement and the
Security Interest and such Collateral shall be reinstated in full force and
effect, and such prior cancellation or surrender shall not diminish, discharge
or otherwise affect the obligations of the Borrower in respect of the amount of
the affected payment or application of proceeds, the Security Interest or such
Collateral.
Section 6.7. Continuing Security Interest; Termination.
This Agreement shall create a continuing security interest in the
Collateral and, except as provided below, the Security Interest and all
agreements, representations and warranties made herein shall survive until, and
this Agreement shall terminate only upon, the indefeasible payment and
performance in full of the Secured Obligations. Any investigation at any time
made by or on behalf of the Secured Parties shall not diminish the right of the
Secured Parties to rely on any agreements, representations or warranties herein.
Notwithstanding anything in this Agreement or Applicable Law to the
contrary, the agreements of the Borrower set forth in Sections 4.6.1, 4.6.4,
4.6.5 and 6.1 shall survive the payment of all other Secured Obligations and the
termination of this Agreement.
Section 6.8. Waiver and Estoppel.
Except as otherwise provided in this Agreement, the Borrower hereby
waives: (i) presentment protest, notice of dishonor, release, compromise,
settlement, extension or renewal and any other notice of or with respect to the
Secured Obligations and hereby ratifies and confirms whatever the Secured
Parties may do in this regard absent gross negligence or willful misconduct;
(ii) notice prior to taking possession or control of any Collateral or any bond
or security that might be required by any court prior to allowing the Secured
Parties to exercise any of their rights, powers or remedies; (iii) the benefit
of all valuation, appraisement, redemption and exemption laws; (iv) any rights
to require marshaling of the Collateral upon any sale or otherwise to direct the
order in which the Collateral shall be sold; (v) any set-off and (vi) any rights
to require the Secured Parties to proceed against any Person, proceed against or
exhaust any Collateral or any other security interests or guaranties or pursue
any other remedy in the
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Secured Parties' power, or to pursue any of such rights in any particular order
or manner, or any defenses arising by reason of any disability or defense of any
Person.
Section 6.9. Appointment of PMF as Agent.
The parties acknowledge that PMF has been appointed Agent for the
Secured Parties. Subject to the terms of the Intercreditor Agreement, PMF may
exercise all of the Secured Parties' rights hereunder. The parties agree that
Borrower may rely on any waiver, consent or approval granted by PMF hereunder.
Section 6.10. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but one
and the same Agreement.
Section 6.11. Complete Agreement.
This Agreement, together with the Exhibits and Schedules hereto and the
other Loan Documents, is intended by the parties as a final expression of their
agreement regarding the subject matter hereof and as a complete and exclusive
statement of the terms and conditions of such agreement.
Section 6.12. Limitation of Liability.
No claim shall be made by the Borrower against the Secured Parties or
the Affiliates, shareholders, directors, officers, employees, agents or
attorneys of the Secured Parties for any special, indirect, consequential or
punitive damages in respect of any claim for breach of contract or under any
other theory of liability arising out of or related to the transactions
contemplated by this Agreement, the Loan Agreement and the other Transaction
Documents, or any act, omission or event occurring in connection therewith; and
the Borrower hereby waives, releases and agrees not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor. The foregoing provisions of this Section 6.11 are not
intended to preclude Borrower from bringing a legal action against the Secured
Parties for Borrower's direct, actual damages.
Section 6.13. DISPUTE RESOLUTION.
THE PARTIES HEREBY ACKNOWLEDGE THAT THE PROVISIONS OF SECTION 8.11 AND
8.12 OF THE LOAN AGREEMENT SHALL APPLY TO THE RESOLUTION OF ANY DISPUTES
HEREUNDER OR ANY OF THE DOCUMENTS ATTACHED AS SCHEDULES HERETO.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
BORROWER
GENERAL AUTOMATION, INC.
a Delaware corporation
By: _____________________________________
Its: ____________________________________
THE SECURED PARTIES:
PACIFIC MEZZANINE FUND, L.P.,
a California limited partnership
By: Pacific Private Capital, its General
Partner
By: _____________________________________
Its: ____________________________________
23
<PAGE> 1
EXHIBIT 10.5
INVESTMENT UNIT PRICING AGREEMENT
THIS INVESTMENT UNIT PRICING AGREEMENT (this "Agreement"), dated as of
September 30, 1999, is entered into by and between GENERAL AUTOMATION, INC., a
Delaware corporation (the "Company"), and PACIFIC MEZZANINE FUND, L.P., a
California limited partnership (together with its successors and assigns, "PMF",
and together with the additional parties pursuant to the Loan Agreement (as
defined below), the "Investors").
R E C I T A L S
A. The Company and the Investors have entered into a Loan
Agreement, dated as of even date herewith (the "Loan Agreement"). Capitalized
terms not defined herein shall have the meanings ascribed to them in the Loan
Agreement.
B. The parties hereto intend that (i) the Notes, in the original
principal amount of a minimum of Three Million One Hundred Fifty Thousand
Dollars ($3,150,000) and a maximum of Four Million Two Hundred Thousand Dollars
($4,200,000), which are to be sold to the Investors by the Company on the
Closing Date pursuant to the Loan Agreement and (ii) the Warrants, entitling the
Investors to purchase up to an aggregate of 525,000 shares of the Company's
Common Stock, which are to be issued to the Investors by the Company on the
Closing Date pursuant to the Loan Agreement, together shall constitute
"investment units" within the meaning of Section 1273(c)(2) of the Code (the
"Units"), for which the Investors has paid an aggregate of Four Million Two
Hundred Thousand One Hundred Dollars ($4,200,100).
