<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission File Number 0-20364
BANYAN SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2798394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
120 Flanders Road 01581
Westboro, Massachusetts (Zip Code)
(Address of principal executive offices)
508-898-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of the issuer's classes of common stock as of
October 31, 1997:
Class Number of Shares Outstanding
- -------------------------------------- ----------------------------
Common Stock, par value $.01 per share 17,476,062
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<PAGE>
BANYAN SYSTEMS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
September 30, 1997 and December 31, 1996
Consolidated Statements of Operations 4
Three and nine months ended
September 30, 1997 and 1996
Consolidated Statements of Cash Flows 5
Nine months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
</TABLE>
This Quarterly Report on Form 10-Q contains forward-looking statements,
including information with respect to the Company's plans and strategy for its
business, the sufficiency of funds and available sources of financing and the
continued listing of the Company's Common Stock on the Nasdaq National Market.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates", "plans", "expects"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause actual events or the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those
set forth below under the caption "Factors Affecting Future Operating Results"
included under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part I of this Quarterly Report on Form 10-Q and under
Item 5, "Other Information" in Part II of this Quarterly Report on Form 10-Q.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
ASSETS September 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,281 $ 8,314
Restricted cash and cash equivalents - 2,299
Marketable securities 5,702 4,139
Accounts receivable, less allowances of
$3,619 and $7,168 12,070 19,754
Inventories 1,148 2,863
Software licenses 48 3,016
Other current assets 2,836 3,368
-------- -----------
Total current assets 27,085 43,753
Property and equipment:
Computers and peripherals 23,593 24,885
Equipment 9,540 11,434
Furniture and fixtures 2,945 4,645
Leasehold improvements 2,333 4,655
-------- -----------
Total 38,411 45,619
Less accumulated depreciation and amortization 31,910 32,054
-------- -----------
Property and equipment, net 6,501 13,565
Marketable securities - 4,436
Other assets, net of accumulated amortization of
$4,470 and $5,661 5,597 7,778
-------- -----------
Total assets $ 39,183 $ 69,532
======== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 1,542 $ 3,633
Accrued compensation 4,070 6,338
Accrued expenses 7,495 7,629
Accrued costs for restructuring
and other charges 2,864 4,908
Income taxes payable 289 212
Software licenses payable,
current portion - 1,581
Note payable 1,124 1,079
Deferred revenue 16,523 19,886
-------- -----------
Total current liabilities 33,907 45,266
Software licenses payable, non-current 590 590
Minority interest in consolidated subsidiary 2,679 3,354
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 25,000,000 shares; issued
and outstanding 19,324,062 and 18,996,882 shares 193 190
Preferred stock, $.01 par value; authorized
1,000,000 shares; none issued and outstanding - -
Additional paid-in capital 65,473 64,581
Accumulated deficit (35,080) (15,792)
Treasury stock at cost; 1,848,000 common shares (28,564) (28,564)
Foreign currency translation adjustment (7) (23)
Unrealized loss on investments (8) (70)
-------- -----------
Total stockholders' equity 2,007 20,322
-------- -----------
Total liabilities and stockholders'
equity $ 39,183 $ 69,532
======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software $14,614 $23,917 $ 44,571 $74,593
Services 3,996 3,795 10,865 12,159
Hardware 232 417 510 1,510
------- ------- -------- -------
Total revenues 18,842 28,129 55,946 88,262
Cost of revenues:
Software 1,433 2,698 5,443 7,969
Services 2,407 3,405 7,815 10,045
Hardware 75 148 194 478
------- ------- -------- -------
Total cost of revenues 3,915 6,251 13,452 18,492
------- ------- -------- -------
Gross margin 14,927 21,878 42,494 69,770
Operating expenses:
Sales and marketing 8,880 15,229 32,058 45,833
Product development 3,548 5,370 12,627 16,342
General and administrative 1,611 2,721 7,302 8,553
Restructuring and other charges - - 9,700 -
------- ------- -------- -------
Total operating expenses 14,039 23,320 61,687 70,728
------- ------- -------- -------
Income/(loss) from operations 888 (1,442) (19,193) (958)
Other income/(expense):
Interest income 113 255 389 878
Interest expense (21) (19) (71) (57)
Other, net (139) (16) (180) (219)
------- ------- -------- -------
Total other (expense)/income (47) 220 138 602
------- ------- -------- -------
Income/(loss) before income taxes 841 (1,222) (19,055) (356)
Provision/(benefit) for income taxes 72 (439) 233 (128)
------- ------- -------- -------
Net income/(loss) $ 769 $ (783) $(19,288) $ (228)
======= ======= ======== =======
Net income/(loss) per share $0.04 $(0.05) $(1.12) $(0.01)
======= ======= ======== =======
Weighted average number of common
shares outstanding 17,533 17,040 17,289 16,887
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
<PAGE>
BANYAN SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(19,288) $ (228)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation and amortization 6,241 6,222
Restructuring and other charges, non-cash portion 6,567 -
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable 7,483 (2,389)
Decrease in inventories 1,113 641
Decrease in income taxes receivable - 5,809
Decrease in deferred taxes - 1,932
Decrease in other current assets 1,022 1,503
(Decrease) in other liabilities (680) -
(Decrease) in accounts payable and accrued
compensation and expenses (4,610) (4,293)
(Decrease) in accrued costs for
restructuring and other charges (1,906) (8,072)
(Decrease) in software licenses payable, net (244) (2,853)
Increase/(decrease) in income taxes payable 77 (846)
Decrease in other non-current assets 147 -
Decrease in deferred revenue (3,342) (609)
-------- -------
Net cash (used in) operating activities (7,420) (3,183)
Cash flows from investing activities:
Capital expenditures ( 890) (4,857)
Minority interest equity investments 50 95
Capitalization of software costs (642) (1,692)
Acquisition of software licenses (150) (1,125)
Proceeds from marketable securities, net 2,935 7,008
Investment in unconsolidated affiliate - (2,001)
-------- -------
Net cash provided by/(used in) investing
activities 1,303 (2,572)
Cash flows from financing activities:
Repayment of principal on long-term debt - (35)
Proceeds from common stock options 895 1,909
-------- -------
Net cash provided by financing activities 895 1,874
Effect of exchange rate changes on cash and cash equivalents (110) (6)
-------- -------
Net (decrease) in cash and cash equivalents (5,332) (3,887)
Cash and cash equivalents at beginning of the period 10,613 12,398
-------- -------
Cash and cash equivalents at end of the period $ 5,281 $ 8,511
======== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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<PAGE>
BANYAN SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries, as of September 30, 1997, and
have been prepared by the Company in accordance with generally accepted
accounting principles. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows at the dates and for the periods indicated. While the Company
believes that the disclosures presented are adequate to make the
information not misleading, these consolidated financial statements should
be read in conjunction with the consolidated financial statements and
related notes included in the Company's 1996 Annual Report to Stockholders.
The results of operations for the three-month and nine-month periods ended
September 30, 1997 are not necessarily indicative of the results expected
for the full fiscal year.
B. Inventories:
<TABLE>
<CAPTION>
Inventories consist of the following at:
(in thousands) September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Purchased parts $ 378 $ 989
Work in process 325 313
Finished goods 445 1,561
------ ------
$1,148 $2,863
====== ======
</TABLE>
C. New Accounting Pronouncement:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), which is effective for fiscal years ending after December
15, 1997, including interim periods. SFAS 128 establishes standards for
computing and presenting earnings per share (EPS) and requires a dual
presentation of basic and dilutive EPS.
-6-
<PAGE>
BANYAN SYSTEMS INCORPORATED
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
Total revenues for the three-month period ended September 30, 1997 were $18.8
million, which represented a 33% decrease when compared to the corresponding
period in 1996. Total revenues for the nine-month period ended September 30,
1997 were $55.9 million, which represented a 37% decrease when compared to the
corresponding period in 1996. These decreases were due primarily to lower
software revenues. The Company's software revenues for the three-month period
ended September 30, 1997 decreased by $9.3 million, or 39%, when compared to the
corresponding period in 1996. The Company's software revenues for the nine-
month period ended September 30, 1997, decreased by $30.0 million, or 40%, when
compared to the corresponding period in 1996. These decreases were primarily
related to lower levels of sales of messaging products, with respect to which
the Company has experienced delays in the delivery of new versions of BeyondMail
IM, and lower levels of sales of the Company's current VINES offerings and third
party products. Services revenues increased by $0.2 million, or 5%, for the
three-month period ended September 30, 1997, when compared to the corresponding
period in 1996 primarily due to increased consultative services delivered by the
Company. Services revenues decreased by $1.3 million, or 11%, for the nine-
month period ended September 30, 1997 when compared to the corresponding period
in 1996, primarily due to lower revenues for educational services due to delays
in new product offerings.
International revenues for the three-month and nine-month periods ended
September 30, 1997 were $5.4 million and $16.7 million, respectively, compared
with $6.4 million and $19.9 million for the corresponding periods in 1996. The
decreases were primarily due to lower revenues in Asia Pacific/Japan as a result
of channel inventory reduction efforts, particularly in Japan. International
revenues accounted for 29% and 30% of total revenues for the three-month and
nine-month periods ended September 30, 1997, respectively, compared with 23% and
22% for the corresponding periods in 1996.
Gross margins for software were 90% or $13.2 million, and 88%, or $39.1 million,
for the three-month and nine-month periods ended September 30, 1997,
respectively, compared with 89%, or $21.2 million, and 89%, or $66.6 million,
for the corresponding periods in 1996. The increase in gross margin percentage
for the three-month period ended September 30, 1997 was primarily due to lower
third party product revenues as a result of the Company's focus on its core
product set. The decrease in gross margin percentage for the nine-month period
ended September 30, 1997 was primarily due to the absorption of overhead costs
on lower revenues. The decreases in gross margin dollars for the three-month
and nine-month periods ended September 30, 1997 were primarily due to lower
sales volume in the current year periods.
Gross margins for support and training were 40%, or $1.6 million, and 28%, or
$3.1 million, for the three-month and nine-month periods ended September 30,
1997, respectively, compared with 10%, or $0.4 million, and 17%, or $2.1
million, for the corresponding periods in 1996. The increases in gross margin
percentages and dollars for the three-month and nine-month periods ended
September 30, 1997 were primarily due to lower personnel costs as a result of
the reduction in force as part of the Company's reorganization in the quarter
ended December 31, 1996.
-7-
<PAGE>
Operating Expenses
Sales and marketing expenses of $8.9 million and $32.1 million for the three-
month and nine-month periods ended September 30, 1997, respectively, represented
decreases of 42% and 30%, respectively, when compared to the corresponding
periods in 1996. The decreases were primarily due to lower sales and marketing
staffing and personnel costs as a result of the reduction in force as part of
the Company's reorganization efforts in the quarters ended December 31, 1996 and
June 30, 1997. In addition, variable sales costs, including commissions,
decreased due to lower revenues for the three-month and nine-month periods ended
September 30, 1997 when compared to the corresponding periods in the prior year.
Sales and marketing expenses as a percentage of revenues were 47% and 57% for
the three-month and nine-month periods ended September 30, 1997, as compared to
54% and 52% for the corresponding periods in 1996.
Product development expenses of $3.5 million and $12.6 million for the three-
month and nine-month periods ended September 30, 1997, respectively, represented
decreases of 34% and 23%, respectively, when compared to the corresponding
periods in 1996. These decreases were primarily due to lower staffing as a
result of the Company's reorganization efforts in the quarters ended December
31, 1996 and June 30, 1997. The Company continues to focus its product
development resources on enhancing its existing product offerings. The Company
has also increased its investment in internet-related product initiatives,
including remote access networking capabilities, security protection
capabilities and Switchboard Incorporated technology and services. Additionally,
the Company is also employing resources to ensure its product offerings will be
Year 2000 compliant. Product development expenses as a percentage of revenues
were approximately 19% and 23% for the three-month and nine-month periods ended
September 30, 1997, respectively, as compared to 19% for the corresponding
periods in 1996. No software costs were capitalized for the three-month period
ended September 30, 1997. Software costs of $0.6 million were capitalized for
the nine-month period ended September 30, 1997. Software costs of $0.8 million
and $1.7 million were capitalized for the three-month and nine-month periods
ended September 30, 1996, respectively. The amounts capitalized represent 0% and
5% of product development expenses for the three-month and nine-month periods
ended September 30, 1997, respectively, as compared to 13% and 9% for the
corresponding periods in 1996.
General and administrative expenses of $1.6 million and $7.3 million for the
three-month and nine-month periods, ended September 30, 1997, represented
decreases of 41% and 15% when compared to the corresponding periods in 1996. The
decreases were due to lower administrative and personnel costs as a result of
the reduction in staffing as part the Company's reorganization efforts in the
quarters ended December 31, 1996 and June 30, 1997. General and administrative
expenses as a percentage of revenues were 9% and 13% for the three-month and
nine-month periods ended September 30, 1997, as compared to 10% for the
corresponding periods in 1996.
On April 21, 1997, the Company announced a reorganization of its operations. As
a result of the reorganization, the Company recorded pre-tax restructuring and
other charges of $9.7 million in the quarter ended June 30, 1997. The
restructuring and other charges were composed of $1.8 million for severance
costs related to the reduction of approximately 22% of the Company's workforce,
$2.3 million for idle assets related to the restructuring, and $5.6 million, for
costs related to facility and product line consolidation. As of September 30,
1997, the restructuring action has resulted in 77 employee separations. The
remaining actions will be substantially completed in 1997.
Interest income was $113,000 and $389,000 for the three-month and nine-month
periods ended September 30, 1997, respectively, and represented decreases of 56%
from the corresponding periods in 1996. The decreases were due to lower levels
of available funds invested in marketable securities.
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<PAGE>
No tax provision, other than that required for foreign income or foreign
withholding taxes, was recorded for the three-month and nine-month periods ended
September 30, 1997 due to the Company's net operating loss. The effective tax
rate benefit for the three-month and nine-month periods ended September 30, 1997
was 36%.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Form 10-Q, including information
with respect to the Company's plans and strategy for its business expectations,
consist of forward-looking statements. Important factors that could cause
actual results to differ materially from the forward-looking statements include
the factors listed under "Factors Affecting Future Operating Results" in the
Company's 10-K for the year ended December 31, 1996, which are incorporated
herein by reference, as well as the following factors:
In 1996, the Company announced a reorganization of its operations, including the
search for a new president and chief executive officer and a reduction of
approximately 15% of its work force. The Company also reduced worldwide channel
inventories of its distribution partners by approximately $9.0 million in the
quarter ended December 31, 1996, which contributed to a decline in software
revenues and a net operating loss in the quarter ended December 31, 1996. In
the second quarter of 1997, following the hiring of the new president and chief
executive officer, the Company announced a further reorganization of its
operations. As a result of the reorganization the Company recorded pre-tax
restructuring and other charges of $9.7 million in the quarter ending June 30,
1997. The restructuring and other charges provided for severance costs related
to the reduction of approximately 22% of the Company's workforce and costs
related to facility and product line consolidations. There can be no assurance
the planned reorganization will be successfully implemented.
In 1996 and the first nine-months of 1997, a majority of the Company's product
sales were to existing customers for upgrade or expansion of their networks.
The Company's results will depend on its ability both to continue to sell
products for use in networks of existing customers and to attract new customers
for the Company's products. In addition, in 1996 and 1997, the Company
experienced extended selling cycles due to an increase in multi-year customer
agreements and to longer evaluation of operating systems and hardware platforms
by potential customers. The Company expects that extended selling cycles will
continue to affect the Company's operating results for the foreseeable future.
The Company's results are partially dependent on its ability to enhance existing
products and introduce new products on a timely basis, and to achieve market
acceptance for such products. The Company's results in 1996 and the first nine
months of 1997 were adversely affected by delays in the release and localization
of certain products, and there can be no assurance that the Company will not
experience similar delays in the future. On June 2, 1997, the Company
introduced StreetTalk for Windows NT 7.5 which integrates the Windows NT
operating system into a VINES network while providing improved support for
TCP/IP standards. On August 18, 1997, the Company introduced BeyondMail 3.0 for
Intelligent Messaging which provides enhanced mobile support. Failure of these
products to achieve market acceptance could have a material adverse effect on
the Company's future results of operations.
The Company is currently engaged in a significant product development investment
to ensure its product offerings will be Year 2000 compliant. Failure to deliver
this capability timely could have a material adverse effect on the Company's
future results of operations.
Because of the foregoing factors and the factors incorporated herein by
reference, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and it expects that its results
of operations may fluctuate from period-to-period in the future.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and cash equivalents combined with marketable
securities were $11.0 million, compared with $19.2 million at December 31, 1996.
Cash and cash equivalents decreased $5.3 million from December 31, 1996
resulting in a cash balance of $5.3 million at September 30, 1997. The decrease
was due principally to the net loss from operations in the nine-month period
ended September 30, 1997, a $4.6 million decrease in accounts payable and
accrued compensation and expenses and a $3.3 million decrease in deferred
revenue offset by a $7.5 million decrease in accounts receivable, $6.6 million
in non-cash restructuring charges, $6.2 million of depreciation and
amortization, and various other operating, financing and investing activities.
Working capital decreased from a $1.5 million deficit at December 31, 1996 to a
$6.8 million deficit at September 30, 1997.
On April 21, 1997, the Company announced a reorganizations of its operations.
As a result of the reorganization, the Company recorded pre-tax restructuring
and other charges of $9.7 million in the quarter ending June 30, 1997. The
restructuring and other charges were composed of $1.8 million for severance
costs related to the reduction of approximately 22% of the Company's workforce,
$2.3 million for idle assets related to the restructuring, and $5.5 million for
costs related to facility and product line consolidations. The restructuring
charge is expected to reduce cash flow by approximately $3.2 million, of which
$2.3 million had been expended through September 30, 1997.
In the quarter ended December 31, 1996, the Company recorded a restructuring
charge of $5.5 million. The restructuring charge is expected to use cash of
$3.9 million, of which $3.3 million had been expended through September 30,
1997.
On September 4, 1997, the Company entered into a $15.0 million line of credit
agreement (the "Credit Agreement") with Foothill Capital Corporation
("Foothill"), replacing the Company's prior $10.0 million credit facility which
expired in May 1997. In general, the Company's obligations under the Credit
Agreement bear interest at the variable base rate per annum of Norwest Bank
Minnesota, National Association. The Credit Agreement has a three-year initial
term and is renewable thereafter for successive one year periods. Each year
during the initial term of the Credit Agreement, Foothill will be granted
warrants to purchase 75,000 shares of the Company's common stock. The Company
believes that existing cash and marketable securities, combined with cash
expected to be generated from operations and the availability of the line of
credit, will be sufficient to fund the Company's operations through at least
September 30, 1998.
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<PAGE>
PART II. OTHER INFORMATION
Item 5. Disclosure
The Company is in discussions with The Nasdaq Stock Market, Inc. ("NSM")
concerning the continued listing of the Company's Common Stock on the Nasdaq
National Market ("NNM"). As a condition to continued listing, NSM has required
that the Company achieve a specified minimum level of net tangible assets by mid
December 1997. Failure of the Company to achieve such minimum level would
subject the Company to delisting of NNM. There can be no assurance that the
Company's efforts to satisfy NSM's requirements will be successful. The
delisting of the Company's Common Stock from NNM may adversely affect the
liquidity of the Company's Common Stock.
Item 6. Exhibits and Reports on Form 8-K
a. The exhibits listed in the Exhibit Index filed as part of this report are
filed as part of or are included in this report.
b. The Company filed no reports on Form 8-K during the quarter for which this
report is filed.
-11-
<PAGE>
BANYAN SYSTEMS INCORPORATED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANYAN SYSTEMS INCORPORATED
Date: November 14, 1997 By: /s/ Richard M. Spaulding
-------------------------
Richard M. Spaulding
Vice President and Chief Financial Officer
Treasurer and Clerk
(Principal Financial and Accounting Officer)
-12-
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
10.44 Loan and Security Agreement, dated as of September 4, 1997, by and
between Foothill Capital Corporation and the Company.
10.45 Securities Issuance Agreement, dated as of September 4, 1997, by and
between Foothill Capital Corporation and the Company.
10.46 Form of Warrant issued and to be issued by the Company to Foothill
Capital Corporation.
