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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM TO
.
COMMISSION FILE NUMBER
0-21421
UOL PUBLISHING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1290319
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
8251 GREENSBORO DRIVE, SUITE 500, MCLEAN, VIRGINIA 22102
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:(703) 893-7800
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $0.01 PAR VALUE 3,839,117 SHARES
(Class) (Outstanding at November 13, 1998)
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1997 1998 1997 1998
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues:
Instructor-led training revenues........ $ -- $ 1,610,581 $ -- $ 4,713,121
Product sales revenues.................. 715,978 983,001 1,540,141 2,810,212
Other service revenues.................. 90,432 718,466 266,724 1,879,077
Online tuition revenues................. 163,487 463,539 567,580 993,921
Virtual campus software revenues........ 1,487,000 29,669 2,612,000 73,003
Development and other revenues.......... 300,288 478,031 1,488,556 842,284
---------- ----------- ----------- ------------
Net revenues.............................. 2,757,185 4,283,287 6,475,001 11,311,618
Costs and expenses:
Cost of revenues........................ 393,507 2,415,349 795,949 7,391,608
Sales and marketing..................... 939,244 1,023,755 2,473,428 4,291,079
Product development..................... 866,578 785,765 3,061,530 5,298,530
General and administrative.............. 436,306 510,859 1,172,434 3,059,560
Depreciation and amortization........... 239,666 685,691 485,420 1,909,245
Acquired in-process research,
development and content.............. -- -- 2,700,000 --
Reorganization costs.................... -- -- -- 1,396,510
---------- ----------- ----------- ------------
Total costs and expenses.................. 2,875,301 5,421,419 10,688,761 23,346,532
---------- ----------- ----------- ------------
Loss from operations...................... (118,116) (1,138,132) (4,213,760) (12,034,914)
Loss on sale of subsidiary................ -- (381,954) -- (381,954)
Interest income (expense)................. 46,271 (135,857) 367,096 (430,727)
---------- ----------- ----------- ------------
Net loss.................................. (71,845) (1,655,943) (3,846,664) (12,847,595)
Accrued dividends to preferred
stockholders............................ -- (75,858) -- (75,858)
---------- ----------- ----------- ------------
Net loss available to common
stockholders............................ $ (71,845) $(1,731,801) $(3,846,664) $(12,923,453)
========== =========== =========== ============
Net loss per share to common
stockholders -- basic................... $ (0.02) $ (0.45) $ (1.21) $ (3.39)
========== =========== =========== ============
Net loss per share -- assuming dilution... $ (0.02) $ (0.45) $ (1.21) $ (3.39)
========== =========== =========== ============
</TABLE>
See accompanying notes.
2
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UOL PUBLISHING, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,705,490 $ 384,473
Accounts receivable, less allowance of approximately
$739,000 and $1,765,000 at December 31, 1997 and
September 30, 1998, respectively....................... 4,413,170 3,632,807
Loans receivable from related parties..................... 133,516 167,504
Loans receivable -- current............................... -- 339,623
Prepaid expenses and other current assets................. 481,516 353,901
------------ ------------
Total current assets........................................ 7,733,692 4,878,308
Property and equipment, net................................. 2,809,619 2,662,653
Capitalized software costs and courseware development costs,
net....................................................... 2,354,159 2,072,473
Acquired online publishing rights, net...................... 845,000 558,560
Loans receivable -- non current............................. -- 195,047
Other assets................................................ 358,208 198,262
Goodwill, net............................................... 8,833,040 7,698,710
Other intangible assets, net................................ 3,531,514 2,892,384
------------ ------------
Total assets................................................ $ 26,465,032 $ 21,156,397
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 6,398,488 $ 4,006,843
Notes payable -- current portion.......................... 4,551,950 2,855,521
Deferred revenues......................................... 572,390 892,425
Accrued dividends payable................................. -- 75,858
------------ ------------
Total current liabilities................................... 11,522,828 7,830,647
Deferred revenues -- non current.......................... -- 173,000
Notes payable, less current portion....................... 1,531,121 1,185,978
------------ ------------
Total liabilities........................................... 13,053,949 9,189,625
------------ ------------
Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share; 1,000,000 shares authorized; no shares issued
and outstanding at December 31, 1997; 626,293 shares
issued and outstanding at September 30, 1998........... -- 6,263
Series D convertible Preferred Stock, $0.01 par value per
share share; 1,200,000 shares authorized; no shares
issued and outstanding at December 31, 1997; 1,082,625
shares issued and outstanding at September 30, 1998.... -- 10,826
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 3,785,210 and 3,838,732 shares issued and
outstanding at December 31, 1997 and September 30,
1998, respectively..................................... 37,852 38,387
Additional paid-in capital................................ 40,901,196 52,362,514
Accumulated deficit....................................... (27,527,765) (40,451,218)
------------ ------------
Total stockholders' equity.................................. 13,411,283 11,966,772
============ ============
Total liabilities and stockholders' equity.................. $ 26,465,232 $ 21,156,397
============ ============
</TABLE>
See accompanying notes.
3
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UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,846,664) $(12,847,595)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 519,492 2,357,586
Loss on sale of subsidiary................................ -- 381,954
Non-monetary transaction revenues......................... (745,000) --
Acquired in-process research, development and content..... 2,700,000 --
Net write-off of acquired online publishing rights........ -- 241,000
Net write-off of capitalized courseware development
costs.................................................. -- 502,669
Stock option and stock warrant compensation............... 73,350 --
Increase in allowance for doubtful accounts............... -- 1,034,593
Changes in operating assets and liabilities:
(Increase) in accounts receivable...................... (2,198,461) (317,012)
(Increase) decrease in prepaid expenses and other
current assets........................................ (418,398) 126,137
(Increase) decrease in other assets.................... (17,125) 46,196
(Decrease) in accounts payable and accrued expenses.... (476,600) (1,348,138)
Increase in deferred revenues.......................... 398,623 493,035
----------- ------------
Net cash used in operating activities....................... (4,010,783) (9,329,575)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (999,641) (661,784)
Acquired online publishing rights........................... (60,000) --
Capitalized software and courseware development costs....... (1,304,595) (669,322)
Acquisitions of businesses, net of cash acquired............ (3,214,435) --
Additions to intangible assets.............................. (376,798) (355,810)
Proceeds from sale of subsidiary............................ -- 25,000
Advances under loans receivable from related parties........ -- (33,988)
----------- ------------
Net cash used in investing activities....................... (5,955,469) (1,695,904)
FINANCING ACTIVITIES
Proceeds from exercise of stock warrants and options........ -- 77,925
Proceeds from Series C convertible Preferred Stock.......... -- 5,244,824
Proceeds from Series D convertible Preferred Stock.......... -- 5,115,545
Adjustment of expenses related to the initial public
offering.................................................. 9,355 --
Proceeds from notes payable and short-term debt............. 157,500 4,142,833
Repayments of notes payable and short-term debt............. (83,068) (5,876,665)
----------- ------------
Net cash provided by financing activities................... 83,787 8,704,462
----------- ------------
Net decrease in cash and cash equivalents................... (9,882,465) (2,321,017)
Cash and cash equivalents at the beginning of the period.... 15,474,030 2,705,490
----------- ------------
Cash and cash equivalents at the end of the period.......... $ 5,591,565 $ 384,473
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 13,940 $ 343,858
=========== ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for any future period, including the year ending
December 31, 1998. For further information, refer to the audited financial
statements and footnotes thereto included in the UOL Publishing, Inc. ("UOL" or
the "Company") Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
The Company derives its revenues from the following sources --
instructor-led training revenues, product sales revenues, other service
revenues, online tuition revenues, virtual campus ("VCampus") software
revenues, and development and other revenues.
Revenues for instructor-led training and other services are recognized as
the services are delivered.
The Company recognizes product sales revenues, online tuition revenues and
virtual campus software revenues in accordance with Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). The Company recognizes revenues
from product sales upon delivery of the product to the customer, provided no
obligations, other than telephone support, remain. Telephone support costs are
accrued when the related revenues are recognized. For online tuition fees,
revenue is recognized at the time the student has registered for the selected
course and is contractually obligated to pay for the course or, for academic
partners, the drop/add period has expired. For prepaid online tuition fees and
virtual campus software revenues, which are derived from sales of VCampus
licenses, the Company recognizes revenue ratably over the period during which
customers are entitled to use the courseware and the duration of the VCampus
licenses, respectively.
Development and other revenues earned under courseware conversion contracts
are recognized using the percentage-of-completion method. For these contracts,
revenues are recognized based on the ratio that total costs incurred to date
bear to the total estimated costs of the contract. Provisions for losses on
contracts are made in the period in which they are determined.
During the three months ended September 30, 1997, one customer individually
represented 12.7% of net revenues. During the three months ended September 30,
1998, no individual customer represented more than 10% of net revenues.
CAPITALIZED SOFTWARE COSTS
Capitalization of software costs begins upon the establishment of
technological feasibility, which management deems to occur upon the completion
of a working model of the Company's VCampus product. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software costs require considerable judgment by management with
respect to certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues, estimated economic
life and changes in software and hardware technology. Amortization of such costs
is based on the greater of
5
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) the ratio of current gross revenues to the sum of current and anticipated
gross revenues, or (b) the straight-line method over the remaining economic life
of the VCampus, estimated to be three years. It is possible that those estimates
of future gross revenues, the remaining economic life of the products, or both
may be reduced as a result of future events.
CAPITALIZED COURSEWARE DEVELOPMENT COSTS
Capitalization of courseware development costs begins upon the
establishment of technological feasibility, which management deems to occur upon
the completion of a working model of the relevant courseware. The establishment
of technological feasibility and the ongoing assessment of recoverability of
capitalized courseware development costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technology. Amortization of
such costs is based on the greater of (a) the ratio of current gross revenues to
the sum of current and anticipated gross revenues, or (b) the straight-line
method over the remaining economic life of the product, typically two to four
years. It is possible that those estimates of future gross revenues, the
remaining economic life of the products, or both may be reduced as a result of
future events.
In March 1998, the Company wrote off approximately $500,000 of courseware
development costs for courses within certain industry segments that the Company
does not anticipate pursuing in the immediate future, or courses that have not
shown meaningful activity during a three- to nine-month publication period.
ACQUIRED ONLINE PUBLISHING RIGHTS
During 1997, the Company acquired rights to publish certain courseware in
an online format. In most cases, this courseware, at the time of licensing to
the Company, was in a non-online format, i.e., CD-ROM, diskette or printed
formats. During 1997, the Company capitalized some of the costs to acquire this
content. The Company amortizes acquired online publishing rights based on the
greater of (a) the ratio of current gross revenues to the sum of current and
anticipated gross revenues, or (b) the straight-line method over the remaining
economic life of the product, typically two to four years. Amortization begins
when the online course becomes available for sale.
In March 1998, the Company wrote off approximately $250,000 of acquired
online publishing rights to courses belonging to certain industry segments that
the Company does not anticipate pursuing in the immediate future.
IMPAIRMENT OF LONG-LIVED ASSETS
At each balance sheet date, management determines whether any property and
equipment or any other assets have been impaired based on the criteria
established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of." The Company made no adjustments to its
assets during the three months ended September 30, 1998.
During the three months ended March 31, 1998, the Company wrote off
approximately $500,000 in capitalized courseware development costs and
approximately $250,000 in capitalized acquired online publishing rights. (See
above)
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses. As of September 30, 1998, management deemed such
reserves to be adequate.
6
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the three months ended March 31, 1998, the Company increased its
allowance for doubtful accounts to approximately $1,814,000 in order to reserve
for certain receivables for which collection became doubtful as of the March 31,
1998 balance sheet date.
COSTS OF REVENUES
Costs of instructor-led training revenues and other service revenues
consist primarily of the salaries and other related costs for instructors and
consulting personnel, as well as rent and related costs for the training
facilities.
Costs of product sales revenue consist of the production and shipping costs
to create and distribute the diskettes and other education materials such as
manuals.
Costs of online tuition revenues include costs related to the amortization
of capitalized courseware development costs, royalties to content providers,
salaries, communication and other costs associated with operating and
maintaining the Company's servers.
Costs of VCampus software revenues include software development costs
involved in configuring the VCampus model to specific parameters requested by
the customer, costs related to the amortization of capitalized software
development costs, salaries, communication and other costs associated with
operating and maintaining the Company's servers.
Costs of development and other revenues include the salaries and other
related personnel costs for the employees who develop online courses that are
proprietary in nature to a specific customer.
ROYALTIES
The Company has royalty arrangements with certain entities that have
provided development funding. Royalties will become due and payable by the
Company upon the completion and sale of products currently under development.
Additionally, royalties will become due and payable by the Company upon the sale
of those courses in which the Company acquired the online content rights.
Royalties due range between 2% and 80% of the tuition related to that course.
NOTE C -- ACQUISITIONS AND DISPOSITIONS
The following transactions were accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired based on
their estimated fair values, and each of the subsidiaries' operating results
have been included in the Company's financial statements since the respective
acquisition date.
IVY SOFTWARE, INC.
In March 1997, the Company acquired Ivy Software, Inc. ("Ivy"), a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and potential future
payments not to exceed approximately $862,000, which were based upon integration
of operations, conversion of software and operating results. In connection with
this transaction, the President and sole shareholder of Ivy entered into a
three-year consulting agreement with the Company. In conjunction with the
acquisition, the Company recorded goodwill in the amount of $300,000, which was
subsequently adjusted to $869,643 upon scheduled payments to the former
shareholder of Ivy. In September 1998, the Company sold Ivy for approximately
$250,000 in cash and $196,000 in a note receivable. The note bears interest at
6% and is payable in quarterly installments through September 2005. The Company
retained the rights to sell and distribute the online versions of Ivy
courseware. As a result of the sale, the Company wrote off the
7
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unamortized goodwill balance and recorded a loss on the sale of subsidiary of
$381,954, or $0.10 per share, for the three months ended September 30, 1998.
COOPER & ASSOCIATES, INC. (D/B/A TELETUTOR)
In April 1997, the Company acquired Cooper & Associates, Inc., d/b/a
Teletutor ("Teletutor"), an Illinois corporation that develops, distributes and
supports computer-based training courses for the data and telecommunications
industry. The terms of the transaction included a $3,000,000 cash payment at
closing and $2,000,000 (which includes principal payments and interest) to be
paid in three ratable installments, on the first, second and third anniversary
dates of the acquisition. During the three months ended June 30, 1998, the
Company made the first scheduled payment to the former shareholders of Teletutor
in the amount of $666,667. In conjunction with this acquisition, the Company
allocated the excess of the purchase price over the fair market value of the
acquired net assets as follows: (i) $829,575 to developed content, $273,858 to
workforce, $456,875 to trademarks and names, $456,875 to customer base and
contracts and $5,138 to goodwill and (ii) $2,700,000 to acquired in-process
research, development and content.
The Company's management, in accordance with its impairment policy for
long-lived assets, determined that the Teletutor employee workforce asset had
been impaired as of December 31, 1997 due to planned workforce reductions. As a
result, the Company wrote-off the carrying amount of the asset, which was
approximately $250,000. This amount was included in reorganization and
non-recurring expenses in the statements of operations for the year ended
December 31, 1997. In addition, during the three months ended September 30,
1998, goodwill was reduced to zero and the remaining assets were reduced ratably
by approximately $329,000 due to an adjustment to deferred taxes related to the
acquisition.
HTR, INC.
In October 1997, the Company acquired HTR, Inc. ("HTR"), a Delaware
corporation primarily engaged in the business of providing technical training,
publishing and consulting services for the information technology industry. UOL
acquired HTR for common stock, warrants and options totaling 620,000 shares in
exchange for all of the outstanding equity securities of HTR. In addition, UOL
paid the former HTR stockholders $600,000 in a combination of cash and
short-term notes and assumed approximately $3,500,000 of HTR debt. In
conjunction with the signing of three-year employment agreements, the executive
officers of HTR were entitled to receive $690,000 in sign-on bonuses no later
than December 31, 1998. In June 1998, such executive officers agreed to convert
approximately $420,000 of their sign-on bonuses and $320,000 of acquisition
related indebtedness into 134,447 shares of UOL Series D convertible Preferred
Stock and were paid the remaining sign-on bonuses in cash. In conjunction with
the acquisition, UOL also created a stock option pool of 180,000 shares of
Common Stock and an incentive bonus pool with a potential payout not to exceed
approximately $3,300,000 for three years, contingent upon the financial
performance of HTR. In May 1998, the Company's Board of Directors repriced the
180,000 options from $23 to $13 per share, in consideration for amendments to
the employment agreements between the Company and each of the HTR executive
officers pursuant to which the incentive bonus pool was reduced to a maximum of
$1,500,000 over three years. In conjunction with this acquisition, the Company
allocated the excess of the purchase price over the fair market value of the
acquired net assets as follows: (i) $8,010,590 to goodwill, $700,000 to
developed content, $500,000 to workforce, $600,000 to trademarks and names, and
(ii) $8,400,000 to acquired in-process research, development and content.
NOTE D -- EQUITY TRANSACTIONS
In March 1998, the Company raised approximately $5,300,000 in a private
placement of its Series C convertible Preferred Stock and warrants (the "Series
C Private Placement"). In this transaction, the Company issued 626,293 shares of
its Series C Preferred Stock, which are convertible into approximately
8
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
759,100 shares of Common Stock. The Company also issued five-year warrants to
purchase 626,293 shares of Common Stock at an exercise price of $8.46 per share
(the five-day average of closing bid prices calculated prior to the closing of
the transaction). The Series C convertible Preferred Stock has a liquidation
preference of $12.69 per share upon sale or liquidation of the Company. The
Common Stock underlying both the Series C convertible Preferred Stock and the
warrants has certain registration rights.
In June 1998, the Company raised approximately $5,200,000 in an "at-market"
private placement of its Series D convertible Preferred Stock (the "Series D
Private Placement"). In this transaction, the Company issued 1,082,625 shares of
its Series D convertible Preferred Stock, convertible to an equal number of
common shares. The holders of Series D Preferred Stock are entitled to receive a
5% annual dividend compounded and paid semi-annually beginning December 31,
1998. Such dividends are payable, at the option of the Company, either in cash
or in Common Stock. In June 1998 and September 1998, 137,174 of Series D shares
and 17,569 shares of UOL Common Stock were issued in connection with the
conversion of approximately $867,000 of indebtedness mainly to certain former
shareholders of HTR. The non-cash portion of this transaction has been excluded
from the consolidated statements of cash flows.
NOTE E -- NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1997 1998 1997 1998
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss.................................. $ (71,845) $(1,655,943) $(3,846,664) $(12,847,595)
Accrued dividends to preferred
stockholders............................ -- (75,858) -- (75,858)
Net loss available to common
stockholders............................ $ (71,845) $(1,731,801) $(3,846,664) $(12,923,453)
========== =========== =========== ============
Denominator for basic earnings per share
--weighted-average shares............... 3,186,167 3,826,282 3,186,167 3,816,898
========== =========== =========== ============
Denominator for diluted earnings per
share -- adjusted weighted-average
shares.................................. 3,186,167 3,826,282 3,186,167 3,816,898
========== =========== =========== ============
Basic net loss per share.................. $ (0.02) $ (0.45) $ (1.21) $ (3.39)
========== =========== =========== ============
Diluted net loss per share................ $ (0.02) $ (0.45) $ (1.21) $ (3.39)
========== =========== =========== ============
</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Form 10-Q that are not descriptions of historical facts
are forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth herein and in the Company's other
SEC filings, and including, in particular, the availability of sufficient
capital to finance the Company's business plan on terms satisfactory to the
Company, risks and uncertainties relating to dependence on strategic partners
and third party relationships, management of rapid growth, dependence on online
distribution, the risks and the Company's payment obligations relating to
acquisitions, security risks, government regulations, regulatory filings and
competition.
OVERVIEW
The Company believes that it is a leading publisher of high quality,
interactive and on-demand courseware for the corporate training and education
market. The Company offers its online courseware primarily through its
proprietary virtual campus product, or VCampus, an online courseware delivery
system and environment that facilitates development, management and
administration of training and education over the Internet and intranets.
Through its HTR and Teletutor subsidiaries, the Company also offers courseware
through more traditional media, including on-site and classroom training,
diskette, CD-ROM and printed formats.
Under the current business model, UOL's revenues are derived from five
primary sources: instructor-led training revenues; product sales revenues; other
service revenues; online tuition revenues; and other service revenues.
Instructor-led training revenues are generated from on-site and classroom
training fees. Product sales revenues are derived from the sale of
computer-based training ("CBT") courses that are delivered through traditional
CBT format (e.g. CD-ROM). Other service revenues consist primarily of monthly
fees generated by the licensing and maintenance of the CYBIS courseware under
the Control Data subcontracts and from consulting services. Online tuition
revenues are generated primarily from online tuition derived from business and
academic customers. Development and other revenues consist primarily of fees
paid to the Company for developing and converting courseware. While prior to
1997 other service revenues have represented a substantial majority of the
Company's revenues and in 1998 instructor-led training revenues and product
sales revenues have also contributed significantly to total revenues, the
Company believes that online revenues and product sales will become the primary
sources of its revenues in the future.