C. Treasury Regulation Section 1.1273-2(h)(1) provides that where
an investment unit is issued for money, the investment unit shall be treated as
one debt instrument and the issue price of the investment unit shall be
determined under Treasury Regulation Section 1.1273-2(a)(1), which provides that
the issue price is the price at which a substantial amount of the debt
instrument is sold for money. Treasury Regulation Section 1.1273-2(h)(1) further
provides that the issue price of the investment unit is then allocated between
the debt instrument and the property right that comprise the unit based on their
relative fair market values.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other valuable consideration, the parties hereto agree as
follows:
AGREEMENT
1. Issue Price of Unit. The aggregate issue price of the Units is
minimum of Three Million One Hundred Fifty Thousand Seventy Five Dollars
($3,150,075) and a maximum of Four Million Two Hundred Thousand One Hundred
Dollars ($4,200,100). Such issue price shall be allocated between the Notes and
the Warrants based on their relative fair market values.
2. Fair Market Value of Notes. A debt instrument comparable to the
Notes would have an original yield to maturity of ten percent (10%) and such
rate shall be the discount rate utilized to determine the fair market value of
the Notes. The fair market value of the Notes, based on the application of such
discount rate, is a minimum of Three Million Seventy Five
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<PAGE> 2
Thousand Dollars ($3,075,000) and a maximum of Four Million One Hundred Thousand
Dollars ($4,100,000).
3. Fair Market Value of Warrants. The fair market value of the
Warrants is a minimum of Seventy Five Thousand Dollars ($75,000) and a maximum
of One Hundred Thousand Dollars ($100,000).
4. Allocations. Based on the foregoing determinations of fair
market value, the allocation of the aggregate issue price of the Units pursuant
to Treasury Regulation 1.1273-2(h)(1) is a minimum of Three Million Seventy Five
Thousand Seventy Three Dollars ($3,075,073) and a maximum of Four Million One
Hundred Thousand Ninety Eight Dollars ($4,100,098) for the Notes and a minimum
of Seventy Five Thousand Two Dollars ($75,002) and a maximum of One Hundred
Thousand Two Dollars ($100,002) for the Warrants. The Company and the Investors
acknowledge and agree that this Agreement is intended to establish the
allocation of the issue price of the Units as required by Treasury Regulation
1.1273-2(h)(1) and Section 1273(c)(2)(B) of the Code. The aggregate issue price
of the Units is allocated between the Investors pro rata based upon the
principal amount of the Notes purchased by each Investor and the number of
Shares of Common Stock issuable upon exercise of the Warrant purchased by each
Investor.
5. Binding Effect on Successors. This Agreement shall be binding
upon and shall inure to the benefit of the respective successors and assigns of
the parties hereto.
6. Notices and Demands. Any notice, request or other document
required or permitted to be given or delivered to the Investors or the Company
shall (a) be in writing, (b) be delivered personally or sent by registered or
certified mail or overnight courier to the intended recipient to Investors at
their addresses as shown on the books of the Company, or to the Company at the
address indicated therefor in the Loan Agreement, unless the recipient has given
written notice of another address, and (c) be effective on receipt if delivered
personally, five (5) business days after dispatch if so mailed, and one (1)
business day after dispatch if sent by overnight courier service.
7. Entire Agreement. The Loan Agreement, this Agreement and the
exhibits hereto and thereto contain the entire understanding and supersede any
prior written or oral agreement among the parties concerning the subject matter
contained herein. There are no representations, warranties, agreements,
arrangements or understandings, oral or written, between the parties hereto,
relating to the subject matter contained in this Agreement, which are not fully
expressed in the Loan Agreement, this Agreement or the exhibits hereto or
thereto.
8. Paragraph and Section Headings. Captions at the beginning of
each numbered paragraph and section of this Agreement are solely for the
convenience of the parties and shall not be deemed part of this Agreement.
9. Waiver. No waiver of any breach or default of this Agreement by
any party hereto shall be considered to be a waiver of any other breach or
default of this Agreement.
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<PAGE> 3
10. Further Assurances. The Company and the Investors agree to
perform any further acts and to execute and deliver any further documents that
may be reasonably necessary to carry out the provisions of this Agreement.
11. Amendments. This Agreement may be amended or restated only by a
written agreement executed by the Company and Investors.
12. Attorney's Fees. Should any litigation be commenced between the
parties hereto concerning any provision of this Agreement or the rights and
duties of any person or entity in relation thereto, the party or parties
prevailing in such litigation shall be entitled, in addition to such other
relief that may be granted or that may be provided in the Loan Agreement, to a
reasonable sum as and for their or his, her or its reasonable attorneys' fees
and costs and expenses incurred in such litigation.
13. Governing Law. This Agreement has been executed in and shall be
subject to and construed under the substantive laws of the State of California
(other than the law of conflicts).
14. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but such counterparts, when
taken together, shall constitute but one and the same agreement.
This Agreement is hereby executed as of the date first above written.
GENERAL AUTOMATION, INC.