27 Financial Data Schedule.
</TABLE>
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<PAGE>
EXHIBIT 10.44
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BANYAN SYSTEMS INCORPORATED
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF SEPTEMBER 4, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
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Page(s)
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1. DEFINITIONS AND CONSTRUCTION............................... 1
1.1 Definitions........................................... 1
1.2 Accounting Terms...................................... 22
1.3 Code.................................................. 22
1.4 Construction.......................................... 23
1.5 Schedules and Exhibits................................ 23
2. LOAN AND TERMS OF PAYMENT.................................. 23
2.1 Revolving Advances.................................... 23
2.2 Overadvances.......................................... 25
2.3 Interest: Rates, Payments, and Calculations.......... 25
2.4 Collection of Accounts................................ 26
2.5 Crediting Payments; Application of Collections........ 27
2.6 Designated Account.................................... 27
2.7 Maintenance of Loan Account; Statements of
Obligations.......................................... 27
2.8 Fees.................................................. 28
3. CONDITIONS; TERM OF AGREEMENT.............................. 29
3.1 Conditions Precedent to the Initial Advance........... 29
3.2 Conditions Precedent to the Initial M&E-Based Advance. 32
3.3 Conditions Precedent to all Advances.................. 32
3.4 Term; Automatic Renewal............................... 33
3.5 Effect of Termination................................. 33
3.6 Early Termination by Borrower......................... 33
3.7 Termination Upon Event of Default..................... 33
4. CREATION OF SECURITY INTEREST.............................. 34
4.1 Grant of Security Interest............................ 34
4.2 Negotiable Collateral................................. 34
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral................................ 34
4.4 Delivery of Additional Documentation Required......... 34
4.5 Power of Attorney..................................... 35
4.6 Right to Inspect...................................... 35
4.7 Control Agreements.................................... 36
5. REPRESENTATIONS AND WARRANTIES............................. 36
5.1 No Encumbrances....................................... 36
5.2 Eligible Accounts..................................... 36
5.3 Eligible Equipment.................................... 37
5.4 Equipment............................................. 37
5.5 Location of Inventory and Equipment................... 37
5.6 Inventory Records..................................... 37
5.7 Location of Chief Executive Office; FEIN.............. 37
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<PAGE>
5.8 Due Organization and Qualification; Subsidiaries....... 37
5.9 Due Authorization; No Conflict......................... 38
5.10 Litigation............................................. 39
5.11 No Material Adverse Change............................. 39
5.12 Solvency............................................... 39
5.13 Employee Benefits...................................... 39
5.14 Environmental Condition................................ 40
5.15 Intellectual Property.................................. 40
6. AFFIRMATIVE COVENANTS......................................... 40
6.1 Accounting System....................................... 40
6.2 Collateral Reporting.................................... 41
6.3 Financial Statements, Reports, Certificates............. 41
6.4 Tax Returns............................................. 43
6.5 Guarantor Reports....................................... 43
6.6 Returns................................................. 43
6.7 Title to Equipment...................................... 43
6.8 Maintenance of Equipment................................ 43
6.9 Taxes................................................... 44
6.10 Insurance............................................... 44
6.11 No Setoffs or Counterclaims............................. 45
6.12 Location of Inventory and Equipment..................... 46
6.13 Compliance with Laws.................................... 46
6.14 Employee Benefits....................................... 46
6.15 Leases and Licenses..................................... 47
6.16 Copyright Registration.................................. 47
7. NEGATIVE COVENANTS............................................ 47
7.1 Indebtedness............................................ 48
7.2 Liens................................................... 48
7.3 Restrictions on Fundamental Changes..................... 49
7.4 Disposal of Assets...................................... 49
7.5 Change Name............................................. 49
7.6 Guarantee............................................... 49
7.7 Nature of Business...................................... 49
7.8 Prepayments and Amendments.............................. 49
7.9 Change of Control....................................... 50
7.10 Consignments............................................ 50
7.11 Distributions........................................... 50
7.12 Accounting Methods...................................... 50
7.13 Investments............................................. 50
7.14 Transactions with Affiliates............................ 51
7.15 Suspension.............................................. 51
7.16 Preferred Stock......................................... 51
7.17 Use of Proceeds......................................... 51
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<PAGE>
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees.................. 51
7.19 No Prohibited Transactions Under ERISA 51
7.20 Financial Covenants..................................... 52
7.21 Capital Expenditures.................................... 52
7.22 Securities Accounts..................................... 52
8. EVENTS OF DEFAULT............................................. 53
9. FOOTHILL'S RIGHTS AND REMEDIES................................ 55
9.1 Rights and Remedies...................................... 55
9.2 Remedies Cumulative...................................... 57
10. TAXES AND EXPENSES............................................ 58
11. WAIVERS; INDEMNIFICATION...................................... 58
11.1 Demand; Protest; etc.................................... 58
11.2 Foothill's Liability for Collateral..................... 58
11.3 Indemnification......................................... 59
12. NOTICES....................................................... 59
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................... 60
14. DESTRUCTION OF BORROWER'S DOCUMENTS........................... 61
15. GENERAL PROVISIONS............................................ 61
15.1 Effectiveness........................................... 61
15.2 Successors and Assigns.................................. 61
15.3 Section Headings........................................ 62
15.4 Interpretation.......................................... 62
15.5 Severability of Provisions.............................. 62
15.6 Amendments in Writing................................... 62
15.7 Counterparts; Telefacsimile Execution................... 62
15.8 Revival and Reinstatement of Obligations................ 62
15.9 Integration............................................. 63
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<PAGE>
SCHEDULES AND EXHIBITS
----------------------
Schedule E-1 Eligible Equipment
Schedule P-1 Permitted Liens
Schedule P-2 Permitted Subsidiary Investments
Schedule 5.8 Subsidiaries/Capitalization
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Other Indebtedness
Exhibit C-1 Form of Compliance Certificate
-iv-
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as of
September 4, 1997, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333 and BANYAN SYSTEMS
INCORPORATED, a Massachusetts corporation ("Borrower"), with its chief executive
office located at 120 Flanders Road, Westboro, Massachusetts 01581.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
--------------
under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
--------
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale, license, or lease of goods or General Intangibles or
the rendition of services by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"Adjusted Average Unused Portion of Maximum Amount" means, as of any
-------------------------------------------------
date of determination: (a) the Maximum Amount; less (b) the sum of (i)
----
$2,000,000, plus (ii) the average Daily Balance of Advances that were
----
outstanding during the immediately preceding month; provided that in no event
--------
shall the Average Unused Portion of Maximum Amount be less than zero.
"Advances" has the meaning set forth in Section 2.1(a).
-------- --------------
"Affiliate" means, as applied to any Person, any other Person who
---------
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a Person.
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<PAGE>
"Aggregate Depreciated Equipment Value" means, as of any date of
-------------------------------------
determination thereof, the aggregate amount of the Depreciated Equipment Values
of each of the items of Eligible Equipment.
"Agreement" has the meaning set forth in the preamble hereto.
---------
"Applicable Number of Shares" means, (a) with respect to any domestic
---------------------------
Subsidiary of Borrower, 100% of the issued and outstanding shares of Stock
thereof in which Borrower has an interest, to the fullest extent of Borrower's
interest, and (b) with respect to any foreign Subsidiary of Borrower, the number
of issued and outstanding shares of Stock thereof equal to the lesser of (i) 65%
of the total number of issued and outstanding shares of Stock of such subsidiary
held by any Persons (including but not limited to Borrower), and (ii) the number
of such shares in which Borrower has an interest, to the fullest extent of
Borrower's interest.
"Australia Sub" means Banyan Systems Australia Pty Limited, a
-------------
company organized under the laws of Australia.
"Authorized Person" means any officer or other employee of Borrower.
-----------------
"Availability" means, as of the date of determination, the result of
------------
(a) the lesser of the Borrowing Base or the Maximum Amount, minus (b) the
outstanding Obligations; provided that, is such result is a negative number,
--------
Availability shall be zero dollars.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
---------------
(S) 101 et seq.), as amended, and any successor statute.
------
"Benefit Plan" means a "defined benefit plan" (as defined in Section
------------
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Borrower" has the meaning set forth in the preamble to this
--------
Agreement.
"Borrower's Books" means all of Borrower's books and records
----------------
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
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<PAGE>
"Borrowing Base" has the meaning set forth in Section 2.1(a). For
-------------- --------------
purposes of determining the Borrowing Base, any amount that is denominated in a
non-Dollar currency shall be valued in Dollars based on the applicable Exchange
Rate for such non-Dollar currency on the date of determination.
"Business Day" means any day that is not a Saturday, Sunday, or other
------------
day on which national banks are authorized or required to close.
"Canadian Maritime Provinces" means Quebec, New Brunswick, Prince
---------------------------
Edward Island, Newfoundland, and Nova Scotia.
"Change of Control" shall be deemed to have occurred at such time as a
-----------------
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 35% of the total voting power of all classes of Stock then
outstanding of Borrower entitled to vote in the election of directors.
"Closing Date" means the date of the making of the initial Advance
------------
(exclusive, however, of fees and other Foothill Expenses charged to Borrower's
Loan Account hereunder on or after the Effective Date).
"Code" means the California Uniform Commercial Code.
----
"Collateral" means each of the following:
----------
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(h) any money, or other assets of Borrower that now or hereafter come
into the possession, custody, or control of Foothill, and
(i) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's Books, Equipment, General
-3-
<PAGE>
Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
---------------------------
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Equipment or Inventory, in each case,
in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and other
-----------
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in the
----------------------
form of Exhibit C-1 and delivered by the chief accounting officer of Borrower to
-----------
Foothill.
"Consolidated Current Assets" means, as of any date of determination,
---------------------------
the aggregate amount of all current assets of Borrower that would, in accordance
with GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
--------------------------------
determination, the aggregate amount of all current liabilities of Borrower that
would, in accordance with GAAP, be classified on a balance sheet as current
liabilities. For purposes of this definition, all Obligations outstanding under
this Agreement shall be deemed to be current liabilities without regard to
whether they would be deemed to be so under GAAP.
"Control Agreement" means, with respect to any and each Securities
-----------------
Account of Borrower, a control agreement, in form and substance satisfactory to
Foothill, between Borrower, Foothill, and the securities intermediary with which
such Securities Account is maintained, that provides (among other things) that,
from and after the giving of notice by Foothill to such securities intermediary
(a "Notice of Exclusive Control"), such securities intermediary shall take
instructions solely from Foothill with respect to the applicable Securities
Account and related Investment Property.
"copyright" shall have the meaning ascribed to such term in the United
---------
States Copyright Act of 1976, and includes unregistered copyrights.
-4-
<PAGE>
"Copyright Security Agreement" means a Copyright Security Agreement,
----------------------------
in form and substance satisfactory to Foothill, between Borrower and Foothill.
"Daily Balance" means the amount of an Obligation owed at the end
-------------
of a given day.
"deems itself insecure" means, with respect to Foothill, that Foothill
---------------------
deems itself insecure in accordance with the provisions of Section 1208 of the
Code with respect to Foothill's good faith belief or suspicion that Borrower has
engaged in defalcation, intentional misrepresentation, or other fraud.
"Default" means an event, condition, or default that, with the giving
-------
of notice, the passage of time, or both, would be an Event of Default.
"Depreciated Equipment Value" means, in respect of any item of
---------------------------
Eligible Equipment and as of the date any determination thereof is to be made,
(a) prior to the date that the first reappraisal thereof is conducted under
Section 2.1(b)(ii) hereof, (i) the Liquidation Value of such item of Eligible
- ------------------
Equipment as established by the appraisal thereof conducted by Koll-DoveTech (or
a similarly qualified auctioneering company selected by Foothill) for Foothill
on or prior to the Closing Date (the "Original Liquidation Value"), less (ii)
----
the Monthly Depreciation Amount therefor, and (b) thereafter, (i) the
Liquidation Value of such item of Eligible Equipment as established by the then
most recent appraisal thereof conducted under Section 2.1(b)(ii) hereof, less
------------------ ----
(ii) the Monthly Depreciation Amount therefor.
"Designated Account" means account number 03595683 of Borrower
------------------
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means State Street Bank and Trust Company,
-----------------------
whose office is located at 225 Franklin Street, Boston, Massachusetts 02101,
and whose ABA number is 011-000-028.
"Dilution (Domestic)" means, in each case based upon the experience of
-------------------
the immediately prior 3 months, the result of dividing the Dollar amount of (a)
bad debt write-downs, discounts, advertising, returns, promotions, credits, or
other dilution with respect to the Domestic Accounts, by (b) Borrower's
Collections (excluding extraordinary items) plus the Dollar amount of clause
(a).
"Dilution (Foreign)" means, in each case based upon the experience of
------------------
the immediately prior 3 months, the result of dividing the Dollar amount of (a)
bad debt write-downs, discounts, advertising, returns, promotions, credits, or
other dilution
-5-
<PAGE>
with respect to the Foreign Accounts, by (b) Borrower's Collections (excluding
extraordinary items) plus the Dollar amount of clause (a).
"Dilution Reserve (Domestic)" means, as of the date of any
---------------------------
determination, an amount sufficient to reduce Foothill's advance rates against
Eligible Domestic Accounts by one (1) percentage point for each percentage point
by which Dilution (Domestic) is in excess of five percent (5%) of all Domestic
Accounts.
"Dilution Reserve (Foreign)" means, as of the date of any
--------------------------
determination, an amount sufficient to reduce Foothill's advance rate against
Eligible Foreign Accounts by one (1) percentage point for each percentage point
by which Dilution (Foreign) is in excess of five percent (5%) of all Foreign
Accounts.
"Dollars or $" means United States dollars.
------------
"Domestic Accounts" means those Accounts with respect to which (a) the
-----------------
Account Debtor is a resident of the United States or of Canada (but exclusive of
the Canadian Maritime Provinces) and (b) the payments thereunder are payable in
Dollars or Canadian dollars.
"Early Termination Premium" has the meaning set forth in Section 3.6.
------------------------- -------------
"Effective Date" means September 4, 1997.
--------------
"Eligible Accounts" means Eligible Domestic Accounts and Eligible
-----------------
Foreign Accounts.
"Eligible Domestic Accounts" means those Accounts created by Borrower
--------------------------
in the ordinary course of business, that arise out of Borrower's sale of goods,
rendition of services, or licensing of General Intangibles, net of reserves for
Borrower's so-called "Enterprise Sales Partnership" program and/or "PNI" premier
incentive program to cover potential credits, that strictly comply with each and
all of the representations and warranties respecting Accounts made by Borrower
to Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however, that standards of
-------- -------
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. Eligible Domestic Accounts shall not include the
following:
(a) Accounts that the Account Debtor has failed to pay within 90 days
of invoice date or Accounts with selling terms of more than 60 days;
-6-
<PAGE>
(b) Accounts owed by an Account Debtor or its Affiliates where 50% or
more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed
ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an employee,
Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(e) Accounts that are not payable in Dollars or Canadian dollars or
with respect to which the Account Debtor: (i) does not maintain its chief
executive office in the United States or Canada (exclusive of the Canadian
Maritime Provinces), or (ii) is not organized under the laws of the United
States or any State thereof or of Canada or any Province thereof (exclusive of
the Canadian Maritime Provinces), or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public corporation,
or other instrumentality thereof;
(f) Accounts with respect to which the Account Debtor is either (i)
the United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which Borrower has
complied, to the satisfaction of Foothill, with the Assignment of Claims Act, 31
U.S.C. (S) 3727), or (ii) any State of the United States (exclusive, however, of
Accounts owed by any State that does not have a statutory counterpart to the
Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is a creditor of
Borrower, has or has asserted a right of setoff, has disputed its liability, or
has made any written claim with respect to the Account which claim would entitle
the Account Debtor to withhold payment in whole or in part;
(h) Accounts with respect to an Account Debtor whose total obligations
owing to Borrower exceed 10% of all Eligible Accounts (except in the case of
Account Debtors Inacom, Ingram and GTE, with respect to which the applicable
percentage shall be 20% rather than 10%), to the extent of the obligations owing
by such Account Debtor in excess of such percentage;
(i) Accounts with respect to which the Account Debtor is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Foothill, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
-7-
<PAGE>
(k) Accounts with respect to which the goods giving rise to such
Account have not been shipped and billed to the Account Debtor, the services
giving rise to such Account have not been performed and accepted by the Account
Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor is located in
the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other
state or other jurisdiction that requires a creditor to file a business activity
report or similar document in order to bring suit or otherwise enforce its
remedies against such Account Debtor in the courts or through any judicial
process of such state or other jurisdiction), unless Borrower has qualified to
do business in New Jersey, Minnesota, Indiana, West Virginia, or such other
states or jurisdictions, or has filed such a business activity report or similar
document with the applicable division of taxation, the department of revenue, or
with such other state or other jurisdiction offices, as appropriate, for the
then-current year, or, in the opinion of counsel reasonably acceptable to
Foothill, is exempt from such filing requirement; and
(m) Accounts that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services.
"Eligible Equipment" means (a) the Equipment identified on
------------------
Schedule E-1 attached hereto, and (b) any additional Equipment identified by
- ------------
Borrower to Foothill for inclusion on Schedule E-1, which additional Equipment
------------
is held for use in the ordinary course of Borrower's business, is reasonably
acceptable to Foothill in all respects, has had its Liquidation Value
established, and that strictly complies with all of Borrower's representations
and warranties to Foothill; provided, however, that, with respect to additional
-------- -------
items of Equipment, standards of eligibility may be fixed and revised from time
to time by Foothill in Foothill's reasonable credit judgment. If and to the
extent that an item of additional Equipment is identified by Borrower to
Foothill that meets each of the foregoing criteria, Schedule E-1 automatically
------------
shall be deemed to be amended to include such item of Equipment. Eligible
Equipment shall not include obsolete items, damaged, defective, or destroyed
items, Equipment that is subject to a security interest or lien in favor of any
Person other than Foothill (other than Permitted Liens arising in the ordinary
course of business that do not secure Indebtedness for borrowed money), and
Equipment that is not subject to Foothill's perfected first priority security
interests.
"Eligible Foreign Accounts" means Accounts that do not qualify as
-------------------------
Eligible Domestic Accounts solely because (a) the Account Debtor in respect
thereof is not a resident of the United States or Canada (exclusive of the
Canadian Maritime Provinces) or (b) the payments thereunder are payable in a
currency other than Dollars or Canadian dollars; provided, however, that, with
--------- -------
respect to any Foreign Account that Foothill, in the exercise of its reasonable
credit judgment, determines not to be
-8-
<PAGE>
creditworthy solely on the basis of the Account Debtor's credit standing,
Foothill may exclude such Foreign Account from the Eligible Foreign Accounts
unless it is supported by an irrevocable letter of credit satisfactory to
Foothill (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Foothill and is directly drawable by Foothill, or covered
by credit insurance in form and amount, and by an insurer, satisfactory to
Foothill; and, provided, further, that Eligible Foreign Accounts shall not
-------- -------
include Accounts with respect to an Account Debtor whose total obligations owing
to Borrower exceed 10% of all Eligible Accounts, to the extent of the
obligations owing by such Account Debtor in excess of such percentage.
"Eligible Transferee" means (a) a commercial bank organized under the
-------------------
laws of the United States, or any state thereof, and having net worth in excess
of $50,000,000; (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country, and having net worth
in excess of $50,000,000; provided that such bank is acting through a branch or
agency located in the United States; (c) a finance company, insurance or other
financial institution or fund that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and having
net worth in excess of $25,000,000; and (d) any Affiliate (other than
individuals) of Foothill.
"Equipment" means all of Borrower's present and hereafter acquired
---------
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
-----
U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
---------------
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
-9-
<PAGE>
"ERISA Event" means (a) a Reportable Event with respect to any Benefit
-----------
Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
---------------- ---------
"Exchange Rate" means and refers to the nominal rate of exchange (vis-
-------------
a-vis Dollars) in a chosen foreign exchange market for the purchase of the
applicable non-Dollar currency published in the Wall Street Journal (Western
Edition) on the date of determination (which shall be a Business Day on which
the Wall Street Journal (Western Edition) is published), expressed as the number
of units of such currency per one (1) Dollar.
"Exempt Copyright" means any Incipient Copyright and/or any
----------------
Obsolete Copyright.
"FEIN" means Federal Employer Identification Number.
----
"Foothill" has the meaning set forth in the preamble to this
--------
Agreement.
"Foothill Account" has the meaning set forth in Section 2.4.
---------------- -----------
"Foothill Expenses" means all: reasonable costs or expenses
-----------------
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by Foothill; reasonable fees
or charges paid or incurred by Foothill in connection with Foothill's
transactions with Borrower, including reasonable fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic Collateral appraisals), real estate surveys, real estate
title policies and endorsements, and environmental audits; costs and expenses
incurred by
-10-
<PAGE>
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the dishonor of
checks; costs and expenses paid or incurred by Foothill to correct any default
or enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; reasonable costs and expenses
paid or incurred by Foothill in examining Borrower's Books; reasonable costs and
expenses of third party claims or any other suit paid or incurred by Foothill in
enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or Foothill's relationship with Borrower or
any guarantor; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including reasonable attorneys fees and expenses
incurred in connection with a "workout," a "restructuring," or an Insolvency
Proceeding concerning Borrower or any guarantor of the Obligations), defending,
or concerning the Loan Documents, irrespective of whether suit is brought.
"Foreign Accounts" means Accounts other than Domestic Accounts.
----------------
"GAAP" means generally accepted accounting principles as in effect
----
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
-------------------
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
source code, mask works, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights to payment and
other rights under any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or tapes, literature,
reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
-------------------
incorporation or organization, by-laws, or other organizational or governing
documents of any Person.
"Hazardous Materials" means (a) substances that are defined or listed
-------------------
in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived
-11-
<PAGE>
substances, natural gas, natural gas liquids, synthetic gas, drilling fluids,
produced waters, and other wastes associated with the exploration, development,
or production of crude oil, natural gas, or geothermal resources, (c) any
flammable substances or explosives or any radioactive materials, and (d)
asbestos in any form or electrical equipment that contains any oil or dielectric
fluid containing levels of polychlorinated biphenyls in excess of 50 parts per
million.
"Incipient Copyright" means any copyright that: (a) relates to
-------------------
software of Borrower under development (whether in the form of a new product, a
new version of a pre-existing product, an upgrade, add-on, or modification to a
pre-existing product, or otherwise) that has not yet become a completed product,
version, upgrade, add-on, or modification which is ready to be marketed by or on
behalf of Borrower or which in fact is being marketed by or on behalf of
Borrower; and (b) is not the subject of licenses thereof or other dispositions
by Borrower giving rise to Accounts.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
------------
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of Borrower, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against
---------------------
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of
-----------------
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Inventory" means all present and future inventory in which Borrower
---------
has any interest, including goods held for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and packing and shipping materials,
wherever located.
"Investment" means any transaction within the scope of Section 7.13
---------- ------------
(whether permitted or prohibited thereby), and includes capital contributions,
equity contributions, loans, and advances. With respect to any transactions
between Borrower,
-12-
<PAGE>
on the one hand, and a Subsidiary of Borrower, on the other hand, "Investments"
as contemplated by Section 7.13 and/or the definition of "Permitted Subsidiary
------------ ---------------------
Investments" shall be deemed to include any fees (such as "management fees")
- ------------
paid by Borrower to or for the account of such Subsidiary, any expenses paid or
advanced by Borrower to or for the account of such Subsidiary, or any guarantees
given by Borrower with respect to obligations of such Subsidiary.