On September 30, 1998, the Company sold Ivy for approximately $250,000 in
cash and $196,000 in a note receivable. The note bears interest at 6% and is
payable in quarterly installments through September 2005. The Company retained
the rights to sell and distribute the online versions of Ivy courseware. As a
result of the sale, the Company wrote off the unamortized goodwill balance and
recorded a loss of $381,954, or $0.10 per share, for the three months ended
September 30, 1998.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Summary
For the three months ended September 30, 1998 the Company incurred a net
loss of $1,731,801 (or $0.45 per share after accrued dividends to preferred
stockholders) as compared to a net loss of $71,845 (or $0.02 per share) for the
three months ended September 30, 1998. Excluding certain non-recurring items,
the Company incurred a net loss of $1,349,847 (or $0.35 per share) for the three
months ended September 30, 1998 as compared to a net loss of $71,845 (or $0.02
per share) for the three months ended September 30, 1997. Non-recurring items
for the three months ended September 30, 1998 included a loss of $381,954 (or
$0.10 per share) recognized as a result of the sale of the Company's Ivy
subsidiary. Total revenues for the three months ended September 30, 1998 were
$4,283,287 as compared to $2,757,185 for the three months ended September 30,
1997. The increase in revenues was primarily due to the acquisition of HTR and
increases in online tuition and development revenues offset somewhat by
decreases in VCampus software revenues. These
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<PAGE> 11
declines reflect the Company's new marketing strategy to move the Company away
from VCampus software licensing towards sales of online courseware subscriptions
as well as the adoption of SOP 97-2. Total costs and expenses were $5,421,419
during the three months ended September 30, 1998 as compared to costs of
$2,875,301 for the three months ended September 30, 1997. The increase was due
primarily to an increase in costs of goods sold from the addition of
instructor-led training revenues which have higher direct costs than the
Company's other sources of revenue. Other operating expenses remained relatively
unchanged due to workforce reductions and the closing of certain office
facilities implemented during 1998 as a result of management reorganization
plans. Depreciation and amortization increased due primarily to the acquisition
of HTR.
Net Revenues
Net revenues increased 55% from $2,757,185 for the three months ended
September 30, 1997 to $4,283,287 for the three months ended September 30, 1998.
Revenues for the three months ended September 30, 1998 included $1,610,581
(37% of net revenues) for instructor-led training revenues. The Company had no
such revenues during the third quarter of 1997.
Product sales revenues increased from $715,978 (26% of net revenues) for
the three months ended September 30, 1997 to $983,001 (23% of net revenues) for
the three months ended September 30, 1998. The increase in product sales revenue
was primarily due to the addition of HTR product sales.
Other service revenues increased from $90,432 (3% of net revenues) for the
three months ended September 30, 1997 to $718,466 (17% of net revenues) for the
three months ended September 30, 1998. The increase in other service revenues
was primarily due to the addition of HTR other service revenues.
Online tuition revenues increased from $163,487 (6% of net revenues) for
the three months ended September 30, 1997 to $463,539 (11% of net revenues) for
the three months ended September 30, 1998. Online tuition revenues increased due
primarily to significant increases in revenue-generating courseware usage and in
the number of subscription customers. The Company's academic market, including
the number of colleges and universities, instructors and student courseware
enrollments also increased. As a percentage of net revenues, online tuition
revenues increased primarily because of the Company's new marketing strategy
designed to move the Company away from VCampus software licensing towards the
sale of online courseware usage and subscriptions.
Virtual campus software revenues decreased from $1,487,000 (54% of net
revenues) for the three months ended September 30, 1997 to $29,669 (1% of net
revenues) for the three months ended September 30, 1998. The decrease is due
primarily to the implementation of the Company's new marketing strategy designed
to move the Company away from VCampus software licensing towards the sale of
online courseware subscriptions. Additionally, as of January 1, 1998, the
Company adopted SOP 97-2. Accordingly, as of that date, the Company began
recognizing revenue from sales of VCampus licenses ratably over the duration of
such licenses. During 1997, the Company recognized revenues from sales of
VCampus licenses when the VCampus was delivered to the customer, in accordance
with the AICPA Statement of Position 91-1, "Software Revenue Recognition" ("SOP
91-1").
Development and other revenues increased from $300,288 (11% of net
revenues) for the three months ended September 30, 1997 to $478,031 (11% of net
revenues) for the three months ended September 30, 1998 due primarily to an
increase in the number and size of development projects underway and the
addition of HTR development and other revenues.
Cost of Revenues
Total cost of revenues increased from $393,507 (14% of net revenues) for
the three months ended September 30, 1997 to $2,415,349 (56% of net revenues)
for the three months ended September 30, 1998. Total cost of revenues increased
in absolute dollars due primarily to the addition of HTR cost of revenues. As a
percentage of net revenues, total cost of revenues increased due primarily to
the addition of instructor-led training revenues which have higher direct costs
than the Company's other sources of revenues.
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Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $939,244
(34% of net revenues) for the three months ended September 30, 1997 to
$1,023,755 (24% of net revenues) for the three months ended September 30, 1998.
Sales and marketing expenses consist primarily of costs related to personnel,
sales commissions, travel, market research, advertising and marketing materials.
Sales and marketing costs increased slightly in absolute dollars due primarily
to the addition of HTR sales and marketing but decreased significantly as a
percentage of net revenues due to cost controls implemented during 1998 as a
result of management reorganization plans.
Product Development. Product development expenses decreased from $866,578
(31% of net revenues) for the three months ended September 30, 1997 to $785,765
(18% of net revenues) for the three months ended September 30, 1998. Product
development expenses consist primarily of certain costs associated with the
design, programming, testing, documenting and support of the Company's new and
existing courseware and software. Product development expenses decreased for the
three months ended September 30, 1997 as compared to the three months ended
September 30, 1998 due to workforce reductions implemented during 1998 as a
result of management reorganization plans that more than offset the addition of
HTR product development expenses.
General and Administrative. General and administrative expenses increased
from $436,306 (16% of net revenues) for the three months ended September 30,
1997 to $510,859 (12% of net revenues) for the three months ended September 30,
1998. General and administrative expenses consist primarily of personnel costs,
facilities and related costs, as well as legal, accounting and other costs.
General and administrative expenses increased in absolute dollars for the three
months ended September 30, 1997 as compared to the three months ended September
30, 1998 due primarily to the addition of HTR administrative costs but decreased
as a percentage of revenues due primarily to workforce reductions and the
closing of certain office facilities implemented during 1998 as a result of
management reorganization plans.
Depreciation and Amortization. Depreciation and amortization expense
increased from $239,666 (9% of net revenues) for the three months ended
September 30, 1997 to $685,691 (16% of net revenues) for the three months ended
September 30, 1998. Depreciation expense increased due primarily to additional
purchases of computer equipment and other assets to support product development,
technical operations and personnel needs. Amortization expenses increased due
primarily to the acquisitions of Ivy, Teletutor and HTR.
Interest Income (Expense)
Interest income (net) for the three months ended September 30, 1997 was
$46,271 while interest (net) for the three months ended September 30, 1998 was
$135,857. Interest income was derived primarily from investing funds raised in
the Company's private and public securities offerings during 1996. Interest
expense was primarily incurred in connection with the Company's borrowings on
its line of credit facility and term loans. See "Liquidity and Capital
Resources".
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Summary
For the nine months ended September 30, 1998 the Company incurred a net
loss of $12,923,453 (or $3.39 per share after accrued dividends to preferred
stockholders) as compared to a net loss of $3,846,664 (or $1.21 per share).
Excluding certain non-recurring items, the Company incurred a net loss of
$11,144,989 (or $2.92 per share) for the nine months ended September 30, 1998 as
compared to net loss of $1,146,664 (or $0.36 per share) for the nine months
ended September 30, 1997. Non-recurring items for the nine months ended
September 30, 1998 amounted to $1,778,464 (or $0.47 per share) and included
$1,396,510 of costs incurred pursuant to a management reorganization plan and a
loss of $381,954 recognized on the sale of Ivy. Non-recurring items for the nine
months ended September 30, 1997, included $2,700,000 (or $0.85 per share) for
acquired in-process research and development costs related to the acquisition of
Teletutor in April 1997.
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<PAGE> 13
Total revenues for the nine months ended September 30, 1998 were $11,311,618 as
compared to $6,475,001 for the nine months ended September 30, 1997. The
increase in revenues was due primarily to the acquisitions of Ivy, Teletutor and
HTR and increases in online tuition and development revenues partially offset by
decreases in VCampus software revenues. These declines reflect the Company's new
marketing strategy to move away from VCampus software licensing towards sales of
online courseware subscriptions as well as the adoption of SOP 97-2. Excluding
the non-recurring items described above, total costs and expenses were
$21,950,022 during the nine months ended September 30, 1998 as compared to costs
of $7,988,761 for the nine months ended September 30, 1997. The increase was due
primarily to the addition of Ivy, Teletutor and HTR costs and expenses as well
as increased operating costs related to the expansion of operations prior to
workforce reductions and the closing of certain office facilities implemented
during 1998 as a result of management reorganization plans.
Net Revenues
Net revenues increased 75% from $6,475,001 for the nine months ended
September 30, 1997 to $11,311,618 for the nine months ended September 30, 1998.
Revenues for the nine months ended September 30, 1998 included $4,713,121
(42% of net revenues) of instructor-led training revenues. The Company had no
such revenues prior to the acquisition of HTR in October 1997.
Product sales revenues increased from $1,540,141 (24% of net revenues) for
the nine months ended September 30, 1997 to $2,810,212 (25% of net revenues) for
the nine months ended September 30, 1998. The increase in product sales revenue
was due primarily to the addition of Ivy, Teletutor and HTR product sales.
Other service revenues increased from $266,724 (4% of net revenues) for the
nine months ended September 30, 1997 to $1,879,077 (16% of net revenues) for the
nine months ended September 30, 1998. The increase in other service revenues was
due primarily to the addition of HTR other service revenues.
Online tuition revenues increased from $567,580 (9% of net revenues) for
the nine months ended September 30, 1997 to $993,921 (9% of net revenues) for
the nine months ended September 30, 1998. The increase was due primarily to a
significant increase in revenue-generating courseware usage and in the number of
subscription customers. The Company's academic market, including the number of
colleges and universities, instructors and student courseware enrollments also
increased. As a percentage of net revenues, online tuition revenues remained
flat for the nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997 due primarily to the addition of Ivy, Teletutor and HTR
revenues.
Virtual campus software revenues decreased from $2,612,000 (40% of net
revenues) for the nine months ended September 30, 1997, to $73,003 (1% of net
revenues) for the nine months ended September 30, 1998. The decrease was due
primarily to a transition of the Company's marketing strategy from VCampus
software licensing to sales of online courseware subscriptions. In addition, as
of January 1, 1998, the Company adopted SOP 97-2, which requires the Company to
recognize revenue from sales of VCampus licenses ratably over the duration of
such licenses. During 1997, the Company recognized revenues from sales of
VCampus licenses when the VCampus was delivered to the customer, in accordance
with SOP 91-1.
Development and other revenues decreased from $1,488,556 (23% of net
revenues) for the nine months ended September 30, 1997 to $842,284 (7% of net
revenues) for the nine months ended September 30, 1998. Development and other
revenues for the nine months ended September 30, 1997 were primarily related to
an agreement with one customer that provided funding for the development of a
custom VCampus in exchange for a share of future net revenues derived from the
operation of such campus and warrants to purchase Common Stock of the Company.
Development and other revenues for 1998 have been primarily related to
courseware conversion contracts between the Company and its customers.
Cost of Revenues
Total cost of revenues increased from $795,949 (12% of net revenues) for
the nine months ended September 30, 1997 to $7,391,608 (65% of net revenues) for
the nine months ended September 30, 1998.
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<PAGE> 14
Total cost of revenues increased in absolute dollars due primarily to the
addition of Ivy, Teletutor and HTR cost of revenues. As a percentage of net
revenues, cost of revenues increased, due primarily to the addition of
instructor-led training revenues, which have higher direct costs than the other
sources of revenues.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from
$2,473,428 (38% of net revenues) for the nine months ended September 30, 1997 to
$4,219,079 (38% of net revenues) for the nine months ended September 30, 1998.
Sales and marketing expenses consist primarily of costs related to personnel,
sales commissions, travel, market research, advertising and marketing materials.
Sales and marketing expenses increased in absolute dollars due primarily to the
addition of Ivy, Teletutor and HTR sales and marketing expenses. As a percentage
of revenues, sales and marketing expenses remained flat for the nine months
ended September 30, 1998 as compared to the nine months ended September 30, 1997
due primarily to cost controls implemented during 1998 as a result of management
reorganization plans.
Product Development. Product development expenses increased from
$3,061,530 (47% of net revenues) for the nine months ended September 30, 1997 to
$5,298,530 (47% of net revenues) for the nine months ended September 30, 1998.
Product development expenses consist primarily of certain costs associated with
the design, programming, testing, documenting and support of the Company's new
and existing courseware and software. Product development expenses increased in
absolute dollars due primarily to the addition of Teletutor and HTR product
development expenses. A first quarter 1998 write-off of approximately $750,000
for certain previously-deferred content acquisition and development costs also
contributed to the increase in 1998. As a percentage of net revenues, product
development expenses remained flat for the nine months ended September 30, 1998
as compared to the nine months ended September 30, 1997 due primarily to
workforce reductions implemented during 1998 as a result of management
reorganization plans.
General and Administrative. Excluding $1,075,000 of bad debt expense
recognized in the first quarter of 1998 for certain uncollectible accounts
receivable, general and administrative expenses increased from $1,172,434 (18%
of net revenues) for the nine months ended September 30, 1997 to $1,984,560 (18%
of net revenues) for the nine months ended September 30, 1998. General and
administrative expenses consist primarily of personnel costs, facilities and
related costs, as well as legal, accounting and other costs. General and
administrative expenses increased in absolute dollars due primarily to the
addition of Ivy, Teletutor and HTR general and administrative expenses. As a
percentage of revenues, general and administrative costs remained flat for the
nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997 due primarily to workforce reductions and the closing of
certain office facilities implemented during 1998 as a result of management
reorganization plans.
Depreciation and Amortization. Depreciation and amortization expense
increased from $485,420 (7% of net revenues) for the nine months ended September
30, 1997 to $1,909,245 (17% of net revenues) for the nine months ended September
30, 1998. Depreciation expense increased due primarily to additional purchases
of computer equipment and other assets to support product development, technical
operations and personnel needs. Amortization expenses increased due primarily to
the acquisitions of Ivy, Teletutor and HTR.
Reorganization Costs. During the nine months ended September 30, 1998, the
Company implemented a plan to reduce workforce and close certain office
facilities. Workforce reductions occurred primarily in the product development
and administrative areas. In connection with this reorganization, the Company
closed its training facilities in Los Angeles, CA and Baltimore, MD, and a sales
and marketing office in McLean, VA. In addition, the Company plans to relocate
certain sales and administrative staff to smaller facilities, and plans to move
the production of certain products to its Texas facility. Total restructuring
costs of $1,396,510 were comprised of $1,219,094 in severance and other benefits
and $177,416 primarily related to the closing of office facilities. All
significant costs associated with these workforce reductions have been paid or
accrued as of September 30, 1998.
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Interest Income (Expense)
Interest income (net) for the nine months ended September 30, 1997 was
$367,096, while interest expense (net) for the nine months ended September 30,
1998 was $430,727. Interest income was derived primarily from investing funds
raised in the Company's private and public securities offerings during 1996.
Interest expense was primarily incurred in connection with the Company's
borrowings on its line of credit facility and term loans. See "Liquidity and
Capital Resources".
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $384,473 in cash and cash
equivalents. Since its inception, the Company has financed its operating cash
flow needs primarily through offerings of equity securities and, to a lesser
extent, borrowings. Cash utilized in operating activities was $9,329,575 for the
nine months ended September 30, 1998 and $4,010,783 for the nine months ended
September 30, 1997. Use of cash was primarily attributable to the net loss
recorded during the nine months ended September 30, 1998.
Cash utilized in investing activities was $1,695,904 for the nine months
ended September 30, 1998 as compared to $5,955,469 for the nine months ended
September 30, 1997. The use of cash for investing activities during the first
nine months of 1998 was primarily attributable to purchases of equipment,
software development costs that were capitalized, and approximately $356,000
paid to the former shareholder of Ivy pursuant to the acquisition agreement.
Cash provided by financing activities was $8,704,462 for the nine months
ended September 30, 1998 as compared to $83,787 for the nine months ended
September 30, 1997. In March 1998, the Company raised approximately $5,300,000
in its Series C private placement. In this transaction, the Company issued
626,293 shares of its Series C Preferred Stock, which are convertible into
approximately 759,100 shares of Common Stock. In connection with this
transaction, the Company also issued five-year warrants to purchase 626,293
shares of Common Stock at an exercise price of $8.46 per share (the five-day
average of closing bid prices calculated prior to the closing of the
transaction). The Series C convertible Preferred Stock has a liquidation
preference of $12.69 per share upon sale or liquidation of the Company. The
Common Stock underlying both the Series C convertible Preferred Stock and the
warrants has certain registration rights.
In June 1998, the Company raised approximately $5,200,000 through its
Series D private placement. In this transaction, the Company issued 1,082,625
shares of its Series D convertible Preferred Stock, convertible to an equal
number of common shares. The holders of Series D Preferred Stock are entitled to
receive a 5% annual dividend compounded and paid semi-annually beginning
December 31, 1998. Such dividends are payable, at the option of the Company,
either in cash or in Common Stock. In June 1998 and September 1998, 137,174 of
Series D shares and 17,569 shares of UOL Common Stock were issued in connection
with the conversion of approximately $867,000 of indebtedness mainly to certain
former shareholders of HTR. The non-cash portion of this transaction has been
excluded from the consolidated statements of cash flows.
During the nine months ended September 30, 1998, the Company borrowed an
additional $1,500,000 on its line of credit from its then existing bank lender,
and subsequently repaid approximately $5,000,000 satisfying all its obligations
to that lender.
In August 1998, the Company obtained a secured lending facility through a
new lending institution that provides up to $2,000,000 in a revolving line of
credit and a $500,000 term loan. Under the terms of the agreement, the Company
may borrow the lesser of (i) $2,000,000 or (ii) a percentage of its accounts
receivable in accordance with an agreed upon schedule. The revolving line of
credit bears interest at the bank prime rate plus 2.00% while the interest rate
for the term loan is at the bank prime rate plus 2.50%. Borrowings under the
revolving line of credit mature on February 15, 1999 while the term loan matures
on July 15, 2001. As of September 30, 1998 the Company had borrowed $1,547,931
against the revolving line of credit and $500,000 under the term loan. The
proceeds were used primarily to satisfy the Company's obligations to its prior
lending institution. In addition, in August 1998, the Company obtained a secured
term loan for $500,000 with another lending institution, that is subordinated to
the $2,500,000 facility described above. Amounts borrowed under this loan bear
interest at 12% annually and will be due on February 15, 1999. As of
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<PAGE> 16
September 30, 1998 the Company had borrowed $500,000 under this term loan, which
it used for its working capital needs. In connection with this transaction, the
Company issued warrants for the purchase of an aggregate of 90,000 shares of
Series D Preferred Stock at an aggregate exercise price of $495,000. As of
September 30, 1998, the Company was in violation of certain covenants related to
these secured lending facilities. The Company and the banks are currently in
negotiations concerning these violations, and although there can be no
assurances, the Company believes that the issue will be resolved in a manner
satisfactory to both parties.
The Company expects negative cash flow from operations to continue for at
least the next three months as the online revenue stream matures. During 1998,
the Company reduced its workforce by approximately 47% and closed four office
facilities. This reorganization is expected to provide annual savings of
approximately $6,000,000. In addition, the Company has implemented measures to
curtail the rate of discretionary spending. The Company recognizes that it may
need to raise additional funding to meet its working capital requirements and is
considering all of its alternatives, including continuing its efforts to obtain
financing through additional equity or debt financing, which may not be
available on favorable terms, or at all. If the Company does not address its
funding needs, it will be materially adversely affected. The Company's future
capital requirements will depend on many factors, including, but not limited to,
acceptance of and demand for its products and services, the types of
arrangements that the Company may enter into with customers and resellers, and
the extent to which the Company invests in new technology and research and
development projects.
The Company is in the process of completing an assessment of its year 2000
issues as it pertains to its information systems and those of its suppliers and
customers. The Company expects to complete its assessment by March 1999. As
such, the Company is not in a position to estimate the costs of becoming Year
2000 compliant nor can it presently estimate a timeframe for implementing
required changes. Failure of these systems to become compliant could have a
material adverse effect on the Company's financial position and results of
operations.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) No modifications.
(b) No limitations or qualifications.
(c) From July 1, 1998 to September 30, 1998, the Company has issued the
following unregistered securities, none of which involved an underwriter or the
payment of any commissions:
1. 12,375 shares of Common Stock to two accredited investors issued on
September 30, 1998 upon conversion of accrued vacation by a Company officer
valued at $45,512 and cancellation of indebtedness owed to a service
provider arising from consulting services provided to the Company valued at
$17,365.