By: ________________________________
Title: _____________________________
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital,
its General Partner
By: ________________________________
General Partner
By: ________________________________
Title: _____________________________
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<PAGE> 1
EXHIBIT 10.6
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT (this "Agreement") dated September 30,
1999, is between PACIFIC MEZZANINE FUND, L.P. ("Creditor"), and COMERICA BANK
("Bank").
RECITALS
A. GENERAL AUTOMATION, INC. ("Borrower") has requested and/or
obtained credit from Bank is or which may be secured by Borrower's assets and
property.
B. Creditor has extended debt to Borrower and/or may later extend
other credit to Borrower (the "Subordinated Debt"). Excluded from the definition
of Subordinated Debt is: (i) any equity resulting from conversion of
Subordinated Debt to any equity security of Borrower (ii) any other equity
security purchased by Creditor and (iii) proceeds of the sale of any equity
security.
C. To induce Bank to extend credit to Borrower and make further
extensions of credit to or for Borrower, or to purchase or extend credit
pursuant to any instrument or writing on which Borrower is liable or to grant
renewals or extensions of any loan, extension of credit, purchase, or other
accommodation Creditor will subordinate: (i) all of indebtedness and obligations
to Bank; and (ii) all of Creditor's security interests, to all of Bank's
security interests in the Borrower's property.
THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien that
it has in any property of Borrower. Despite attachment or perfection dates of
Creditor's security interest and Bank's security interests, Bank's security
interest in the Collateral (defined in the Loan and Security Agreement dated
December 18, 1997, as amended from time to time between Borrower and Bank, the
"Bank Agreement") shall at all times be prior to Creditor's security interest.
2. All Subordinated Debt payments are subordinated in the manner
and to the extent set forth in this Agreement to all Borrower's obligations to
Bank existing now or later, together with collection costs of the Obligations
(including attorneys' fees), including, interest accruing after any bankruptcy,
reorganization or similar proceeding and all obligations under the Bank
Agreement (the "Senior Debt").
3. Bank shall provide Creditor with written notice in the event
that (i) Bank has instructed or required Borrower to withhold, delay or
condition any payment with respect to the Subordinated Debt, whether with
respect to an Event of Default under the Bank Agreement or otherwise, or (ii)
Bank has received notice or information that any such payment will be or may be
withheld, delayed or conditioned, by operation or law or
<PAGE> 2
otherwise. Creditor shall provide written notice to the Bank in the event that
Borrower has failed to make any scheduled payment with respect to the
Subordinated Debt (unless Bank has provided a Notice to Creditor with respect to
such nonpayment). Each of the notices referred to the proceeding two sentences
are referred to herein as a "Notice". Subject to Section 4 below, during the
period ending One Hundred and Eighty (180) days following receipt of a Notice by
the Bank or Creditor, as the case may be (the "Standstill Period"), Creditor
will not:
a) demand or receive from Borrower (and Borrower will not pay) any
part of the Subordinated Debt, by payment, prepayment, or
otherwise,
b) exercise any remedy against the Collateral, or
c) accelerate the Subordinated Debt until all the Senior Debt is
paid.
Following termination of the Standstill Period, Creditor may pursue the actions
set forth above; provided that until the Senior Debt has been paid in full, all
amounts received by Creditor in connection with such actions shall be promptly
remitted to Bank for application against the Senior Debt. This Section 3 does
not prohibit Creditor from: (i) converting any Subordinated Debt into equity
securities of Borrower, (ii) declaring default rates of interest, (iii) invest
additional capital as either equity or Subordinated Debt, or (iv) selling any
equity of the Borrower privately or publicly. In addition, subject to Section 5
below, Creditor may receive regularly scheduled payments of interest (including
default interest, if any), expense reimbursements, or principal that constitute
Subordinated Debt. The parties acknowledge and agree that the Standstill Period
shall terminate immediately upon the initiation of any voluntary or involuntary
case or proceeding under any bankruptcy or insolvency law with respect to
Borrower.
4. If (a) during the Standstill Period no scheduled payments to
Creditor are withheld, delayed or conditioned or (b) if at any time during the
Standstill Period any and all payments that have been withheld, delayed or
conditioned during such period are made (and have not been paid to the Bank
pursuant to Section 5 below) and any conditions removed and (c) none of the
impediments to future payments that gave rise to the pending Notice exist, then
the party that originally gave the Notice shall provide the non-Noticing Party
notice of cure of such Notice and the Standstill Period that was initiated
thereby shall be terminated.
5. If Creditor receives or expects to receive a payment with
respect to the Subordinated Debt other than a regularly scheduled payment of
interest (including default interest, if any), expense reimbursement, or
principal, then Creditor shall give written notice to the Bank describing the
amount and date of such payment. The Bank shall have thirty (30) days after
receipt of such notice to notify Creditor in writing that such payment was made
during or will cause immediately after payment an Event of Default under the
Bank Agreement and to demand delivery to Bank of such payment in the form
received. If Creditor receives or expects to receive a payment with respect to
the Subordinated Debt
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<PAGE> 3
during the Standstill Period, then Creditor shall give written notice to the
Bank describing the amount and date of such payment. The Bank shall have thirty
(30) days after receipt of such notice to demand in writing delivery of such
payment in the form received.
6. These provisions remain in full force and effect, despite
Borrower's insolvency, reorganization or any case or proceeding under any
bankruptcy or insolvency law, and Bank's claims against Borrower and following
the occurrence of an Event of Default and while such Event of Default is
continuing, Borrower's estate will be fully paid before any payment is made to
Creditor.