"Investment Property" means "investment property" as that term is
-------------------
defined in Section 9-115 of the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and
---
the regulations thereunder.
"Japan Sub" means Nihon Banyan Systems K.K., a Japanese
---------
Subsidiary of Borrower.
"Lien" means any interest in property securing an obligation owed to,
----
or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Liquidation Value" means the net orderly liquidation value of an item
-----------------
of Equipment as determined by Koll-DoveTech or a similarly qualified
auctioneering company selected by Foothill.
"Loan Account" has the meaning set forth in Section 2.7.
------------ -----------
"Loan Documents" means this Agreement, the Lockbox Agreements, the
--------------
Warrants, the Securities Issuance Agreement, the Source Code Escrow Agreement,
the Control Agreements, the Copyright Security Agreement, the Trademark Security
Agreement, the Stock Pledge Agreement, any note or notes executed by Borrower
and payable to Foothill, and any other agreement entered into, now or in the
future, in connection with this Agreement.
"Lockbox Account" shall mean a depositary account established
---------------
pursuant to one of the Lockbox Agreements.
-13-
<PAGE>
"Lockbox Agreements" means those certain Lockbox Operating Procedural
------------------
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among Borrower, Foothill,
and one of the Lockbox Banks.
"Lockbox Banks" means State Street Bank and Trust Company.
-------------
"Lockboxes" has the meaning set forth in Section 2.4.
--------- -----------
"Material Adverse Change" means (a) a material adverse change in the
-----------------------
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower and its consolidated Subsidiaries
on a consolidated basis that, with the passage of time, is likely to result in
an Event of Default, (b) the material impairment of Borrower's ability to
perform its obligations under the Loan Documents to which it is a party or of
Foothill to enforce the Obligations or realize upon the Collateral, (c) a
material adverse effect on the value of the Collateral or the amount that
Foothill would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of such Collateral, or (d)
a material impairment of the priority of Foothill's Liens or security interests
in the Collateral.
"Maximum Amount" means $15,000,000.
--------------
"M&E-Based Advance" means any Advance which, after giving effect to
-----------------
the making thereof, will cause the aggregate outstanding balance of Advances to
exceed the amount that the Borrowing Base would be if the component thereof
provided for in Section 2.1(a)(y)(3) of this Agreement were equal to zero.
--------------------
"Monthly Depreciation Amount" means, as of any date of determination
---------------------------
and in respect of any item of Eligible Equipment (a) if the Depreciated
Equipment Value thereof is to be based upon the Original Liquidation Value of
such item of Eligible Equipment, an amount equal to one forty eighth (1/48th) of
the Original Liquidation Value of such item of Eligible Equipment for each month
subsequent to the Closing Date, and (b) if the Depreciated Equipment Value of
such item of Eligible Equipment is to be based upon the reappraised Liquidation
Value therefor, an amount equal to (i) the Liquidation Value of such item of
Eligible Equipment as established by the then most recent reappraisal thereof
conducted under Section 2.1(b)(ii) hereof, multiplied by (ii) a fraction, the
------------------ -------------
numerator of which is one (1) and the denominator of which is the number of
months remaining during the period from the date of such reappraisal until the
fourth anniversary of the Effective Date.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
------------------
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
-14-
<PAGE>
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
"Negotiable Collateral" means all of a Person's present and future
---------------------
letters of credit, notes, drafts, instruments, Investment Property, documents,
personal property leases (wherein such Person is the lessor), chattel paper, and
Books relating to any of the foregoing.
"Net Cash Proceeds" means (a) the gross cash payments received
-----------------
(including any cash payments received by way of deferred payment of principal
pursuant to, or in liquidation of, any note or installment receivable or
otherwise, but only as and when received, except that, with respect to any cash
equivalents received, Borrower shall be deemed to have received on the date of
receipt thereof a cash payment equal to the fair value of such cash equivalents
on such date) from a sale or other disposition, in each case, minus (b) the sum
of all legal, title, and recording tax expenses, commissions, and other fees and
expenses incurred.
"Net Worth" shall have the meaning ascribed to such term by, and shall
---------
be computed in accordance with, GAAP, except that Net Worth also shall include,
as of any date of determination, the outstanding principal balance of any
Permitted Subordinated Indebtedness of Borrower owed to any Person other than a
consolidated Subsidiary of Borrower, and, except, further, that any unreturned
capital invested in Borrower in the form of Permitted Preferred Stock as
reflected on the books of Borrower shall be included, without duplication, in
Net Worth, without regard to whether it would or would not be so included under
GAAP.
"Notice of Exclusive Control" shall have the meaning ascribed to such
---------------------------
term in the definition of "Control Agreement" set forth above in this Agreement.
"Obligations" means all loans, Advances, debts, principal, interest
-----------
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations, premiums (including
Early Termination Premiums), liabilities (including all amounts charged to
Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs, or
Foothill Expenses (including any fees or expenses that, but for the provisions
of the Bankruptcy Code, would have accrued), lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and description
arising pursuant to or incidental to, or evidenced, by the Loan Documents, or
any of them, irrespective of whether for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any and all interest that accrues under the
Loan Documents on other Obligations that are not paid when due.
-15-
<PAGE>
"Obsolete Copyright" means any copyright that relates to software of
------------------
Borrower that is no longer sold or marketed by Borrower, that is not generating
Accounts or revenues of Borrower, and that does not have a material fair market
value.
"Original Liquidation Value" has the meaning set forth in the
--------------------------
definition of Depreciated Equipment Value.
"Overadvance" has the meaning set forth in Section 2.2.
----------- -----------
"Participant" means any Person to which Foothill has sold a
-----------
participation interest in its rights under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
----
in Title IV of ERISA, or any successor thereto.
"Permitted Disposition" means, subject to the prior or concurrent
---------------------
satisfaction of the applicable Release Condition therefor, (a) the sale,
exchange, or other disposition, free and clear of Foothill's security interest
(other than its security interest in the proceeds of such sale, exchange, or
other disposition), of Eligible Equipment, in the ordinary course of Borrower's
business as currently conducted, (b) (i) the sale, exchange, or other
disposition, free and clear of Foothill's security interest (other than its
security interest in the proceeds of such sale, exchange, or other disposition),
of any Inventory, Equipment (other than Eligible Equipment), Permitted Ordinary
Course Investments, or shares of Stock in Subsidiaries (so long as such
Subsidiaries remain Subsidiaries after giving effect to such sale, exchange, or
other disposition, or (ii) the nonexclusive license, free and clear of
Foothill's security interest (other than its security interest in the proceeds
of such license), of any General Intangible, in each case, in the ordinary
course of Borrower's business as currently conducted, in each case, and (c) the
sale, free and clear of Foothill's security interest (other than its security
interest in the proceeds of such sale) of the assets that comprise any software
product line of Borrower that generated less than 10% per Borrower's revenues
during the prior 12 months, if, after giving effect to such sale, Borrower has
not less than $5,000,000 of unrestricted cash, cash equivalents, or
Availability, or any combination thereof, provided that the aggregate product
--------
lines disposed of by Borrower in any fiscal year pursuant to this clause (c)
shall not, without Foothill's prior written consent, account for more than 10%
of Borrower's total revenues for such fiscal year.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
---------------
unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of
------------
lessors under operating leases and purchase money Liens of lessors under capital
leases to the extent that the acquisition or lease of the underlying asset is
permitted under Section 7.21 and so long as the Lien only attaches to the asset
------------
purchased or acquired and only secures the purchase price of the asset, (e)
Liens arising by operation of law in favor of
-16-
<PAGE>
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, (h) Liens arising by reason of security
for surety or appeal bonds in the ordinary course of business of Borrower, and
(i) Liens of or resulting from any judgment or award that would not have a
Material Adverse Effect and as to which the time for the appeal or petition for
rehearing of which has not yet expired, or in respect of which Borrower is in
good faith prosecuting an appeal or proceeding for a review, and in respect of
which a stay of execution pending such appeal or proceeding for review has been
secured.
"Permitted Ordinary Course Investments" means (a) direct obligations
-------------------------------------
of, or obligations the principal of and interest on which are unconditionally
guaranteed by, the United States of America with a remaining term to maturity
not exceeding twenty seven months, (b) certificates of deposit, time deposits,
banker's acceptances or other instruments of a bank having a combined capital
and surplus of not less than $500,000,000, or another financial institution
reasonably satisfactory to Foothill, with a maturity not exceeding one year, (c)
investments in commercial paper rated at least A-1 or P-1 maturing within twenty
seven months after the date of acquisition thereof, (d) money market accounts
maintained at a bank having combined capital and surplus of no less than
$500,000,000 or at another financial institution reasonably satisfactory to
Foothill (including satisfaction of requirements necessary for Foothill to have
a perfected security interest therein with the priority provided for herein),
(e) loans and advances to officers and employees of Borrower in the ordinary
course of business (excluding loans or advances in connection with the purchase
of stock of Borrower) in an aggregate amount at any one time outstanding not to
exceed $250,000, (f) investments in negotiable instruments for collection, (g)
advances in connection with purchases of goods or services in the ordinary
course of business, and (h) other miscellaneous Investments in Persons other
than Subsidiaries of Borrower (such as, without limitation, Investments received
in satisfaction of disputes or claims), not to exceed $500,000 in the aggregate
at any one time.
"Permitted Preferred Stock" means and refers to Preferred Stock issued
-------------------------
by Borrower (a) that is not Prohibited Preferred Stock, and (b) with respect to
which, as of the date of issuance thereof, the Preferred Stock Issuance
Conditions were satisfied, or waived or relaxed by Foothill in Foothill's sole
discretion.
"Permitted Protest" means the right of Borrower to protest any Lien
-----------------
other than any such Lien that secures the Obligations, tax (other than payroll
taxes or taxes that are the subject of a United States federal tax lien),
license payment, or rental
-17-
<PAGE>
payment, provided that (a) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is reasonably
satisfactory to Foothill in the exercise by Foothill of reasonable commercial
judgment, (b) any such protest is instituted and diligently prosecuted by
Borrower in good faith, and (c) Foothill is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Liens of Foothill in and to the Collateral.
"Permitted Subordinated Indebtedness" means Subordinated Indebtedness
-----------------------------------
with respect to which, as of the date of issuance thereof, the Subordinated
Indebtedness Issuance Conditions were satisfied, or waived or relaxed by
Foothill in Foothill's sole discretion.
"Permitted Subsidiary Investments" means: (a) with respect to any
--------------------------------
Subsidiaries of Borrower in existence on the Effective Date, direct or indirect
Investments of Borrower in such Subsidiaries to the extent such Investments
existed on the Effective Date and are fully disclosed in Schedule P-2, (b) with
------------
respect to Subsidiaries of Borrower other than Switchboard, Japan Sub, and
Australia Sub, as of any date of determination after the Effective Date (which
determination shall be made monthly), fees (including "management fees") paid to
or for the benefit of such Subsidiaries, expenses paid or advanced to or for the
benefit of such Subsidiaries, and/or guarantees entered into and outstanding by
Borrower with respect to obligations of such Subsidiaries and any unreimbursed
payments by Borrower under such guarantees, to the extent that, as of such date
of determination, the aggregate amount of such fees, expenses, guarantees, and
unreimbursed payments during the 12 months preceding such date of determination
does not exceed the revenues of Borrower during such 12 month period that are
reasonably allocated to or derived from such Subsidiaries, and (c) with respect
to Switchboard, Japan Sub, and Australia Sub, post-Effective Date Investments in
such Subsidiaries not to exceed $4,000,000 in the aggregate at any one time
outstanding.
"Person" means and includes natural persons, corporations, limited
------
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
"Preferred Stock" means any class or series of equity securities of
---------------
Borrower that is entitled, upon any distribution of assets of Borrower, whether
by dividend or by liquidation, to a preference over another class or series of
equity securities of Borrower.
-18-
<PAGE>
"Preferred Stock Issuance Conditions" means , with respect to the
-----------------------------------
issuance by Borrower of any Preferred Stock, that (a) as of the date of issuance
thereof, after giving effect to such issuance and the payment of any costs,
expenses, fees, or other amounts payable with respect to such issuance, no Event
of Default shall have occurred and be continuing and Borrower shall have
Availability of not less than $1,000,000, and (b) Borrower shall have delivered
to Foothill a certificate signed by the chief financial officer of Borrower
certifying that Borrower has prepared projections for Borrower for the life of
the proposed Preferred Stock (or, if the proposed Preferred Stock is
contemplated to remain outstanding for more than three years, for the first
three years from the date of the issuance thereof), and that such projections
support the ability of Borrower to pay and perform its obligations and
Indebtedness, including but not limited to the Obligations to Foothill and any
obligations of Borrower with respect to the proposed Preferred Stock (including
without limitation any mandatory dividends, distributions, or redemption
payments payable in connection therewith), in accordance with their terms, a
copy of which projections shall be attached to such certificate.
"Prior Lender" means Silicon Valley Bank.
------------
"Prohibited Preferred Stock" means any Preferred Stock that by its
--------------------------
terms is mandatorily redeemable before December 31, 2000, or that is redeemable
at the option of the holder thereof for cash (or assets or securities other than
distributions in kind of Preferred Stock of the same class and series or of
common Stock).
"Real Property" means any estates or interests in real property
-------------
now owned or hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per annum, most
--------------
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Release Condition" means: (a) with respect to any item of Eligible
-----------------
Equipment that is to be the subject of a Permitted Disposition, that (i) no
Event of Default has occurred and is continuing or would result therefrom, (ii)
Foothill has received, or will receive concurrent with the consummation of the
proposed disposition by means reasonably acceptable to Foothill, the Release
Price therefor, and (iii) the Borrowing Base has been adjusted as provided
herein; provided, however, that in the event of a proposed Permitted Disposition
-------- -------
(in one or a series of related sales) of items of Eligible Equipment that
represent 20%, or more, of either (A) the Aggregate Depreciated Equipment Value
immediately prior to such proposed Permitted Disposition, or (B) the number of
items of Eligible Equipment immediately prior to such proposed Permitted
Disposition, Borrower shall cause there to be performed a reappraisal of the
Liquidation Value of the Eligible Equipment remaining after giving effect to
such proposed Permitted Disposition and such proposed Permitted Disposition
-19-
<PAGE>
only shall be permitted hereunder if, after giving effect thereto and after
giving effect to the required payment to Foothill of the Net Cash Proceeds
therefrom in accordance with the terms hereof, there shall not exist an
Overadvance, and (b) with respect to any other property or asset, not covered by
the foregoing clause (a), that is eligible for, and is to be the subject of, a
Permitted Disposition, that (i) no Event of Default has occurred and is
continuing, and (ii) Borrower is receiving fair value therefor.
"Release Price" means, with respect to any item of Eligible Equipment,
-------------
an amount, in cash, equal to the Depreciated Equipment Value of such item of
Eligible Equipment at the time of the proposed Permitted Disposition thereof.
"Renewal Date" has the meaning set forth in Section 3.4.
------------ -----------
"Reportable Event" means any of the events described in Section
----------------
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Retiree Health Plan" means an "employee welfare benefit plan" within
-------------------
the meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Securities Account" means a "securities account" as that term is
------------------
defined in Section 8-501 of the Code.
"Securities Issuance Agreement" means a Securities Issuance Agreement,
-----------------------------
in form and substance satisfactory to Foothill, between Borrower and Foothill.
"Solvent" means, with respect to any Person on a particular date, that
-------
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
-20-
<PAGE>
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Source Code Escrow Agreement" means a Source Code Escrow Agreement,
----------------------------
in form and substance satisfactory to Foothill, among Borrower, Foothill, and a
source code escrow agent reasonably acceptable to Foothill.
"Stock" means all shares, options, warrants, interests, units,
-----
participations, or other equivalents (regardless of how designated) of or in a
corporation, limited liability company, or equivalent entity, whether voting or
nonvoting, including common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).
"Stock Pledge Agreement" means a Stock Pledge Agreement, in form and
----------------------
substance satisfactory to Foothill, between Borrower and Foothill, with respect
to the pledge by Borrower to Foothill of the Applicable Number of Shares of
Borrower's Stock in each of its Subsidiaries.
"Subordination Agreement" means (a) any subordination of indebtedness
-----------------------
agreement that is in form and substance reasonably satisfactory to Foothill, and
that is in full force and effect and for the benefit of Foothill, with respect
to any obligations or Indebtedness of Borrower therein described, or (b) the
subordination provisions of any subordinated debentures or subordinated notes of
Borrower issued for the purpose of raising capital, whether convertible or not,
the terms and provisions of which, including the subordination terms and
provisions, shall be market terms at the time of issuance thereof.
"Subordinated Indebtedness" means any Indebtedness of Borrower that is
-------------------------
subordinated to the Obligations pursuant to a Subordination Agreement.
"Subordinated Indebtedness Issuance Conditions" means, with respect to
---------------------------------------------
the issuance by Borrower of any Subordinated Indebtedness, that (a) as of the
date of issuance thereof, after giving effect to such issuance and the payment
of any costs, expenses, fees, or other amounts payable with respect to such
issuance, no Event of Default shall have occurred and be continuing and Borrower
shall have Availability of not less than $1,000,000, (b) such Subordinated
Indebtedness does not by its terms require Borrower to make any mandatory
repayments of principal thereof, any sinking funds payments with respect to the
principal thereof, or any mandatory redemptions of the principal thereof, in any
such case prior to December 31, 2000, and (c) Borrower shall have delivered to
Foothill a certificate signed by the chief financial officer of Borrower
certifying that Borrower has prepared projections for Borrower for the life of
the proposed Subordinated Indebtedness (or, if the proposed Subordinated
Indebtedness has a term of more than three years, for the first three years of
such term), and that
-21-
<PAGE>
such projections support the ability of Borrower to pay and perform its
obligations and Indebtedness, including but not limited to the Obligations to
Foothill and the proposed Subordinated Indebtedness, in accordance with their
terms, a copy of which projections shall be attached to such certificate.
"Subsidiary" of a Person means a corporation, partnership, limited
----------
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"Switchboard" means Switchboard Inc., a Delaware corporation, and
-----------
a Subsidiary of Borrower.
"Trademark Security Agreement" means a Trademark Security Agreement,
----------------------------
in form and substance satisfactory to Foothill, between Borrower and Foothill.
"Voidable Transfer" has the meaning set forth in Section 15.8.
----------------- ------------
"Warrants" means those certain warrants, in form and substance
--------
satisfactory to Foothill, issued or issuable by Borrower to Foothill pursuant to
the Securities Issuance Agreement.
"Working Capital" means the result of subtracting Consolidated Current
---------------
Liabilities from Consolidated Current Assets.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the 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 and not to
any particular provision of
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this Agreement. An Event of Default shall "continue" or be "continuing" until
(a) such Event of Default has been waived in writing by Foothill, or, (b) if and
to the extent such Event of Default is susceptible of cure, and if and to the
extent Borrower is entitled under the provisions of the Loan Documents to cure
such Event of Default, such Event of Default is cured by Borrower. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum Amount,
or (ii) the Borrowing Base. For purposes of this Agreement, "Borrowing Base", as
of any date of determination, shall mean the result of:
(y) the sum of:
(1) 85% of Eligible Domestic Accounts, less the amount, if any,
----
of the Dilution Reserve (Domestic);
plus
(2) the lowest of (I) $2,000,000, (II) 75% of Eligible Foreign
Accounts, less the amount, if any of the Dilution Reserve
----
(Foreign), and (III) 25% of the amount of credit
availability created by clause (y)(1) above;
plus
(3) the lowest of (I) $3,000,000, (II) 80% of the Aggregate
Depreciated Equipment Value, and (III) 50% the amount of
credit availability created by the sum of clauses (y)(1) and
(y)(2) above;
minus
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<PAGE>
(z) the aggregate amount of reserves, if any, established by
Foothill under Section 2.1(c);
--------------
provided that, in no event shall the aggregate combined amount
--------
included in the calculation of the Borrowing Base with respect to
clauses (y)(1) and (y)(2) above, as of any date of determination,
exceed an amount equal to 5/6ths of Borrower's Collections with
respect to Accounts for the immediately preceding 90-day period.
(b) For purposes of determining the amount of credit
availability created by clause (y)(1)(C) of Section 2.1(a) above:
--------------
(i) Concurrent with the consummation of a Permitted
Disposition of an item of Eligible Equipment, (y) Borrower shall repay the
Obligations outstanding under Section 2.1(a) by an amount equal to the Net
--------------
Cash Proceeds of such Permitted Disposition, and (z) the Aggregate Depreciated
Equipment Value extant immediately prior to such disposition automatically shall
be reduced by an amount equal to the Depreciated Equipment Value for the item of
Eligible Equipment that is the subject of such Permitted Disposition unless such
item of Eligible Equipment is concurrently replaced with another item of
Eligible Equipment (in accordance with clause (b) of the definition of Eligible
Equipment) that has a Liquidation Value equal to or greater than the item of
Eligible Equipment that is the subject of the Permitted Disposition (the
Depreciated Equipment Value of such replacement item of Eligible Equipment to be
calculated thereafter based upon the Monthly Depreciation (i.e., the applicable
fraction) that was applicable to the item of Eligible Equipment that was the
subject of the Permitted Disposition; and any such replacement item of equipment
is referred to in this definition as "Replacement Equipment"). In connection
with any such concurrent replacement of an item of Eligible Equipment for a
disposed item of Eligible Equipment, Foothill agrees that it will attempt, in
good faith based upon the facts and circumstances then existing, to base the
Liquidation Value of the replacement item of Eligible Equipment at the time of
its first inclusion in the Borrowing Base (as opposed to at one of the times set
forth in clause (ii) below) upon the Liquidation Value of an identical, or
substantially similar, item of Eligible Equipment that already is included
within the Borrowing Base and as to which Foothill already has established the
Liquidation Value. In addition, Foothill agrees that it will consider, in good
faith, the inclusion of additional items of Equipment consisting of computer
hardware, graphic computers, servers, systems accessories, software, or
peripherals ("Additional Equipment") in the Borrowing Base (other than as
Replacement Equipment) so long as in connection therewith Borrower provides
Foothill with an appraisal of the Liquidation Value of such items of Additional
Equipment and so long as such items of Additional Equipment otherwise would
qualify as Eligible Equipment (in accordance with clause (b) of the definition
of Eligible Equipment).