2. A five-year warrant dated September 16, 1998 for the purchase of
36,500 shares of Common Stock at an aggregate exercise price of $168,813 to
one accredited investor in exchange for investor advisory services related
to the Company's acquisition of HTR, Inc. valued at $174,000.
3. A warrant dated September 16, 1998 for the purchase of 25,000
shares of Common Stock at an aggregate exercise price of $118,750 to one
service provider in exchange for consulting services. Such warrant may be
exercised commencing March 16, 1999 and ending on September 16, 2000 only
if the consultant brings in two new market makers and at least one research
report from a reputable brokerage firm and the Company's stock price
exceeds $5.75 per share.
4. A seven-year warrant dated August 14, 1998 for the purchase of
55,000 shares of Series D Preferred Stock at an aggregate exercise price of
$302,500 to one of the Company's new lenders in connection with the
Company's revolving line of credit of up to $2,000,000 and the $500,000
term loan from such lender; Shares of Series D Preferred Stock are
currently convertible into shares of Common Stock on a one-for-one basis.
5. A seven-year warrant dated August 14, 1998 for the purchase of
35,000 shares of Series D Preferred Stock at an aggregate exercise price of
$192,500 to one of the Company's new lenders in connection with the
Company's $500,000 term loan from such lender; Shares of Series D Preferred
Stock are currently convertible into shares of Common Stock on a
one-for-one basis.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Act") in
reliance upon Section 4(2) of the Act, or Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. Recipients of the
securities in each such transaction represented their intentions to acquire such
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
instruments issued in such transactions. All recipients had adequate access to
information about the Company.
ITEM 6. EXHIBITS
(a) Exhibits
10.36 Loan and Security Agreement dated August 14, 1998 with Imperial Bank
10.37 Warrant to Purchase Stock dated August 14, 1998 issued to Imperial
Bank
10.38 Loan Agreement dated August 14, 1998 with Sand Hill Capital, LLC
10.39 Warrant to Purchase Stock dated August 14, 1998 issued to Sand Hill
Capital, LLC
10.40 Stock Purchase Agreement, effective September 30, 1998, by and among
UOL Publishing, Inc., Ivy Software, Inc. and Robert N. Holt
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
(b) No Current Reports on Form 8-K were filed during the quarter ended
September 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by each of the
undersigned thereunto duly authorized.
UOL PUBLISHING, INC.
By: /s/ NARASIMHAN P. KANNAN
------------------------------------
Narasimhan P. Kannan
Chief Executive Officer
By: /s/ JOANNE O'ROURKE HINDMAN
------------------------------------
Joanne O'Rourke Hindman
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: November 13, 1998
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EXHIBIT INDEX
10.36 Loan and Security Agreement dated August 14, 1998 with Imperial Bank
10.37 Warrant to Purchase Stock dated August 14, 1998 issued to Imperial
Bank
10.38 Loan Agreement dated August 14, 1998 with Sand Hill Capital, LLC
10.39 Warrant to Purchase Stock dated August 14, 1998, issued to Sand Hill
Capital, LLC
10.40 Stock Purchase Agreement, effective September 30, 1998 by and among
UOL Publishing, Inc., Ivy Software, Inc. and Robert N. Holt
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
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<PAGE> 1
EXHIBIT 10.36
- --------------------------------------------------------------------------------
UOL PUBLISHING, INC.
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of August 14,
1998, by and between IMPERIAL BANK ("Bank") and UOL PUBLISHING, INC.
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
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:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance under
the Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person.
"Bank Expenses" means all: reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents; reasonable Collateral audit fees; and Bank's reasonable
attorneys' fees and expenses incurred in amending, enforcing or defending the
Loan Documents (including fees and expenses of appeal), incurred before, during
and after an Insolvency Proceeding, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to
seventy-five percent (75%) of Eligible Accounts, as determined by Bank with
reference to the most recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California or Virginia are
authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
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"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Revolving Line" means a credit extension
of up to Two Million Dollars ($2,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and like protections in each
work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.
"Credit Extension" means each Advance, Letter of
Credit, Term Advance, or any other extension of credit by Bank for the benefit
of Borrower hereunder.
"Current Assets" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current assets
on the consolidated balance sheet of Borrower and its Subsidiaries as at such
date.
"Current Liabilities" means, as of any applicable
date, all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Advances made under this Agreement, including all Indebtedness that
is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or extendible at the option of
Borrower or any Subsidiary to a date more than one year from the date of
determination.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
"Debt Service Coverage" means, as of any date of
determination, a ratio of (a) the sum of (i) earnings after tax annualized for
the preceding three (3) months plus (ii) interest and non-cash (i.e.,
depreciation and amortization) expenses minus (iii) any increase in capitalized
software, plus any decrease in capitalized software, annualized for the
preceding three months to (b) the sum of (i) current portion of long term debt
owing to Bank plus (ii) interest expense, annualized for the preceding three
months.
"Eligible Accounts" means those Accounts that arise
in the ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section 54;
provided, that standards of eligibility may be fixed and revised from time to
time by Bank in Bank's reasonable judgment and upon notification thereof to
Borrower in accordance with the provisions hereof. Unless otherwise agreed to
by Bank, Eligible Accounts shall not include the following:
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(a) Accounts that the account debtor has failed
to pay within ninety (90) days of invoice date;
(a)(1) Subject to certain exclusions for
credits over 90 days from invoice date;
(b) Accounts with respect to an account debtor,
twenty-five percent (25%) of whose Accounts the account debtor has failed to
pay within ninety (90) days of invoice date;
(c) Accounts with respect to which the account
debtor is an officer, employee, 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 with respect to which the account
debtor is an Affiliate of Borrower;
(f) Accounts with respect to which the account
debtor does not have its principal place of business in the United States,
except for Eligible Foreign Accounts;
(g) Accounts with respect to which the account
debtor is the United States or any department, agency, or instrumentality of
the United States;
(h) Accounts with respect to which Borrower is
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower, but only to the extent of any amounts owing to the account
debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to Borrower
exceed twenty percent (20%) of all Accounts, to the extent such obligations
exceed the aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank
reasonably determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with
respect to which the account debtor does not have its principal place of
business in the United States and that (i) are supported by one or more letters
of credit in an amount and of a tenor, and issued by a financial institution,
acceptable to Bank, or (ii) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in
Article 8.
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"GAAP" means generally accepted accounting principles
as in effect from time to time.
"Guarantors" means HTR, Inc., Coopers & Associates,
Inc. and Ivy Software, Inc.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to sue for and collect such damages for said
use or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of
the Copyrights, Patents or Trademarks, and all license fees and royalties
arising from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of
any of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above, and Borrower's Books
relating to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Letter of Credit" means a letter of credit issued
under this Agreement.
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"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper, and
Borrower's Books relating to any of the foregoing.
"Net Profit" means net profit less any increase in
capitalized software or plus any decrease in capitalized software.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Patents" means all patents, patent applications and
like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay
to Bank pursuant to the terms and provisions of any instrument, or agreement
now or hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness secured by a lien described in
clause (c) of the defined term "Permitted Liens," provided such Indebtedness
does not exceed the lesser of the cost or fair market value of the equipment
financed with such Indebtedness; and
(d) Subordinated Debt.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having rating of at least A-2 or P-2 from
either Standard & Poor's Corporation or Moody's Investors
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Service, Inc., (iii) certificates of deposit maturing no more than one (1) year
from the date of investment therein issued by Bank, and (iv) Bank's money
market accounts.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings, provided the same have been terminated
within 45 days after the date any filing is made to perfect such Liens;
(c) Liens (i) upon or in any equipment acquired
or held by Borrower or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the
amount thereof shall be determined, the consolidated cash, cash-equivalents,
accounts receivable and investments, with maturities not to exceed 90 days, of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer and
the Controller of Borrower.
"Revolving Maturity Date" means February 15, 1999.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue Advances, as specified in Section 21.1
hereof.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Shares" means the shares of capital stock of each of
the Guarantors.
"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on terms
reasonably acceptable to Bank (and identified as being such by Borrower and
Bank).
"Subsidiary" means any corporation or partnership in
which (i) any general partnership interest or (ii) more than 50% of the stock
of which by the terms thereof ordinary voting power to elect the Board
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of Directors, managers or trustees of the entity shall, at the time as of which
any determination is being made, be owned by Borrower, either directly or
through an Affiliate.
"Tangible Net Worth" means at any date as of which
the amount thereof shall be determined, the sum of the capital stock and
additional paid-in capital plus retained earnings (or minus accumulated
deficit) of Borrower and its Subsidiaries minus intangible assets, plus
Subordinated Debt, on a consolidated basis determined in accordance with GAAP.
"Term Maturity Date" means July 15, 2001.
"Trademarks" means any trademark and servicemark
rights, whether registered or not, applications to register and registrations
of the same and like protections, and the entire goodwill of the business of
Borrower connected with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made in accordance with GAAP. When used
herein, the terms "financial statements" shall include the notes and schedules
thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions
of this Agreement, Borrower may request Advances in an aggregate outstanding
amount not to exceed the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base minus, in each case, the face amount of outstanding Letters of
Credit, including any drawn but unreimbursed Letters of Credit. Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1.1 may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances under this Section 2.1.1 shall be
immediately due and payable. Borrower may prepay any Advances without penalty
or premium.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that the Advance is to be made.
Each such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Advances made under this
Section 2.1.1 to Borrower's deposit account.
(c) Letters of Credit.
(i) Subject to the terms and conditions
of this Agreement, Bank agrees to issue or cause to be issued Letters of Credit
for the account of Borrower in an aggregate outstanding face amount not to
exceed (i) the lesser of the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii)
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the then outstanding principal balance of the Advances; provided the face
amount of such Letters of Credit shall not in any case exceed $200,000. All
Letters of Credit shall be, in form and substance, acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank's form
of standard Application and Letter of Credit Agreement.
(ii) The obligation of Borrower to
immediately reimburse Bank for drawings made under Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit, under
all circumstances whatsoever. Borrower shall indemnify, defend, protect, and
hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in connection
with any Letters of Credit.
(iii) Borrower may request that Bank issue
a Letter of Credit payable in a currency other than United States dollars. If
a demand for payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.
(iv) Upon the issuance of any Letter of
Credit payable in a currency other than United States Dollars, Bank shall
create a reserve under the Committed Revolving Line for Letters of Credit
against fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such Letter of Credit. The amount of such
reserve may be amended by Bank from time to time to account for fluctuations in
the exchange rate. The availability of funds under the Committed Revolving
Line shall be reduced by the amount of such reserve for so long as such Letter
of Credit remains outstanding.
2.1.2 Term Advances.
(a) Subject to and upon the terms and conditions
of this Agreement, at any time from the date hereof through February 15, 1999,
Bank agrees to make advances (each a "Term Advance" and, collectively, the
"Term Advances") to Borrower in an aggregate outstanding amount not to exceed
$500,000 on a non-formula basis for general corporate purposes including the
refinancing of several acquired companies.
(b) Interest shall accrue from the date of each
Term Advance at the rate specified in Section 2.3((a)), and shall be payable
monthly on the fifteenth day of each month through February 15, 1999. Any Term
Advances that are outstanding on February 15, 1999 shall be payable in
twenty-nine (29) equal monthly installments of principal, plus all accrued
interest, beginning on March 15, 1999, and continuing on the same day of each
month thereafter through July 15, 2001, at which time all amounts due under
this Section 2.1.2 and any other amounts due under this Agreement shall be
immediately due and payable. Borrower may prepay any Term Advances without
penalty or premium.
(c) When Borrower desires to obtain a Term
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Term Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee.
2.2 Overadvances. If any Advances hereunder exceed the
lesser of the Borrowing Base or the Committed Revolving Line, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
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(i) Advances. Except as set forth in
Section 2.3((b)), the Advances shall bear interest, on the outstanding daily
balance thereof, at a rate equal to Two Percent (2.0%) above the Prime Rate,
provided such rate shall be reduced to One and One Quarter Percent (1.25%)
above the Prime Rate, effective on the first day of the fiscal quarter
following a fiscal quarter in which Borrower has achieved after-tax
profitability in excess of $250,000 (provided the rate shall be 2.0% for any
fiscal quarter thereafter following a fiscal quarter in which Borrower has not
achieved after-tax profitability in excess of $250,000).
(ii) Term Advances. Except as set forth
in Section 2.3((b)), the Term Advances shall bear interest, on the outstanding
daily balance thereof, at a rate equal to Two and One Half Percent (2.5%) above
the Prime Rate.
(b) Late Fee; Default Rate. If any payment is
not made within ten (10) days after the date such payment is due, Borrower
shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the
amount of such unpaid amount or (ii) the maximum amount permitted to be charged
under applicable law. All Obligations shall bear interest, from and after the
occurrence and during the continuance of an Event of Default, at a rate equal
to five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of an Event of Default.
(c) Payments. Interest hereunder shall be due
and payable on the fiifteenth calendar day of each month during the term
hereof. Bank shall, at its option, charge such interest, all Bank Expenses,
and all Periodic Payments against any of Borrower's deposit accounts or against
the Committed Revolving Line, in which case those amounts shall thereafter
accrue interest at the rate then applicable hereunder. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable
hereunder. Bank shall deliver to Borrower statements of account in the
ordinary course of business reflecting charges made hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
(e) Lockbox Account. Borrower shall open and
maintain with Bank an account (the "Collateral Account") into which all funds
received by Borrower from any source shall immediately be deposited. Borrower
shall direct all account debtors to mail or deliver all checks or other forms
of payment for amounts owing to Borrower to a post office box designated by
Bank, over which Bank shall have exclusive and unrestricted access. Bank shall
collect the mail delivered to such post office box, open such mail, and endorse
and credit all items to the Collateral Account. Borrower shall direct all
account debtors or other persons owing money to Borrower who make payments by
electronic transfer of funds to wire such funds directly to the Collateral
Account. Borrower shall hold in trust for Bank all amounts that Borrower
receives despite the directions to make payments to the post office box or
Collateral Account, and immediately deliver such payments to Bank in their
original form as received from the account debtor, with proper endorsements for
deposit into the Collateral Account. Borrower irrevocably authorizes Bank to
transfer to the Collateral Account any funds that have been deposited into any
other accounts or that Bank has otherwise received. Borrower shall not
establish or maintain any accounts with any Person other than Bank except for
accounts opened in the ordinary course of business from which all funds are
transferred on a daily basis to the Collateral Account. Bank shall have all
right, title and interest in all of the items from time to time in the
Collateral Account and their proceeds. Neither Borrower nor any person
claiming through Borrower shall have any right in or control over the use of,
or any right to withdraw any amount from, the Collateral Account, which shall
be under the sole control of Bank; provided, however, that so long as no Event
of Default has occurred and is continuing Borrower shall have the right to make
withdrawals from the Collateral Account for use in the ordinary course of
business or for purposes not prohibited by the terms of this Agreement.
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2.4 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the
Loan Documents would otherwise be due (except by reason of acceleration) on a
date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a
Facility Fee equal to $12,500, which shall be nonrefundable;
(b) Bank Expenses. On the Closing Date, all Bank
Expenses incurred through the Closing Date, including reasonable attorneys'
fees and expenses and, after the Closing Date, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Term. This Agreement shall become effective on the
Closing Date and, subject to Section 12.7, shall continue in full force and
effect for a term ending on the Term Maturity Date. Notwithstanding the
foregoing, Bank shall have the right to terminate its obligation to make Credit
Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination, Bank's Lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension.
The obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower
with respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
(e) a warrant to purchase stock;
(f) evidence of Borrower's receipt of not less
than $5,000,000 from the issuance of its Series D Preferred stock and the
conversion to stock of not less than $414,000 of notes payable to former HTR,
Inc. shareholders;
(g) guaranties and security agreements from the
Guarantors;
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(h) a subordination agreement with Sand Hill
Capital, LLC, and evidence of Borrower's commitment to receive not less than
$500,000 of Subordinated Debt from Sand Hill Capital, LLC concurrently with the
provision of Advances hereunder;
(i) an audit of the Collateral, the results of
which shall be satisfactory to Bank; and
(j) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained
in Section 5 shall be true and correct in all material respects on and as of
the date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date). The making of each Credit Extension shall
be deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2((b)).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and
pledges to Bank a continuing security interest in all presently 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. Except
as set forth in the Schedule and for Permitted Liens, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank, at the request of
Bank, all Negotiable Collateral, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours but no more than twice a
year (unless an Event of Default has occurred and is continuing), to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
4.4 Pledge of Collateral. The certificate or
certificates for the securities included in the Collateral, accompanied by an
instrument of assignment duly executed in blank by Borrower, have been, or will
be immediately upon the subsequent receipt thereof by Borrower, delivered by
Borrower. Borrower shall cause the books of each entity whose shares are part
of the Collateral and any transfer agent to reflect the pledge of the Shares.
Upon the occurrence of an Event of Default hereunder, Bank may effect the
transfer of any securities included in the Collateral into the name of Bank to
the extent such transfer is necessary to satisfy the Obligations and cause new
certificates representing such securities to be issued in the name of Bank or
its assignees. Unless an Event of Default shall have occurred and be
continuing, Borrower shall be entitled to exercise any voting rights
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with respect to the Collateral and to give consents, waivers and ratifications
in respect thereof, provided that no vote shall be cast or consent, waiver or
ratification given or action taken which would be inconsistent with any of the
terms of this Agreement or which would constitute or create any violation of
any of such terms. All such rights of Borrower to vote and give consents,
waiver and ratifications shall cease in case such an Event of Default hereunder
shall occur and be continuing, and Bank thereafter shall have the power to vote
and give consents, waivers and ratifications on account of the Shares.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and
each Subsidiary is a corporation duly existing under the laws of its state of
incorporation and qualified and licensed to do business in any state in which
the conduct of its business or its ownership of property requires that it be so
qualified, except where failure to so qualify would not have a Material Adverse
Effect.
5.2 Due Authorization; No Conflict. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts
are bona fide existing obligations. The services giving rise to such Eligible
Accounts have been performed and the account debtor has an unconditional
obligation to pay Borrower for such services. Borrower has not received notice
of actual or imminent Insolvency Proceeding of any account debtor that is
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all material
defects, except for Inventory for which adequate reserves have been made.
5.6 Shares. Borrower has full power and authority to
create a first lien on the Shares and no disability or contractual obligation
exists that would prohibit Borrower from pledging the Shares pursuant to this
Agreement. Borrower owns all of the issued and outstanding capital stock of
each Guarantor. There are no subscriptions, warrants, rights of first refusal
or other restrictions on, or options exercisable with respect to the Shares,
other than in favor of Bank. The Shares have been and will be duly authorized
and validly issued, and are fully paid and non-assessable. The Shares are not
the subject of any present or threatened suit, action, arbitration,
administrative or other proceeding, and each Borrower knows of no reasonable
grounds for the institution of any such proceedings. Borrower has good and
indefeasible title to the Shares, free and clear of Liens.
5.7 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name during
the past 5 years other than that specified on the signature page hereof. The
chief executive office of Borrower is located at the address indicated in
Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule,
there are no actions or proceedings pending by or against Borrower or any
Subsidiary before any court or administrative agency in which an adverse
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decision could have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any Subsidiary
that are delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.10 Solvency, Payment of Debts. Borrower is solvent and
able to pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary
have met the minimum funding requirements of ERISA with respect to any
employee benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result in
Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.12 Environmental Condition. Except as disclosed in the
Schedule, none of Borrower's or any Subsidiary's properties or assets has ever
been used by Borrower or any Subsidiary 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 waste or hazardous
substance other than in accordance with applicable law; to the best of
Borrower's knowledge, 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 waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; to the
best of Borrower's knowledge, no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and to the best of Borrower's
knowledge, neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.15 Government Consents. Borrower and each Subsidiary
has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower's
business as currently conducted, the failure to obtain which could have a
Material Adverse Effect.
5.16 Full Disclosure. No representation, warranty or
other statement made by Borrower in any certificate or written statement
furnished to Bank contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading.
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6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of its Subsidiaries' corporate existence in its jurisdiction of incorporation
and maintain qualification in each jurisdiction in which the failure to so
qualify could have a Material Adverse Effect. Borrower shall maintain, and
shall cause each of its Subsidiaries to maintain in force all licenses,
approvals and agreements, the loss of which could have a Material Adverse
Effect.
6.2 Government Compliance. Borrower shall meet, and
shall cause each Subsidiary to meet, the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA. Borrower shall
comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available, but in any event
within thirty (30) days after the end of each calendar month, a Borrower
prepared consolidated balance sheet and income statement prepared in accordance
with GAAP covering Borrower's consolidated operations during such period, in a
form and certified by a Responsible Officer; (b) as soon as available, but in
any event within ninety (90) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied; (c) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of Fifty Thousand Dollars ($50,000) or more; (d) promptly upon filing, copies
of all filings made with the Securities and Exchange Commission, but in any
case Form 10-K within ninety (90) days after the end of Borrower's fiscal year
and Form 10-Q within forty-five (45) days after the end of each of Borrower's
fiscal quarters; and (e) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
Within ten (10) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts and appraise Collateral at Borrower's expense, provided
that such audits will be conducted no more often than every six (6) months
unless an Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all
Inventory in good and marketable condition, free from all material defects
except for Inventory for which adequate reserves have been made. Returns and
allowances, if any, as between Borrower and its account debtors shall 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.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws
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concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower's. Bank shall be designated a beneficiary of a key-man life insurance
policy on Narasimhan P. Kannan in an amount not less than $1,500,000.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Upon Bank's request, Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefor.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank through correspondent
accounts with First Union National Bank. Borrower shall maintain at least
fifty percent (50%) of its funds available for investment in interest and
non-interest bearing accounts with Bank for so long as the rates offered by
Bank are not less than 25 basis points below rates offered by similar
institutions for similar instruments of the same maturity.