7. If an Event of Default has occurred and is continuing, until the
Senior Debt is paid, Creditor irrevocably appoints Bank as its attorney-in-fact,
with power of attorney with power of substitution, in Creditor's name or in
Bank's name, for Bank's use and benefit without notice to Creditor, to file any
claims in any bankruptcy, insolvency or similar proceeding involving Borrower
for the Subordinated Debt for Creditor if Creditor does not do so at least 30
days before the time to file claims expires.
8. Creditor will immediately put a legend on the Subordinated Debt
instruments that the instruments are subject to this Agreement. No amendment of
the Subordinated Debt documents will modify this Agreement in any way that
terminates or impairs the subordination of the Subordinated Debt or the
subordination of the security interest or lien that Bank has in Borrower's
property. For example, instruments may not be amended to (i) increase the
current contractual interest rates (either stated or default rate) of the
Subordinated Debt, or (ii) accelerate payment of principal or interest or any
other portion of the Subordinated Debt.
9. This Agreement is effective while Borrower owes any amounts to
Bank. If after full payment of the Senior Debt Bank must disgorge any payments
made on the Senior Debt, this Agreement and the relative rights and priorities
provided in it, will be reinstated as to all disgorged payments as though the
payments had not been made, and Creditor will immediately pay Bank all payments
received under the Subordinated Debt to the extent such payments would have been
prohibited under this Agreement. At any time without notice to Creditor, Bank
may take actions it considers appropriate on the Senior Debt such as terminating
advances, increasing the principal (subject to the definition of Senior Debt),
extending the time of payment, increasing interest rates, renewing, compromising
or otherwise amending any documents affecting the Senior Debt and any collateral
securing the Senior Debt, and enforcing or failing to enforce any rights against
Borrower or any other person. No action or inaction will impair or otherwise
affect Bank's rights under this Agreement. Creditor waives any benefits of
California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850,
2899 and 3433.
10. This Agreement binds Creditor, its successors or assigns, and
benefits Bank's successors or assigns. This Agreement is for Creditor's and
Bank's benefit and not for the benefit of Borrower or any other party. If
Borrower is refinancing any of the Senior Debt
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<PAGE> 4
with a new lender, upon Bank's request of creditor, Creditor will enter into a
new subordination agreement with the new lender or substantially the terms of
this Agreement so long as the new senior loan is on substantially similar terms.
11. This Agreement may be executed in two or more counterparts, each
of which is an original and all of which together constitute one instrument.
12. California law governs this agreement without giving effect to
conflicts of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the courts in Santa Clara County, California. CREDITOR AND BANK
EACH WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR FROM THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
13. This Agreement represents is the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. Creditor is not
relying on any representations by Bank or Borrower in entering into this
Agreement. Creditor will keep itself informed of Borrower's financial and other
conditions. This Agreement may be amended only by written instrument signed by
Creditor and Bank.
14. If there is an action to enforce the rights of a party under
this Agreement, the party prevailing will be entitled, in addition to other
relief, all reasonable costs and expenses, including reasonable attorneys' fees,
incurred in the action.
"Creditor" "Bank"
PACIFIC MEZZANINE FUND, L.P. COMERICA BANK
By: ____________________________ By: _________________________________
Title: _________________________ Title: ______________________________
The Borrower approves the terms of this Agreement.
"Borrower"
GENERAL AUTOMATION, INC.
By: _________________________________
Title: ______________________________
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EXHIBIT 10.7
INVESTORS' RIGHTS AGREEMENT
This INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of September 30, 1999 by and among GENERAL AUTOMATION, INC., a Delaware
corporation (the "Company"), and PACIFIC MEZZANINE FUND, L.P., a California
limited partnership ("PMF") (together with any subsequent Investor pursuant to
Section 5.12 hereof, each an "Investor" and collectively, the "Investors").
A. The Investors are holders of convertible promissory notes (the
"Notes") and warrants to purchase shares of the Company's Common Stock (the
"Warrants") issued by the Company to such Investors pursuant to a Loan Agreement
by and among the Company and the Investors dated as of the date hereof (the
"Loan Agreement"),
B. The Loan Agreement provides that, as a condition to the
Investors' purchase of Notes and Warrants thereunder, the Company will enter
into this Agreement and the Investors will be granted the rights set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. VOTING AND BOARD REPRESENTATION RIGHTS.
1.1 Board Visitation Rights. PMF, as Agent of the Investors,
(through up to two of its officers, employees or agents) shall (i) be entitled
to attend all meetings of the Company's shareholders and Board of Directors
(including meetings of any Committees thereof), (ii) be given notice of all such
meetings and of all resolutions which are proposed to be adopted by written
consent at the time such notice is given to the Company's shareholders,
directors or Committee members (as the case may be), and (iii) receive all the
minutes, documents and other information as are provided by the Company to the
members of the Board of Directors and Committees thereof. The Investors
acknowledge that the information received by their designee(s) hereunder may be
confidential and is for the Investors' use only. The Investors will not use such
confidential information in violation of the Securities Exchange Act of 1934, as
amended, or any other applicable securities laws, or reproduce, disclose or
disseminate such information to any other person or entity (other than its
officers, partners, employees or agents or other Investors having a need to know
the contents of such information, and its attorneys, provided such persons also
agree in writing to keep such information confidential), except in connection
with the exercise of rights or remedies under this Agreement, the Loan Agreement
or any other agreement referred to in the Loan Agreement, unless the Company has
made such information available to the public generally or, if the Investor
gives the Company written notice at least twenty (20) days prior to disclosure
(or such shorter notice that may be reasonable in the circumstances), the
Investor is required to disclose such information by a governmental body.