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<PAGE>
(ii) Foothill shall have the right to have the
Eligible Equipment reappraised by Koll-DoveTech (or a similarly qualified
auctioneering company selected by Foothill) from time to time after the Closing
Date, for the purpose of redetermining the Liquidation Value of such Eligible
Equipment; provided that, prior to the occurrence of an Event of Default,
-------------
Borrower shall not be obligated to pay for more than one complete reappraisal
of the Eligible Equipment during any 12-month period (provided further
--------
that the limitation in the foregoing proviso shall not limit the right of
Foothill in its discretion to require a reappraisal at Borrower's expense of
the Eligible Equipment pursuant to Section 3.2(a) to the extent it is
------
applicable and under the circumstances contemplated thereby).
(c) Anything to the contrary in Section 2.1(a) above notwith standing,
--------------
Foothill may create reserves against or reduce its advance rates based upon
Eligible Domestic Accounts, Eligible Foreign Accounts, or Aggregate Depreciated
Equipment Value without declaring an Event of Default if it determines in its
reasonable business judgment that there has occurred a Material Adverse Change.
In addition to the foregoing, if at any time Borrower is delinquent in making
current royalty payments under agreements with respect to which Borrower is a
licensee of General Intangibles, Foothill may create reserves with respect to
the estimated amount of such delinquent amounts.
(d) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
-----------
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater than
-----------
either the Dollar or percentage limitations set forth in Section 2.1 (an
-----------
"Overadvance"), Borrower immediately shall pay to Foothill, in cash, the amount
of such excess to be used by Foothill to repay Advances outstanding under
Section 2.1.
- -----------
2.3 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. Except as provided in clause (b) below, all
Obligations shall bear interest at a per annum rate equal to the Reference Rate.
(b) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Foothill, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
-------- -------
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable
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<PAGE>
under applicable law, then, ipso facto as of the date of this Agreement,
---- -----
Borrower is and shall be liable only for the payment of such maximum as allowed
by law, and payment received from Borrower in excess of such legal maximum,
whenever received, shall be applied to reduce the principal balance of the
Obligations to the extent of such excess.
(c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default, all Obligations shall bear interest at a per annum rate
equal to 3.0 percentage points above the Reference Rate.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7.0% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less than
the foregoing minimum daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest payable hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), the fees and
charges provided for in Section 2.8 (as and when accrued or incurred), and all
-----------
installments or other payments due under any Loan Document to Borrower's Loan
Account, which amounts thereafter shall accrue interest at the rate then
applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement
is 8.5% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
2.4 COLLECTION OF ACCOUNTS. From and after the Closing Date, Borrower
shall at all times maintain lockboxes (the "Lockboxes") and shall instruct all
Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower to remit all Collections in respect
---
thereof to such Lockboxes. Borrower, Foothill, and the Lockbox Banks shall enter
into the Lockbox Agreements, which among other things shall provide for the
opening of a Lockbox Account for the deposit of Collections at a Lockbox Bank.
Borrower agrees that, from and after the Closing Date, all Collections and other
amounts received by Borrower from any Account Debtor or any other source
immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox
Agreement or arrangement contemplated thereby shall be modified by Borrower
without the prior written consent of Foothill. Upon the terms and subject to
the conditions set forth in the Lockbox Agreements, all amounts
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<PAGE>
received in each Lockbox Account shall be wired each Business Day into an
account (the "Foothill Account") maintained by Foothill at a depositary selected
by Foothill.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the Lockbox
Banks pursuant to the Lockbox Agreements or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under Section 2.1,
-----------
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. Should any Collection item not be honored when presented
for payment, then Borrower shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the contrary contained
herein notwithstanding, any Collection item shall be deemed received by Foothill
only if it is received into the Foothill Account on a Business Day on or before
11:00 a.m. California time. If any Collection item is received into the
Foothill Account on a non-Business Day or after 11:00 a.m. California time on a
Business Day, it shall be deemed to have been received by Foothill as of the
opening of business on the immediately following Business Day. Insofar as
Borrower is paying Foothill a yield management fee in lieu of `float' or
`clearance' charges, there shall be no separate `float' or `clearance' charges
hereunder.
2.6 DESIGNATED ACCOUNT. Foothill is authorized to make the Advances
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.3(e). Borrower agrees to establish and maintain the
--------------
Designated Account with the Designated Account Bank for the purpose of receiving
the proceeds of the Advances requested by Borrower and made by Foothill
hereunder. Unless otherwise agreed by Foothill and Borrower, any Advance
requested by Borrower and made by Foothill hereunder shall be made to the
Designated Account.
2.7 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Foothill
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances made by Foothill
to Borrower or for Borrower's account, including, accrued interest, Foothill
Expenses, and any other payment Obligations of Borrower. In accordance with
Section 2.5, the Loan Account will be credited with all payments received by
- -----------
Foothill from Borrower or for Borrower's account, including all amounts received
in the Foothill Account from any Lockbox Bank. Foothill shall render statements
regarding the Loan Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrower and Foothill
unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver
to Foothill written objection thereto describing the error or errors contained
in any such statements.
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<PAGE>
2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) Origination Fee. An origination fee in the aggregate amount
of $130,000, which fee shall be earned in full and non-refundable on the
Effective Date, and shall be due and payable as follows: (i) $43,333 on the
first anniversary of the Effective Date; (ii) $43,333 on the second anniversary
of the Effective Date; and (iii) $43,334 on the third anniversary of the
Effective Date; provided that, if, for any reason, this Agreement is terminated
--------
prior to the date that any of the above payments otherwise would be due, such
payments shall be due and payable on the date this Agreement is terminated.
(b) Unused Line Fee. On the first day of each month during the
term of this Agreement, commencing on the Effective Date, payable monthly in
arrears, an unused line fee in an amount equal to 0.375% per annum times the
Adjusted Average Unused Portion of the Maximum Amount;
(c) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus reasonable out-of-
pocket expenses for each financial analysis and examination (i.e., audits) of
Borrower performed by personnel employed by Foothill; Foothill's customary
appraisal fee of $1,500 per day per appraiser, plus reasonable out-of-pocket
expenses for each appraisal of the Collateral performed by personnel employed by
Foothill; and, the actual charges paid or incurred by Foothill if it elects to
employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower or to appraise the
Collateral; and, on each anniversary of the Closing Date, Foothill's customary
fee of $1,000 per year for its loan documentation review; provided that, if no
--------
Event of Default has occurred, Foothill shall not charge Borrower for audits or
appraisals more frequently than quarterly (provided further that the limitation
--------
in the foregoing proviso shall not limit the right of Foothill in its discretion
to require a reappraisal at Borrower's expense of the Eligible Equipment
pursuant to Section 3.2(a) to the extent it is applicable and under the
--------------
circumstances contemplated thereby); and, provided, further, that Foothill's
--------
ability to charge for reappraisals of the Eligible Equipment shall be further
limited as provided in Section 2.1(b)(ii); and
------------------
(d) Yield Management Fee. On the first day of each month during
the term of this Agreement, commencing on the Effective Date (provided
--------
that the prorated yield management fee for September, 1997, equal to 27/30ths of
$4,167, shall be payable on October 1, 1997, together with and in addition to
the full monthly fee payable on October 1, 1997, with respect to October, 1997),
and thereafter until all Obligations are paid in full and this Agreement is
terminated, a yield management fee in an amount equal to $4,167 per month.
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<PAGE>
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligation of
Foothill to make the initial Advance is subject to the fulfillment, to the
reasonable satisfaction of Foothill and its counsel, of each of the following
conditions on or before the Closing Date (except to the extent that Foothill, in
its sole discretion, waives or postpones, in whole or in part, the satisfaction
of any such condition(s)):
(a) Foothill shall have received satisfactory evidence that all
existing copyrights of Borrower (other than Exempt Copyrights) have been
registered with the United States Copyright Office and that all such copyrights
(other than Exempt Copyrights), and any proceeds thereof, are specifically
encumbered by the Copyright Security Agreement;
(b) Foothill shall have received searches reflecting the filing
of its financing statements and fixture filings;
(c) Foothill shall have received each of the following documents,
duly executed, and each such document shall be in full force and effect:
a. the Control Agreements;
b. the Securities Issuance Agreement, together with the
Warrants issuable thereunder on the Closing Date;
c. the Copyright Security Agreement;
d. the Trademark Security Agreement;
e. the Stock Pledge Agreement;
f. the Source Code Escrow Agreement; and
g. the Lock Box Agreement(s) among the applicable Lockbox
Bank, Foothill, and Borrower.
(d) Foothill shall have received satisfactory evidence of
termination by Prior Lender of its Liens in and to the properties and assets of
Borrower;
(e) Foothill shall have received satisfactory evidence of the
ability of Borrower manually to age its Accounts on a basis not less frequently
than monthly;
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<PAGE>
(f) Foothill shall have received the original certificates
representing or evidencing all of the Pledged Collateral (as defined in the
Stock Pledge Agreement, which shall not exceed, with respect to any Subsidiary,
the Applicable Number of Shares of Stock thereof), together with undated Stock
powers or equivalent assignments with respect thereto duly endorsed in blank;
(g) Foothill shall have received a certificate from the Secretary (or
Clerk) of Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute the same;
(h) Foothill shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Effective Date,
certified by the Secretary (or Clerk) of Borrower;
(i) Foothill shall have received a certificate of status with respect
to Borrower, dated within 15 days of the Effective Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(j) Foothill shall have received certificates of status with respect
to Borrower, each dated within 15 days of the Effective Date, such certificates
to be issued by the appropriate officer of the jurisdictions in which its
failure to be duly qualified or licensed would constitute a Material Adverse
Change, which certificates shall indicate that Borrower is in good standing in
such jurisdictions;
(k) Foothill shall have received a certificate of insurance, together
with certified copies of the policies of insurance and the endorsements thereto,
that are required by Section 6.10, the form and substance of which shall be
------------
satisfactory to Foothill and its counsel;
(l) Borrower shall have demonstrated to Foothill the ability of
Borrower to provide reporting as to Accounts of Borrower and the aging thereof
that is acceptable to Foothill, in the reasonable commercial exercise by
Foothill of its credit judgment (or, if such condition has not yet been
satisfied, Foothill may maintain a $1,000,000 reserve against Availability (in
addition to any other reserves provided for or permitted under this Agreement)
until such condition has been satisfied);
(m) Foothill shall have received the results of reference checks on
key management personnel of Borrower, which results shall be satisfactory to
Foothill in its sole discretion;
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<PAGE>
(n) Foothill shall have completed "field surveys" in respect of
Equipment and Inventory and received appraisals of the Equipment, and in each
case the results of them shall be satisfactory to Foothill;
(o) Foothill shall have received an opinion of Borrower's counsel
in form and substance satisfactory to Foothill;
(p) Foothill shall have received satisfactory evidence that all tax
returns required to be filed by Borrower have been timely filed and all taxes
upon Borrower or its properties, assets, income, and franchises (including real
property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(q) Foothill shall have received evidence satisfactory to it that,
after giving effect to the initial advances to be made on the Closing Date and
the outstanding fees and other Foothill Expenses charged to Borrower's Loan
Account hereunder from the Effective Date through the Closing Date, Borrower
shall have not less than $5,000,000 of unrestricted cash, cash equivalents, or
Availability, or any combination thereof;
(r) Foothill shall have received any copyright searches that it may
require from the United States Copyright Office with respect to any copyrights
(other than Exempt Copyrights) of Borrower and such searches shall reflect to
Foothill's satisfaction Borrower's ownership of such copyrights free and clear
of liens or other adverse claims other than Permitted Liens;
(s) Foothill shall have received such Collateral Access Agreements
from lessors, warehousemen, bailees, and other third persons as Foothill may
require;
(t) Foothill shall have received satisfactory evidence that Borrower
is not delinquent in respect of any material obligations of Borrower;
(u) There shall not have occurred any material adverse change in the
financial condition of Borrower (from the financial condition thereof as
reflected in Borrower's most recent audited financial statements provided to
Foothill prior to the Effective Date), nor shall there exist any material
impairment of the value of the Collateral;
(v) Foothill's counsel shall have received and reviewed all material
agreements to which Borrower is a party pursuant to which Borrower is the
licensee of General Intangibles, or pursuant to which Borrower is obligated to
pay royalties, and the results of such review shall be satisfactory to Foothill;
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<PAGE>
(w) Borrower shall have given Foothill at least 30 days prior written
notice of the date that Borrower wishes to obtain the first Advance under this
Agreement, to permit Foothill time to re-audit Borrower before such date,
Borrower shall have provided Foothill a reasonable opportunity to conduct such
audit, and such audit shall have been completed by Foothill; and
(x) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
3.2 CONDITIONS PRECEDENT TO THE INITIAL M&E-BASED ADVANCE. The
obligation of Foothill to make the initial M&E-Based Advance is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of the following
condition on or before the date of making thereof (except to the extent that
Foothill, in its sole discretion, waives or postpones, in whole or in part, the
satisfaction of such condition):
(a) if, as of the proposed date of making of such initial M&E-Based
Advance, the most recent appraisal of the Eligible Equipment received by
Foothill would be more than six months old, Borrower shall have given Foothill
at least 30 days prior written notice of the date that Borrower wishes to obtain
the initial M&E-Based Advance, to permit Foothill to cause the Eligible
Equipment to be re-appraised if Foothill so elects, and, if Foothill does so
elect, Borrower shall have provided Foothill and the appraiser selected by
Foothill a reasonable opportunity to conduct such reappraisal of the Eligible
Equipment.
3.3 CONDITIONS PRECEDENT TO ALL ADVANCES. The following shall be
conditions precedent to all Advances hereunder:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as of
the date of such extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof; and
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit shall
have been issued and remain in force by any governmental authority against
Borrower, Foothill, or any of their Affiliates.
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3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and Foothill and shall
continue in full force and effect for a term ending on the date (the "Renewal
Date") that is 3 years from the Effective Date and automatically shall be
renewed for successive 1 year periods thereafter, unless sooner terminated
pursuant to the terms hereof. Either party may terminate this Agreement
effective on the Renewal Date or on any 1 year anniversary of the Renewal Date
by giving the other party at least 90 days prior written notice. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's duties, Obligations, or covenants hereunder,
and Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the provisions of Section
-------
3.4, but fails to pay the Obligations in full on the date set forth in said
- ---
notice, then Foothill may, but shall not be required to, renew this Agreement
for an additional term of 1 year.
3.6 EARLY TERMINATION BY BORROWER. The provisions of Section 3.4
-----------
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option, at
any time upon 30 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, the Obligations, in full, together
with a premium (the "Early Termination Premium") equal to the greater of (a) the
total interest for the immediately preceding 6 months, and (b) $150,000.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
-----------
be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Foothill's security interests in
the Collateral shall attach to all Collateral without further act on the part of
Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for Permitted Dispositions,
Borrower has no authority, express or implied, to dispose of any item or portion
of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Foothill, shall endorse and deliver physical
possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time, Foothill or Foothill's designee may (a) notify
customers or Account Debtors of Borrower that the Accounts, General Intangibles,
or Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein, and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to the Loan Account. Borrower agrees that it will hold in trust for Foothill,
as Foothill's trustee, any Collections that it receives and immediately will
deliver said Collections to Foothill in their original form as received by
Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon
the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements and supplements thereto, pledges and supplements thereto,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents that Foothill reasonably may request, in form reasonably
satisfactory to Foothill, to perfect and continue perfected Foothill's security
interests in the Collateral, and in order to fully consummate all of the
transactions contemplated hereby and under the other Loan Documents. Without
limiting the foregoing, Borrower agrees to execute and deliver any Control
Agreements, security agreements, financing statements, or other documents
reasonably required by Foothill to create, perfect, or maintain the perfection
or priority of, its Liens on Borrower's Securities Accounts and related
Investment Property.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if
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Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of
-----------
the documents described in Section 4.4, (b) at any time that an Event of Default
-----------
has occurred and is continuing or Foothill deems itself insecure, sign
Borrower's name on any invoice or bill of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse Borrower's name on any Collection item that may come into
Foothill's possession, (e) at any time that an Event of Default has occurred and
is continuing or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under Borrower's policies of insurance and make all determinations and
decisions with respect to such policies of insurance, and (g) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that Foothill in good faith
believes to be reasonable, and Foothill may cause to be executed and delivered
any documents and releases that Foothill determines to be necessary. The
appointment of Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. (a) So long as no Event of Default has
occurred and is continuing and Foothill does not deem itself insecure, Foothill
(through any of its officers, employees, or agents) shall have the right, from
time to time hereafter upon prior notification to Borrower and during normal
business hours, to inspect Borrower's Books and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
(b) Upon the occurrence and during the continuation of an Event of
Default or if Foothill deems itself insecure, Foothill (through any of its
officers, employees, or agents) shall have the right, from time to time
hereafter without prior notification to Borrower and at any time or times
determined by Foothill in its sole discretion, to inspect Borrower's Books and
to check, test, and appraise the Collateral in order to verify Borrower's
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
4.7 CONTROL AGREEMENTS. Foothill agrees that it will not give any
Notice of Exclusive Control unless an Event of Default has occurred and is
continuing or if Foothill deems itself insecure. Borrower agrees that it will
not transfer assets out
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of any Securities Accounts other than as permitted under Section 7.22 and, if
------------
to another securities intermediary, unless each of Borrower, Foothill, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Foothill. Upon the occurrence and during
the continuance of an Event of Default or if Foothill deems itself insecure,
Foothill may notify any securities intermediary to liquidate or transfer the
applicable Securities Account or any Investment Property maintained or held
thereby and remit the proceeds thereof to the Foothill Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Effective Date, and at and as of the date
of the making of each Advance made thereafter, as though made on and as of the
date of such Advance (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing
obligations created by the sale and delivery of Inventory, the rendition of
services, or the licensing of General Intangibles to Account Debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
The property giving rise to such Eligible Accounts has been delivered to the
Account Debtor, or to the Account Debtor's agent for immediate shipment to and
unconditional acceptance by the Account Debtor. Borrower has not received
notice of actual or imminent bankruptcy, insolvency, or material impairment of
the financial condition of any Account Debtor regarding any Eligible Account.
5.3 ELIGIBLE EQUIPMENT. All Eligible Equipment is of good and
merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without
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Foothill's prior written consent) and are located only at the locations
identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
- ------------- ------------
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 04-2798394.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation and qualified and licensed to
do business in, and in good standing in, any state where the failure to be so
licensed or qualified reasonably could be expected to have a Material Adverse
Change.
(b) Set forth on Schedule 5.8, is a complete and accurate description
------------
of the authorized capital Stock of Borrower, by class, and, as of the Closing
Date, a description of the number of shares of each such class that are issued
and outstanding and the number of such shares that are held in Borrower's
treasury. All such outstanding shares have been validly issued and, as of the
Closing Date, are fully paid, nonassessable shares free of contractual
preemptive rights. The issuance and sale of all such shares have been in
compliance with all applicable federal and state securities laws. Except as
disclosed in Section 8.g. of the Securities Issuance Agreement, there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower's
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.
(c) Set forth on Schedule 5.8, is a complete and accurate list of
------------
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(d) Except as set forth on Schedule 5.8, no capital Stock (or any
------------
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights,
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calls, commitments or claims of any character convertible into or exercisable
for capital Stock) of any direct or indirect Subsidiary of Borrower is subject
to the issuance of any security, instrument, warrant, option, purchase right,
conversion or exchange right, call, commitment or claim of any right, title, or
interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not (i)
violate any provision of federal, state, or local law or regulation (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on Borrower, (ii) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any material contractual obligation or material lease of
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval or
consent of any Person under any material contractual obligation of Borrower.
(c) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by Borrower of
this Agreement and the Loan Documents to which Borrower is a party do not and
will not require any registration with, consent, or approval of, or notice to,
or other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its properties
and assets pursuant to this Agreement and the other Loan Documents are validly
created, perfected, and first priority Liens, subject only to Permitted Liens.
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5.10 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if decided
- -------------
adversely to Borrower, would not have a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating
to Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present Borrower's (or such
guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted to
Foothill on or before the Effective Date.
5.12 SOLVENCY. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on Schedule 5.13. Borrower, each of its Subsidiaries
-------------
and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrower or its Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct or indirect
liability with respect to any Plan under any applicable law, treaty, rule,
regulation, or agreement. None of Borrower or its Subsidiaries or any ERISA
Affiliate is required to provide security to any Plan under Section 401(a)(29)
of the IRC.
5.14 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. None of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No Lien arising under any
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<PAGE>
environmental protection statute has attached to any revenues or to any real or
personal property owned or operated by Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of any material
quantity of Hazardous Materials into the environment, which, if complied with by
Borrower, or if determined adversely to Borrower, reasonably could be expected
to (i) result in a material liability of Borrower, (ii) materially interfere
with Borrower's business or operations as then conducted, or (iii) materially
impair the value or marketability of the Collateral.