6.8 Quick Ratio. Borrower shall maintain, as of the
last day of each fiscal quarter, a ratio of Quick Assets to Current
Liabilities, less the current portion of Subordinated Debt, of at least 0.60 to
1.00, increasing to 0.75 to 1.00 from and after March 31, 1999.
6.9 Profitability. Borrower shall not suffer a net
loss for the fiscal quarter ended June 30, 1998 in excess of $4,000,000,
excluding non-operating restructuring expenses, a net loss in excess of
$1,100,000 for the fiscal quarter ended September 30, 1998, or a net loss in
excess of $500,000 for the fiscal quarter ended December 31, 1998. Borrower
shall have a profit of not less than $1.00 on an operating and after-tax basis
for each fiscal quarter beginning with the fiscal quarter ended March 31, 1999.
6.10 Term Liquidity Coverage. Until Bank receives
evidence satisfactory to Bank that Borrower has achieved two consecutive fiscal
quarters of operating and after-tax profitability, Borrower shall maintain a
balance as of the last day of each calendar month of unrestricted cash and cash
equivalents plus an amount equal to the Borrowing Base minus the outstanding
Advances and outstanding Letters of Credit that is one and one half (1.5) times
the sum of (i) the outstanding balance of the Term Advances plus (ii) the
portion of Indebtedness relating to the acquisition of the Guarantors that is
due on or before April 30, 1999.
6.11 Debt Service Coverage. Beginning the fiscal quarter
ended December 31, 1998, Borrower shall maintain as of the last day of each
fiscal quarter a Debt Service Coverage of at least 2.00 to 1.00.
6.12 Registration of Intellectual Property Rights.
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(a) Borrower shall register or cause to be
registered on an expedited basis (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement within thirty (30) days of the date
of this Agreement. Borrower shall register or cause to be registered with the
United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those additional intellectual property rights developed
or acquired by Borrower from time to time in connection with any product prior
to the sale or licensing of such product to any third party, including without
limitation major revisions or additions to the intellectual property rights
listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect Bank's security interest in the Intellectual Property
Collateral.
(c) Borrower shall (i) protect, defend and
maintain the validity and enforceability of the Trademarks, Patents and
Copyrights, (ii) use its best efforts to detect infringements of the
Trademarks, Patents and Copyrights and promptly advise Bank in writing of
material infringements detected and (iii) not allow any material Trademarks,
Patents or Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Bank, which shall not be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual
Property Collateral to confirm compliance with this Section, provided such
audit may not occur more often than once per year at Borrower's expense not to
exceed $500, unless an Event of Default has occurred and is continuing. Bank
shall have the right, but not the obligation, to take, at Borrower's sole
expense, any actions that Borrower is required under this Section to take but
which Borrower fails to take, after fifteen (15) days' notice to Borrower.
Borrower shall reimburse and indemnify Bank for all reasonable costs and
reasonable expenses incurred in the reasonable exercise of its rights under
this Section.
6.13 Further Assurances. At any time and from time to
time Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Credit
Extensions, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; or (iii) Transfers of surplus,
worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or
permit any of its Subsidiaries to engage in any business, other than the
businesses currently engaged in by Borrower and any business substantially
similar or related thereto (or incidental thereto). Borrower will not, without
thirty (30) days prior written notification to Bank, relocate its chief
executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person.
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7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, except that Borrower may repurchase the stock of former
employees, officers, directors or consultants pursuant to stock repurchase
agreements as long as an Event of Default does not exist or would not exist
after giving effect to such repurchase.
7.7 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.8 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 no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of
any Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the Subordinated
Debt without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory; provided, however, that Borrower
may deposit software code in escrow for customers in the ordinary course of
business. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
7.11 Compliance. Become an "investment company" or be
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Credit
Extension for such purpose. Fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or
violate any law or regulation, which violation could have a Material Adverse
Effect or a material adverse effect on the Collateral or the priority of Bank's
Lien on the Collateral, or permit any of its Subsidiaries to do any of the
foregoing.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due,
any of the Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Article 6 or violates any of the covenants contained in
Article 7 of this Agreement, or fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any
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of the Loan Documents, or in any other present or future written agreement
between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within fifteen (15) days after Borrower receives written
notice thereof or any officer of Borrower becomes aware thereof; provided,
however, that if the default cannot by its nature be cured within the fifteen
(15) day period or cannot after diligent attempts by Borrower be cured within
such fifteen (15) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default (provided that no Credit
Extensions will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a Material
Adverse Effect;
8.4 Attachment. If any material portion of the
Collateral is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within twenty
(20) days, or 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, or if a judgment or other claim becomes a lien or encumbrance
upon any material portion of the Collateral, or if a notice of lien, levy, or
assessment is filed of record with respect to any of the Collateral by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within twenty (20) days after Borrower receives notice
thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower (provided that no Credit
Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within thirty (30)
days (provided that no Credit Extensions will be made prior to the dismissal of
such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could have a Material Adverse
Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank or otherwise consented
to in writing by Bank;
8.8 Judgments. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate, of at least
One Hundred Thousand Dollars ($100,000) shall be rendered against Borrower and
shall remain unsatisfied and unstayed for a period of thirty (30) days
(provided that no Credit Extensions will be made prior to the satisfaction or
stay of such judgment); or
8.9 Misrepresentations. If any material
misrepresentation or material misstatement exists now or hereafter in any
warranty or representation set forth herein or in any certificate delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to
enter into this Agreement or any other Loan Document.
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9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank 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 (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so requires,
and to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any
of Borrower's owned premises, Borrower hereby grants Bank a license to enter
into possession of such premises and to occupy the same, without charge, in
order to exercise any of Bank's rights or remedies provided herein, at law, in
equity, or otherwise;
(e) Set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, 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,
in connection with Bank's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure
to Bank's benefit;
(g) 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 Bank determines is commercially reasonable, and apply any proceeds
to the Obligations in whatever manner or order Bank deems appropriate (provided
that Bank shall promptly remit any excess to Borrower or such other Person,
including Sand Hill Capital, LLC, as may have any right to such excess);
(h) Bank may credit bid and purchase at any
public sale; and
(i) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the
occurrence and during the continuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank's designated officers, or
19
<PAGE> 21
employees) as Borrower's true and lawful attorney to: (a) send requests for
verification of Accounts or notify account debtors of Bank's security interest
in the Accounts; (b) endorse Borrower's name on any checks or other forms of
payment or security that may come into Bank's possession; (c) 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; (d) dispose of any Collateral; (e)
make, settle, and adjust all claims under and decisions with respect to
Borrower's policies of insurance; and (f) settle and adjust disputes and claims
respecting the accounts directly with account debtors, for amounts and upon
terms which Bank determines to be reasonable; provided Bank may exercise such
power of attorney to sign the name of Borrower on any of the documents
described in Section 4.2 regardless of whether an Event of Default has occurred.
The appointment of Bank as Borrower's attorney in fact, and each and every one
of Bank's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during
the continuance of an Event of Default, Bank may notify any Person owing funds
to Borrower of Bank's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and immediately deliver such
payments to Bank in their original form as received from the account debtor,
with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following after reasonable notice to Borrower: (a) make payment of the same or
any part thereof; (b) set up such reserves under the Revolving Facility as Bank
deems necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.6
of this Agreement, and take any action with respect to such policies as Bank
deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by
Bank to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank 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
whomsoever. All risk of loss, damage or destruction of the Collateral shall be
borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any Event of Default on Borrower's part shall be deemed a continuing waiver.
No delay by Bank shall constitute a waiver, election, or acquiescence by it.
No waiver by Bank shall be effective unless made in a written document signed
on behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
9.8 Disposition of Securities. Borrower recognizes that
Bank may be unable to effect a public sale of all or a part of the Collateral
by reason of certain prohibitions contained in the Securities Act of 1933, as
amended ("Act"), so that Bank may be compelled to resort to one or more private
sales to a restricted group of purchasers who will be obliged to agree, among
other things, to acquire the Collateral for their own
20
<PAGE> 22
account, for investment and without a view to the distribution or resale
thereof. Borrower understands that private sales so made may be at prices and
on other terms less favorable to the seller than if the Collateral were sold at
public sales, and agrees that Bank has no obligation to delay the sale of any
of the Collateral for the period of time necessary (even if Bank would agree),
to register such securities for sale under the Act. Borrower agrees that
private sales made under the foregoing circumstances shall be deemed to have
been made in a commercially reasonable manner.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith 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 a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, VA 22102
Attn: Joanne O'Rourke Hindman
FAX: (703) 893-1905
If to Bank: Imperial Bank
226 Airport Parkway
San Jose, CA 95110-1024
Attn: Corporate Banking Center
FAX: (408) 451-8523
with a copy to: Imperial Bank
211 North Union Street, Suite 100
Alexandria, VA 22314
Attn: Jim Rutter
FAX: (703) 838-5579
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.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard
to principles of conflicts of law. Each of Borrower and Bank hereby submits to
the nonexclusive jurisdiction of the state and Federal courts located in the
County of Santa Clara, State of California. BORROWER AND BANK EACH 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
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS.
21
<PAGE> 23
12.1 Successors and Assigns. This Agreement shall bind
and inure to the benefit of the respective successors and permitted assigns of
each of the parties; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which consent may be granted or withheld in Bank's sole discretion.
Bank shall have the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify
and hold harmless Bank and its officers, employees, and agents against: (a)
all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this Agreement;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential
to transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 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.
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. 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.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable statute
of limitations periods with respect to actions that may be brought against Bank
have run.
13. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and
all matters in connection therewith regarding security interests in real or
personal property; or (ii) the appointment of a receiver, or the exercise of
other provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties
arising out of or relating to this Agreement, which controversy, dispute or
claim is not settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which a party subject to this Agreement gives written
notice to all other parties that a controversy, dispute or claim exists), will
be settled by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the exclusive remedy
for the settlement of any controversy, dispute or claim concerning this
Agreement, including whether such controversy, dispute or claim is subject to
the reference proceeding and except as set forth above, the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court in the County where the Real
Property, if any, is located or Santa Clara County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual agreement of
the parties, and if they cannot so agree
22
<PAGE> 24
within forty-five (45) days after the Claim Date, the referee shall be promptly
selected by the Presiding Judge of the Court (or his representative). The
referee shall be appointed to sit as a temporary judge, with all of the powers
for a temporary judge, as authorized by law, and upon selection should take and
subscribe to the oath of office as provided for in Rule 244 of the California
Rules of the Court (or any subsequently enacted Rule). Each party shall have
one peremptory challenge pursuant to CCP Section 170.6. The referee shall (a)
be requested to set the matter for hearing within sixty (60) days after the
date of selection of the referee and (b) try any and all issues of law or fact
and report a statement of decision upon them, if possible, within ninety (90)
days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP Section
644 in any court in the State of California having jurisdiction. Any party may
apply for a reference proceeding at any time after thirty (30) days following
notice to any other party of the nature of the controversy, dispute or claim,
by filing a petition for a hearing and/or trial. All discovery permitted by
this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production or
inspection of documents which cannot be resolved by the parties shall be
submitted to the referee as provided herein. The Superior Court is empowered
to issue temporary and/or provisions remedies, as appropriate.
(b) Except as expressly set forth in this
Agreement, the referee shall determine the manner in which the reference
proceeding is conducted including the time and place of all hearings, the order
of presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding. All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a court
reporter except that when any party so requests, a court reporter will be used
at any hearing conducted before the referee. The party making such a request
shall have the obligation to arrange for and pay for the court reporter. The
costs of the court reporter at the trial shall be borne equally by the parties.
(c) The referee shall be required to determine
all issues in accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The referee shall issue a single
judgment at the close of the reference proceeding which shall dispose of all of
the claims of the parties that are the subject of the reference. The parties
hereto expressly reserve the right to contest or appeal from the final judgment
or any appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact, conclusions of
laws, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provisions.
(d) In the event that the enabling legislation
which provides for appointment of a referee is repealed (and no successor
statute is enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved and
determined by arbitration. The arbitration will be conducted by a retired
judge of the Court, in accordance with the California Arbitration Act, Section
1280 through Section 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding.
14. CONFIDENTIALITY.
In handling any confidential information Bank shall exercise
the same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement except that
disclosure of such information may be made (i) to the Subsidiaries or
Affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Advances or Term Advances, provided that they have entered into
a comparable confidentiality agreement in favor of Borrower and have delivered
a copy to Borrower, (iii) as required by law, regulations, rule or order,
subpoena,
23
<PAGE> 25
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, as evidenced by Bank's records in existence at the time of
such disclosure, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is
prohibited from disclosing such information and provided such disclosure is not
otherwise in violation of Borrower's rights.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
UOL PUBLISHING, INC.
By:
-------------------------------------------
Title:
-----------------------------------------
IMPERIAL BANK
By:
-------------------------------------------
Title:
------------------------------------------
24
<PAGE> 26
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(i) all accounts receivable, accounts, chattel paper,
contract rights (including, without limitation, royalty agreements, license
agreements and distribution agreements), documents, instruments, money, deposit
accounts and general intangibles, including, without limitation, returns,
repossessions, books and records relating thereto, and equipment containing
said books and records, all investment property, including securities and
securities entitlements;
(ii) all software, computer source codes and other
computer programs (collectively, the "Software Products"), and all common law
and statutory copyrights and copyright registrations, applications for
registration, now existing or hereafter arising, United States of America and
foreign, obtained or to be obtained on or in connection with the Software
Products, or any parts thereof or any underlying or component elements of the
Software Products together with the right to copyright and all rights to renew
or extend such copyrights and the right (but not the obligation) of Bank
(herein referred to as "Bank" or "Secured Party") to sue in its own name and/or
the name of the Debtor for past, present and future infringements of copyright;
(iii) all goods, including, without limitation, equipment
and inventory (including, without limitation, all export inventory);
(iv) all guarantees and other security therefor;
(v) all trademarks, service marks, trade names and
service names and the goodwill associated therewith;
(vi) (a) all patents and patent applications filed in the
United States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein, (b)
licenses pertaining to any patent whether Debtor is licensor or licensee, (c)
all income, royalties, damages, payments, accounts and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (d) the right (but not the obligation) to sue for past,
present and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been
issued or applied for, and (f) the reissues, divisions, continuations,
renewals, extensions and continuations-in-part with any of the foregoing (all
of the foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in
this paragraph are sometimes herein individually and collectively referred to
as the "Patents"); and
(vii) all products and proceeds, including, without
limitation, insurance proceeds, of any of the foregoing.
25
<PAGE> 27
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., Pacific Time
TO: EMERGING GROWTH INDUSTRIES DATE:
------------------------
FAX#: (650)846-6840 TIME:
------------------------
- -------------------------------------------------------------------------------
FROM:
-------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------------
PHONE NUMBER:
------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------- ------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
-----------------------------------
PRINCIPAL PAYMENT (ONLY) $
-----------------------------------
INTEREST PAYMENT (ONLY) $
-----------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-----------------------------------
OTHER INSTRUCTIONS:
------------------------------------------------------------
- -------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the
date of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- -------------------------------- --------------------------------------
Authorized Requester Phone #
- -------------------------------- --------------------------------------
Authorized Requester Phone #
- ------------------------------------------------------------------------------
Authorized Signature (Bank)
- ------------------------------------------------------------------------------
26
<PAGE> 28
EXHIBIT C
BORROWING BASE CERTIFICATE
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Borrower: UOL Publishing, Inc. Lender: Imperial Bank
Commitment Amount: $2,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _______ $__________________
2. Additions (please explain on reverse) $__________________
3. TOTAL ACCOUNTS RECEIVABLE $__________________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days from invoice date $__________________
5. Credit balances over 90 days from invoice date $__________________
6. Balance of 25% over 90 day accounts $__________________
7. Concentration Limits $__________________
8. Foreign Accounts $__________________
9. Governmental Accounts $__________________
10. Contra Accounts $__________________
11. Intercompany/Employee Accounts $__________________
12. Other (please explain on reverse) $__________________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________________
14. Eligible Accounts (#3 minus #13) $__________________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $__________________
BALANCES
16. Maximum Loan Amount $__________________
17. Total Funds Available [Lesser of #15 or #16] $__________________
18. Present balance owing on Line of Credit $__________________
19. Outstanding under Sublimits ( ) $__________________
20. RESERVE POSITION (#17 minus #18 and #19) $__________________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Imperial Bank.
UOL Publishing, Inc.
By:
---------------------------------
Authorized Signer
27
<PAGE> 29
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: IMPERIAL BANK
FROM: UOL Publishing, Inc.
The undersigned authorized officer of UOL Publishing, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _____ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 10 days Yes No
A/R Audit Initial and Semi-Annual Yes No
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio(1) 0.60:1.00 _____:1.00 Yes No
Maximum Quarterly Loss/Profit 06/30 ($4,000,000)(2) $________ Yes No
09/30 ($1,100,000) 12/31 ($500,000)
Thereafter $1.00
Minimum Liquidity (Monthly)(3) 1.50:1.0 _____:1.00 Yes No
Minimum Debt Service Coverage(4) 2.00:1.00 _____:1.00 Yes No
</TABLE>
(1) Less current portion of Sub Debt. Increases to 0.75:1.0 beginning
3/31/99
(2) Excluding non-operating restructuring expenses
(3) Liquidity covenant terminates after 2 consecutive fiscal quarters of
operating and after-tax profitability
(4) Debt Service Coverage begins 12/31/98.
<TABLE>
<S> <C>
COMMENTS REGARDING EXCEPTIONS: See Attached. ------------------------------------------------------------------
Sincerely, BANK USE ONLY
- ---------------------------------------------- Received by:
SIGNATURE ------------------------------------------------------
AUTHORIZED SIGNER
- ---------------------------------------------- Date:
TITLE -------------------------------------------------------------
Verified:
- ---------------------------------------------- ---------------------------------------------------------
DATE AUTHORIZED SIGNER
Date:
-------------------------------------------------------------
Compliance Status: Yes No
------------------------------------------------------------------
</TABLE>
28
<PAGE> 30
CORPORATE RESOLUTIONS TO BORROW
- ------------------------------------------------------------------------------
BORROWER: UOL Publishing, Inc.
- ------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of UOL
Publishing, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are
true and complete copies of the Certificate of Incorporation and the Bylaws of
the Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation, duly called and held, at which a quorum was present and voting (or
by other duly authorized corporate action in lieu of a meeting), the following
resolutions were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
<S> <C> <C>
- ----------------------------------- --------------------------------------- -------------------------------------
- ----------------------------------- --------------------------------------- -------------------------------------
- ----------------------------------- --------------------------------------- -------------------------------------
- ----------------------------------- --------------------------------------- -------------------------------------
- ----------------------------------- --------------------------------------- -------------------------------------
</TABLE>
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Imperial Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of August 14, 1998 (the "Loan
Agreement").
EXECUTE LOAN AGREEMENT. To execute and deliver to Bank the Loan
Agreement, and also to execute and deliver to Bank one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
one or more of the notes, or any portion of the notes.
ISSUE WARRANTS. To issue warrants to Bank to purchase capital
stock of the Corporation.
GRANT SECURITY. To grant a security interest to Bank in the
Collateral described in the Loan Agreement, which security interest shall secure
all of the Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all
drafts, trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation or in which the Corporation may have
an interest, and either to receive cash for the same or to cause such proceeds
to be credited to the account of the Corporation with Bank, or to cause such
other disposition of the proceeds derived therefrom as they may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate
additional or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and things, to
pay any and all fees and costs, and to execute
1
<PAGE> 31
and deliver such other documents and agreements as they may in their discretion
deem reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant
to these resolutions and performed prior to the passage of these resolutions
are hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Bank may rely on these Resolutions until written notice of
their revocation shall have been delivered to and received by Bank. Any such
notice shall not affect any of the Corporation's agreements or commitments in
effect at the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named
above are duly elected, appointed, or employed by or for the Corporation, as the
case may be, and occupy the positions set forth opposite their respective names;
that the foregoing Resolutions now stand of record on the books of the
Corporation; and that the Resolutions are in full force and effect and have not
been modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on _______________,
19___ and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 32
IMPERIAL BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(REVOLVER)
Name(s): Date:
$ paid to you directly by Cashiers Check No.
$ credited to deposit account No. _____________ when Advances
are requested
$ amounts paid to Bank for
Amounts paid to others on your behalf:
$7,500 to Imperial Bank for Loan Fee
$ 250 to Imperial Bank for Document Processing Fee
$ to Imperial Bank for accounts receivable audit (estimate)
$ to Bank counsel fees and expenses
$ to
$ to
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
- ------------------------------ -------------------------------------
Signature Signature
<PAGE> 33
IMPERIAL BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(TERM LOAN)
Name(s): Date:
$ paid to you directly by Cashiers Check No.