1.2 Representation on Board of Directors. So long as the
shares of the Company's Common Stock issued or issuable under the Warrants or
Notes (as defined in the Loan Agreement) and any other equity securities held by
the Investors constitute at least ten
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percent (10%) of the then-outstanding shares of Common Stock of the Company,
assuming exercise of all then outstanding options and warrants and conversion of
all securities by their terms convertible into or exchangeable for Common Stock
of the Company (collectively, "Fully-Diluted Shares"), (i) PMF shall have the
right, exercisable from time to time at its option by giving written notice to
the Company, to designate one (1) designee to the Company's Board of Directors
and (ii) the Investors (including PMF) shall have the right, exercisable from
time to time at its option by giving written notice to the Company to designate
one (1) designee to the Company's Board of Directors. At the closing of the
transactions contemplated by the Loan Agreement, the Company shall appoint PMF's
and the Investors' nominees to the Board of Directors. The Company shall also
(a) include and or nominate the designees of PMF and the Investors and (b)
notify the shareholders of the Company's contractual obligations pursuant hereto
and to the Loan Agreement, in any proxy statement, or preliminary proxy
statement, request for written consent of shareholders or other solicitation of
the consent or vote of shareholders of the Company for the purpose of (x)
nominating or electing members of the Board of Directors or removing directors,
or (y) amending the Amended and Restated Articles of Incorporation and/or the
Amended and Restated Bylaws of the Company to change the number of authorized
members on the Board of Directors.
1.3 Termination. The parties further agree that Section 1.1
above shall (i) be in effect only during such periods that the Investors'
nominees have not been appointed or elected directors of the Company pursuant to
Section 1.2 above and (ii) shall terminate upon the date that the shares of the
Company's Common Stock issued or issuable under the Warrants and Notes (as
defined in the Loan Agreement) and any other equity securities held by the
Investors do not constitute at least five percent (5%) of the Fully-Diluted
Shares. Section 1.2 above shall terminate upon the date that the shares of the
Company's Common Stock issued or issuable under the Warrants and Notes (as
defined in the Loan Agreement) and any other equity securities held by the
Investors do not constitute at least ten percent (10%) of the Fully-Diluted
Shares.
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "register,"
"registration" and "registered" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act, and
the declaration or ordering of effectiveness of such registration statement.
(b) Investors' Registrable Securities. The term
"Investors' Registrable Securities" means: (1) all the shares of Common Stock of
the Company issued or issuable upon the conversion of the Notes or exercise of
the Warrants issued under the Loan Agreement; and (2) any shares of Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
shares of Common Stock described in clause (1) of this subsection (b); excluding
in all cases, however, any Investors' Registrable Securities sold to the public
or sold pursuant to Rule 144 promulgated under the Securities Act.
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(c) Holder. For purposes of this Section 2 hereof,
the term "Holder" means any person owning of record Registrable Securities that
have not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act.
(d) Form S-3. The term "Form S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(e) SEC. The term "SEC" or "Commission" means the
U.S. Securities and Exchange Commission.
(f) Other Registrable Securities. The term "Other
Registrable Securities" means the approximately 2,666,666 shares of common stock
of the Company that have piggyback registration rights as of the date hereof,
which shares are more fully identified on Schedule 2.1(f).
(g) Registrable Securities. "Registrable Securities"
means the Investors' Registrable Securities and the Other Registrable
Securities, collectively.
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time, a written request from the Holders of at least 500,000 shares of
the Investors' Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of
Investors' Registrable Securities pursuant to this Section 2.2, then the Company
shall (1) within twenty (20) days after the receipt of such written request,
give written notice of such request ("Request Notice") to all Holders of
Investors' Registrable Securities, and (2) file a registration statement under
the Securities Act with respect to all Investors' Registrable Securities which
Holders of Investors' Registrable Securities request to be registered and
included in such registration by written notice given by such Holders to the
Company within twenty (20) days after receipt of the Request Notice and use its
reasonable best efforts to effect the registration as soon as practicable,
subject only to the limitations of this Section 2.