5.15 INTELLECTUAL PROPERTY. Borrower owns or possesses adequate
licenses or other rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, source code, mask-works, trade secrets and know-how (collectively,
the "Intellectual Property") that are necessary for the operation of its
business as currently conducted. No claim is pending or threatened in writing
to the effect that Borrower infringes upon, or conflicts with, the asserted
rights of any other Person under any Intellectual Property, and there is no
basis for any such claim (whether pending or threatened, and which, if
determined adversely to Borrower, reasonably could be expected to result in a
Material Adverse Change). No claim is pending or threatened in writing to the
effect that any such Intellectual Property owned or licensed by Borrower or in
which Borrower otherwise has the right to use is invalid or unenforceable by
Borrower, and there is no basis for any such claim (whether or not pending or
threatened, and which, if determined adversely to Borrower, reasonably could be
expected to result in a Material Adverse Change).
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may be requested by Foothill. Borrower also
shall keep a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day (except that during periods where the balance of Obligations is
zero dollars, such reporting need occur only monthly for each such calendar
month, by the 10th day of the next following calendar month), a sales journal,
collection journal, and credit
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register since the last such schedule and a calculation of the Borrowing Base as
of such date, (b) on a monthly basis and, in any event, by no later than the
10th day of each month during the term of this Agreement, (i) a detailed
calculation of the Borrowing Base, and (ii) a detailed aging, by total, of the
Accounts, together with a reconciliation to the detailed calculation of the
Borrowing Base previously provided to Foothill, (c) on a monthly basis and, in
any event, by no later than the 10th day of each month during the term of this
Agreement, a summary aging, by vendor, of Borrower's accounts payable and any
book overdraft, (d) with respect to each calendar month, by the 10th day of the
next following calendar month, a report summarizing Borrower's royalty payments
during such preceding month, and indicating any delinquencies of Borrower, if
any, with respect to any such royalty payments due to third parties, (e) on each
Business Day (except that during periods where the balance of Obligations is
zero dollars, such reporting need occur only monthly for each such calendar
month, by the 10th day of the next following calendar month), notice of all
returns, disputes, or claims, (f) upon request, copies of invoices in connection
with the Accounts, customer statements, credit memos, remittance advices and
reports, deposit slips, shipping and delivery documents in connection with the
Accounts and for Inventory and Equipment acquired by Borrower, purchase orders
and invoices, (g) on a quarterly basis, a detailed list of Borrower's customers,
(h) on a monthly basis, a calculation of the Dilution for the prior month; and
(i) such other reports as to the Collateral, the financial condition of
Borrower, or the compliance of Borrower with Section 6.16, as Foothill
------------
reasonably may request from time to time. Original invoices evidencing each
sale or licensing transaction shall be mailed by Borrower to each Account Debtor
and, at Foothill's direction if an Event of Default has occurred or if Foothill
deems itself insecure, the invoices shall indicate on their face that the
Account has been assigned to Foothill and that all payments are to be made
directly to Foothill.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after the
end of each month during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering Borrower's
operations during such period; and (b) as soon as available, but in any event
within 90 days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants have reviewed this Agreement and that
during the course of their audit they did not obtain knowledge of the existence
of any Default or Event of Default; provided that, in preparing and providing
--------
such certificate, such accountants shall not be required to engage in any
special procedures (other than review of this Agreement) in which they would not
otherwise have engaged in connection with such audit but for the requirements of
this Agreement. Such audited financial statements shall include a balance
sheet, profit and loss statement, and statement of cash flow and, if prepared,
such accountants' letter to management. If
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Borrower is a parent company of one or more Subsidiaries, or Affiliates, or is a
Subsidiary or Affiliate of another company, then, in addition to the financial
statements referred to above, Borrower agrees to deliver financial statements
prepared on a consolidating basis so as to present Borrower and each such
related entity separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders generally, and any
other report reasonably requested by Foothill relating to the financial
condition of Borrower.
Each month, together with the financial statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Foothill a certificate signed by
--------------
its chief financial officer to the effect that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in Section 7.20
------------
is to be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in Section 7.20, and (iv) on the date of delivery of such certificate
------------
to Foothill there does not exist any condition or event that constitutes a
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill reasonably may request. Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, at Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill any information they may have regarding
Borrower's business affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
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6.5 GUARANTOR REPORTS. Cause any guarantor of any of the Obligations
to deliver its annual financial statements at the time when Borrower provides
its audited financial statements to Foothill and copies of all federal income
tax returns as soon as the same are available and in any event no later than 30
days after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower, Borrower promptly shall determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with a copy to be
sent to Foothill) in the appropriate amount to such Account Debtor. If, at a
time when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 TAXES. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property to be paid in full, before delinquency or before
the expiration of any extension period, except to the extent that the validity
of such assessment or tax shall be the subject of a Permitted Protest.
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof or deposit with respect thereto. Borrower will
make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Foothill with proof satisfactory to Foothill
indicating that Borrower has made such payments or deposits.
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6.1 INSURANCE.
(a) At its expense, keep the Collateral insured against loss or damage
by fire, theft, explosion, sprinklers, and all other hazards and risks, and in
such amounts, as are ordinarily insured against by other owners in similar
businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type
necessary to insure any Real Property of Borrower, for the full replacement cost
thereof, against any loss by fire, lightning, windstorm, hail, explosion,
aircraft, smoke damage, vehicle damage, earthquakes, elevator collision, and
other risks from time to time included under "extended coverage" policies, in
such amounts as Foothill may require, but in any event in amounts sufficient to
prevent Borrower from becoming a co-insurer under such policies, (ii) combined
single limit bodily injury and property damages insurance against any loss,
liability, or damages on, about, or relating to each parcel of Real Property, in
an amount of not less than $5,000,000; and (iii) insurance for such other risks
as Foothill may require. Replacement costs, at Foothill's option, may be
redetermined by an insurance appraiser, satisfactory to Foothill, not more
frequently than once every 12 months at Borrower's cost.
(c) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Foothill.
All insurance required herein shall be written by companies which are authorized
to do insurance business in the State of California. All hazard insurance and
such other insurance as Foothill shall specify, shall contain a California Form
438BFU (NS) lender's loss payable endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
- ------------
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of any Real Property for purposes more hazardous than permitted
by the terms of such policy, (ii) any foreclosure or other action or proceeding
taken by Foothill pursuant to the Loan Documents upon the happening of an Event
of Default, or (iii) any change in title or ownership of any Real Property.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to Foothill
evidencing such insurance shall be delivered to Foothill at least 30 days prior
to the expiration of the existing or preceding policies. Borrower shall give
Foothill
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prompt notice of any loss covered by such insurance, and Foothill shall have the
right to adjust any loss involving a claim in excess of $500,000. Foothill in
its discretion shall have the exclusive right to adjust all such losses payable
under any such insurance policies without any liability to Borrower whatsoever
in respect of such adjustments (other than liability for bad faith or willful
misconduct). Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over to
Foothill to be applied at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as Foothill may elect, or
shall be disbursed to Borrower under stage payment terms satisfactory to
Foothill for application to the cost of repairs, replacements, or restorations.
All repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction. Upon the occurrence of
an Event of Default, Foothill shall have the right to apply all prepaid premiums
to the payment of the Obligations in such order or form as Foothill shall
determine.
(e) Borrower shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 6.10, unless Foothill is included thereon as named insured with the
------------
loss payable to Foothill under a standard California 438BFU (NS) lender's loss
payable endorsement, or its local equivalent. Borrower immediately shall notify
Foothill whenever such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same, and
originals of such policies immediately shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
------------- -------- -------
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
-------------
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the
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aggregate, would not have and could not reasonably be expected to have a
Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill, each of the following: (i)
promptly, and in any event within 10 Business Days after Borrower or any of its
Subsidiaries knows or has reason to know that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse Change, a written
statement of the chief financial officer of Borrower describing such ERISA Event
and any action that is being taking with respect thereto by Borrower, any such
Subsidiary or ERISA Affiliate, and any action taken or threatened by the IRS,
Department of Labor, or PBGC. Borrower or such Subsidiary, as applicable, shall
be deemed to know all facts known by the administrator of any Benefit Plan of
which it is the plan sponsor, (ii) promptly, and in any event within 3 Business
Days after the filing thereof with the IRS, a copy of each funding waiver
request filed with respect to any Benefit Plan and all communications received
by Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate with respect to such request, and (iii) promptly, and in any event
within 3 Business Days after receipt by Borrower, any of its Subsidiaries or, to
the knowledge of Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a Benefit
Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request, each
of the following: (i) a copy of each Plan (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 LEASES AND LICENSES. Pay when due all rents, royalties, license
fees, and other amounts payable under any leases or licenses to which Borrower
is a party or by which Borrower's properties and assets are bound, unless such
payments are the subject of a Permitted Protest. To the extent that Borrower
fails timely to make
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<PAGE>
payment of such rents, royalties, license fees, and other amounts payable when
due under its leases and licenses, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base if and to the extent Foothill reasonably determines that
Borrower's failure to pay such reserved amounts could reasonably be expected to
(a) result in or lead to the imposition of a Lien on all or part of the
Collateral (other than a Permitted Lien), or (b) impair the ability of Borrower
to sell or license its products in the ordinary course of its business (such as,
by way of illustration, but not by way of limitation, if the failure to pay a
royalty due with respect to a licensed General Intangible could result in the
termination of such license, and if such license is needed by Borrower to
produce, sell, or license Borrower's products).
6.16 COPYRIGHT REGISTRATION. Borrower shall, no less frequently than
monthly, unless Foothill in Foothill's sole discretion agrees otherwise, (a)
cause all new copyrights generated by Borrower (other than Exempt Copyrights) to
be registered with the United States Copyright Office in a manner sufficient to
impart constructive notice of Borrower's ownership thereof, and (b) cause to be
prepared, executed, and delivered to Foothill supplemental schedules to the
Copyright Security Agreement reflecting the security interest of Foothill in
such new copyrights (other than Exempt Copyrights, which, although subject to
Foothill's security interest, shall not be required to be registered until such
time, if any, as they cease to be Incipient Copyrights), which supplemental
schedules shall be in form and content suitable for registration with the United
States Copyright Office so as to give constructive notice, when so registered,
of the transfer by Borrower to Foothill of a security interest in such
copyrights.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not do any of the following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Permitted Subordinated Indebtedness and obligations of
Borrower with respect to Permitted Preferred Stock (to the extent, if any, that
any such obligations might be construed to constitute Indebtedness, without
stipulating that they do or do not);
(c) Indebtedness set forth in Schedule 7.1;
------------
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<PAGE>
(d) Indebtedness secured by Permitted Liens;
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c) or (d) of this Section 7.1 (and continuance
-----------
or renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness; and
(f) Guarantees by Borrower of Indebtedness of Subsidiaries of
Borrower to the extent that such guarantees are Permitted Subsidiary
Investments.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement Liens only encumber those assets
- --------------
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except in connection with
Permitted Dispositions, enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital Stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its property or assets.
7.4 DISPOSAL OF ASSETS. Except for Permitted Dispositions, sell,
lease, license, assign, transfer, or otherwise dispose of any of Borrower's
properties or assets.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate structure
(within the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or
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<PAGE>
turned over to Foothill, except for guarantees of the Indebtedness of
Subsidiaries of Borrower to the extent permitted by Section 7.1(f) of this
--------------
Agreement.
7.7 NATURE OF BUSINESS. Make any change in the principal nature of
Borrower's business.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by Section
-------
7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire any
- ------
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement;
(b) make any payment with respect to any Subordinated
Indebtedness in violation of the terms of the Subordination Agreement applicable
thereto (giving maximum effect to any optional or discretionary right of
Borrower to subordinate or defer payment of such Subordinated Indebtedness to
payment of the Obligations); and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), (d), or (e).
---------------------------------
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital stock, of any class,
whether now or hereafter outstanding, except that, so long as no Event of
Default has occurred and is continuing, Borrower may declare and pay ordinary
cash dividends mandatorily payable with respect to any outstanding Permitted
Preferred Stock if, after giving effect to any such declaration and payment of
such dividends, Borrower has Availability of at least $1,000,000.
7.12 ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or
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<PAGE>
Borrower's financial condition. Borrower waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by Foothill pursuant
to or in accordance with this Agreement, and agrees that Foothill may contact
directly any such accounting firm or service bureau in order to obtain such
information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities of (whether debt or equity), or other interests
in, a Person, (b) loans, advances, capital contributions, equity contributions,
or transfers of property to a Person, or (c) the acquisition of all or
substantially all of the properties or assets of a Person, except for Permitted
Subsidiary Investments and except for Permitted Ordinary Course Investments. In
addition, Borrower may create and invest in new foreign Subsidiaries, so long as
each of the follow conditions is satisfied: (i) Borrower provides at least
thirty (30) days prior written notice to Foothill of the relevant particulars
(such as the exact legal name of such new Subsidiary of Borrower, its form of
organization and jurisdiction of organization, and the jurisdictions or
locations in which it proposes to engage in business); (ii) Borrower pledges at
least the Applicable Number of Shares of Stock of such new foreign Subsidiary to
Foothill pursuant to a written pledge agreement in form and substance reasonably
satisfactory to Foothill at the time such Stock first is issued; and (iii) all
Investments in such Subsidiaries collectively are subject to and included within
the limitations set forth herein with respect to Permitted Subsidiary
Investments.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.16 PREFERRED STOCK. Authorize the issuance of, issue, or sell any
Preferred Stock, other than Permitted Preferred Stock.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances made hereunder
for any purpose other than (a) on the Closing Date, to pay transactional costs
and expenses incurred in connection with this Agreement, and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the
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time of such written notification, Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan where such event would result in any liability of Borrower, any of
its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any
required installment or any other payment required under Section 412 of the IRC
on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw, from
any Multiemployer Plan where such withdrawal is reasonably likely to result in
any liability of any such entity under Title IV of ERISA;
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<PAGE>
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20 FINANCIAL COVENANTS. Fail to maintain:
(a) Net Worth. Consolidated Net Worth of Borrower and its
consolidated Subsidiaries of at least negative seven million dollars (-
$7,000,000), measured on a fiscal quarter-end basis; and
(b) Working Capital. Fail to maintain Working Capital of not less
than negative sixteen million five hundred thousand dollars (-$16,500,000),
measured on a fiscal quarter-end basis.
7.21 CAPITAL EXPENDITURES. Make capital expenditures in any fiscal
year in excess of four million dollars ($4,000,000).
7.22 SECURITIES ACCOUNTS. Borrower shall not establish or maintain
any Securities Account unless Foothill shall have received a Control Agreement,
duly executed and in full force and effect, in respect of such Securities
Account. Borrower agrees that it will not transfer assets out of any Securities
Accounts; provided, however, that, so long as no Event of Default has occurred
-------- -------
and is continuing or would result therefrom, Borrower may use such assets to the
extent permitted by this Agreement.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
provided, however, that, subject to the further proviso set forth below, in the
- -------- -------
case of failure by Borrower to make any payment otherwise due under the Loan
Documents that results from the charging by Foothill to the Loan Account of
Foothill Expenses, and if such failure is not the result of intentional non-
payment by Borrower, intentional misrepresentation by Borrower, or fraud on the
part of Borrower, any such event shall not constitute an Event of Default
unless, within three (3) Business Days of telephonic notice from Foothill to
Borrower of any such delinquent payment Obligation, Borrower fails to repay in
full or otherwise eliminate such payment delinquency; and provided, further,
-------- -------
that, during any period of time that any payment delinquency exists, even if
such payment delinquent is not yet an Event of Default by virtue of the
existence of a grace
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or cure period or the pre-condition of the giving of a notice, Foothill shall
not be required during such period to make Advances to Borrower;
8.2 (a) If Borrower fails or neglects to perform, keep, or observe,
in any material respect, any term, provision, condition, covenant, or agreement
contained in Sections 6.2 (Collateral Reporting), 6.3 (Financial Statements,
------------ ---
Reports, Certificates), 6.5 (Guarantor Reports), or 6.16 (Copyright
--- ----
Registration) of this Agreement and such failure continues for a period of 5
days from the date of such failure or neglect; (b) If Borrower fails or neglects
to perform, keep, or observe, in any material respect, any term, provision,
condition, covenant, or agreement contained in Sections 6.4 (Tax Returns), 6.7
------------ ---
(Title to Equipment), 6.12 (Location of Inventory and Equipment), 6.13
---- ----
(Compliance with Laws), 6.14 (Employee Benefits), or 6.15 (Leases and Licenses)
---- ----
of this Agreement and such failure continues for a period of 10 days from the
date of such failure or neglect; (c) If Borrower fails or neglects to perform,
keep, or observe, in any material respect, any term, provision, condition,
covenant, or agreement contained in Sections 6.1 (Accounting System), 6.6
------------ ---
(Returns), or 6.8 (Maintenance of Equipment) of this Agreement and such failure
---
continues for a period of 15 days from the date of such failure or neglect; or
(d) If Borrower fails or neglects to perform, keep, or observe, in any material
respect, any other term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Agent (other than any such term,
provision, condition, covenant, or agreement that is the subject of another
provision of this Section 8);
---------
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets having
a value of at least $50,000 is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person,
and such attachment, seizure, writ, warrant, or levy is not released,
discharged, or bonded against before the earlier of 30 days of the date it first
arises or 5 days prior to the date when such property or asset is subject to
being forfeited by Borrower;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any
of the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
-------- -------
Foothill shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all
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or any substantial portion of the business of, Borrower; or (e) an order for
relief shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
8.8 (a) If a notice of lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by the United States (or
any department or agency thereof), or if any taxes or debts owing at any time
hereafter to the United States (or any department or agency thereof) becomes a
lien, whether choate or otherwise, upon any of Borrower's properties or assets;
or
(b) If a notice of lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets by any state, county,
municipal, or other non-federal governmental agency, or if any taxes or debts
owing for an amount in excess of $100,000 at any time hereafter to any one or
more of such entities becomes a lien, whether choate or otherwise, upon any of
Borrower's properties or assets and, in any such case, such taxes or debts are
not the subject of a Permitted Protest, and the lien, levy, or assessment is not
released, discharged, or bonded against before the earlier of 30 days of the
date it first arises or 5 days of the date when such property or asset is
subject to being forfeited; provided, however, that during such period Foothill
- -------- -------
shall be entitled to create a reserve against the Borrowing Base, in an amount
sufficient to discharge such lien or encumbrance and any and all penalties or
interest payable in connection therewith;
8.9 If a judgment or other claim becomes a Lien upon any material
property of Borrower and the same is not released, discharged, bonded against,
or stayed pending appeal before the earlier of 30 days of the date it first
arises or 5 days of the date when such property or asset is subject to being
forfeited by Borrower;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons involving liabilities or
obligations of Borrower in excess of $1,000,000 and such default (a) occurs at
the final maturity of the obligations thereunder, or (b) results in a right by
such third Person(s), irrespective of whether exercised, to accelerate the
maturity of Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by
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Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn; or
8.13 If the obligation of any guarantor under any guaranty of the
Obligations or other third Person under any Loan Document is limited or
terminated by operation of law or by the guarantor or other third Person
thereunder, or any such guarantor or other third Person becomes the subject of
an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Collateral (or, if and to the
extent applicable, any Real Property), and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Foothill considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Collateral if Foothill so requires, and to make the Collateral
available to Foothill as Foothill may designate. Borrower authorizes Foothill to
enter the premises
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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
encumbrance, charge, or Lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned or leased
premises, Borrower, to the extent that Borrower lawfully may do so, hereby
grants Foothill a license to enter into possession of such premises and to
occupy the same, without charge by Borrower, for up to 120 days in order to
exercise any of Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of Section 9505 of the Code), set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by Foothill, and any amounts received in the Lockbox Accounts, to
secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Foothill is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, source code, mask works, rights
of use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and Borrower's rights under all licenses and all franchise agreements
shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Foothill determines
is commercially reasonable. It is not necessary that the Collateral be present
at any such sale;
(k) Foothill shall give notice of the disposition of the Collateral as
follows:
(1) Foothill shall give Borrower and each holder of a security
interest in the Collateral who has filed with Foothill a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
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<PAGE>
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least 10 days before the date
----------
fixed for the sale, or at least 10 days before the date on or after which the
private sale or other disposition is to be made; no notice needs to be given
prior to the disposition of any portion of the Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily sold on
a recognized market. Notice to Persons other than Borrower claiming an interest
in the Collateral shall be sent to such addresses as they have furnished to
Foothill;
(3) If the sale is to be a public sale, Foothill also shall give
notice of the time and place by publishing a notice one time at least 5 days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third Persons, by
Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased or licensed properties or assets,
rents, license fees, or other amounts payable under such leases or licenses) due
to third Persons, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement, then, to
the extent that Foothill determines that such failure by Borrower could result
in a Material Adverse Change, in its discretion and without prior notice to
Borrower, Foothill may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves in Borrower's Loan Account as
Foothill deems necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
Section 6.10, and take any action with respect to such policies as Foothill
- ------------
deems prudent. Any such amounts paid by Foothill shall constitute Foothill
Expenses. Any such payments made by Foothill shall not constitute an agreement
by Foothill to make similar payments in the future or a waiver by Foothill of
any Event
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<PAGE>
of Default under this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction of
the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
------------
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
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12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
IF TO BORROWER: BANYAN SYSTEMS INCORPORATED
120 Flanders
Road Westboro, Massachusetts 01581
Attn: Richard Spaulding, CFO
Fax No. 508.366.6846
WITH COPIES TO: HALE AND DORR
60 State Street
Boston, Massachusetts 02109
Attn: Mark Borden, Esq.