$ credited to deposit account No. _____________ when Advances
are requested
$ amounts paid to Bank for
Amounts paid to others on your behalf:
$5,000 to Imperial Bank for Loan Fee
$ 250 to Imperial Bank for Document Processing Fee
$ to Imperial Bank for accounts receivable audit (estimate)
$ to Bank counsel fees and expenses
$ to
$ to
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
- ------------------------------ -------------------------------------
Signature Signature
<PAGE> 34
AGREEMENT TO PROVIDE INSURANCE
TO: IMPERIAL BANK Date: August 14, 1998
226 Airport Parkway Borrower: UOL Publishing, Inc.
San Jose, California 95110
In consideration of a loan in the amount of $2,500,000, secured by
all tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force
during the term of the loan.
I/We also agree to advise the below named agent to add Imperial Bank
as a loss payee on the new or existing insurance policy, and to furnish Bank at
above address with a copy of said policy/endorsements and any subsequent renewal
policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on
the real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of
Imperial Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent Telephone No.:
Agent's Address:
Signature of Obligor:
------------------------------
Signature of Obligor:
------------------------------
FOR BANK USE ONLY
- -----------------------------------------------------
INSURANCE VERIFICATION: Date:_______________________
Person Spoken to:____________________________________
Policy Number:_______________________________________
Effective Form:___________ To:_______________________
Verified By:_________________________________________
- -----------------------------------------------------
<PAGE> 35
- --------------------------------------------------------------------------------
IMPERIAL BANK
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To: IMPERIAL BANK
Re: LOAN #
---------------------------------
You are hereby authorized and instructed to charge account No.
------------------
in the name of UOL PUBLISHING, INC.
- --------------------------------------------------------------------------------
for principal and interest payments due on above referenced loan as set forth
below and credit the loan referenced above.
(TM)3 Debit each interest payment as it becomes due according to
the terms of the note and any renewals or amendments thereof.
(TM)4 Debit each principal payment is at becomes due according to
the terms of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Borrower Signature Date
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 36
- --------------------------------------------------------------------------------
IMPERIAL BANK
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To: IMPERIAL BANK
Re: LOAN #
--------------------------
You are hereby authorized and instructed to charge account No.
-----------------
in the name of UOL PUBLISHING, INC.
- --------------------------------------------------------------------------------
for principal and interest payments due on above referenced loan as set forth
below and credit the loan referenced above.
(TM)5 Debit each interest payment as it becomes due according to the
terms of the note and any renewals or amendments thereof.
(TM)6 Debit each principal payment is at becomes due according to
the terms of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Borrower Signature Date
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 37
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(Coopers & Associates, Inc.)
This Intellectual Property Security Agreement is entered into as of
August 14, 1998 by and between Imperial Bank ("Bank") and Coopers &
Associates, Inc. ("Grantor").
RECITALS
Bank and UOL Publishing, Inc. are parties to that certain loan agreement
of even date (as amended from time to time, the "Loan Agreement"). Capitalized
terms used herein have the meaning assigned in the Grantor Documents. Pursuant
to the terms of that certain Unconditional Guaranty and that certain Security
Agreement, each of even date herewith (the "Grantor Documents"), Grantor has
granted to Bank a security interest in all of Grantor's right, title and
interest, whether presently existing or hereafter acquired, in, to and under the
Collateral.
NOW, THEREFORE, Grantor agrees as follows:
AGREEMENT
To secure performance of its obligations under the Grantor Documents,
Grantor grants to Bank a security interest in all of Grantor's right, title and
interest in Grantor's intellectual property (including without limitation those
Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
including without limitation all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits). The security interest granted hereby shall terminate immediately and
automatically upon satisfaction of the Obligations, as defined in the Loan
Agreement.
Grantor shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Schedules A, B and C hereto within thirty (30) days of
the date of this Agreement. Grantor shall register or cause to be registered on
an expedited basis with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Grantor from time to time in connection
with any product prior to the sale or licensing of such product to any third
party (including without limitation revisions or additions to the intellectual
property rights listed on such Schedules A, B and C). Grantor shall from time to
time, execute and file such other instruments, and take such further actions as
Bank may reasonably request from time to time to perfect or continue the
perfection of Bank's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Bank under the Grantor Documents. Each right, power and
remedy of Bank provided for herein shall not preclude the simultaneous or later
exercise by Bank of any or all other rights, powers or remedies.
<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Grantor: Coopers & Associates, Inc.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 ---------------------------------
Title:
------------------------------
Attn: Joanne O'Rourke Hindman
Address of Bank: IMPERIAL BANK
226 Airport Parkway By:
San Jose, CA 95110 --------------------------------
Attn: Corporate Banking Center Title:
------------------------------
<PAGE> 39
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------ --------------
<S> <C> <C>
</TABLE>
<PAGE> 40
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------ --------------
<S> <C> <C>
</TABLE>
<PAGE> 41
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------ --------------
<S> <C> <C>
</TABLE>
<PAGE> 42
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(HTR, Inc.)
This Intellectual Property Security Agreement is entered into as of August
14, 1998 by and between Imperial Bank ("Bank") and HTR, Inc. ("Grantor").
RECITALS
Bank and UOL Publishing, Inc. are parties to that certain loan agreement
of even date (as amended from time to time, the "Loan Agreement"). Capitalized
terms used herein have the meaning assigned in the Grantor Documents. Pursuant
to the terms of that certain Unconditional Guaranty and that certain Security
Agreement, each of even date herewith (the "Grantor Documents"), Grantor has
granted to Bank a security interest in all of Grantor's right, title and
interest, whether presently existing or hereafter acquired, in, to and under the
Collateral.
NOW, THEREFORE, Grantor agrees as follows:
AGREEMENT
To secure performance of its obligations under the Grantor Documents,
Grantor grants to Bank a security interest in all of Grantor's right, title and
interest in Grantor's intellectual property (including without limitation those
Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
including without limitation all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits). The security interest granted hereby shall terminate immediately and
automatically upon satisfaction of the Obligations, as defined in the Loan
Agreement.
Grantor shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Schedules A, B and C hereto within thirty (30) days of
the date of this Agreement. Grantor shall register or cause to be registered on
an expedited basis with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Grantor from time to time in connection
with any product prior to the sale or licensing of such product to any third
party (including without limitation revisions or additions to the intellectual
property rights listed on such Schedules A, B and C). Grantor shall from time to
time, execute and file such other instruments, and take such further actions as
Bank may reasonably request from time to time to perfect or continue the
perfection of Bank's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Bank under the Grantor Documents. Each right, power and
remedy of Bank provided for herein shall not preclude the simultaneous or later
exercise by Bank of any or all other rights, powers or remedies.
<PAGE> 43
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Grantor: HTR, Inc.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 -----------------------------------
Title:
--------------------------------
Attn: Joanne O'Rourke Hindman
Address of Bank: IMPERIAL BANK
226 Airport Parkway By:
San Jose, CA 95110 -----------------------------------
Attn: Corporate Banking Center Title:
--------------------------------
<PAGE> 44
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 45
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 46
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 47
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(Ivy Software, Inc.)
This Intellectual Property Security Agreement is entered into as of August
14, 1998 by and between Imperial Bank ("Bank") and Ivy Software, Inc.
("Grantor").
RECITALS
Bank and UOL Publishing, Inc. are parties to that certain loan agreement
of even date (as amended from time to time, the "Loan Agreement"). Capitalized
terms used herein have the meaning assigned in the Grantor Documents. Pursuant
to the terms of that certain Unconditional Guaranty and that certain Security
Agreement, each of even date herewith (the "Grantor Documents"), Grantor has
granted to Bank a security interest in all of Grantor's right, title and
interest, whether presently existing or hereafter acquired, in, to and under the
Collateral.
NOW, THEREFORE, Grantor agrees as follows:
AGREEMENT
To secure performance of its obligations under the Grantor Documents,
Grantor grants to Bank a security interest in all of Grantor's right, title and
interest in Grantor's intellectual property (including without limitation those
Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
including without limitation all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits). The security interest granted hereby shall terminate immediately and
automatically upon satisfaction of the Obligations, as defined in the Loan
Agreement.
Grantor shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Schedules A, B and C hereto within thirty (30) days of
the date of this Agreement. Grantor shall register or cause to be registered on
an expedited basis with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Grantor from time to time in connection
with any product prior to the sale or licensing of such product to any third
party (including without limitation revisions or additions to the intellectual
property rights listed on such Schedules A, B and C). Grantor shall from time to
time, execute and file such other instruments, and take such further actions as
Bank may reasonably request from time to time to perfect or continue the
perfection of Bank's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Bank under the Grantor Documents. Each right, power and
remedy of Bank provided for herein shall not preclude the simultaneous or later
exercise by Bank of any or all other rights, powers or remedies.
<PAGE> 48
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Grantor: Ivy Software, Inc.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 ---------------------------------
Title:
------------------------------
Attn: Joanne O'Rourke Hindman
Address of Bank: IMPERIAL BANK
226 Airport Parkway By:
San Jose, CA 95110 ---------------------------------
Attn: Corporate Banking Center Title:
------------------------------
<PAGE> 49
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 50
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 51
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 52
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of August 14, 1998, by and between
Sand Hill Capital, LLC ("Creditor"), and Imperial Bank ("Bank").
Recitals
A. UOL Publishing, Inc. ("Borrower") has requested and/or obtained certain
loans or other credit accommodations from Bank to Borrower which are or may be
from time to time secured by assets and property of Borrower.
B. Creditor has extended loans or other credit accommodations to Borrower,
and/or may extend loans or other credit accommodations to Borrower from time to
time.
C. In order to induce Bank to extend credit to Borrower and, at any time
or from time to time, at Bank's option, to make such further loans, extensions
of credit, or other accommodations to or for the account of Borrower, or to
purchase or extend credit upon any instrument or writing in respect of which
Borrower may be liable in any capacity, or to grant such renewals or extension
of any such loan, extension of credit, purchase, or other accommodation as Bank
may deem advisable, Creditor is willing to subordinate: (i) all of Borrower's
indebtedness and obligations to Creditor, whether presently existing or arising
in the future (the "Subordinated Debt") to all of Borrower's indebtedness and
obligations to Bank; and (ii) all of Creditor's security interests, if any, to
all of Bank's security interests in the Borrower's property.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien that
Creditor may have in any property of Borrower. Notwithstanding the respective
dates of attachment or perfection of the security interest of Creditor and the
security interest of Bank, the security interest of Bank in the Collateral, as
defined in the Loan and Security Agreement, of even date herewith, between
Borrower and Bank (the "Loan Agreement"), shall at all times be prior to the
security interest of Creditor.
2. All Subordinated Debt is subordinated in right of payment to all
obligations of Borrower to Bank now existing or hereafter arising, together with
all costs of collecting such obligations (including attorneys' fees), including,
without limitation, all interest accruing after the commencement by or against
Borrower of any bankruptcy, reorganization or similar proceeding, and all
obligations under the Loan Agreement (the "Senior Debt").
3. Subject to the balance of this Section 3, Borrower may make regularly
scheduled interest payments to Creditor and Creditor may receive such payments.
Upon (i) the occurrence and continuation of an Event of Default relating to the
Senior Debt and (ii) written notice thereof to Creditor from Bank (a "Payment
Blockage Notice"), Creditor may not exercise any remedy nor receive any payment
with respect to the Subordinated Debt for each period (each a "Payment Blockage
Period") commencing on the date of the Payment Blockage Notice and ending on the
earliest to occur of the following events:
(a) such Event of Default has been cured or has been waived by Bank in
writing;
(b) 180 days have passed from the date of such Payment Blockage Notice,
unless at the expiration of such period any judicial proceeding shall be pending
in respect to such Event of Default that stays or prevents the acceleration of
the Senior Debt or the exercise of Bank's remedies in connection therewith, in
which event such period shall be extended during the period that such judicial
proceeding is pending; or
(c) such Senior Debt has been discharged or paid in full and Bank's
commitment, if any, with respect thereto has been terminated;
1
<PAGE> 53
immediately after which Creditor may exercise such remedies and Borrower may
make all required payments in respect of the Subordinated Debt. Subject to
clause (ii), above, Payment Blockage Period(s) shall not cover more than 180
days in any consecutive period of 365 days. Notwithstanding the foregoing,
Creditor may accelerate the Subordinated Debt after the expiration of a Payment
Blockage Period, but Creditor may not exercise remedies or receive payments on
account of the Subordinated Debt after Bank has accelerated the Senior Debt and
begun to exercise remedies against the Collateral or Borrower in connection with
such acceleration. All such payments shall, in any case, be subject to Bank's
first priority security interest in all of the Collateral.
4. Creditor shall promptly deliver to Bank in the form received (except
for endorsement or assignment by Creditor where required by Bank) for
application to the Senior Debt any payment, distribution, security or proceeds
received by Creditor with respect to the Subordinated Debt other than in
accordance with this Agreement.
5. In the event of Borrower's insolvency, reorganization or any case or
proceeding under any bankruptcy or insolvency law or laws relating to the relief
of debtors, these provisions shall remain in full force and effect, and Bank's
claims against Borrower and the estate of Borrower shall be paid in full before
any payment is made to Creditor.
6. For so long as any of the Senior Debt remains unpaid, Creditor
irrevocably appoints Bank as Creditor's attorney-in-fact, and grants to Bank a
power of attorney with full power of substitution, in the name of Creditor or in
the name of Bank, for the use and benefit of Bank, without notice to Creditor,
to perform at Bank's option the following acts in any bankruptcy, insolvency or
similar proceeding involving Borrower:
(i) To file the appropriate claim or claims in respect of the
Subordinated Debt on behalf of Creditor if Creditor does not do so prior to 30
days before the expiration of the time to file claims in such proceeding and if
Bank elects, in its sole discretion, to file such claim or claims; and
(ii) To accept or reject any plan of reorganization or arrangement on
behalf of Creditor and to otherwise vote Creditor's claims in respect of any
Subordinated Debt in any manner that Bank deems appropriate for the enforcement
of its rights hereunder.
7. Creditor shall immediately affix a legend to the instruments evidencing
the Subordinated Debt stating that the instruments are subject to the terms of
this Agreement. No amendment of the documents evidencing or relating to the
Subordinated Debt shall directly or indirectly modify the provisions of this
Agreement in any manner which might terminate or impair the subordination of the
Subordinated Debt or the subordination of the security interest or lien that
Creditor may have in any property of Borrower. By way of example, such
instruments shall not be amended to (i) increase the rate of interest with
respect to the Subordinated Debt, or (ii) accelerate the payment of the
principal or interest or any other portion of the Subordinated Debt.
8. This Agreement shall remain effective for so long as Borrower owes any
amounts to Bank under the Loan Agreement or otherwise. If, at any time after
payment in full of the Senior Debt any payments of the Senior Debt must be
disgorged by Bank for any reason (including, without limitation, the bankruptcy
of Borrower), this Agreement and the relative rights and priorities set forth
herein shall be reinstated as to all such disgorged payments as though such
payments had not been made and Creditor shall immediately pay over to Bank all
payments received with respect to the Subordinated Debt to the extent that such
payments would have been prohibited hereunder. At any time and from time to
time, without notice to Creditor, Bank may take such actions with respect to the
Senior Debt as Bank, in its sole discretion, may deem appropriate, including,
without limitation, terminating advances to Borrower, increasing the principal
amount, extending the time of payment, increasing applicable interest rates,
renewing, compromising or otherwise amending the terms of any documents
affecting the Senior Debt and any collateral securing the Senior Debt, and
enforcing or failing to enforce any rights against Borrower or any other person.
No such action or inaction shall impair or otherwise affect Bank's rights
hereunder. Creditor waives the benefits, if any, of Civil Code Sections 2809,
2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
2
<PAGE> 54
9. This Agreement shall bind any successors or assignees of Creditor and
shall benefit any successors or assigns of Bank. This Agreement is solely for
the benefit of Creditor and Bank and not for the benefit of Borrower or any
other party. Creditor further agrees that if Borrower is in the process of
refinancing a portion of the Senior Debt with a new lender, and if Bank makes a
request of Creditor, Creditor shall agree to enter into a new subordination
agreement with the new lender on substantially the terms and conditions of this
Agreement.
10. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
instrument.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to conflicts of laws
principles. Creditor and Bank submit to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California. CREDITOR AND BANK
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN.
12. This Agreement represents the entire agreement with respect to the
subject matter hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Bank or Borrower
in entering into this Agreement, and Creditor has kept and will continue to keep
itself fully apprised of the financial and other condition of Borrower. This
Agreement may be amended only by written instrument signed by Creditor and Bank.
13. In the event of any legal action to enforce the rights of a party
under this Agreement, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in such action.
14. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later
3
<PAGE> 55
than fifteen (15) days before the first hearing date established by the referee.
The referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisions remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provisions.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
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<PAGE> 56
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
"Creditor"
SAND HILL CAPITAL, LLC
By:
-------------------------------------
Title:
-----------------------------------
"Bank"
IMPERIAL BANK
By:
--------------------------------------
Title:
-----------------------------------
The undersigned approves of the terms of this Agreement.
"Borrower"
UOL PUBLISHING, INC.
By:
--------------------------------------
Title:
-----------------------------------
5
<PAGE> 57
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
August 14, 1998 by and between IMPERIAL BANK ("Bank") and UOL PUBLISHING,
INC. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend certain
financial accommodation to Grantor (the "Loans") in the amounts and manner set
forth in that certain Loan and Security Agreement by and between Bank and
Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including without limitation all proceeds thereof (such
as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof. The security interest granted hereby shall
terminate immediately and automatically upon satisfaction of the Obligations, as
defined in the Loan Agreement.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement, the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
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<PAGE> 58
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: UOL PUBLISHING, INC.
8251 Greensboro Drive, Suite 500
McLean, VA 22102 By:
Attn: Title:
--------------------- --------------------------------
BANK:
Address of Bank: IMPERIAL BANK
226 Airport Parkway
San Jose, CA 95110 By:
-----------------------------------
Attn: Corporate Banking Center Title:
--------------------------------
2
<PAGE> 59
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 60
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 61
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- --------------
<S> <C> <C>
</TABLE>
<PAGE> 62
SECURITY AGREEMENT
This Security Agreement is made and entered into as of August 14, 1998 by
and between the undersigned ("Debtor"), and Imperial Bank (the "Bank").
RECITALS
WHEREAS, the Bank proposes to enter into a transaction with UOL
Publishing, Inc. ("Borrower"), which is an affiliate of Debtor, pursuant to a
Loan and Security Agreement ('the "Loan Agreement") of even date herewith.
WHEREAS, Debtor has requested Bank to enter into the Loan Agreement, and
expects to derive economic benefit from Bank's doing so and dealing with
Borrower in accordance with the Loan Agreement.
WHEREAS Debtor wishes to guarantee performance and payment of all
obligations under the Loan Agreement, and to secure that guarantee with
substantially all of its assets.
NOW, THEREFORE, Debtor and the Bank agree as follows:
1. Grant of Security Interest. Debtor hereby grants to the Bank a security
interest in the Collateral (as defined in Section 2 below) to secure Debtor's
performance of the obligations set forth in Section 3 below.
2. Collateral. The collateral covered by this Security Agreement (the
"Collateral") shall consist of the property described in Exhibit A attached
hereto.
3. Debtor's Obligations Secured Hereby. This Security Agreement secures
all of Debtor's obligations under that certain Unconditional Guaranty of even
date herewith, as such Guaranty is amended from time to time ("Obligations of
Debtor").
4. Debtor's Representations and Warranties. Debtor represents and warrants
as follows:
(a) Authorization. Debtor has authority and has obtained all approvals
and consents necessary to enter into this Security Agreement, and Debtor's
execution, delivery and performance of this Security Agreement will not violate
or conflict with the terms of Debtor's Articles of Incorporation or Bylaws or
any statute, regulation, ordinance, rule of law, agreement, contract, mortgage,
indenture, bond, bill, note, or other instrument or writing binding upon Debtor
or to which Debtor is subject.
(b) Title. All Collateral currently in Debtor's possession or under
Debtor's control is owned by and is as represented by Debtor and is free of all
liens, encumbrances and other security interests, other than security interests
or lessors' interests that are described on Attachment A hereto (the "Prior
Security Interests").
(c) Accounts. Each of Debtor's Accounts is genuine, as appearing on its
face, enforceable in accordance with its terms (subject to reserves that occur
in the ordinary course of business and that are accounted for in accordance with
generally accepted accounting principles), free of set-off, counterclaim and
defenses, and represents indebtedness, obligations, interests or property justly
owing to and owned by Debtor in the amount or as therein provided.
5. Debtor's Covenants. Debtor agrees and covenants as follows:
(a) Further Encumbrances. Except as may be required by the terms and
conditions of the Prior Security Interests, and except for subordinated
financing of Debtor by banks or other financial institutions or purchase money
secured financing, until the Obligations of Debtor secured under this Security
Agreement shall
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<PAGE> 63
have been repaid in full, Debtor shall not grant a security interest in any of
the Collateral other than to the Bank or execute any financing statements
covering any of the Collateral in favor of any person other than the Secured
Parties.