(b) Underwriting. If the Holders of Investors'
Registrable Securities initiating the registration request under this Section
2.2 or 2.4 ("Initiating Holders") intend to distribute the Investors'
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 or 2.4, as the case may be, and the Company shall include
such information in the written notice referred to in subsection 2.2(a) or
2.4(a), as the case may be. In such event, the right of any Holder to include
his Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting
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agreement in customary form with the managing underwriter or underwriters
selected for such underwriting by the Company and a majority in interest of the
Initiating Holders. Notwithstanding any other provision of this Section 2.2 or
Section 2.4, if the underwriter(s) advise(s) the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities that would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis according to the
number of Registrable Securities then outstanding held by each person requesting
registration (including the Initiating Holders); provided, however, that the
number of shares of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all securities proposed to be
registered for the account of the Company are first entirely excluded from the
underwriting. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The
Company is obligated to effect only one (1) such registration pursuant to this
Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Initiating Holders, a certificate signed by the
President or Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Request
Notice; provided, however, that the Company may not utilize this right more than
once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, (but excluding underwriters' discounts
and commissions), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 2.2 shall bear such Holder's proportionate
share (based on the total number of shares sold in such registration other than
for the account of the Company) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering and the fees
and disbursements of any counsel for the participating Holders. Notwithstanding
the foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Investors' Registrable Securities to be registered, unless the Holders of a
majority of the Investors' Registrable Securities then outstanding agree to
forfeit their right to one (1) demand registration pursuant to this Section 2.2
(in which case such right shall be forfeited by all Holders of Investors'
Registrable Securities); provided, further, however, that if at the time of such
withdrawal, the participating Holders of Investors' Registrable Securities have
learned of a material adverse change in the condition, business, or prospects of
the Company not known to such Holders at the time of their request for such
registration and have withdrawn their request
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for registration with reasonable promptness after learning of such material
adverse change, then such Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all
Holders of Investors' Registrable Securities in writing at least thirty (30)
days prior to filing any registration statement under the Securities Act for
purposes of effecting a public offering of securities of the Company (including,
but not limited to, registration statements relating to secondary offerings of
securities of the Company and demand registrations made by holders of
Registrable Securities but excluding registration statements relating to any
employee benefit plan or a corporate reorganization, including securities issued
by the Company in an acquisition transaction) and will afford each such Holder
of Investors' Registrable Securities an opportunity to include in such
registration statement all or any part of the Investors' Registrable Securities
then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Investors' Registrable Securities
held by such Holder shall, within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and
in such notice shall inform the Company of the number of Investors' Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Investors' Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Investors' Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Investors' Registrable
Securities. In such event, the right of any such Holder's Investors' Registrable
Securities to be included in a registration pursuant to this Section 2.3 shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Investors' Registrable Securities in the underwriting
to the extent provided herein. All Holders proposing to distribute their
Investors' Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriter determine(s) in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares (including
Registrable Securities) from the registration and the underwriting, and the
number of shares that may be included in the registration and the underwriting
shall be allocated, first, to the Company, and second, to each of the Holders
requesting inclusion of their Registrable Securities in such registration
statement on a pro rata basis based on the total number of Registrable
Securities then held by each such person. If any Holder of Investor's
Registrable Securities disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least twenty (20) days prior to the effective date of
the registration statement. Any Investors' Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a
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<PAGE> 6
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions; and the fees and disbursements of special
counsel for the participating Holders), including, without limitation all
federal registration and qualification fees, "blue sky" registration and
qualification fees for up to ten (10) states, printers' and accounting fees,
fees and disbursements of counsel for the Company shall be borne by the Company.
2.4 Form S-3 Registration. The Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. In case the Company shall receive from any Holder or Holders of
Investors' Registrable Securities then outstanding a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Investors' Registrable
Securities owned by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Investors'
Registrable Securities; and
(b) Registration. As soon as practicable, file such
registration statement and use its reasonable best efforts to effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Investor's Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders requesting to participate in such
registration as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such
offering;
(2) if the Holders requesting to participate
in such registration, propose to sell Registrable Securities at an aggregate
price to the public of less than $500,000;
(3) if the Company shall furnish to the
requesting Holders a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration
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statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(4) if the Company has, within the six (6)
month period preceding the date of such request, already effected one (1)
registration on Form S-3 for any Holders of Investors' Registrable Securities
pursuant to this Section 2.4; or
(5) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered pursuant to this Section 2.4
as soon as practicable after receipt of the request or requests of the Holders
for such registration. The Company shall pay all expenses incurred in connection
with each registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions and the fees and
disbursements of special counsel for the participating Holders), including
without limitation all filing, federal registration and qualification fees,
"blue sky" registration and qualification fees for up to ten (10) states,
printers' and accounting fees and the reasonable fees and disbursements of
counsel for the Company. (d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be demand registrations as described in Section 2.2
above. (e) Underwriting. If the Holders of Investors' Registrable Securities
initiating registration pursuant to this Section 2.4 intend to distribute the
Investors' Registrable Securities covered by their request by means of an
underwriting, then they shall advise the Company as part of their request made
pursuant to this Section 2.4, and the provisions of Section 2.2(b) above shall
apply to such registration.
2.5 Obligations of the Company. Whenever required to effect
the registration of any Investors' Registrable Securities under this Agreement,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Investors' Registrable Securities and use
reasonable, diligent efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the Investors'
Registrable Securities registered thereunder, keep such registration statement
effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
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(c) Furnish to the participating Holders such number
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of the Investors'
Registrable Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions (not to exceed ten states) as
shall be reasonably requested by the participating Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter(s) of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Investors' Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Investors' Registrable Securities, on the date that such
Investors' Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (1) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders of Investors' Registrable Securities requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Investors' Registrable Securities and (2) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders of
Investors' Registrable Securities requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Investors'
Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to Sections 2.2,
2.3 or 2.4 that the selling Holders shall furnish to the Company such
information regarding themselves, the Investors' Registrable
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Securities held by them, and the intended method of disposition of such
securities as shall be required to timely effect the registration of their
Investors' Registrable Securities.