Fax No. 617.526.5000
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
WITH COPIES TO: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: Jeffrey S. Turner, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
----------
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof
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<PAGE>
in the mail. Borrower acknowledges and agrees that notices sent by Foothill in
connection with Sections 9504 or 9505 of the Code shall be deemed sent when
deposited in the mail or personally delivered, or, where permitted by law,
transmitted telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
-------- -------
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT FOOTHILL'S OPTION, IN THE COURTS
OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND, OR
WHERE IT IS NECESSARY TO BRING SUIT IN ORDER TO OBTAIN SUBJECT-MATTER
JURISDICTION. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
----------
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
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<PAGE>
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill 4 months after
they are delivered to or received by Foothill, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
- -------- -------
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person that is an Eligible Transferee, Foothill
thereafter shall be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
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<PAGE>
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered in Boston, Massachusetts.
BANYAN SYSTEMS INCORPORATED
a Massachusetts corporation
By: /s/ Richard M. Spaulding
-----------------------------
Richard M. Spaulding
Title: V.P. & CFO
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Patricia McLoughlin
-----------------------------
Patricia McLoughlin
Title: SVP
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<PAGE>
EXHIBIT 10.45
SECURITIES ISSUANCE AGREEMENT
THIS SECURITIES ISSUANCE AGREEMENT (this "Agreement") is entered into
as of September 4, 1997, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333, and BANYAN SYSTEMS
INCORPORATED, a Massachusetts corporation (the "Company"), with its chief
executive office located at 120 Flanders Road, Westboro, Massachusetts 01581.
Recitals
--------
A. Concurrently herewith, the Company and Foothill are entering into
that certain Loan and Security Agreement, dated as of even date herewith (the
"Loan Agreement").
B. The execution, delivery and performance of this Agreement by the
Company is a condition precedent to the initial advances under the Loan
Agreement.
C. The parties wish to enter into this Agreement by which, among
other things, the Company will issue to Foothill warrants to purchase shares of
the common stock, $.01 par value per share, of the Company (together with any
stock into or for which such common stock may be converted or exchanged, the
"Common Stock").
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. Initially capitalized terms used herein and not
otherwise defined herein have the meanings ascribed thereto in the Loan
Agreement.
2. ISSUANCE OF WARRANTS. On each of (a) the date hereof and (b)
each anniversary of the date hereof prior to the repayment in full of the
Obligations and the termination of the obligation of Foothill to make Advances
(but in no event following the earlier to occur of (i) the Renewal Date (unless
the term of the Loan Agreement is renewed beyond the Renewal Date, in which case
the term "Renewal Date" as used in this clause (i) shall refer instead to the
end of the ultimate one year renewal period referred to in Section 3.4 of the
-----------
Loan Agreement), or (ii) the Business Day immediately following the date, if
any, that Borrower terminates the Loan Agreement pursuant to Section 3.6 of the
-----------
Loan Agreement), the Company shall issue to Foothill a warrant to purchase
Seventy Five Thousand (75,000) shares of Common Stock (as adjusted from time to
time pursuant to Section 3 hereof, the "Warrant Shares" or "Shares") at an
exercise price of (y) $2.28125 per share, in the case of the Warrants issued on
the date hereof, and, (z) in the case of Warrants issued on subsequent
anniversary dates, at a per share exercise price equal to the closing price of a
share of the Common Stock of the Company on the last trading day prior to the
date of issuance of such warrant reported on the Exchange (as defined in Section
3(g) hereof) on which the Common Stock of the Company is then traded, or, if
such Common Stock is not then traded on such an Exchange, the fair market value
(as
<PAGE>
defined in Section 3(g) hereof) of a share of the Common Stock of the
Company as of the date of issuance of such Warrants, determined in accordance
with Section 3(g) hereof, treating such date of issuance as the "Determination
Date" for purposes of such determination (as such exercise price, in each
instance governed by clause (y) or (z) above, may be adjusted from time to time
pursuant to Section 3 hereof, the "Warrant Price"), and otherwise in the form of
Exhibit W-1 attached hereto and made a part hereof (each, a "Warrant" and
collectively, the "Warrants"). Any provisions to the contrary in this Section 2
notwithstanding, the Company is under no obligation to issue Warrants
exerciseable for more than an aggregate of 225,000 Shares, as such number may be
adjusted from time to time pursuant to Section 3 hereof, pursuant to Warrants to
be issued on the date hereof and the first two (2) anniversaries of such date,
unless the term of the Loan Agreement is renewed beyond the Renewal Date.
3. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities that are the subject of any Warrant to be issued hereunder
and the Warrant Price with respect to each such Warrant shall be subject to
adjustment from time to time, up to and including the time of issuance of such
Warrant (after which time Section 4 of such Warrant, among other provisions,
shall govern such adjustments), upon the occurrence of certain events, as
follows:
a. Reclassification or Merger. In case of any
--------------------------
reclassification, change or conversion of the Common Stock or any other
securities of the class issuable upon exercise of such Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of such Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to Foothill a new securities issuance agreement (in form and
substance reasonably satisfactory to Foothill), so that Foothill shall have the
right to receive, in lieu of the Warrants to be issued hereunder, warrants
providing for a total purchase price not to exceed that which otherwise would
have been payable upon the exercise of such Warrants, and in lieu of the shares
of Common Stock theretofore issuable upon exercise of such Warrants, the kind
and amount of shares of stock, other securities, money and property receivable
upon such reclassification, change or merger by a holder of the number of shares
of Common Stock which otherwise would have been purchasable under such Warrants.
Such new securities issuance agreement shall provide for adjustments and other
rights that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 and other rights provided for in this
Agreement. The provisions of this subparagraph (a) shall similarly apply to
successive reclassifications, changes, mergers and transfers.
b. Subdivision or Combination of Shares. If the Company shall
------------------------------------
subdivide or combine its outstanding shares of Common Stock, the Warrant Price
shall be proportionately decreased in the case of a subdivision or increased in
the case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
2
<PAGE>
c. Stock Dividends and Other Distributions. If the Company
---------------------------------------
shall (i) pay a dividend with respect to Common Stock payable in Common Stock,
or (ii) make any other distribution with respect to Common Stock (except any
distribution specifically provided for in the foregoing subparagraphs (a) and
(b)) of Common Stock, then the Warrant Price shall be adjusted, from and after
the date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
d. Special Distributions. In case the Company shall fix a
---------------------
record date for the making of a distribution to all holders of shares of Common
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the surviving corporation) or evidences of
indebtedness or assets (other than dividends and distributions referred to in
subparagraphs (b) and (c) above and other than cash dividends) or of
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company, the Warrant Price to be in effect on and
after such record date shall be adjusted by multiplying the Warrant Price in
effect immediately prior to such record date by a fraction (i) the numerator of
which shall be the fair market value per share of Common Stock on such record
date, less the fair value (as determined by the Board of Directors of the
Company in good faith as set forth in a duly adopted board resolution certified
by the Company's Clerk or Assistant Clerk) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights,
options, warrants, or exchangeable or convertible securities applicable to one
(1) share of the Common Stock outstanding as of such record date, and (ii) the
denominator of which shall be such fair market value per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the Warrant Price shall
again be adjusted to be the Warrant Price which would then be in effect if such
record date had not been fixed, but such subsequent adjustment shall not affect
the number of Shares that are the subject of any Warrant issued prior to the
date such subsequent adjustment was made.
e. Other Issuances of Securities. In case the Company or any
-----------------------------
subsidiary shall issue shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding (i) shares, rights, options,
warrants, or convertible or exchangeable securities described in subparagraphs
(f) or (g) of Section 8 hereof or issued in any of the transactions described in
subparagraphs (b), (c) or (d) above, (ii) shares issued upon the exercise of
such rights, options or warrants or upon conversion or exchange of such
convertible or exchangeable securities, (iii) the Warrants and any shares issued
upon exercise thereof, (iv) shares of Common Stock, or other securities
convertible or exercisable therefor, issued to employees, directors, consultants
or advisors to the Company (for serving in such capacities) under any plan or
agreement, provided that the annual aggregate of such shares or other securities
--------
issued at below fair market value does not exceed 500,000 shares of Common
Stock, on a fully converted and exercised basis (it being understood that the
limitation contained in this proviso does not apply to shares or other
3
<PAGE>
securities issued at or above fair market value), and (v) shares of Common
Stock, or other securities convertible into or exchangeable or exercisable
therefor, issued to employees, directors, consultants, or advisors to the
Company upon the exercise of any right, option, warrant, or conversion or
exchange feature of any security, to the extent that such right, option,
warrant, or convertible or exchangeable security was issued prior to September
4, 1997 to any such employee, director, consultant, or advisor (for serving in
any such capacity) under any plan or agreement that existed prior to September
4, 1997), at a price per share of Common Stock (determined in the case of such
rights, options, warrants, or convertible or exchangeable securities by dividing
(x) the total amount receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the total minimum consideration payable to the Company upon
exercise, conversion, or exchange thereof by (y) the total maximum number of
shares of Common Stock covered by such rights, options, warrants, or convertible
or exchangeable securities) lower than the fair market value per share of Common
Stock on the date the Company fixes the offering price of such shares, rights,
options, warrants, or convertible or exchangeable securities, then the Warrant
Price shall be adjusted so that it shall equal the price determined by
multiplying the Warrant Price in effect immediately prior thereto by a fraction
(i) the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such sale and issuance plus (B)
the number of shares of Common Stock which the aggregate consideration received
(determined as provided below) for such sale or issuance would purchase at such
fair market value per share, and (ii) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately after such sale
and issuance. Such adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustment, the maximum number of
shares of Common Stock which the holder of any such rights, options, warrants or
convertible or exchangeable securities shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the aggregate consideration received by the Company for such
rights, options, warrants, or convertible or exchangeable securities, plus the
aggregate minimum consideration or premium stated in such rights, options,
warrants, or convertible or exchangeable securities to be paid for the shares of
Common Stock covered thereby (without regard to any provision contained therein
for a subsequent adjustment of such consideration or premium). In case the
Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (e), the
Board of Directors of the Company shall determine, in good faith, the fair value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Clerk or Assistant Clerk. In case
the Company shall sell and issue rights, options, warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock together with one or more other securities as a part of a unit
at a price per unit, then in determining the price per share of Common Stock and
the consideration received by the Company for purposes of the first sentence of
this subparagraph (e), the Board of Directors of the Company shall determine, in
good faith, which determination shall be described in a duly adopted board
resolution certified by the Company's Clerk or Assistant Clerk, the fair value
of
4
<PAGE>
the rights, options, warrants, or convertible or exchangeable securities then
being sold as part of such unit. Such adjustment shall be made successively
whenever such an issuance occurs, and in the event that such rights, options,
warrants, or convertible or exchangeable securities expire or cease to be
convertible or exchangeable before they are exercised, converted, or exchanged
(as the case may be), then the Warrant Price shall again be adjusted to the
Warrant Price that would then be in effect if such sale and issuance had not
occurred, but such subsequent adjustment shall not affect the number of Shares
that are the subject of any Warrant issued prior to the date such subsequent
adjustment is made.
f. Adjustment of Number of Shares. Upon each adjustment in
------------------------------
the Warrant Price pursuant to this Section 3, the number of Shares of Common
Stock that are the subject of any Warrant to be issued hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Shares purchasable immediately prior to such adjustment in the Warrant
Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter; provided that any adjustments pursuant to
Section 3(a) shall be made in accordance with the terms of such Section rather
than the terms of this Section 3(f). Notwithstanding the terms of Section 2(z)
hereof, the number of Shares for which Warrants issued hereby are exercisable
shall be adjusted in accordance with this Section 3 as if a Warrant Price
determined pursuant to Section 2(y) hereof and adjusted in accordance with this
Section 3 were the Warrant Price with respect to a given Warrant,
notwithstanding the fact that the Warrant Price is actually determined in
accordance with Section 2(z).
g. Determination of Fair Market Value. For purposes of this
----------------------------------
Section 3, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean (i) if shares of Common Stock are
traded or a national securities exchange (an "Exchange"), the average of the
closing prices of a share of the Common Stock of the Company on the last twenty
(20) trading days prior to the Determination Date reported on such Exchange as
reported in The Wall Street Journal; or (ii) if shares of Common Stock are not
traded on an Exchange but trade in the over-the-counter market and such shares
are quoted on the Nasdaq National Market System or the Nasdaq Small-Cap Market
(either, "NASDAQ"), (A) the average of the last sale prices reported on NASDAQ
or (B) if such shares are an issue for which last sale prices are not reported
on NASDAQ, the average of the closing bid and ask prices, in each case on the
last twenty (20) trading days (or if the relevant price or quotation did not
exist on any of such days, the relevant price or quotation on the next preceding
business day on which there was such a price or quotation) prior to the
Determination Date as reported in The Wall Street Journal; or (iii) if no price
can be determined on the basis of the above methods of valuation, then the
judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Clerk or Assistant Clerk;
provided, however, that solely for the purpose of determining whether a below
"fair market value" issuance has occurred that could result in adjustments to
the Warrant Price pursuant to Section 3(e) (and expressly not with respect to
calculating the adjustments as could result therefrom), such fair market value
shall be the lesser of (x) the fair market value determined in accordance with
the foregoing paragraph, and (y) the fair market value as would be determined in
accordance with the foregoing paragraph if a
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standard of one (1) trading day rather than the average of twenty (20) trading
days were the basis for the calculations therein.
4. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number
of Shares that are the subject of any Warrant to be issued hereunder shall be
adjusted pursuant to Section 3 hereof, the Company shall make a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and the number of
Shares that are the subject of any Warrant to be issued hereunder after giving
effect to such adjustment, which shall be mailed (without regard to Section 10
hereof, by first class mail, postage prepaid) to Foothill.
5. REGISTRATION RIGHTS.
5.1.a. The Company covenants and agrees that, for a period
ending March 4, 2008, after receipt of a written request (a "Demand Registration
Request") from the holders of the Warrants and/or holders of Shares (the
Warrants and the Shares are referred to herein, collectively, as the
"Securities") (hereinafter, the "Securityholders") constituting fifty-one
percent (51%) or more of the Securities outstanding on such date and then
eligible for inclusion in a registration pursuant to this Section 5.1, stating
that the Initiating Securityholders (as defined below) desire and intend to
transfer all or a portion of the Securities held by them under such
circumstances, the Company shall give notice (the "Registration Notice") to all
of the Securityholders within thirty (30) days of the Company's receipt of such
registration request, and the Company shall cause to be included in such
registration all Securities requested to be included therein by any such
Securityholder within fifteen (15) days after such Registration Notice is
effective (subject to the provisions of the final sentence of this Section
5.1(a)). After such 15-day period, the Company shall file as promptly as
reasonably practicable a registration statement and use its reasonable best
efforts to cause such registration statement to become effective under the
Securities Act of 1933, as amended (the "Act") and remain effective for one
hundred and twenty (120) days (or ninety (90) days in the case of a filing on
Form S-1) or such shorter period as may be required if all such Securities
covered by such registration statement are sold prior to the expiration of such
120-day (or 90-day) period; provided that, except to the extent that any
Securities requested to be included in the initial registration requested under
this Section 5.1(a) are not so included as the result of the provisions of the
final sentence of this Section 5.1(a), the Company shall not be obligated to
effect any such registration pursuant to this Section 5.1 after the Company has
effected such initial registration; provided further that the Company shall not
be obligated to effect any such registration pursuant to this Section 5.1 after
the Company has effected two (2) such registrations pursuant to this Section
5.1. Each Securityholder making a demand for registration under this Section
5.1 is referred to herein as an "Initiating Securityholder." For purposes of
this Section 5, a registration shall not be deemed to have been effected unless
(i) a registration statement with regard thereto has been declared effective and
remained effective for a period of one hundred and twenty (120) days (or ninety
(90) days in the case of a filing on Form S-1) (or such shorter period as is
permitted in the second sentence of this Section 5.1) or (ii) the registration
is withdrawn at the request of the Securityholders. The foregoing
notwithstanding, in the event of an underwritten offering pursuant to this
Section 5.1, if the managing underwriter of such offering shall advise the
Securityholders
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in writing that, in its opinion, the distribution of a specified portion of the
securities requested to be included in the registration would materially
adversely affect the distribution of such securities by increasing the aggregate
amount of the offering in excess of the maximum amount of securities which such
managing underwriter believes can reasonably be sold in the contemplated
distribution, then the securities to be included in the registration shall be
included in the following order: (i) first, all of the Securities requested to
be included therein by the Initiating Securityholders, pro rata among such
Initiating Securityholders according to the number of Securities requested to be
included by each such Initiating Securityholder requesting inclusion therein,
(ii) second, the Securities requested to be included therein by the other
Securityholders, pro rata among such Securityholders according to the number of
Securities requested to be included by each such Securityholder requesting
inclusion therein, and (iii) third, such other securities requested to be
included therein by the Company and the holders of such other securities, pro
rata among the Company and the holders of such other securities according to the
number of securities requested to be included by the Company and each such
holder requesting inclusion therein.
b. For purposes of this Section 5.1, the Securityholders
who have requested registration of Shares to be acquired upon the exercise of
Warrants not theretofore exercised shall furnish the Company with an undertaking
that they or the underwriters or other persons to whom such Warrants will be
transferred have undertaken to exercise such Warrants and to sell, transfer or
otherwise dispose of the Shares received upon exercise of such Warrants in such
registration.
c. In the event of an underwritten offering pursuant to
this Section 5.1, the Company shall be entitled to select the underwriter;
provided, that the underwriter so selected shall be subject to approval by the
Securityholders requesting registration of the Securities being registered,
which approval shall not be withheld unreasonably.
d. Notwithstanding the terms of Section 5.1(a), the
Company shall not be required to register the Securities of Securityholders
pursuant to this Section 5.1, if the Company elects, at its sole option and to
the extent that it may legally do so, to purchase such Securities and completes
such purchase pursuant to the provisions of this Section 5.1(d). Within fifteen
(15) days after receipt of a Demand Registration Request, the Company may elect
to purchase all and not less than all of the Securities that would otherwise be
subject to registration pursuant to Section 5.1(a) by providing written notice
(the "Purchase Notice") to all of the Securityholders setting forth (i) its
election to purchase such Securities, (ii) the purchase price of the Securities,
and (iii) the closing date for such purchase. The Company shall thereafter
purchase all of the Securities requested to be included in such purchase by the
Securityholders within fifteen (15) days after the Purchase Notice becomes
effective. The purchase price for each Share shall be the fair market value (as
defined in Section 3 hereof) of a share of Common Stock on the date of the
Demand Registration Request; the purchase price for each Warrant shall be (x)
the fair market value (as defined in Section 3 hereof) of a share of Common
Stock on the date of the Demand Registration Request less (y) the Warrant Price
with respect thereto. The closing of the purchase of the Securities shall take
place on the date set forth in the Purchase Notice, which date shall be not less
than fifteen (15) not more than forty-five (45) days after the
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date of the Purchase Notice. At the closing, the Company shall deliver to each
Securityholder, in cash, the purchase price for the Securities surrendered by
such Securityholder.
e. Notwithstanding the terms of Section 5.1(a), the
Company shall not be required to register the Securities of the Securityholders
pursuant to this Section 5.1, if the Securityholders are then entitled to sell
the Securities under Rule 144(k) promulgated under the Act. Shares shall cease
to be "Securities" under Section 5 hereof upon a sale thereof (y) pursuant to
and in compliance with Rule 144 promulgated under the Act, or (z) pursuant to an
effective registration statement under the Act.
5.2.a. The Company covenants and agrees with the
Securityholders that, for a period ending March 4, 2008, in the event that the
Company proposes to file a registration statement under the Act with respect to
any of its equity securities (other than pursuant to registration statements on
Form S-4 or Form S-8 or any successor or similar forms), whether or not for its
own account, then the Company shall give written notice of such proposed filing
to all Securityholders promptly (and in any event at least twenty (20) days
before the anticipated filing date). Such notice shall offer to such
Securityholders, together with others who have similar rights, the opportunity
to include in such registration statement such number of Securities as they may
request. The Company shall cause the managing underwriter of a proposed
underwritten offering (unless the offering is an underwritten offering of a
class of the Company's equity securities other than Common Stock and the
managing underwriter has advised the Company in writing that, in its opinion,
the inclusion in such offering of Common Stock would materially adversely affect
the distribution of such offering) to permit the holders of Securities requested
to be included in the registration to include such Securities in the proposed
offering and the Company shall use its reasonable best efforts to include such
Securities in such proposed offering on the same terms and conditions as any
similar securities of the Company included therein. If the offering of which
the Company gives notice is a public offering involving an underwriter, the
right of a Securityholder to registration pursuant to this Section 5.2 shall be
conditioned upon such Securityholder's participation in such underwriting and
the inclusion of the Securities to be sold by such Securityholder in the
underwriting. All Securityholders proposing to distribute Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters. The foregoing
notwithstanding, in the case of a firm commitment offering on underwriting terms
appropriate for such a transaction, other than a registration requested by
Securityholders pursuant to Section 5.1, if any such managing underwriter of
recognized standing shall advise the Company and the Securityholders in writing
that, in its opinion, the distribution of all or a specified portion of the
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in a registration which is a primary
underwritten offering on behalf of the Company shall be included in the
following order: (i) first, the securities the Company proposes to include
therein and (ii) second, such other securities (including the Securities)
requested to be included, pro rata among the holders (including the
Securityholders) of such other securities according to the number of securities
requested to be included by each such holder requesting inclusion therein.