(b) Use of Collateral. The Collateral will not be used for any unlawful
purpose or in any way that will void any insurance required to be carried in
connection therewith. Debtor will keep the Collateral free and clear of liens
and adverse claims other than the Prior Security Interests and, as appropriate
and applicable, will keep it in good condition and repair, and will clean,
shelter, and otherwise care for the Collateral in all such ways as are
considered good practice by owners of like property.
(c) Insurance of Collateral. The Collateral will be insured at Debtor's
expense against all risks commonly insured by owners of like property. Debtor
agrees to pay when due all premiums for such insurance and all taxes, license
fees and other charges in connection with the Collateral. If the Bank shall take
possession of the Collateral, the Bank may, subject to the Prior Security
Interests, surrender the policies and receive and retain the unearned premiums
thereon.
(d) Indemnification. Debtor shall indemnify the Bank against all
losses, claims, demands and liabilities of any kind caused by the Collateral.
(e) Perfection of Security Interest. Debtor shall execute and deliver
such documents as the Bank reasonably deems necessary to create, perfect and
continue the security interest in the Collateral contemplated hereby.
(f) Collection of Accounts. Until the Bank shall elect to do so in
accordance with this Security Agreement, Debtor shall diligently collect all of
its Accounts and proceeds of the Collateral and shall hold such Accounts and
proceeds subject to a security interest of Bank to secure the obligations
secured hereby, provided, however, that Debtor may use such proceeds in the
ordinary course of business.
(g) Records. Debtor shall prepare and keep, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate records regarding all Collateral and, if and when requested by the
Bank, shall prepare and deliver a complete and accurate schedule of all the
Collateral in such detail as the Bank may reasonably request.
(h) Assignments. If and when requested by the Bank, and to the extent
consistent with the Prior Security Interests, Debtor shall upon any Event of
Default (as defined in the Loan Agreement) prepare and deliver to the Bank
written assignment of all Accounts, instruments, documents and other evidence
thereof.
(i) Inspection of Debtor's Books. Debtor shall permit the Bank or its
designee at reasonable times and from time to time to inspect Debtor's books,
records and properties and to audit and to make copies of extracts from such
books and records.
(j) Fees and Costs. Upon any Event of Default (as defined in Section 6
below), Debtor shall pay all expenses, including reasonable attorneys' fees,
incurred by Bank in the preservation, realization, enforcement or exercise of
any Bank's rights under this Security Agreement.
(k) Out-of-Pocket Expenses of Bank. Debtor will reimburse the Bank for
any out-of-pocket costs and expenses incurred by it in connection with filings,
recordations or registrations made for the purpose of perfecting the security
interest in the Collateral hereunder.
6. Events of Default. The occurrence of any Event of Default under the
Loan Agreement shall constitute an "Event of Default" under this Security
Agreement.
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<PAGE> 64
7. Remedies on Default. Upon the occurrence of an Event of Default, the
Bank shall have all rights, privileges, powers and remedies provided by law,
including, but not limited to, exercise of any or all of the following remedies.
(a) Payment Under the Guaranty. The Bank may declare all amounts
outstanding under the Loan Agreement and the Guaranty to be immediately due and
payable, and thereupon all such amounts shall be and become immediately due and
payable to the Bank.
(b) Possession of Collateral. The Bank may take possession of all
Collateral covered hereby (which Collateral Debtor will assemble and make
available to Bank).
(c) Use, Operation and Sale of Collateral by Bank. The Bank may use,
operate, consume and sell the Collateral in its possession as appropriate for
the purpose of performing Debtor's obligations with respect thereto to the
extent necessary to satisfy the Obligations of Debtor.
8. Payments after an Event of Default. All payments received and amounts
realized by the Bank pursuant to Section 7, including all such payments and
amounts received after the Bank has declared the entire unpaid principal and
interest amount of the Note to be due and payable pursuant to Section 7(a), as
well as all payments or amounts then held or thereafter received by the Bank as
part of the Collateral while an Event of Default shall be continuing, shall be
promptly applied and distributed by the Bank in the following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys fees, incurred or made hereunder by the
Bank, including any such costs and expenses of foreclosure or suit, if any, and
of any sale or the exercise of any other remedy under this Section 8, and of all
taxes, assessments or liens superior to the lien granted under this Security
Agreement;
(b) second, to the payment to the Bank of the amount then owing on the
Note and in case the payments received and amounts realized by the Bank shall be
insufficient to pay in full the whole amount so owing, then first to the payment
of unpaid interest on the Note and second to the payment of unpaid principal
thereof; and
(c) third, to the payment of the balance, if any, to the Debtor or its
successors and assigns.
9. Power of Attorney. Debtor hereby appoints the Bank, its
attorney-in-fact to prepare, sign and file or record, for Debtor in Debtor's
name, any financing statements, applications for registration and like papers
and to take any other action deemed by the Bank necessary or desirable in order
to perfect the security interest of the Bank hereunder, and to perform any
obligations of Debtor hereunder, at Debtor's expense, but without obligation to
do so.
10. Remedies Cumulative. The rights, privileges, powers and remedies
afforded to Bank hereunder shall be cumulative, and no single or partial
exercise of any of them shall preclude the further or other exercise of the same
or any of them.
11. Successors and Assigns. This Security Agreement, together with the
covenants and warranties contained herein, shall inure to the benefit of the
Bank and its successors and assigns, and shall be binding upon Debtor and it
successors and assigns.
12. Presentment, etc. Debtor hereby waives presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment with respect to any
proceeds to which the Bank is entitled hereunder any rights to direct the
application of payments for security for indebtedness of Debtor hereunder, or
indebtedness of customers of Debtor, and hereby waives any right to require
proceedings against others or to require exhaustion of security.
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<PAGE> 65
13. Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Security Agreement will be in writing and
will be effective and deemed given under this Security Agreement on the earliest
of: (a) the date of personal delivery; (b) the date of delivery by facsimile; or
(c) the business day after deposit with a nationally-recognized courier or
overnight service, including Federal Express or Express Mail, for United States
deliveries or three (3) business days after such deposit for deliveries outside
of the United States. All notices not delivered personally or by facsimile will
be sent with postage and other charges prepaid and properly addressed to the
party to be notified at the address set forth in the Loan Agreement, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties hereto. All notices or delivery outside the United
States will be sent by facsimile, or by nationally recognized courier or
overnight service, including Express Mail. Any notice given hereunder to more
than one person will be deemed to have been given, for purposes of counting time
periods hereunder, on the date given to the last party required to be given such
notice.
14. Governing Law; Consent to Jurisdiction. This Security Agreement shall
be governed and construed under the laws of the State of California as applied
among California residents, made and to be performed entirely within the State
of California, without regard to conflicts of laws principles.
15. Enforcement. If any portion of this Security Agreement is determined
to be invalid or unenforceable, the remainder shall be valid and enforceable to
the maximum extent possible with the same effect as if the invalid or
unenforceable portion were omitted from this Security Agreement.
16. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
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<PAGE> 66
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
17. Counterparts. This Security Agreement may be signed in any number of
counterparts, each of which shall constitute an original, and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Security Agreement on
the date set forth above.
IVY SOFTWARE, INC. IMPERIAL BANK
By: By:
------------------------- --------------------------------
Name: Name:
----------------------- -----------------------------
Title: Title:
---------------------- -----------------------------
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<PAGE> 67
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(a) all accounts receivable, accounts, chattel paper, contract rights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(b) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Bank (herein referred to as
"Bank" or "Secured Party") to sue in its own name and/or the name of the Debtor
for past, present and future infringements of copyright;
(c) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(d) all guarantees and other security therefor;
(e) all trademarks, service marks, trade names and service names and the
goodwill associated therewith;
(f) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee, (c) all income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (d) the right (but not the obligation) to sue for past, present and
future infringements thereof, (e) all rights corresponding thereto throughout
the world in all jurisdictions in which such patents have been issued or applied
for, and (f) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part with any of the foregoing (all of the foregoing patents
and applications and interests under patent license agreements, together with
the items described in clauses (a) through (f) in this paragraph are sometimes
herein individually and collectively referred to as the "Patents"); and
(g) all products and proceeds, including, without limitation, insurance
proceeds, of any of the foregoing.
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<PAGE> 68
SECURITY AGREEMENT
This Security Agreement is made and entered into as of August 14, 1998 by
and between the undersigned ("Debtor"), and Imperial Bank (the "Bank").
RECITALS
WHEREAS, the Bank proposes to enter into a transaction with UOL
Publishing, Inc. ("Borrower"), which is an affiliate of Debtor, pursuant to a
Loan and Security Agreement ('the "Loan Agreement") of even date herewith.
WHEREAS, Debtor has requested Bank to enter into the Loan Agreement, and
expects to derive economic benefit from Bank's doing so and dealing with
Borrower in accordance with the Loan Agreement.
WHEREAS Debtor wishes to guarantee performance and payment of all
obligations under the Loan Agreement, and to secure that guarantee with
substantially all of its assets.
NOW, THEREFORE, Debtor and the Bank agree as follows:
1. Grant of Security Interest. Debtor hereby grants to the Bank a security
interest in the Collateral (as defined in Section 2 below) to secure Debtor's
performance of the obligations set forth in Section 3 below.
2. Collateral. The collateral covered by this Security Agreement (the
"Collateral") shall consist of the property described in Exhibit A attached
hereto.
3. Debtor's Obligations Secured Hereby. This Security Agreement secures
all of Debtor's obligations under that certain Unconditional Guaranty of even
date herewith, as such Guaranty is amended from time to time ("Obligations of
Debtor").
4. Debtor's Representations and Warranties. Debtor represents and warrants
as follows:
(a) Authorization. Debtor has authority and has obtained all approvals
and consents necessary to enter into this Security Agreement, and Debtor's
execution, delivery and performance of this Security Agreement will not violate
or conflict with the terms of Debtor's Articles of Incorporation or Bylaws or
any statute, regulation, ordinance, rule of law, agreement, contract, mortgage,
indenture, bond, bill, note, or other instrument or writing binding upon Debtor
or to which Debtor is subject.
(b) Title. All Collateral currently in Debtor's possession or under
Debtor's control is owned by and is as represented by Debtor and is free of all
liens, encumbrances and other security interests, other than security interests
or lessors' interests that are described on Attachment A hereto (the "Prior
Security Interests").
(c) Accounts. Each of Debtor's Accounts is genuine, as appearing on its
face, enforceable in accordance with its terms (subject to reserves that occur
in the ordinary course of business and that are accounted for in accordance with
generally accepted accounting principles), free of set-off, counterclaim and
defenses, and represents indebtedness, obligations, interests or property justly
owing to and owned by Debtor in the amount or as therein provided.
5. Debtor's Covenants. Debtor agrees and covenants as follows:
(a) Further Encumbrances. Except as may be required by the terms and
conditions of the Prior Security Interests, and except for subordinated
financing of Debtor by banks or other financial institutions or purchase money
secured financing, until the Obligations of Debtor secured under this Security
Agreement shall
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<PAGE> 69
have been repaid in full, Debtor shall not grant a security interest in any of
the Collateral other than to the Bank or execute any financing statements
covering any of the Collateral in favor of any person other than the Secured
Parties.
(b) Use of Collateral. The Collateral will not be used for any unlawful
purpose or in any way that will void any insurance required to be carried in
connection therewith. Debtor will keep the Collateral free and clear of liens
and adverse claims other than the Prior Security Interests and, as appropriate
and applicable, will keep it in good condition and repair, and will clean,
shelter, and otherwise care for the Collateral in all such ways as are
considered good practice by owners of like property.
(c) Insurance of Collateral. The Collateral will be insured at Debtor's
expense against all risks commonly insured by owners of like property. Debtor
agrees to pay when due all premiums for such insurance and all taxes, license
fees and other charges in connection with the Collateral. If the Bank shall take
possession of the Collateral, the Bank may, subject to the Prior Security
Interests, surrender the policies and receive and retain the unearned premiums
thereon.
(d) Indemnification. Debtor shall indemnify the Bank against all
losses, claims, demands and liabilities of any kind caused by the Collateral.
(e) Perfection of Security Interest. Debtor shall execute and deliver
such documents as the Bank reasonably deems necessary to create, perfect and
continue the security interest in the Collateral contemplated hereby.
(f) Collection of Accounts. Until the Bank shall elect to do so in
accordance with this Security Agreement, Debtor shall diligently collect all of
its Accounts and proceeds of the Collateral and shall hold such Accounts and
proceeds subject to a security interest of Bank to secure the obligations
secured hereby, provided, however, that Debtor may use such proceeds in the
ordinary course of business.
(g) Records. Debtor shall prepare and keep, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate records regarding all Collateral and, if and when requested by the
Bank, shall prepare and deliver a complete and accurate schedule of all the
Collateral in such detail as the Bank may reasonably request.
(h) Assignments. If and when requested by the Bank, and to the extent
consistent with the Prior Security Interests, Debtor shall upon any Event of
Default (as defined in the Loan Agreement) prepare and deliver to the Bank
written assignment of all Accounts, instruments, documents and other evidence
thereof.
(i) Inspection of Debtor's Books. Debtor shall permit the Bank or its
designee at reasonable times and from time to time to inspect Debtor's books,
records and properties and to audit and to make copies of extracts from such
books and records.
(j) Fees and Costs. Upon any Event of Default (as defined in Section 6
below), Debtor shall pay all expenses, including reasonable attorneys' fees,
incurred by Bank in the preservation, realization, enforcement or exercise of
any Bank's rights under this Security Agreement.
(k) Out-of-Pocket Expenses of Bank. Debtor will reimburse the Bank for
any out-of-pocket costs and expenses incurred by it in connection with filings,
recordations or registrations made for the purpose of perfecting the security
interest in the Collateral hereunder.
6. Events of Default. The occurrence of any Event of Default under the
Loan Agreement shall constitute an "Event of Default" under this Security
Agreement.
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7. Remedies on Default. Upon the occurrence of an Event of Default, the
Bank shall have all rights, privileges, powers and remedies provided by law,
including, but not limited to, exercise of any or all of the following remedies.
(a) Payment Under the Guaranty. The Bank may declare all amounts
outstanding under the Loan Agreement and the Guaranty to be immediately due and
payable, and thereupon all such amounts shall be and become immediately due and
payable to the Bank.
(b) Possession of Collateral. The Bank may take possession of all
Collateral covered hereby (which Collateral Debtor will assemble and make
available to Bank).
(c) Use, Operation and Sale of Collateral by Bank. The Bank may use,
operate, consume and sell the Collateral in its possession as appropriate for
the purpose of performing Debtor's obligations with respect thereto to the
extent necessary to satisfy the Obligations of Debtor.
8. Payments after an Event of Default. All payments received and amounts
realized by the Bank pursuant to Section 7, including all such payments and
amounts received after the Bank has declared the entire unpaid principal and
interest amount of the Note to be due and payable pursuant to Section 7(a), as
well as all payments or amounts then held or thereafter received by the Bank as
part of the Collateral while an Event of Default shall be continuing, shall be
promptly applied and distributed by the Bank in the following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys fees, incurred or made hereunder by the
Bank, including any such costs and expenses of foreclosure or suit, if any, and
of any sale or the exercise of any other remedy under this Section 8, and of all
taxes, assessments or liens superior to the lien granted under this Security
Agreement;
(b) second, to the payment to the Bank of the amount then owing on the
Note and in case the payments received and amounts realized by the Bank shall be
insufficient to pay in full the whole amount so owing, then first to the payment
of unpaid interest on the Note and second to the payment of unpaid principal
thereof; and
(c) third, to the payment of the balance, if any, to the Debtor or its
successors and assigns.
9. Power of Attorney. Debtor hereby appoints the Bank, its
attorney-in-fact to prepare, sign and file or record, for Debtor in Debtor's
name, any financing statements, applications for registration and like papers
and to take any other action deemed by the Bank necessary or desirable in order
to perfect the security interest of the Bank hereunder, and to perform any
obligations of Debtor hereunder, at Debtor's expense, but without obligation to
do so.
10. Remedies Cumulative. The rights, privileges, powers and remedies
afforded to Bank hereunder shall be cumulative, and no single or partial
exercise of any of them shall preclude the further or other exercise of the same
or any of them.
11. Successors and Assigns. This Security Agreement, together with the
covenants and warranties contained herein, shall inure to the benefit of the
Bank and its successors and assigns, and shall be binding upon Debtor and it
successors and assigns.
12. Presentment, etc. Debtor hereby waives presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment with respect to any
proceeds to which the Bank is entitled hereunder any rights to direct the
application of payments for security for indebtedness of Debtor hereunder, or
indebtedness of customers of Debtor, and hereby waives any right to require
proceedings against others or to require exhaustion of security.
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13. Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Security Agreement will be in writing and
will be effective and deemed given under this Security Agreement on the earliest
of: (a) the date of personal delivery; (b) the date of delivery by facsimile; or
(c) the business day after deposit with a nationally-recognized courier or
overnight service, including Federal Express or Express Mail, for United States
deliveries or three (3) business days after such deposit for deliveries outside
of the United States. All notices not delivered personally or by facsimile will
be sent with postage and other charges prepaid and properly addressed to the
party to be notified at the address set forth in the Loan Agreement, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties hereto. All notices or delivery outside the United
States will be sent by facsimile, or by nationally recognized courier or
overnight service, including Express Mail. Any notice given hereunder to more
than one person will be deemed to have been given, for purposes of counting time
periods hereunder, on the date given to the last party required to be given such
notice.
14. Governing Law; Consent to Jurisdiction. This Security Agreement shall
be governed and construed under the laws of the State of California as applied
among California residents, made and to be performed entirely within the State
of California, without regard to conflicts of laws principles.
15. Enforcement. If any portion of this Security Agreement is determined
to be invalid or unenforceable, the remainder shall be valid and enforceable to
the maximum extent possible with the same effect as if the invalid or
unenforceable portion were omitted from this Security Agreement.
16. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
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<PAGE> 72
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
17. Counterparts. This Security Agreement may be signed in any number of
counterparts, each of which shall constitute an original, and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Security Agreement on
the date set forth above.
COOPERS & ASSOCIATES, INC. IMPERIAL BANK
By: By:
------------------------------- ----------------------------------
Name: Name:
----------------------------- --------------------------------
Title: Title:
---------------------------- -------------------------------
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<PAGE> 73
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(a) all accounts receivable, accounts, chattel paper, contract rights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(b) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Bank (herein referred to as
"Bank" or "Secured Party") to sue in its own name and/or the name of the Debtor
for past, present and future infringements of copyright;
(c) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(d) all guarantees and other security therefor;
(e) all trademarks, service marks, trade names and service names and the
goodwill associated therewith;
(f) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee, (c) all income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (d) the right (but not the obligation) to sue for past, present and
future infringements thereof, (e) all rights corresponding thereto throughout
the world in all jurisdictions in which such patents have been issued or applied
for, and (f) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part with any of the foregoing (all of the foregoing patents
and applications and interests under patent license agreements, together with
the items described in clauses (a) through (f) in this paragraph are sometimes
herein individually and collectively referred to as the "Patents"); and
(g) all products and proceeds, including, without limitation, insurance
proceeds, of any of the foregoing.
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<PAGE> 74
SECURITY AGREEMENT
This Security Agreement is made and entered into as of August 14, 1998 by
and between the undersigned ("Debtor"), and Imperial Bank (the "Bank").
RECITALS
WHEREAS, the Bank proposes to enter into a transaction with UOL
Publishing, Inc. ("Borrower"), which is an affiliate of Debtor, pursuant to a
Loan and Security Agreement ('the "Loan Agreement") of even date herewith.
WHEREAS, Debtor has requested Bank to enter into the Loan Agreement, and
expects to derive economic benefit from Bank's doing so and dealing with
Borrower in accordance with the Loan Agreement.
WHEREAS Debtor wishes to guarantee performance and payment of all
obligations under the Loan Agreement, and to secure that guarantee with
substantially all of its assets.
NOW, THEREFORE, Debtor and the Bank agree as follows:
1. Grant of Security Interest. Debtor hereby grants to the Bank a security
interest in the Collateral (as defined in Section 2 below) to secure Debtor's
performance of the obligations set forth in Section 3 below.
2. Collateral. The collateral covered by this Security Agreement (the
"Collateral") shall consist of the property described in Exhibit A attached
hereto.
3. Debtor's Obligations Secured Hereby. This Security Agreement secures
all of Debtor's obligations under that certain Unconditional Guaranty of even
date herewith, as such Guaranty is amended from time to time ("Obligations of
Debtor").
4. Debtor's Representations and Warranties. Debtor represents and warrants
as follows:
(a) Authorization. Debtor has authority and has obtained all approvals
and consents necessary to enter into this Security Agreement, and Debtor's
execution, delivery and performance of this Security Agreement will not violate
or conflict with the terms of Debtor's Articles of Incorporation or Bylaws or
any statute, regulation, ordinance, rule of law, agreement, contract, mortgage,
indenture, bond, bill, note, or other instrument or writing binding upon Debtor
or to which Debtor is subject.