2.7 Delay of Registration. No Holder of Investors'
Registrable Securities shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
2.8 Indemnification. In the event any Investors' Registrable
Securities are included in a registration statement under Sections 2.2, 2.3 or
2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder of such Investors'
Registrable Securities, the partners, officers and directors of each such
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the l934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, "Violations"
and, individually, a "Violation"):
(1) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(2) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(3) any violation or alleged violation by
the Company of the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities Act, the 1934 Act
or any federal or state securities law in connection with the offering covered
by such registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this subsection 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
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(b) By Selling Holders. To the extent permitted by
law, each selling Holder of Investors' Registrable Securities will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who controls such Holder
within the meaning of the Securities Act or the 1934 Act, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 2.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided further, that the total amounts payable in indemnity by a
Holder under this Section 2.8(b) in respect of any Violation shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such Violation arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended
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prospectus on file with the SEC at the time the registration statement in
question becomes effective or the amended prospectus filed with the SEC pursuant
to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of any person if a copy of the Final Prospectus was
furnished to the indemnified party and was not furnished to the person asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (1) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or (2) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and
Holders of Investors' Registrable Securities under this Section 2.8 shall
survive the completion of any offering of Investors' Registrable Securities in a
registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder of Investors'
Registrable Securities hereby agrees that it shall not, to the extent requested
by the Company or an underwriter of securities of the Company, sell or otherwise
transfer or dispose of any Investors' Registrable Securities or other shares of
stock of the Company then owned by such Holder (other than to donees or partners
of the Holder who agree to be similarly bound) for up to one hundred eighty
(180) days following the effective date of a registration statement of the
Company filed under the Securities Act; provided, however, that all executive
officers, directors and 1% shareholders of the Company then holding Common Stock
of the Company enter into similar agreements. In order to enforce the foregoing
covenant, the Company shall have the right to place restrictive legends on the
certificates representing the shares subject to this Section and to impose stop
transfer instructions with respect to the Investors' Registrable Securities and
such
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other shares of stock of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use reasonable, diligent efforts to file with
the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(c) So long as a Holder owns any Investors'
Registrable Securities, to furnish to such Holder forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the effective
date of the first registration statement filed by the Company for an offering of
its securities to the general public), and of the Securities Act and the 1934
Act (at any time after it has become subject to the reporting requirements of
the 1934 Act), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any such securities without registration
(at any time after the Company has become subject to the reporting requirements
of the 1934 Act).
2.11 Other Rights. From and after the date of this Agreement, the
Company shall not, without the prior written consent of the holders of a
majority of the Investors' Registrable Securities, grant to any shareholder of
the Company any demand, piggyback, or S-3 registration rights superior to those
of the Holders of the Investors' Registrable Securities or rights pari passu
with the Holders of the Investors' Registrable Securities with respect to
Sections 2.2(b), 2.3(a) and 2.4(e) hereof. In addition, the Company will grant
Holders of the Investors' Registrable Securities any registration rights granted
to subsequent purchasers of securities of the Company to the extent that such
subsequent rights are superior, as determined in good faith by the Company's
Board of Directors, to those granted to Holders of the Investors' Registrable
Securities.
3. RIGHT OF FIRST REFUSAL.
3.1 General. Each Investor (a "Rights Holder") has the right
of first refusal to purchase such Rights Holder's Pro Rata Share (as defined
below), of all (or any part) of any "New Securities" (as defined in Section 3.2)
that the Company may from time to time issue after the date of this Agreement. A
Rights Holder's "Pro Rata Share" for purposes of this right of first refusal is
the ratio of (a) the number of Investors' Registrable Securities as to which
such Rights
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Holder is the Holder (and/or is deemed to be the Holder under Section 2.1(b)),
to (b) a number of shares of Common Stock of the Company equal to the sum of (1)
the total number of shares of Common Stock of the Company then outstanding plus
(2) the total number of shares of Common Stock of the Company into which all
then outstanding Warrants and Notes are then convertible plus (3) the number of
shares of Common Stock of the Company reserved for issuance under stock purchase
and stock option plans of the Company and outstanding warrants and other
convertible securities.
3.2 New Securities. "New Securities" shall mean any Common
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock or Preferred Stock
issued after the date hereof, and securities of any type whatsoever that are, or
may become, convertible or exchangeable into such Common Stock or Preferred
Stock, unless waived by PMF; provided, however, that the term "New Securities"
does not include:
(a) shares of Common Stock issued or issuable upon
conversion of the Notes or exercise of the Warrants;
(b) any shares of Common Stock issued or issuable
upon conversion or exercise of currently outstanding options, warrants or
convertible securities;
(c) shares of Common Stock or Preferred Stock issued
pursuant to the acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the assets, or
other reorganization in which the Company acquires, in a single transaction or
series of related transactions, all or substantially all of the assets of such
other corporation or entity or fifty percent (50%) or more of the voting power
of such other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity;
(d) shares of the Company's Common Stock or
Preferred Stock issued in connection with any stock split or stock dividend; and
(e) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(f) securities issued under the Company's 1999 Stock
Plan; and
(g) up to 1,000,000 shares of Common Stock, or
securities convertible or exercisable into up to 1,000,000 shares of Common
Stock, issued under any new or additional incentive plans of the Company.
3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities of any amount exceeding $50,000, it
shall give to each Rights Holder written notice of its intention to issue New
Securities (the "Notice"), describing the type of New Securities and the price
and the general terms upon which the Company proposes to issue such New
Securities. Each Rights Holder shall have twenty (20) days from the date of
mailing of any such Notice to agree in writing to purchase such Rights Holder's
Pro Rata Share of such New
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Securities for the price and upon the general terms specified in the Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share).