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b. In the event that a holder or holders of the Company's
securities (other than a Securityholder or Securityholders) requests, pursuant
to rights granted to such holder or holders, that the Company file a
registration statement for the public offering of securities and the Company and
the other holders of the Company's securities (including the Securityholders)
who have rights to be included in such registration, request to be included in
such registration and the managing underwriter of such offering shall advise the
Company and the holders requesting inclusion in the offering that, in its
opinion, the distribution of a specified portion of the securities requested to
be included in the registration would materially adversely affect the
distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution
then, the securities to be included in the registration shall be included in the
following order: (i) first, all of the securities requested to be included
therein by the holder or holders making the initial request for the
registration, and (ii) second, such other securities requested to be included
therein by the Company and the holders of such other securities, pro rata among
the Company and the holders of such other securities according to the number of
securities requested to be included by the Company and each such holder
requesting inclusion therein. For purposes of this Section 5.2(b), the Company
and each Securityholder agrees to request for inclusion in the registration only
that number of securities that the Company or such Securityholder intends, in
good faith, to sell, if all such securities so requested by the Company or such
Securityholder were permitted to be included by the managing underwriter in such
registration and sold pursuant thereto.
c. The Company shall not be obligated to allow
Securityholders to participate in any such registration pursuant to this Section
5.2 if, at such time, the Company has effected a number of registrations, (i) in
which Securityholders have participated and elected to register their
Securities, (ii) which have been deemed effective under the terms of this
Agreement, and (iii) which were other than registrations required pursuant to
Section 5.1 hereof, equal to three (3) plus the number of Warrants issued
pursuant to Section 2 hereof.
5.3.a. In connection with the registration of Securities on
behalf of the holders thereof (such Securityholders being referred to herein as
"Sellers") in accordance with Section 5.1 or Section 5.2 above, the Company
agrees to:
(i) enter into a cross-indemnity agreement, in customary
form, with each underwriter, if any, and each Seller;
(ii) subject to the provisions of Section 5.1(a) and
Sections 5.2(a) and (b) above regarding reductions by the managing underwriter,
include in the registration statement filed with the Securities and Exchange
Commission ("SEC"), the Securities for which requests for registration have been
made; provided, however, that promptly after filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall furnish
to each Seller copies of all such documents filed including documents
incorporated by reference in the registration statement; and notify each Seller
of any stop order issued or threatened by the SEC and use its reasonable best
efforts to prevent the entry of such stop order or to remove it if entered;
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(iii) prepare and file with the SEC such amendments of and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective (A)
in the case of a registration pursuant to Section 5.1, for a period of one
hundred and twenty (120) days, or, in the case of a registration pursuant to
Section 5.2 or a registration filed on Form S-1, for a period of ninety (90)
days or (B) such shorter period as may be required if all such Securities
covered by such registration statement are sold prior to the expiration of such
periods, and comply with the provisions of the Act with respect to the
disposition of all Securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the Sellers set
forth in such registration statement;
(iv) furnish to each Seller and each underwriter, if any,
without charge, such number of copies of the registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Seller may reasonably
request in order to facilitate the disposition of the Securities proposed to be
sold by such Seller;
(v) use its reasonable best efforts to register or qualify
such Securities under such other securities or Blue Sky laws of such
jurisdictions as any Seller or any such underwriter reasonably requests and keep
such registrations or qualifications in effect for so long as such registration
statement remains in effect and do any and all acts and things, to the extent
commercially reasonable, which may be reasonably necessary or advisable to
enable such Seller to consummate the disposition in such jurisdictions of the
Securities owned by such Seller in accordance with applicable laws, rules and
regulation; provided, however, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection (v), (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to general service
of process in any jurisdiction;
(vi) notify each Seller, at any time when a prospectus
relating to such Seller's Securities is required to be delivered under the Act,
of the occurrence of any event as a result of which the prospectus included in
such registration statement contains an untrue statement of a material fact or
omits to state any material fact necessary to make the statements therein not
misleading, and as soon as practicable prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading;
(vii) cause all such Securities to be listed on any Exchange
on which similar securities issued by the Company are then listed;
(viii) provide a transfer agent, registrar and CUSIP number
for all such Securities not later than the effective date of such registration
statement;
(ix) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions that
the Sellers or the
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underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Securities;
(x) make available for inspection by the Sellers and their
counsel, any underwriter participating in any disposition pursuant to such
registration statement, and any counsel retained by any such underwriter, all
pertinent financial and other information and corporate documents of the Company
(subject to the execution of a reasonable confidentiality agreement to the
extent reasonably necessary to protect the interests of the Company), and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such Seller, underwriter or counsel in connection
with such registration statement;
(xi) use its reasonable best efforts to obtain a "cold
comfort" letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by "cold comfort"
letters as the Sellers or any underwriter may reasonably request;
(xii) obtain an opinion of counsel to the Company, addressed
to the Sellers and any underwriter, in customary form and including such matters
as are customarily covered by such opinions in underwritten registered offerings
of equity securities as the Sellers or any underwriter may reasonably request,
such opinion to be reasonably satisfactory in form and substance to each Seller;
and
(xiii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, to the extent the failure to comply
with which would have a material adverse effect on the Seller's ability to sell
Securities under a registration statement, and make available to its
securityholders, by the date required by the Act or any regulations promulgated
under the Act, an earnings statement covering the period of at least twelve (12)
months subsequent to the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the Act and
Rule 158 thereunder.
b. Any other provisions of this Section 5 notwithstanding,
upon receipt by the Securityholders of a written notice signed by the chief
executive officer, chief operating officer or chief financial officer of the
Company to the effect set forth below, the Company shall not be obligated during
a reasonable period of time thereafter to effect any registrations pursuant to
this Section 5, and the Securityholders agree that they will immediately suspend
sales of shares under any effective registration statement for a reasonable
period of time, in either case not to exceed ninety (90) days, at any time at
which, in the Company's reasonable judgment, (i) there is a development
involving the Company or any of its affiliates which is material but which has
not yet been publicly disclosed, (ii) sales pursuant to the registration
statement would materially and adversely affect an underwritten public offering
for the account of the Company or any other material financing project or a
proposed or pending material merger or other material acquisition or material
business combination or material disposition of the Company's assets, to which
the Company or any of its affiliates is, or is expected to be, a party, or (iii)
such registration would require a special audit. In the event sales by the
Securityholders pursuant to an effective registration statement are suspended in
accordance with this Section 5.3(b), there shall be added to the period during
which the Company is obligated to keep a
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registration effective the number of days for which sales were suspended
pursuant to this Section 5.3(b).
c. The Company may require each Seller to furnish to the
Company such information regarding the distribution of the Securities proposed
to be sold by such Seller as the Company may from time to time reasonably
request in writing.
d. Each Seller agrees that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
subsection (vi) of Section 5.3(a) above, such Seller shall forthwith discontinue
disposition of Securities pursuant to the registration statement covering such
Securities until such Seller's receipt of copies of the supplemented or amended
prospectus contemplated by Section 5.3(a)(vi) above and, if so directed by the
Company, such Seller will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies in such Seller's possession, of the
prospectus covering such Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in Section 5.3(a)(iii) above shall be extended by the number of days
during the period from and including the date of giving of such notice to and
including the date when each Seller shall have received the copies of the
supplemented or amended prospectus contemplated by Section 5.3(a)(vi) above.
e. The Company shall not file or permit the filing of any
registration or comparable statement which refers to any Seller by name or
otherwise as the Seller of any securities of the Company unless such reference
to such Seller is specifically required by the Act or any similar federal
statute or Blue Sky law then in force.
5.4 All expenses incident to the Company's performance of
or compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses relating to filings with any Exchange, fees
and expenses of compliance with securities or Blue Sky laws in jurisdictions
reasonably requested by any Seller or underwriter pursuant to Section 5.3(a)(v),
all word processing, duplicating and printing expenses, messenger and delivery
expenses, fees and disbursements of counsel for the Company and one (1) counsel
for the Sellers (to the extent such fees, expenses and disbursements are
reasonable), independent public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incident to such
performance) and underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals attributable to the securities being registered, or legal expenses
of any person other than the Company and the Sellers, but including liability
insurance if the Company so desires), all the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the expense of any liability insurance (if the Company determines to
obtain such insurance) and the fees and expenses incurred in connection with the
listing of the securities to be registered on each Exchange on which such
securities issued by the Company are then listed, the reasonable fees and
expenses of any special experts (including attorneys) retained by the Company
(if it so desires) in connection with such registration and fees and expenses of
other persons retained by the Company (all such expenses being herein called
"Registration Expenses"), shall be borne by the Company.
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5.5 In connection with the preparation and filing of each
registration statement under the Act pursuant to this Section 5, the Company
shall give the Sellers under such registration statement, their underwriters, if
any, and their accountants and one (1) counsel for the Sellers, to the extent
reasonably requested by Foothill, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such Sellers' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Act (and subject to the execution of a reasonable confidentiality agreement
to the extent reasonably necessary to protect the interests of the Company).
5.6.a. In the event of any registration of any securities of
the Company under the Act, the Company shall, and hereby does, indemnify and
hold harmless in the case of any registration statement filed pursuant to
Section 5.1 or Section 5.2 above, the Seller of any Securities covered by such
registration statement, its directors, officers and employees, each other person
who participates as an underwriter in the offering or sale of such Securities
and each other person, if any, who controls such Seller or any such underwriter
within the meaning of the Act against any losses, claims, damages, or
liabilities (or actions or proceedings whether commenced or threatened in
respect thereof), joint or several, to which such Seller or any such director or
officer or underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company shall reimburse such Seller and each
such director, officer, employee, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action, or
proceeding; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding, whether commenced or threatened in respect thereof), or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment, or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Seller for the express purpose of use in the preparation
thereof and, provided, further, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding, whether commenced or threatened, in respect thereof), or expense
arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, within the time
required by the Act to the person asserting an untrue statement or alleged
untrue statement or omission or alleged omission if such statement or omission
was corrected in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any
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investigation made by or on behalf of such Seller or any such director, officer,
underwriter or controlling person and shall survive the transfer of such
Securities by such Seller.
b. In the event of any registration of any securities of
the Securityholders under the Act pursuant to Section 5.1 or 5.2 above, each
such Seller shall, hereby does, and shall be deemed to, indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
5.6(a) above) the Company, each director, officer and employee of the Company,
and each other person, if any, who controls the Company within the meaning of
the Act, with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary prospectus,
final prospectus, or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
Seller specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment, or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer, or controlling person and shall survive the
transfer of such Securities by such Seller. In no event shall the liability of
any Seller hereunder be greater in amount than the dollar amount of the proceeds
(net of underwriting commissions but not of any other offering expenses)
received by such Seller upon the sale of the Securities giving rise to such
indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers, and similar
securities industry professionals participating in the distribution to the same
extent as provided above with respect to information so furnished in writing by
such persons specifically for inclusion in any prospectus or registration
statement.
c. Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 5.6, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5.6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. If, in the
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnified party may separately participate in the defense of such claim,
jointly with any other indemnified party that reasonably determines such
conflict of interest to exist, and the indemnifying party shall be liable to
such
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<PAGE>
indemnified parties for the reasonable legal fees and expenses of one
counsel for all such indemnified parties and for other expenses reasonably
incurred in connection with the participation in the defense thereof incurred by
the indemnified party. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not to sue, in respect of such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party.
d. Indemnification and contribution similar to that
specified in this Section 5.6 (with appropriate modifications) shall be given by
the Company and each Seller with respect to any required registration or other
qualification of Securities under any Federal or state law or regulation of any
governmental authority, other than the Act.
e. The indemnification required by this Section 5.6 shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
f. If the indemnification provided for in this Section 5.6
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities, or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of losses, claims, damages, liabilities, or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which resulted in
such losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities, and expenses referred to above shall be deemed to include any
reasonable legal or other fees or expenses incurred by such party in connection
with any investigation or proceeding. In no event shall the liability of any
Seller hereunder be greater in amount than the dollar amount of the proceeds
received by such Seller upon the sale of the Securities giving rise to such
contribution obligation. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5.6(f) were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in this Section 5.6(f). No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
5.7 The Company shall not after the date hereof grant any
additional registration rights that conflict with the rights under this Section
5.
15
<PAGE>
5.8 If requested by the managing underwriter of an offering
for which Shares of the Company or a Securityholder have been registered, a
Securityholder shall not sell or otherwise transfer or dispose of any Securities
held by such Securityholder (other than those included in the registration)
during such period following the effective date of such registration as is usual
and customary at such time in similar public offerings of similar securities;
provided, however, that the Company shall use its reasonable best efforts to
cause each holder of a material number of shares of Common Stock to enter into
similar "lock-up" agreements in respect of such offering. The obligations
described in this Section 5.8 shall not apply to offerings pursuant to a
registration statement on Form S-4 or Form S-8 or any successor or similar form.
6. PUT RIGHTS. Each Warrant and the Shares issuable upon exercise
of same shall be subject to the right of the holder hereof to require the
Company to repurchase such Securities, as is set forth in the form of Warrant
attached hereto.
7. CALL RIGHTS. Each Warrant and the Shares issuable upon exercise
of same shall be subject to the right of the Company to repurchase ("call") such
Securities, as is set forth in the form of Warrant attached hereto.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Foothill as follows:
a. This Agreement has been, and upon issuance each Warrant
will be, duly authorized and executed by the Company. This Agreement is, and
upon issuance each Warrant will be, a valid and binding obligation of the
Company enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and the
rules of law or principles at equity governing specific performance, injunctive
relief and other equitable remedies;
b. The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms of the
Warrants, will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions
granted to or imposed upon the Common Stock and the holders thereof are as set
forth in the certificate of incorporation of the Company, as amended to the date
hereof (as so amended, the "Charter"), a true and complete copy of which has
been delivered to Foothill;
d. The execution and delivery of this Agreement are not,
and the issuance of the Warrants and the Shares upon exercise of the Warrants in
accordance with the terms hereof and thereof will not be, inconsistent with the
Charter or by-laws of the Company, do not and will not contravene, in any
material respect, any governmental rule or regulation, judgment or order
applicable to the Company, and do not and will not conflict with or contravene
any provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is
bound or require the consent or approval of, the giving of notice to, the
registration or filing with or the taking of any action in respect of or by, any
Federal, state or local government authority or agency or other person,
16
<PAGE>
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby, in each case as
could not have a material adverse effect on the Company;
e. Except as set forth in the Loan Agreement, there are no
actions, suits, audits, investigations or proceedings pending or, to the
knowledge of the Company, threatened against the Company in any court or before
any governmental commission, board or authority which, if adversely determined,
will have a material adverse effect on the ability of the Company to perform its
obligations under this Agreement or any Warrant to be issued pursuant hereto;
f. The authorized capital stock of the Company consists of
Twenty-Five Million (25,000,000) shares of Common Stock, of which approximately
Seventeen Million Three Hundred Twelve Thousand Three Hundred Eighteen
(17,312,318) shares were issued and outstanding as of the date hereof, and
approximately One Million Eight Hundred Forty Eight Thousand (1,848,000) shares
were treasury stock held by the Company, and One Million (1,000,000) shares of
Preferred Stock, $.01 par value per share, of which no shares were issued and
outstanding as of the date hereof. All such outstanding shares have been
validly issued and are fully paid, nonassessable shares free of preemptive
rights;
g. There are no subscriptions, rights, options, warrants,
or calls relating to any shares of the Company's capital stock, including any
right of conversion or exchange under any outstanding security or other
instrument, except as follows: (i) the Warrants issued and issuable hereunder
and (ii) rights, options, warrants or convertible or exchangeable securities
outstanding or issued as of the date hereof which, upon exercise, conversion or
exchange, would result in the issuance of an aggregate number of shares of
Common Stock not in excess of Three Million Four Hundred Ninety Three Thousand
Seven Hundred Forty Two (3,493,742) (as such number may be adjusted as the
result of the operation of anti-dilution protection provisions of such rights,
options, warrants or convertible or exchangeable securities for events occurring
before the date hereof); and
h. Except as expressly disclosed in writing to Foothill
prior to the date hereof, the Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any security convertible into or exchangeable for
any of its capital stock.
9. REPRESENTATIONS AND WARRANTIES OF FOOTHILL. Foothill represents
and warrants to the Company that the Warrants and the Shares to be issued upon
exercise thereof are being acquired for its own account for investment and not
with a view to, or for sale in connection with, any distribution thereof, and
that Foothill will not offer, sell or otherwise dispose of any Warrant or Shares
except under circumstances which will not result in a violation of the Act.
Foothill is an accredited investor (as that term is defined in Rule 501 of
Regulation D promulgated under the Act). All Warrants and all shares of Common
Stock issued upon exercise of any Warrant (unless registered under the Act)
shall be stamped or imprinted with a legend substantially in the form set forth
in Exhibit W-1 attached hereto.
17
<PAGE>
10. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to Foothill, any other holder of
Securities, or the Company shall be delivered, or shall be sent by private
courier or certified or registered mail, postage prepaid, to Foothill and each
such holder at its respective address as shown on the books of the Company or to
the Company at the address indicated therefor in the introductory paragraph of
this Agreement.
11. BINDING EFFECT ON SUCCESSORS. This Agreement shall be binding
upon any corporation succeeding the Company or Foothill by merger, consolidation
or acquisition of all or substantially all of the Company's assets, and any
successor or assign of Foothill, and all of the obligations of the Company
relating to the Common Stock issuable upon the exercise or conversion of any
Warrant shall survive the exercise, conversion and termination of such Warrant
and all of the covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of Foothill. Notwithstanding any other
provision herein to the contrary, this Agreement (but not the Warrants) may only
be sold or otherwise transferred, in whole or part, to entities that have been
or are sold or otherwise transferred Foothill's rights, in whole or in whatever
part, under the Loan Agreement.
12. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts.
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and Foothill contained herein
shall survive the consummation hereof, the issuance of any Warrants pursuant
hereto, the exercise or conversion of any Warrant (or any part hereof) and the
termination or expiration of rights hereunder. All agreements of the Company
and Foothill contained herein shall survive indefinitely until, by their
respective terms, they are no longer operative.
15. REMEDIES. In case any one or more of the covenants and
agreements contained in this Agreement shall have been breached, Foothill (in
the case of a breach by the Company), or the Company (in the case of a breach by
Foothill), may proceed to protect and enforce its rights either by suit in
equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement.
16. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement, 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
Foothill against impairment.
18
<PAGE>
17. INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be presumed construed or resolved against Foothill or the
Company, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
18. SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
19. AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and the Company.
20. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
21. INTEGRATION. This Agreement, together with the Warrants issuable
hereunder and the Loan Agreement, reflect the entire understanding of the
parties with respect to the transactions contemplated hereby and shall not be
contradicted or qualified by any other agreement, oral or written, before the
date hereof.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
BANYAN SYSTEMS INCORPORATED,
a Massachusetts corporation
By: /s/ Richard M. Spaulding
Title: VP & CFO
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Patricia McLoughlin
Title: SVP
20
<PAGE>
EXHIBIT 10.46
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO,
(ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-
ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
BANYAN SYSTEMS INCORPORATED
---------------------------
WARRANT TO PURCHASE 75,000 SHARES (subject to adjustment)
OF COMMON STOCK (this "Warrant")
BANYAN SYSTEMS INCORPORATED, a Massachusetts corporation (the
"Company"), hereby certifies that, for value received, Foothill Capital
Corporation, a California corporation ("Foothill"), or registered assigns, is
the registered holder of warrants (the "Warrants") to subscribe for and purchase
Seventy-Five Thousand (75,000) shares of the fully paid and nonassessable Common
Stock (as adjusted pursuant to Section 4 hereof, the "Shares") of the Company,
at the price of Two and Nine-Thirty Seconds Dollars ($2.28125), or as adjusted
under the Securities Issuance Agreement per share (such price and such other
price as shall result, from time to time, from the adjustments specified in
Section 4 hereof is herein referred to as the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Common Stock" shall mean the Company's presently
authorized Common Stock, $.01 par value per share, and any stock into or for
which such Common Stock may hereafter be converted or exchanged, and (b) the
term "Other Warrants" shall mean any warrant issued upon transfer or partial
exercise of this Warrant. The term "Warrant" as used herein shall be deemed to
include Other Warrants unless the context hereof or thereof clearly requires
otherwise. This Warrant is issued pursuant to that certain Securities Issuance
Agreement dated as of September 4, 1997 (as amended from time to time, the
"Securities Issuance Agreement") between the Company and Foothill, and this
Warrant or the holder hereof is entitled to the benefits and subject to the
terms and conditions stated therein.
1. Term. The purchase right represented by this Warrant is
----
exercisable, in whole or in part, at any time and from time to time from the
date of issuance of this Warrant (the "Date of Grant") through September 4,
2007.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
----------------------------------------------------
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company and by the
payment to the Company of an amount equal to the then applicable Warrant
<PAGE>
Price multiplied by the number of Shares then being purchased (in same-day
funds, by certified bank check or wire transfer). The person or persons in whose
name(s) any certificate(s) representing shares of Common Stock shall be issuable
upon exercise of this Warrant shall be deemed to have become the holder(s) of
record of, and shall be treated for all purposes as the record holder(s) of, the
shares represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise (upon payment of any transfer tax required
by law to be paid by the holder of this Warrant) and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty (30) day period.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
---------------------------------------
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens, charges, and pre-emptive rights
with respect to the issue thereof. The Company shall pay all transfer taxes, if
any, attributable to the issuance of Shares upon the exercise of the Warrants
(other than those required by law to be paid by the holder of this Warrant).