(b) Title. All Collateral currently in Debtor's possession or under
Debtor's control is owned by and is as represented by Debtor and is free of all
liens, encumbrances and other security interests, other than security interests
or lessors' interests that are described on Attachment A hereto (the "Prior
Security Interests").
(c) Accounts. Each of Debtor's Accounts is genuine, as appearing on its
face, enforceable in accordance with its terms (subject to reserves that occur
in the ordinary course of business and that are accounted for in accordance with
generally accepted accounting principles), free of set-off, counterclaim and
defenses, and represents indebtedness, obligations, interests or property justly
owing to and owned by Debtor in the amount or as therein provided.
5. Debtor's Covenants. Debtor agrees and covenants as follows:
(a) Further Encumbrances. Except as may be required by the terms and
conditions of the Prior Security Interests, and except for subordinated
financing of Debtor by banks or other financial institutions or purchase money
secured financing, until the Obligations of Debtor secured under this Security
Agreement shall
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<PAGE> 75
have been repaid in full, Debtor shall not grant a security interest in any of
the Collateral other than to the Bank or execute any financing statements
covering any of the Collateral in favor of any person other than the Secured
Parties.
(b) Use of Collateral. The Collateral will not be used for any unlawful
purpose or in any way that will void any insurance required to be carried in
connection therewith. Debtor will keep the Collateral free and clear of liens
and adverse claims other than the Prior Security Interests and, as appropriate
and applicable, will keep it in good condition and repair, and will clean,
shelter, and otherwise care for the Collateral in all such ways as are
considered good practice by owners of like property.
(c) Insurance of Collateral. The Collateral will be insured at Debtor's
expense against all risks commonly insured by owners of like property. Debtor
agrees to pay when due all premiums for such insurance and all taxes, license
fees and other charges in connection with the Collateral. If the Bank shall take
possession of the Collateral, the Bank may, subject to the Prior Security
Interests, surrender the policies and receive and retain the unearned premiums
thereon.
(d) Indemnification. Debtor shall indemnify the Bank against all
losses, claims, demands and liabilities of any kind caused by the Collateral.
(e) Perfection of Security Interest. Debtor shall execute and deliver
such documents as the Bank reasonably deems necessary to create, perfect and
continue the security interest in the Collateral contemplated hereby.
(f) Collection of Accounts. Until the Bank shall elect to do so in
accordance with this Security Agreement, Debtor shall diligently collect all of
its Accounts and proceeds of the Collateral and shall hold such Accounts and
proceeds subject to a security interest of Bank to secure the obligations
secured hereby, provided, however, that Debtor may use such proceeds in the
ordinary course of business.
(g) Records. Debtor shall prepare and keep, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate records regarding all Collateral and, if and when requested by the
Bank, shall prepare and deliver a complete and accurate schedule of all the
Collateral in such detail as the Bank may reasonably request.
(h) Assignments. If and when requested by the Bank, and to the extent
consistent with the Prior Security Interests, Debtor shall upon any Event of
Default (as defined in the Loan Agreement) prepare and deliver to the Bank
written assignment of all Accounts, instruments, documents and other evidence
thereof.
(i) Inspection of Debtor's Books. Debtor shall permit the Bank or its
designee at reasonable times and from time to time to inspect Debtor's books,
records and properties and to audit and to make copies of extracts from such
books and records.
(j) Fees and Costs. Upon any Event of Default (as defined in Section 6
below), Debtor shall pay all expenses, including reasonable attorneys' fees,
incurred by Bank in the preservation, realization, enforcement or exercise of
any Bank's rights under this Security Agreement.
(k) Out-of-Pocket Expenses of Bank. Debtor will reimburse the Bank for
any out-of-pocket costs and expenses incurred by it in connection with filings,
recordations or registrations made for the purpose of perfecting the security
interest in the Collateral hereunder.
6. Events of Default. The occurrence of any Event of Default under the
Loan Agreement shall constitute an "Event of Default" under this Security
Agreement.
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7. Remedies on Default. Upon the occurrence of an Event of Default, the
Bank shall have all rights, privileges, powers and remedies provided by law,
including, but not limited to, exercise of any or all of the following remedies.
(a) Payment Under the Guaranty. The Bank may declare all amounts
outstanding under the Loan Agreement and the Guaranty to be immediately due and
payable, and thereupon all such amounts shall be and become immediately due and
payable to the Bank.
(b) Possession of Collateral. The Bank may take possession of all
Collateral covered hereby (which Collateral Debtor will assemble and make
available to Bank).
(c) Use, Operation and Sale of Collateral by Bank. The Bank may use,
operate, consume and sell the Collateral in its possession as appropriate for
the purpose of performing Debtor's obligations with respect thereto to the
extent necessary to satisfy the Obligations of Debtor.
8. Payments after an Event of Default. All payments received and amounts
realized by the Bank pursuant to Section 7, including all such payments and
amounts received after the Bank has declared the entire unpaid principal and
interest amount of the Note to be due and payable pursuant to Section 7(a), as
well as all payments or amounts then held or thereafter received by the Bank as
part of the Collateral while an Event of Default shall be continuing, shall be
promptly applied and distributed by the Bank in the following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys fees, incurred or made hereunder by the
Bank, including any such costs and expenses of foreclosure or suit, if any, and
of any sale or the exercise of any other remedy under this Section 8, and of all
taxes, assessments or liens superior to the lien granted under this Security
Agreement;
(b) second, to the payment to the Bank of the amount then owing on the
Note and in case the payments received and amounts realized by the Bank shall be
insufficient to pay in full the whole amount so owing, then first to the payment
of unpaid interest on the Note and second to the payment of unpaid principal
thereof; and
(c) third, to the payment of the balance, if any, to the Debtor or its
successors and assigns.
9. Power of Attorney. Debtor hereby appoints the Bank, its
attorney-in-fact to prepare, sign and file or record, for Debtor in Debtor's
name, any financing statements, applications for registration and like papers
and to take any other action deemed by the Bank necessary or desirable in order
to perfect the security interest of the Bank hereunder, and to perform any
obligations of Debtor hereunder, at Debtor's expense, but without obligation to
do so.
10. Remedies Cumulative. The rights, privileges, powers and remedies
afforded to Bank hereunder shall be cumulative, and no single or partial
exercise of any of them shall preclude the further or other exercise of the same
or any of them.
11. Successors and Assigns. This Security Agreement, together with the
covenants and warranties contained herein, shall inure to the benefit of the
Bank and its successors and assigns, and shall be binding upon Debtor and it
successors and assigns.
12. Presentment, etc. Debtor hereby waives presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment with respect to any
proceeds to which the Bank is entitled hereunder any rights to direct the
application of payments for security for indebtedness of Debtor hereunder, or
indebtedness of customers of Debtor, and hereby waives any right to require
proceedings against others or to require exhaustion of security.
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<PAGE> 77
13. Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Security Agreement will be in writing and
will be effective and deemed given under this Security Agreement on the earliest
of: (a) the date of personal delivery; (b) the date of delivery by facsimile; or
(c) the business day after deposit with a nationally-recognized courier or
overnight service, including Federal Express or Express Mail, for United States
deliveries or three (3) business days after such deposit for deliveries outside
of the United States. All notices not delivered personally or by facsimile will
be sent with postage and other charges prepaid and properly addressed to the
party to be notified at the address set forth in the Loan Agreement, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties hereto. All notices or delivery outside the United
States will be sent by facsimile, or by nationally recognized courier or
overnight service, including Express Mail. Any notice given hereunder to more
than one person will be deemed to have been given, for purposes of counting time
periods hereunder, on the date given to the last party required to be given such
notice.
14. Governing Law; Consent to Jurisdiction. This Security Agreement shall
be governed and construed under the laws of the State of California as applied
among California residents, made and to be performed entirely within the State
of California, without regard to conflicts of laws principles.
15. Enforcement. If any portion of this Security Agreement is determined
to be invalid or unenforceable, the remainder shall be valid and enforceable to
the maximum extent possible with the same effect as if the invalid or
unenforceable portion were omitted from this Security Agreement.
16. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
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<PAGE> 78
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will
be binding upon the parties. The referee shall issue a single judgment at the
close of the reference proceeding which shall dispose of all of the claims of
the parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee. The parties
hereto expressly reserve the right to findings of fact, conclusions of laws, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
17. Counterparts. This Security Agreement may be signed in any number of
counterparts, each of which shall constitute an original, and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Security Agreement on
the date set forth above.
HTR, INC. IMPERIAL BANK
By: By:
----------------------- ---------------------------
Name: Name:
--------------------- -------------------------
Title: Title:
-------------------- ------------------------
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EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(a) all accounts receivable, accounts, chattel paper, contract rights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(b) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Bank (herein referred to as
"Bank" or "Secured Party") to sue in its own name and/or the name of the Debtor
for past, present and future infringements of copyright;
(c) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(d) all guarantees and other security therefor;
(e) all trademarks, service marks, trade names and service names and the
goodwill associated therewith;
(f) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee, (c) all income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (d) the right (but not the obligation) to sue for past, present and
future infringements thereof, (e) all rights corresponding thereto throughout
the world in all jurisdictions in which such patents have been issued or applied
for, and (f) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part with any of the foregoing (all of the foregoing patents
and applications and interests under patent license agreements, together with
the items described in clauses (a) through (f) in this paragraph are sometimes
herein individually and collectively referred to as the "Patents"); and
(g) all products and proceeds, including, without limitation, insurance
proceeds, of any of the foregoing.
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UNCONDITIONAL GUARANTY
(Corporate)
For and in consideration of the loan by IMPERIAL BANK ("Bank") to UOL
PUBLISHING, INC., ("Borrower"), which loan is made pursuant to a Loan and
Security Agreement of even date herewith between Borrower and Bank (the
"Agreement"), the undersigned guarantor ("Guarantor") hereby unconditionally and
irrevocably guarantees the prompt and complete payment of all amounts that
Borrower owes to Bank and performance by Borrower of the Agreement and any other
agreements between Borrower and Bank, as amended from time to time (collectively
referred to as the "Agreements"), in strict accordance with their respective
terms.
1. If Borrower does not perform its obligations in strict accordance with
the Agreements, Guarantor shall immediately pay all amounts due thereunder
(including, without limitation, all principal, interest, and fees) and otherwise
to proceed to complete the same and satisfy all of Borrower's obligations under
the Agreements.
2. The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions. Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof, to the extent permitted by law. Guarantor's liability under this
Guaranty is not conditioned or contingent upon the genuineness, validity,
regularity or enforceability of the Agreements.
3. Guarantor authorizes Bank, without notice or demand and without
affecting its liability hereunder, from time to time to (a) renew, extend, or
otherwise change the terms of the Agreements or any part thereof; (b) take and
hold security for the payment of this Guaranty or the Agreements, and exchange,
enforce, waive and release any such security; and (c) apply such security and
direct the order or manner of sale thereof as Bank in its sole discretion may
determine.
4. Guarantor waives any right to require Bank to (a) proceed against
Borrower or any other person; (b) proceed against or exhaust any security held
from Borrower; or (c) pursue any other remedy in Bank's power whatsoever. Bank
may, at its election, exercise or decline or fail to exercise any right or
remedy it may have against Borrower or any security held by Bank, including
without limitation the right to foreclose upon any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the liability of
Guarantor hereunder. Guarantor waives any defense arising by reason of any
disability or other defense of Borrower or by reason of the cessation from any
cause whatsoever of the liability of Borrower. Guarantor waives any setoff,
defense or counterclaim that Borrower may have against Bank. Guarantor waives
any defense arising out of the absence, impairment or loss of any right of
reimbursement or subrogation or any other rights against Borrower. Until all of
the amounts that Borrower owes to Bank have been paid in full, Guarantor shall
have no right of subrogation or reimbursement for claims arising out of or in
connection with this Guaranty, contribution or other rights against Borrower,
and Guarantor waives any right to enforce any remedy that Bank now has or may
hereafter have against Borrower. Guarantor waives all rights to participate in
any security now or hereafter held by Bank. Guarantor waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional indebtedness.
Guarantor assumes the responsibility for being and keeping itself informed of
the financial condition of Borrower and of all other circumstances bearing upon
the risk of nonpayment of any indebtedness or nonperformance of any obligation
of Borrower, warrants to Bank that it will keep so informed, and agrees that
absent a request for particular information by Guarantor, Bank shall have no
duty to advise Guarantor of information known to Bank regarding such condition
or any such circumstances. Guarantor waives the benefits of California Civil
Code sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
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5. Guarantor acknowledges that, to the extent Guarantor has or may have
certain rights of subrogation or reimbursement against Borrower for claims
arising out of this Guaranty, those rights may be impaired or destroyed if Bank
elects to proceed against any real property security of Borrower by non-judicial
foreclosure. That impairment or destruction could, under certain judicial cases
and based on equitable principles of estoppel, give rise to a defense by
Guarantor against its obligations under this Guaranty. Guarantor waives that
defense and any others arising from Bank's election to pursue non-judicial
foreclosure. Without limiting the generality of the foregoing, Guarantor waives
any and all benefits and defenses under California Code of Civil Procedure
Sections 580a, 580b, 580d and 726, to the extent they are applicable.
6. If Borrower becomes insolvent or is adjudicated bankrupt or files a
petition for reorganization, arrangement, composition or similar relief under
any present or future provision of the United States Bankruptcy Code, or if such
a petition is filed against Borrower, and in any such proceeding some or all of
any indebtedness or obligations under the Agreements are terminated or rejected
or any obligation of Borrower is modified or abrogated, or if Borrower's
obligations are otherwise avoided for any reason, Guarantor agrees that
Guarantor's liability hereunder shall not thereby be affected or modified and
such liability shall continue in full force and effect as if no such action or
proceeding had occurred. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any payment must be returned by Bank upon the
insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other
guarantor, or otherwise, as though such payment had not been made.
7. Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to any indebtedness of Borrower to Bank; and such
indebtedness of Borrower to Guarantor shall be collected, enforced and received
by Guarantor as trustee for Bank and be paid over to Bank on account of the
indebtedness of Borrower to Bank but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty.
8. Guarantor agrees to pay a reasonable attorneys' fee and all reasonable
and out-of-pocket costs and expenses which may be incurred by Bank in the
enforcement of this Guaranty. No terms or provisions of this Guaranty may be
changed, waived, revoked or amended without Lender's prior written consent.
Should any provision of this Guaranty be determined by a court of competent
jurisdiction to be unenforceable, all of the other provisions shall remain
effective. This Guaranty embodies the entire agreement among the parties hereto
with respect to the matters set forth herein, and supersedes all prior
agreements among the parties with respect to the matters set forth herein. No
course of prior dealing among the parties, no usage of trade, and no parol or
extrinsic evidence of any nature shall be used to supplement, modify or vary any
of the terms hereof. There are no conditions to the full effectiveness of this
Guaranty. Bank may assign this Guaranty without in any way affecting Guarantor's
liability under it. This Guaranty shall inure to the benefit of Bank and its
successors and assigns. This Guaranty is in addition to the guaranties of any
other guarantors and any and all other guaranties of Borrower's indebtedness or
liabilities to Bank.
9. Guarantor represents and warrants to Bank that (i) Guarantor has taken
all necessary and appropriate action to authorize the execution, delivery and
performance of this Guaranty, (ii) execution, delivery and performance of this
Guaranty do not conflict with or result in a breach of or constitute a default
under Guarantor's Articles of Incorporation or Bylaws or other organizational
documents or agreements to which it is party or by which it is bound, and (iii)
this Guaranty constitutes a valid and binding obligation, enforceable against
Guarantor in accordance with its terms.
10. Guarantor covenants and agrees that Guarantor shall do all of the
following:
10.1 Guarantor shall maintain its corporate existence, remain in good
standing in California, and continue to qualify in each jurisdiction in which
the failure to so qualify could have a material adverse effect on the financial
condition, operations or business of Guarantor. Guarantor shall maintain in
force all licenses, approvals and agreements, the loss of which could have a
material adverse effect on its financial condition, operations or business.
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<PAGE> 82
10.2 Guarantor shall comply with all statutes, laws, ordinances,
directives, orders, and government rules and regulations to which it is subject
if non-compliance with such laws could adversely affect the financial condition,
operations or business of Guarantor.
10.3 At any time and from time to time Guarantor shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Bank to effect the purposes of this Agreement.
10.4 Guarantor shall maintain its principal depository and operating
accounts with Bank.
11. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
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(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
12. This Guaranty shall be governed by the laws of the State of
California, without regard to conflicts of laws principles. GUARANTOR WAIVES ANY
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. Guarantor submits to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of this 14th day of August, 1998.
COOPERS & ASSOCIATES, INC.
By:
----------------------------------
Title:
-------------------------------
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<PAGE> 84
CORPORATE RESOLUTION TO GUARANTEE
================================================================================
GUARANTOR: COOPERS & ASSOCIATES, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Coopers &
Associates, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
- -------------------- --------------------- --------------------
- -------------------- --------------------- --------------------
- -------------------- --------------------- --------------------
- -------------------- --------------------- --------------------
- -------------------- --------------------- --------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTEE INDEBTEDNESS. To guarantee amounts borrowed from time to time
from Imperial Bank ("Bank"), by UOL Publishing, Inc. ("Borrower") pursuant to
that certain Loan and Security Agreement between Bank and Borrower dated as of
August 14, 1998, as amended from time to time (the "Loan Agreement").
EXECUTE GUARANTY. To execute and deliver to Bank the guaranty of the
Corporation (the "Guaranty"), on Bank's forms, and also to execute and deliver
to Bank one or more renewals, extensions, modifications, consolidations, or
substitutions therefor.
GRANT SECURITY. To grant a security interest to Bank in the Collateral,
described in the Security Agreement, which security interest shall secure all of
the Corporation's obligations under the Guaranty.
FURTHER ACTS. To do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or proper
in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank
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<PAGE> 85
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Bank. Any such notice shall not affect
any of the Corporation's agreements or commitments in effect at the time notice
is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on August __, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------
================================================================================
2
<PAGE> 86
UNCONDITIONAL GUARANTY
(Corporate)
For and in consideration of the loan by IMPERIAL BANK ("Bank") to UOL
PUBLISHING, INC., ("Borrower"), which loan is made pursuant to a Loan and
Security Agreement of even date herewith between Borrower and Bank (the
"Agreement"), the undersigned guarantor ("Guarantor") hereby unconditionally and
irrevocably guarantees the prompt and complete payment of all amounts that
Borrower owes to Bank and performance by Borrower of the Agreement and any other
agreements between Borrower and Bank, as amended from time to time (collectively
referred to as the "Agreements"), in strict accordance with their respective
terms.
1. If Borrower does not perform its obligations in strict accordance with
the Agreements, Guarantor shall immediately pay all amounts due thereunder
(including, without limitation, all principal, interest, and fees) and otherwise
to proceed to complete the same and satisfy all of Borrower's obligations under
the Agreements.
2. The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions. Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof, to the extent permitted by law. Guarantor's liability under this
Guaranty is not conditioned or contingent upon the genuineness, validity,
regularity or enforceability of the Agreements.
3. Guarantor authorizes Bank, without notice or demand and without
affecting its liability hereunder, from time to time to (a) renew, extend, or
otherwise change the terms of the Agreements or any part thereof; (b) take and
hold security for the payment of this Guaranty or the Agreements, and exchange,
enforce, waive and release any such security; and (c) apply such security and
direct the order or manner of sale thereof as Bank in its sole discretion may
determine.
4. Guarantor waives any right to require Bank to (a) proceed against
Borrower or any other person; (b) proceed against or exhaust any security held
from Borrower; or (c) pursue any other remedy in Bank's power whatsoever. Bank
may, at its election, exercise or decline or fail to exercise any right or
remedy it may have against Borrower or any security held by Bank, including
without limitation the right to foreclose upon any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the liability of
Guarantor hereunder. Guarantor waives any defense arising by reason of any
disability or other defense of Borrower or by reason of the cessation from any
cause whatsoever of the liability of Borrower. Guarantor waives any setoff,
defense or counterclaim that Borrower may have against Bank. Guarantor waives
any defense arising out of the absence, impairment or loss of any right of
reimbursement or subrogation or any other rights against Borrower. Until all of
the amounts that Borrower owes to Bank have been paid in full, Guarantor shall
have no right of subrogation or reimbursement for claims arising out of or in
connection with this Guaranty, contribution or other rights against Borrower,
and Guarantor waives any right to enforce any remedy that Bank now has or may
hereafter have against Borrower. Guarantor waives all rights to participate in
any security now or hereafter held by Bank. Guarantor waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional indebtedness.
Guarantor assumes the responsibility for being and keeping itself informed of
the financial condition of Borrower and of all other circumstances bearing upon
the risk of nonpayment of any indebtedness or nonperformance of any obligation
of Borrower, warrants to Bank that it will keep so informed, and agrees that
absent a request for particular information by Guarantor, Bank shall have no
duty to advise Guarantor of information known to Bank regarding such condition
or any such circumstances. Guarantor waives the benefits of California Civil
Code sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
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<PAGE> 87
5. Guarantor acknowledges that, to the extent Guarantor has or may have
certain rights of subrogation or reimbursement against Borrower for claims
arising out of this Guaranty, those rights may be impaired or destroyed if Bank
elects to proceed against any real property security of Borrower by non-judicial
foreclosure. That impairment or destruction could, under certain judicial cases
and based on equitable principles of estoppel, give rise to a defense by
Guarantor against its obligations under this Guaranty. Guarantor waives that
defense and any others arising from Bank's election to pursue non-judicial
foreclosure. Without limiting the generality of the foregoing, Guarantor waives
any and all benefits and defenses under California Code of Civil Procedure
Sections 580a, 580b, 580d and 726, to the extent they are applicable.