If any Rights Holder fails to so agree in writing within such twenty (20) day
period to purchase such Rights Holder's full Pro Rata Share of an offering of
New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "Purchasing Holder") written
notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing
Rights Holder's full Pro Rata Share of such offering of New Securities (the
"Overallotment Notice"). Each Purchasing Holder shall have a right of
overallotment such that such Purchasing Holder may agree to purchase a portion
of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within ten (10) days after receiving the
Overallotment Notice. Rights Holders exercising the right of first refusal set
forth in this Section 3 may pay the purchase price for such securities (i) in
cash (by check) or by wire transfer, (ii) by cancellation by the Rights Holder
of indebtedness of the Company to the Rights Holder; (iii) by exchange of the
Company's securities held by Rights Holder at the Fair Market Value thereof or
(iv) by a combination of (i), (ii) and (iii). Without limiting the foregoing,
Rights Holders may pay the purchase price of securities by exchange of all or
part of the Notes at the greater of (x) the amount of unpaid principal and
accrued interest thereof and (y) the Fair Market Value of the securities
issuable upon conversion thereof.
The term "Fair Market Value" of a share of Common Stock as of a
particular date shall mean:
(i) If traded on a securities exchange or the Nasdaq
National Market, the Fair Market Value shall be deemed to be the average
of the closing prices of the Common Stock of the Company on such
exchange or market over the 5 business days ending immediately prior to
the applicable date of valuation;
(ii) If actively traded over-the-counter, the Fair
Market Value shall be deemed to be the average of the closing bid prices
over the 30-day period ending immediately prior to the applicable date
of valuation; and
(iii) If there is no active public market, the Fair
Market Value shall be the value thereof, as determined in good faith by
the Company's board of directors; provided, however, that if the Rights
Holder objects in good faith to such determination, then such value
shall be determined by an independent valuation firm experienced in
valuing businesses such as that of the Company and jointly selected in
good faith by the Company and the Rights Holder. Fees and expenses of
the valuation firm shall be shared equally by the Company and the Rights
Holder.
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3.4 Failure to Exercise. In the event that the Rights
Holders fail to exercise in full the right of first refusal within such twenty
(20) plus ten (10) day period, then the Company shall have 120 days thereafter
to sell the New Securities with respect to which the Rights Holders' rights of
first refusal hereunder were not exercised, at a price and upon general terms
not materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Rights Holders. In the event that the Company has not
issued and sold the New Securities within such 120 day period, then the Company
shall not thereafter issue or sell any New Securities without again first
offering such New Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate
upon (1) the acquisition of all or substantially all the assets of the Company,
(2) an acquisition of the Company by another corporation or entity by
consolidation, merger or other reorganization in which the holders of the
Company's outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) or more of the voting power of the corporation or other entity
surviving such transaction or (3) upon the date that the shares of the Company's
Common Stock issued or issuable under the Warrants and Notes (as defined in the
Loan Agreement) and any other equity securities held by the Investors do not
constitute at least ten percent (10%) of the Fully-Diluted Shares.
3.6 Other Rights. From and after the date of this Agreement,
the Company will grant the Investors any rights of first refusal granted to
subsequent purchasers of preferred stock of the Company to the extent that such
subsequent rights are superior, as determined in good faith by the Company's
Board of Directors, to those granted to the Investors.
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. The rights of an Investor under Sections 1
and 2 hereof may be assigned to a party who acquires any Note or Warrant issued
under the Loan Agreement; provided, however that any such assignee shall receive
such assigned rights subject to all the terms and conditions of this Agreement,
including without limitation the provisions of this Section 4 and provided
further that the assignor of rights under Sections 1 and 2 hereof shall provide
prompt written notice or such assignment to the Company. The rights of an
Investor under Section 3 hereof may not be assigned.
4.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and PMF, or its assigns. Any amendment or waiver
effected in accordance with this Section 4.2 shall be binding upon each
Investor, each Holder, each permitted successor or assignee of such Investor or
Holder and the Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally
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delivered or if deposited in the U.S. mail by registered or certified mail,
return receipt requested, postage prepaid, as follows:
(a) if to an Investor, at such Investor's respective
address as set forth on the signature page hereof.
(b) if to the Company, at 17731 North Irvine,
Irvine, California 92624.
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California, excluding that body of law relating
to conflict of laws.
5.4 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, then such
provision(s) shall be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provision(s) were so excluded and
shall be enforceable in accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
5.6 Successors And Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
5.7 Captions. The captions to sections of this Agreement
have been inserted for identification and reference purposes only and shall not
be used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys'
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fees incurred in each such action, suit or other proceeding, including any and
all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock of
the Company, then, upon the occurrence of any subdivision, combination or stock
dividend of such stock, the specific number of shares so referenced in this
Agreement shall automatically be proportionally adjusted to reflect the effect
on the outstanding shares of such stock by such subdivision, combination or
stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
5.12 Additional Investors. The parties acknowledge and agree
that additional parties may lend funds to Borrower under the same terms as PMF
under the Loan Agreement. Such additional lenders shall execute this Agreement
together with such additional documents as PMF may reasonably require in form
and content satisfactory to PMF prior to making such loan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first written above.
GENERAL AUTOMATION, INC.
By:______________________________________
Its:_____________________________________
THE INVESTORS:
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
Its: General Partner
By:______________________________________
General Partner
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