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Reclassification or Merger. In case of any
--------------------------
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is the acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant) (a "Merger"), or in case of any sale of all or substantially all
of the assets of the Company (an "Asset Sale"), the Company, or such successor
or purchasing corporation, as the case may be, shall duly execute and deliver to
the holder of this Warrant a new Warrant (in form and substance reasonably
satisfactory to the holder of this Warrant), so that the holder of this Warrant
shall have the right to receive, at a total purchase price not to exceed that
payable upon the exercise of the unexercised portion of this Warrant, and in
lieu of the shares of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
the number of shares of Common Stock then purchasable under this Warrant. Such
new Warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the
<PAGE>
adjustments provided for in this Section 4. The provisions of this subparagraph
(a) shall similarly apply to successive reclassifications, changes, mergers and
transfers. Notwithstanding the foregoing, at the option of the Company, the
holder hereof shall exercise (or, in the sole discretion of the holder hereof,
surrender) this Warrant upon any Merger or Asset Sale which is entered into by
the Company with an unrelated third party on an arm's length basis.
b. Subdivision or Combination of Shares. If the Company at any
------------------------------------
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
c. Stock Dividends and Other Distributions. If the Company at
---------------------------------------
any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Common Stock payable in Common Stock, or (ii) make any
other distribution with respect to Common Stock (except any distribution
specifically provided for in the foregoing sub paragraphs (a) and (b)) of
Common Stock, then the Warrant Price shall be adjusted, from and after the date
of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
d. Special Distributions. In case the Company shall fix a
---------------------
record date for the making of a distribution to all holders of shares of Common
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the surviving corporation) or evidences of
indebtedness or assets (other than dividends and distributions referred to in
subparagraphs (b) and (c) above and other than cash dividends) or of
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company, the Warrant Price to be in effect on and
after such record date shall be adjusted by multiplying the Warrant Price in
effect immediately prior to such record date by a fraction (i) the numerator of
which shall be the fair market value per share of Common Stock on such record
date, less the fair value (as determined by the Board of Directors of the
Company in good faith as set forth in a duly adopted board resolution certified
by the Company's Clerk or Assistant Clerk) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights,
options, warrants, or exchangeable or convertible securities applicable to one
(1) share of the Common Stock outstanding as of such record date, and (ii) the
denominator of which shall be such fair market value per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is fixed;
and in the event that such distribution is not so made, the Warrant Price shall
again be adjusted to be the Warrant Price which would then be in effect if such
record date had not been fixed, but such subsequent adjustment shall not affect
the number of Shares issued upon any exercise of Warrants prior to the date such
subsequent adjustment was made.
<PAGE>
e. Other Issuances of Securities. In case the Company or any
-----------------------------
subsidiary shall issue shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding (i) shares, rights, options,
warrants, or convertible or exchangeable securities described in subparagraphs
(f) or (g) of Section 8 of the Securities Issuance Agreement or issued in any of
the transactions described in subparagraphs (b), (c) or (d) above, (ii) shares
issued upon the exercise of such rights, options or warrants or upon conversion
or exchange of such convertible or exchangeable securities, (iii) the Warrants
and any shares issued upon exercise thereof, (iv) shares of Common Stock, or
other securities convertible or exercisable therefor, issued to employees,
directors, consultants or advisors to the Company (for serving in such
capacities) under any plan or agreement, provided that the annual aggregate of
--------
such shares or other securities issued at below fair market value does not
exceed 500,000 shares of Common Stock, on a fully converted and exercised basis
(it being understood that the limitation contained in this proviso does not
apply to shares or other securities issued at or above fair market value), and
(v) shares of Common Stock, or other securities convertible into or exchangeable
or exercisable therefor, issued to employees, directors, consultants, or
advisors to the Company upon the exercise of any right, option, warrant, or
conversion or exchange feature of any security, to the extent that such right,
option, warrant, or convertible or exchangeable security was issued prior to
September 4, 1997 to any such employee, director, consultant, or advisor (for
serving in any such capacity) under any plan or agreement that existed prior to
September 4, 1997), at a price per share of Common Stock (determined in the case
of such rights, options, warrants, or convertible or exchangeable securities by
dividing (x) the total amount receivable by the Company in consideration of the
sale and issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the total minimum consideration payable to the
Company upon exercise, conversion, or exchange thereof by (y) the total maximum
number of shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) lower than the fair market value per
share of Common Stock on the date the Company fixes the offering price of such
shares, rights, options, warrants, or convertible or exchangeable securities,
then the Warrant Price shall be adjusted so that it shall equal the price
determined by multiplying the Warrant Price in effect immediately prior thereto
by a fraction (i) the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such sale and issuance
plus (B) the number of shares of Common Stock which the aggregate consideration
received (determined as provided below) for such sale or issuance would purchase
at such fair market value per share, and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
sale and issuance. Such adjustment shall be made successively whenever such an
issuance is made. For the purposes of such adjustment, the maximum number of
shares of Common Stock which the holder of any such rights, options, warrants or
convertible or exchangeable securities shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the aggregate consideration received by the Company for such
rights, options, warrants, or convertible or exchangeable securities, plus the
minimum aggregate consideration or premium stated in such rights, options,
warrants, or convertible or exchangeable securities to be paid for the shares of
Common Stock covered thereby (without regard to any provision contained therein
for a subsequent adjustment of such consideration or premium). In case the
Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or
<PAGE>
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in determining the
price per share of Common Stock and the consideration received by the Company
for purposes of the first sentence of this subparagraph (e), the Board of
Directors of the Company shall determine, in good faith, the fair value of said
property, and such determination shall be described in a duly adopted board
resolution certified by the Company's Clerk or Assistant Clerk. In case the
Company shall sell and issue rights, options, warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock together with one or more other securities as a part of a unit
at a price per unit, then in determining the price per share of Common Stock and
the consideration received by the Company for purposes of the first sentence of
this subparagraph (e), the Board of Directors of the Company shall determine, in
good faith, which determination shall be described in a duly adopted board
resolution certified by the Company's Clerk or Assistant Clerk, the fair value
of the rights, options, warrants, or convertible or exchangeable securities then
being sold as part of such unit. Such adjustment shall be made successively
whenever such an issuance occurs, and in the event that such rights, options,
warrants, or convertible or exchangeable securities expire or cease to be
convertible or exchangeable before they are exercised, converted, or exchanged
(as the case may be), then the Warrant Price shall again be adjusted to the
Warrant Price that would then be in effect if such sale and issuance had not
occurred, but such subsequent adjustment shall not affect the number of Shares
issued upon any exercise of Warrants prior to the date such subsequent
adjustment is made.
f. Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter; provided that any adjustments pursuant to
Section 4(a) shall be made in accordance with the terms of such Section rather
than the terms of this Section 4(f).
g. Determination of Fair Market Value. For purposes of this
----------------------------------
Section 4, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean (i) if shares of Common Stock are
traded on a national securities exchange (an "Exchange"), the average of the
closing prices of a share of the Common Stock of the Company on the last twenty
(20) trading days prior to the Determination Date reported on such Exchange as
reported in The Wall Street Journal; or (ii) if shares of Common Stock are not
traded on an Exchange but trade in the over-the-counter market and such shares
are quoted on the Nasdaq National Market System or the Nasdaq Small-Cap Market
(either, "NASDAQ"), (A) the average of the last sale prices reported on NASDAQ
or (B) if such shares are an issue for which last sale prices are not reported
on NASDAQ, the average of the closing bid and ask prices, in each case on the
last twenty (20) trading days (or if the relevant price or quotation did not
exist on any of such days, the relevant price or quotation on the next preceding
business day on which there was such a price or quotation) prior to the
Determination Date as reported in The Wall Street Journal; or (iii) if no price
can be determined on the basis of the above methods of valuation, then the
judgment of valuation shall be determined in good faith by the Board of
Directors of the
<PAGE>
Company, which determination shall be described in a duly adopted board
resolution certified by the Company's Clerk or Assistant Clerk; provided,
however, that solely for the purpose of determining whether a below "fair market
value" issuance has occurred that could result in adjustments to the Warrant
Price pursuant to Section 4(e) (and expressly not with respect to calculating
the adjustments as could result therefrom), such fair market value shall be the
lesser of (x) the fair market value determined in accordance with the foregoing
paragraph, and (y) the fair market value as would be determined in accordance
with the foregoing paragraph if a standard of one (1) trading day rather than
the average of twenty (20) trading days were the basis for the calculations
therein.
5. Notice of Adjustments. Whenever the Warrant Price or the number
---------------------
of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof,
the Company shall make a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
and the Warrant Price and the number of Shares purchasable hereunder after
giving effect to such adjustment, which shall be mailed (without regard to
Section 13 hereof, by first class mail, postage prepaid) to the holder of this
Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value (as determined in accordance with Section 4(g) above) of a share of Common
Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or Shares
----------------------------------------------------------------
of Common Stock.
- ---------------
a. Compliance with Securities Act. The holder of this Warrant,
------------------------------
by acceptance hereof, agrees that this Warrant, the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Act"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF
<PAGE>
SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED DIRECTLY
OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Act.
(2) The holder understands that this Warrant and the Shares have not
been registered under the Act in reliance upon a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of the
holder's investment intent as expressed herein. In this connection, the holder
understands that, in the view of the Securities and Exchange Commission (the
"SEC"), the statutory basis for such exemption may be unavailable if the
holder's representation was predicated solely upon a present intention to hold
the Warrant and the Shares for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Warrant and the Shares, or for a period of one (1)
year or any other fixed period in the future.
(3) The holder further understands that this Warrant and the Shares
must be held indefinitely unless subsequently registered under the Act and any
applicable state securities laws, or unless exemptions from registration are
otherwise available.
(4) The holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: the availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to sell
this Warrant and the Shares there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public information requirements of Rule 144 and
144A, and that, in such event, the holder may be precluded from selling this
Warrant and the Shares under Rule 144 and 144A even if the one-year minimum
holding period had been satisfied.
(6) The holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with
<PAGE>
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 and 144A is not exclusive, the Staff of
the SEC has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rule 144 and 144A will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
b. Disposition of Warrant or Shares. With respect to any
--------------------------------
offer, sale or other disposition of this Warrant, or any Shares acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or Shares, the holder hereof and each subsequent holder of this Warrant agrees
to give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of such holder's counsel (which
shall be reasonably acceptable to the Company and knowledgeable regarding
securities matters, including without limitation Brobeck, Phleger & Harrison
LLP), if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state law then in effect) of
this Warrant or such Shares and indicating whether or not under the Act
certificates for this Warrant or such Shares to be sold or otherwise disposed of
require any restrictive legend as to applicable restrictions on transferability
in order to ensure compliance with applicable law. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify such holder that such holder
may sell or otherwise dispose of this Warrant or such Shares, all in accordance
with the terms of the notice delivered to the Company. If a determination has
been made pursuant to this subsection (b) that the opinion of counsel for the
holder is not reasonably satisfactory to the Company, the Company shall so
notify the holder promptly after such determination has been made. The
foregoing notwithstanding, this Warrant or such Shares may, as to such federal
laws, be offered, sold or otherwise disposed of in accordance with Rule 144 and
144A under the Act, provided that the Company shall have been furnished with
such information as the Company and its counsel may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 and 144A have
been satisfied. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The Company
may issue stop transfer instructions to its transfer agent or, if acting as its
own transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions. Notwithstanding any other provision herein
to the contrary, this Warrant and/or any Shares acquired pursuant to the
exercise of this Warrant may be sold or otherwise transferred by Foothill to any
person or entity in compliance with applicable law, but if and to the extent
that any such sale or transfer of such Warrant or Shares is to a person or
entity that is not also a purchaser or transferee of all or part of Foothill's
rights and obligations under the Loan Agreement, such sale or transfer to such
person or entity shall be free of, and shall not carry with it, the put rights
set forth in Section 10.4 hereof.
8. Rights as Shareholders; Information. No holder of this Warrant,
-----------------------------------
as such, shall be entitled to vote or receive dividends or be deemed the holder
of Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for
<PAGE>
any purpose, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of the directors or upon any
matter submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein. The foregoing
notwithstanding, the Company will use its reasonable best efforts to transmit to
the holder of this Warrant such information, documents and reports as are
generally distributed to the holders of any class or series of the securities of
the Company concurrently with the distribution thereof to the shareholders.
9. Registration Rights. The holder of this Warrant shall be
-------------------
entitled to registration rights as set forth in the Securities Issuance
Agreement.
10. Additional Rights.
-----------------
10.1 Mergers. In the event that the Company undertakes to (i)
-------
sell, lease, exchange, convey or otherwise dispose of all or substantially all
of its property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of, the Company will use its reasonable best efforts to provide at
least thirty (30) days notice prior to the proposed effective date of the
transaction of the terms and conditions of the proposed transaction. The
foregoing notwithstanding, the provisions of this Section 10.1 shall not require
the Company to take any action which would, in the good faith determination of
the Company after consultation with counsel, constitute a violation of, or
create liability for the Company under, Federal or state securities laws or the
rules of any securities exchange or NASDAQ on which the Company is then listed.
10.2 Right to Convert Warrant into Common Stock; Net Issuance.
--------------------------------------------------------
a. Right to Convert. In addition to and without limiting the
----------------
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 10.2 at any time or from
time to time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (i) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be equal to (A) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date less (B) the aggregate Warrant
Price of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the fair market value of one share of Common Stock on
the Conversion Date.
<PAGE>
Expressed as a formula, such conversion shall be computed as follows:
X= A - B
-----
Y
Where: X = the number of shares of Common Stock that shall be
issued to holder
Y = the fair market value (FMV) of one share of Common
Stock
A = the aggregate FMV (i.e., FMV x Converted Warrant
Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of Section 5 of the
Securities Issuance Agreement, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
b. Method of Exercise. The Conversion Right may be exercised
------------------
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in subsection
(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.
c. Determination of Fair Market Value. For purposes of this
----------------------------------
Section 10.2, "fair market value" of a share of Common Stock shall have the
meaning set forth in Section 4(g) above.
10.4 Put Rights.
----------
a. Upon and after a Put Triggering Event (as defined below),
each holder of Warrants or Shares (the Warrants and the Shares are referred to
herein, collectively, as the "Securities") shall have the right, in such
holder's sole discretion, to require the Company to repurchase ("put") such
holder's Securities at a purchase price of $3.28125 per share (the "Put
<PAGE>
Purchase Price") of Common Stock purchased or purchasable by such holder upon
exercise of Warrant(s) (less any Warrant Price payable with respect to any then
outstanding Warrants). A "Put Triggering Event" means any of the following
events: (i) an Event of Default as defined under the Loan Agreement (to the
extent any applicable cure period has expired; and, provided that, to the extent
--------
that any Event of Default is permanently waived by Foothill, any Put Triggering
Event premised on such permanently waived Event of Default shall cease, and, to
the extent that any Event of Default is temporarily waived by Foothill, any Put
Triggering Event premised on such temporarily waived Event of Default shall be
suspended and postponed for the duration of such waiver); (ii) the maturity of
the Obligations (whether scheduled, accelerated or otherwise); (iii) repayment
in full of the Obligations in connection with a refinancing of the Obligations
by the Company with any party other than Foothill; (iv) the sale or other
disposition of all or substantially all of the assets of the Company, or (v) the
consummation by the Company of any merger, consolidation or other reorganization
(other than as permitted under the Loan Agreement or as otherwise permitted by
Foothill pursuant to a written waiver). For the purposes of this Warrant, the
terms "Loan Agreement" and "Obligations" shall have the same meanings for such
terms as are defined (or incorporated by reference) in the Securities Issuance
Agreement.
b. Such put right shall be exercisable by written notice (the
"Put Notice") given to the Company. The Company shall effect the repurchase of
the Securities pursuant to the Put Notice by paying the purchase price therefor
in cash to the holder not more than thirty (30) days after receipt by the
Company of the Put Notice, but only as and to the extent the Company has funds
legally available therefore; and at such time the holder shall deliver to the
Company the Securities to be repurchased, properly endorsed for transfer.
Anything herein to the contrary notwithstanding, if the put right provided for
herein has not been exercised by the date that is two years after the earlier of
(y) the date that the Loan Agreement is terminated and Foothill has no further
obligations thereunder, and (z) the date that all Obligations of the Company to
Foothill have become due and payable, whether in accordance with their terms, by
reason of acceleration, or otherwise, and if Foothill has not been stayed or
enjoined from exercising such put right (whether by reason of the provisions of
the United States Bankruptcy Code or otherwise), then such put right shall
expire at the close of business on such date first referred to in this sentence.
c. Upon each adjustment in the Warrant Price pursuant to
Section 4 hereof, (i) with respect to the unexercised portion of this Warrant,
the Put Purchase Price shall be adjusted as if such Put Purchase Price were
subject to adjustment by the terms of Section 4 in the same manner as the
Warrant Price, and (ii) with respect to Shares after exercise of all or the
applicable portion of the Warrant, the Put Purchase Price shall be adjusted as
if such Put Purchase Price were subject to adjustment by the terms of Sections
4(a) and 4(b) (and not Sections 4(c) though (e)) in the same manner as the
Warrant Price.
10.5 Call Rights.
-----------
a. At any time, the Company shall have the right, in its sole
discretion, to repurchase ("call") the Shares, if and to the extent then owned
by Foothill (and not its assigns or transferees, except for a private assignee
or transferee that continues to have put rights and registration rights
hereunder), and the Warrant, regardless of ownership thereof, at a purchase
<PAGE>
price of $5.28125 per share (the "Call Purchase Price") of Common Stock
purchased or purchasable upon exercise of the Warrant (less any Warrant Price
payable with respect to any portion of the Warrant then outstanding). Such call
right shall be exercisable by written notice (the "Call Notice") given to
Foothill (and any applicable assigns). The Company shall effect the repurchase
of the all of the Securities (as defined in the Securities Purchase Agreement)
pursuant to the Call Notice by paying the purchase price therefor in cash to
Foothill (and its assigns, as applicable) not less than ten (10) nor more than
thirty (30) days after delivery by the Company of the Call Notice; and at such
time each holder shall deliver to the Company the Securities to be repurchased,
properly endorsed for transfer. Without limiting the generality of the
foregoing provisions of this paragraph, once any Shares have been sold or
transferred pursuant to Rule 144 promulgated under the Act, or pursuant to an
effective registration statement under the Act, the Company shall have no
further call rights with respect to such Shares. Any certificate representing
Shares subject to the call right provided for herein shall bear the following
legend: "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A CALL RIGHT IN FAVOR OF THE
ISSUER HEREOF PURSUANT TO A SECURITIES ISSUANCE AGREEMENT, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION BY WRITTEN REQUEST TO THE COMPANY FROM ANY HOLDER OF
THESE SHARES." If the Shares evidenced by any certificate bearing the foregoing
legend cease to be subject to the call right provided for herein, the Company
upon request and upon presentation by the holder thereof of the certificate
bearing such legend will reissue a certificate for such Shares without such a
legend.
b. Upon each adjustment in the Warrant Price pursuant to
Section 4 hereof, (i) with respect to the unexercised portion of this Warrant,
the Call Purchase Price shall be adjusted as if such Call Purchase Price were
subject to adjustment by the terms of Section 4 in the same manner as the
Warrant Price, and (ii) with respect to Shares after exercise of all or the
applicable portion of the Warrant, the Call Purchase Price shall be adjusted as
if such Call Purchase Price were subject to adjustment by the terms of Sections
4(a) and 4(b) (and not Sections 4(c) though (e)) in the same manner as the
Warrant Price.
11. Representations and Warranties. The Company represents and
------------------------------
warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
b. The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted
to or imposed upon the Common Stock and the holders thereof are as set forth in
the certificate of incorporation of the Company, as amended to the date hereof
(as so amended, the "Charter"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
<PAGE>
d. The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person, except for the filing of
notices pursuant to federal and state securities laws, which filings will be
effected by the time required thereby, in each case except as would not have a
material adverse effect on the Company; and
e. Except as set forth in the Loan Agreement (as defined in the
Securities Issuance Agreement), there are no actions, suits, audits,
investigations or proceedings pending or, to the knowledge of the Company,
threatened against the Company in any court or before any governmental
commission, board or authority which, if adversely determined, will have a
material adverse effect on the ability of the Company to perform its obligations
under this Warrant.
12. Modification and Waiver. This Warrant and any provision hereof
-----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document
-------
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by private courier or certified or
registered mail, postage prepaid, to each such holder at its address as shown on
the books of the Company or to the Company at the address indicated therefor on
the signature page of this Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon
----------------------------
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to
-----------------------------------
the holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of an executed lost securities bond or indemnity reasonably
<PAGE>
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant or stock certificate, the Company
will make and deliver a new Warrant or stock certificate, of like tenor, in lieu
of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts.
18. Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations and warranties of the Company and the holder hereof contained
herein shall survive the issuance hereof, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and
--------
agreements contained in this Warrant shall have been breached, the holder hereof
(in the case of a breach by the Company), or the Company (in the case of a
breach by a holder), may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Warrant.
20. Acceptance. Receipt of this Warrant by the holder hereof shall
----------
constitute acceptance of and agreement to the foregoing terms and conditions.
21. No Impairment of Rights. The Company will not, by amendment of
-----------------------
its Charter or through any other means, 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
holder of this Warrant against impairment.
[Balance of page intentionally omitted]
<PAGE>
IN WITNESS WHEREOF, this Warrant is issued on September 4, 1997
BANYAN SYSTEMS INCORPORATED
By:
Title:
Address:
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: BANYAN SYSTEMS INCORPORATED
1. The undersigned hereby elects to purchase _______ shares of
Common Stock of BANYAN SYSTEMS INCORPORATED pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
--------------------------------------
(Name)
--------------------------------------
--------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undesigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
-----------------------------------
(Signature)
- ------------------
(Date)
<PAGE>
Schedule 1
----------
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: BANYAN SYSTEMS INCORPORATED
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Act").
(b) The Purchaser understands that the Securities have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from registration is otherwise available. In addition, the Purchaser
understands that the certificate evidencing the Securities will be imprinted
with the legend referred to in the Warrant under which the Securities are being
purchased.
<PAGE>
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, the Purchaser may be precluded from selling the Securities
under Rule 144 and 144A even if the one-year minimum holding period had been
satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden or proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
______________________________
Date: ________________________
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