6. If Borrower becomes insolvent or is adjudicated bankrupt or files a
petition for reorganization, arrangement, composition or similar relief under
any present or future provision of the United States Bankruptcy Code, or if such
a petition is filed against Borrower, and in any such proceeding some or all of
any indebtedness or obligations under the Agreements are terminated or rejected
or any obligation of Borrower is modified or abrogated, or if Borrower's
obligations are otherwise avoided for any reason, Guarantor agrees that
Guarantor's liability hereunder shall not thereby be affected or modified and
such liability shall continue in full force and effect as if no such action or
proceeding had occurred. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any payment must be returned by Bank upon the
insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other
guarantor, or otherwise, as though such payment had not been made.
7. Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to any indebtedness of Borrower to Bank; and such
indebtedness of Borrower to Guarantor shall be collected, enforced and received
by Guarantor as trustee for Bank and be paid over to Bank on account of the
indebtedness of Borrower to Bank but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty.
8. Guarantor agrees to pay a reasonable attorneys' fee and all reasonable
and out-of-pocket costs and expenses which may be incurred by Bank in the
enforcement of this Guaranty. No terms or provisions of this Guaranty may be
changed, waived, revoked or amended without Lender's prior written consent.
Should any provision of this Guaranty be determined by a court of competent
jurisdiction to be unenforceable, all of the other provisions shall remain
effective. This Guaranty embodies the entire agreement among the parties hereto
with respect to the matters set forth herein, and supersedes all prior
agreements among the parties with respect to the matters set forth herein. No
course of prior dealing among the parties, no usage of trade, and no parol or
extrinsic evidence of any nature shall be used to supplement, modify or vary any
of the terms hereof. There are no conditions to the full effectiveness of this
Guaranty. Bank may assign this Guaranty without in any way affecting Guarantor's
liability under it. This Guaranty shall inure to the benefit of Bank and its
successors and assigns. This Guaranty is in addition to the guaranties of any
other guarantors and any and all other guaranties of Borrower's indebtedness or
liabilities to Bank.
9. Guarantor represents and warrants to Bank that (i) Guarantor has taken
all necessary and appropriate action to authorize the execution, delivery and
performance of this Guaranty, (ii) execution, delivery and performance of this
Guaranty do not conflict with or result in a breach of or constitute a default
under Guarantor's Articles of Incorporation or Bylaws or other organizational
documents or agreements to which it is party or by which it is bound, and (iii)
this Guaranty constitutes a valid and binding obligation, enforceable against
Guarantor in accordance with its terms.
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<PAGE> 88
10. Guarantor covenants and agrees that Guarantor shall do all of the
following:
10.1 Guarantor shall maintain its corporate existence, remain in good
standing in California, and continue to qualify in each jurisdiction in which
the failure to so qualify could have a material adverse effect on the financial
condition, operations or business of Guarantor. Guarantor shall maintain in
force all licenses, approvals and agreements, the loss of which could have a
material adverse effect on its financial condition, operations or business.
10.2 Guarantor shall comply with all statutes, laws, ordinances,
directives, orders, and government rules and regulations to which it is subject
if non-compliance with such laws could adversely affect the financial condition,
operations or business of Guarantor.
10.3 At any time and from time to time Guarantor shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Bank to effect the purposes of this Agreement.
10.4 Guarantor shall maintain its principal depository and operating
accounts with Bank.
11. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
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<PAGE> 89
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
12. This Guaranty shall be governed by the laws of the State of
California, without regard to conflicts of laws principles. GUARANTOR WAIVES ANY
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. Guarantor submits to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of this 14th day of August, 1998.
HTR, Inc.
By:
-----------------------------------
Title:
--------------------------------
4
<PAGE> 90
CORPORATE RESOLUTION TO GUARANTEE
================================================================================
GUARANTOR: HTR, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of HTR, Inc. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of _________________.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTEE INDEBTEDNESS. To guarantee amounts borrowed from time to time
from Imperial Bank ("Bank"), by UOL Publishing, Inc. ("Borrower") pursuant to
that certain Loan and Security Agreement between Bank and Borrower dated as of
August 14, 1998, as amended from time to time (the "Loan Agreement").
EXECUTE GUARANTY. To execute and deliver to Bank the guaranty of the
Corporation (the "Guaranty"), on Bank's forms, and also to execute and deliver
to Bank one or more renewals, extensions, modifications, consolidations, or
substitutions therefor.
GRANT SECURITY. To grant a security interest to Bank in the Collateral,
described in the Security Agreement, which security interest shall secure all of
the Corporation's obligations under the Guaranty.
FURTHER ACTS. To do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or proper
in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank
1
<PAGE> 91
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Bank. Any such notice shall not affect
any of the Corporation's agreements or commitments in effect at the time notice
is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on August __, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
--------------------------------------
================================================================================
2
<PAGE> 1
EXHIBIT 10.37
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: UOL Publishing, Inc.
Number of Shares: 55,000
Class of Stock: Series D Preferred
Initial Exercise Price: See below
Issue Date: August 14, 1998
Expiration Date: August 14, 2005
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, IMPERIAL BANK ("Holder") is entitled to
purchase the number of fully paid and nonassessable shares of Series D Preferred
Stock (the "Shares") of the corporation (the "Company") at the price per Share
(the "Warrant Price") all as set forth herein and as adjusted pursuant to
Article 2 of this Warrant, subject to the provisions and upon the terms and
conditions set forth of this Warrant. The Warrant Price shall be equal to the
price per share at which the Company sold or issued its Series D Preferred Stock
prior to the Issue Date in an offering in which the Company received not less
than $5,000,000 (the "Equity Event").
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 No Rights of Shareholder. This Warrant does not entitle Holder to any
voting rights as a shareholder of the Company prior to the exercise hereof.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such
1
<PAGE> 2
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking or public accounting firm to undertake such valuation. If the
valuation of such investment banking firm is greater than that determined by the
Board of Directors, then all fees and expenses of such investment banking firm
shall be paid by the Company. In all other circumstances, such fees and expenses
shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any Acquisition the
successor entity shall assume the obligations of this Warrant, and this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Purchase Right. At any time after the second anniversary of the
Issue Date, the Company shall, promptly upon request by Holder, given in
Holder's sole discretion, purchase all of Holder's rights under this Warrant for
$50,000 in immediately available funds. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2
<PAGE> 3
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Price Adjustment. If the Company issues additional common shares
(including shares of common stock ultimately issuable upon conversion of a
security convertible into common stock) after the date of the Warrant and the
consideration per additional common share is less than the Warrant Price in
effect immediately before such issue, the price at which the Shares are
converted to common stock if the Shares are Preferred Stock shall be adjusted in
accordance with the treatment of Series D Preferred Stock under the Company's
Certificate of Incorporation in effect on the Issue Date.
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
3
<PAGE> 4
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder that all Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.4 Registration Under Securities Act of 1933, as amended. The
Company hereby grants to Holder the same piggyback registration rights granted
to the purchasers of the Series D Preferred Stock in the Equity Event.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. This Warrant is exercisable, in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR
AN OPINION OF COUNSEL REASONABLY
4
<PAGE> 5
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
UOL Publishing, Inc.
By:
-----------------------------------
Title:
---------------------------------
5
<PAGE> 6
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Stock of __________________________ pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
----------------------------------
(Name)
----------------------------------
----------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
------------------------------------
(Signature)
- ------------------------
(Date)
6
<PAGE> 1
EXHIBIT 10.38
SAND HILL CAPITAL
Innovative Financing Solutions
LOAN AGREEMENT
Dated as of August 14, 1998
by and between
SAND HILL CAPITAL, LLC
as lender
and
UOL PUBLISHING, INC.
a Delaware corporation
as borrower
TOTAL CREDIT AMOUNT: $500,000
Maturity: February 15, 1999
Formula: None
Loan Fee: $10,000
Interest: 12%
Warrants:
Number of shares: 35,000
Class of stock: Series D Preferred
Initial exercise price: See Warrant
The terms and information set forth on this cover page are a part of the
attached Loan Agreement, dated as of the date first written above (this
"Agreement"), entered into by and among Sand Hill Capital, LLC ("Sand Hill") and
UOL Publishing, Inc. ("Borrower") set forth above. The terms and conditions of
the Agreement agreed to between Sand Hill and Borrower are as follows:
<PAGE> 2
1. Advances. Borrower may request one or more advances (each, an "Advance"
and collectively, the "Advances") from time to time upon one Business Day's
notice in an aggregate outstanding amount not to exceed $500,000, provided
Borrower may not request any Advance until (i) all of the conditions set forth
in Article 3 of the Loan and Security Agreement of even date between Imperial
Bank and Borrower (the "Bank Loan Agreement") have been satisfied to Sand Hill's
satisfaction or waived by Sand Hill, (ii) Sand Hill shall have received
guaranties and security agreements from each of Borrower's subsidiaries in a
form acceptable to Sand Hill, (iii) all filings have been completed that are
necessary or appropriate to perfect the security interest of Sand Hill in the
personal property of Borrower and its Subsidiaries, and (iv) all other matters
relating to the requested Advance have been completed to Sand Hill's reasonable
satisfacton.
Borrower shall pay interest on the outstanding Advances at a fixed rate,
as specifed on the cover page hereof. Interest shall be payable in arrears
within five (5) days after the first day of each month. On the Maturity Date
specified on the cover page, the entire outstanding principal balance of the
Advances and all accrued and unpaid interest thereon shall be immediately due
and payable.
All payments on this Agreement shall be applied first to fees and
expenses, then to interest and then to principal. If any payment is not made
within ten (10) days of the due date, Borrower shall pay a late payment fee
equal to the lesser of 5% of the amount of such late payment or the maximum
amount permitted by law. Any principal or interest payments on this Agreement
outstanding after the occurrence and during the continuance of a default under
this Agreement shall bear interest at a rate equal to 5% above the rate
otherwise applicable under this Agreement. In addition to the foregoing amounts,
on February 15, 1999, Borrower shall pay Sand Hill an Extension Fee of $5,000 if
any amount is outstanding under this Agreement on such date, and on March 15,
1999, Borrower shall pay Sand Hill an additional Extension Fee of $10,000 if any
amount is outstanding under this Agreement on such date. The provision in this
paragraph for late fees, default interest and extension fees shall not be
construed as Sand Hill's consent to Borrower's failure to pay any amounts in
strict accordance with this Agreement, and Sand Hill's acceptance of any such
payments shall not restrict Sand Hill's exercise of any remedies arising out of
any such failure.
2. Secured Agreement. To secure repayment of all obligations evidenced by
this Agreement and performance of all of Borrower's obligations hereunder
(including interest accruing after an Insolvency Event), Borrower grants Sand
Hill a security interest in the property described in Exhibit A attached hereto
(the "Collateral"). Borrower shall take such actions as Sand Hill requests from
time to time to perfect or continue the security interest granted hereunder.
Borrower shall not dispose of or encumber or permit to be encumbered or attached
any part of the Collateral without Sand Hill's prior written consent, except for
the security interest granted to Imperial Bank ("Bank") under that certain Loan
and Security Agreement between Borrower and Bank of even date herewith (the
"Bank Loan Agreement") and dispositions of inventory made in the ordinary course
of Borrower's business.
3. Representations and Warranties. Borrower represents to Sand Hill as
follows: (a) Borrower is not in default under any agreement under which Borrower
owes any money, or any agreement, the violation or termination of which could
have a material adverse effect on Borrower; (b) Borrower has taken all action
necessary to authorize the execution, delivery and performance of this
Agreement; (c) except for purchase money security interests on particular items
of equipment, and the security interest granted under the Bank Loan Agreement,
there are no liens, security interests or other encumbrances on the Collateral;
(d) the execution and performance of this Agreement do not conflict with, or
constitute a default under, any agreement to which Borrower is party or by which
Borrower is bound; (e) the information provided to Sand Hill on or prior to the
date of this Agreement is true and correct in all material respects; (f) all
financial statements and other information provided to Sand Hill fairly present
Borrower's financial condition, and there has not been a material adverse change
in the financial condition of Borrower since the date of the most recent of the
financial statements submitted to Sand Hill; (g) the execution and performance
of this Agreement do not conflict with, or constitute a default under, any
agreement to which Borrower is party or by which Borrower is bound; (h) Borrower
is in compliance with all laws and orders applicable to it; (i) Borrower is not
party to any litigation and is not the subject of any government investigation,
and Borrower has no knowledge of any pending litigation or investigation or the
existence of circumstances that reasonably could be expected to give rise to
such litigation or investigation; (j) the representations and warranties made in
the Bank Loan
1
<PAGE> 3
Agreement are true and correct in all material respects; and (k) no
representation or other statement made by Borrower to Sand Hill contains any
untrue statement of a material fact or omits to state a material fact necessary
to make any statements made to Sand Hill not misleading.
4. Covenants.
(a) Borrower will provide Sand Hill (i) within 30 days after the
last day of each month, monthly company-prepared financial statements in form
and substance satisfactory to Sand Hill, prepared in accordance with GAAP, and
(ii) promptly upon Sand Hill's request, such other information relating to
Borrower's operations and condition as Sand Hill may reasonably request from
time to time. Sand Hill shall have a right to review and copy Borrower's books
and records from time to time upon reasonable notice to Borrower. Borrower shall
pay Sand Hill for the costs it may incur from time to time in auditing the
Collateral.
(b) Borrower will maintain insurance on the Collateral that includes
a lender's loss payable endorsement in favor of Sand Hill as an additional loss
payee. Borrower will maintain insurance in a form acceptable to Sand Hill
relating to the Collateral and Borrower's business in amounts and of a type that
are customary to businesses similar to Borrower's. Borrower shall designate Sand
Hill a beneficiary, along with Imperial Bank, under the key person life
insurance policy on Narasimhan P. Kannan.
(c) Borrower will maintain its corporate existence and good standing
and will maintain in force all licenses and agreements, the loss of which could
have a material adverse effect on Borrower's business. Borrower will pay all
taxes on or before the date such taxes are due, and will comply with all laws
and orders applicable to it.
(d) Without Sand Hill's prior written consent, which will not be
unreasonably withheld, Borrower will not (i) make any investments in, or loans
or advances to, any person other than in the ordinary course of business as
currently conducted, (ii) acquire any asseets other than in the ordinary course
of business as currently conducted, (iii) make any distributions or pay any
dividends to any person on account of Borrower's shares, (iv) borrow any money
except under the Bank Loan Agreement and under equipment lease agreements, or
(v) dispose of or encumber any portion of its assets, except for dispositions of
inventory in the ordinary course of Borrower's business.
(e) Borrower will register on an expedited basis with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those intellectual property rights listed on Exhibits A, B and C to
the Intellectual Property Security Agreement delivered to Sand Hill by Borrower.
Borrower will register such additional intellectual property rights developed or
acquired by Borrower from time to time in connection with any product prior to
the sale or licensing of such product to any third party. Borrower will execute
such documents and take such other actions as Sand Hill may reasonably request
to perfect the security interest granted in such rights.
(f) If Borrower merges or consolidates with any person or entity
such that Borrower is not the surviving entity, Sand Hill shall have the right
to terminate this Agreement and require Borrower to pay all unpaid principal,
interest and other amounts owing hereunder on the effective date of such merger
or consolidation.
(g) Borrower will comply with all of the covenants, terms and
condtions set forth in the Bank Loan Agreement.
5. Fees and Expenses. On the date of this Agreement, Borrower shall pay
Sand Hill the Loan Fee specified on the cover page, plus all legal and
underwriting expenses that Sand Hill incurs in connection with this Agreement.
Borrower shall also deliver a warrant to purchase stock to Sand Hill in a form
acceptable to Sand Hill. Borrower shall pay all costs that Sand Hill incurs in
enforcing this Agreement or exercising any rights with respect to the Collateral
(including all costs incurred after the occurrence of an Insolvency Event),
including without limitation reasonable attorneys fees and expenses.
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<PAGE> 4
6. Events of Default; Remedies. Any one or more of the following shall
constitute an Event of Default under this Agreement:
(a) Borrower's failure (i) to pay all or any part of the principal
or interest hereunder on the date due and payable, or (ii) to comply with any
agreement or covenant set forth in this Agreement, or (iii) to comply with the
terms of any material contract to which Borrower is a party and any agreement
pursuant to which Borrower has incurred indebtedness, or (iv) to comply with any
law to which Borrower is subject; or
(b) Borrower becomes insolvent, or becomes the subject of any case
or proceeding under the United States Bankruptcy Code or any other law relating
to the reorganization or restructuring of debt (an "Insolvency Event"); or
(c) any representation made to Sand Hill in this Agreement, the
Warrant issued of even date herewith, or any information given to Sand Hill by
or on behalf of Borrower shall be incorrect in any material respect; or
(d) the occurrence of a material adverse change in the financial or
other condition of Borrower; or
(e) an Event of Default occurs under the Bank Loan Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Sand Hill, be immediately collectible by or on behalf of Sand Hill,
and Sand Hill may exercise all of the rights of a secured party under the
California Uniform Commercial Code. In each case, Sand Hill shall have a right
to dispose of the Collateral in any commercially reasonable manner, and shall
have a royalty-free license to use any name, trademark, advertising matter or
any property of a similar nature to complete production of, advertisement for,
and disposition of any Collateral and Sand Hill shall have a license to enter
into, occupy and use Borrower's premises and the Collateral without charge to
exercise any of Sand Hill's rights or remedies under this Agreement. Borrower
irrevocably appoints Sand Hill (and any of Sand Hill's designated employees or
agents) as Borrower's true and lawful attorney in fact to: endorse Borrower's
name on any checks or other forms of payment; make, settle and adjust all claims
under and decisions with respect to Borrower's policies of insurance; settle and
adjust disputes and claims respecting accounts receivable with account debtors;
execute and deliver all notices, instruments and agreements in connection with
the perfection of the security interest granted in this Agreement; and sell,
lease or otherwise dispose of all or any part of the Collateral. The appointment
of Sand Hill as Borrower's attorney in fact, and each of Sand Hill's rights and
powers, being coupled with an interest, is irrevocable until all amount owing to
Sand Hill have been repaid in full.
7. Waivers; Indemnity. Borrower waives presentment and demand for
payment, notice of dishonor, protest and notice of protest of this Agreement,
and shall pay all costs of collection when incurred, including reasonable
attorneys' fees, costs and expenses incurred before, after or in connection with
of an Insolvency Event. Borrower shall indemnify and hold Sand Hill harmless
from any claim, obligation or liability (including without limitation reasonable
attorneys fees and expenses) arising out of this Agreement or the transactions
contemplated hereby, including any claim, obligation or liability arising
before, after or in connection with an Insolvency Event..
8. Miscellaneous. Sand Hill may assign all or any part of its interest
in this Agreement and the Advances to any person or entity, or grant a
participation of any interest in this Agreement, without notice to, or the
consent of, Borrower. This Agreement can be amended only by an instrument
signed by Sand Hill and Borrower. All prior agreements are superseded by this
Agreement. Borrower may not assign any obligation hereunder without Sand Hill's
consent. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one
instrument. This Agreement shall be governed by the internal laws of the State
of California, without regard to conflicts of laws rules. Borrower and Sand
Hill consent to the exclusive jurisdiction of the United States District Court
of the Northern District of California and the state courts for San Mateo
County, California.
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<PAGE> 5
9. JURY WAIVER. SAND HILL AND BORROWER EACH WAIVES ANY RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN.
UOL PUBLISHING, INC.
By:
----------------------------------
Title:
-------------------------------
SAND HILL CAPITAL, LLC
By:
----------------------------------
Title:
-------------------------------
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<PAGE> 6
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower and Borrower's
books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial
assets, securities entitlements, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds thereof.
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<PAGE> 7
CORPORATE RESOLUTIONS TO BORROW
================================================================================
Borrower: UOL Publishing, Inc.
================================================================================
I, the undersigned Secretary or Assistant Secretary of UOL Publishing,
Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Articles of Incorporation and Bylaws of the Corporation,
each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that by unanimous written consent of the Directors of
the Corporation, (or by other duly authorized corporate action in lieu of a
meeting), the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
- ------------------------- --------------------- -------------------------
- ------------------------- --------------------- -------------------------
- ------------------------- --------------------- -------------------------
- ------------------------- --------------------- -------------------------
- ------------------------- --------------------- -------------------------
- ------------------------- --------------------- -------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Sand Hill Capital, LLC
("Sand Hill"), on such terms as may be agreed upon between the officers,
employees, or agents and Sand Hill, such sum or sums of money as in their
judgment should be borrowed, without limitation, including such sums as are
specified in that certain Loan Agreement dated as of August 14, 1998 (the
"Agreement").
EXECUTE AGREEMENT AND WARRANT. To execute and deliver the Agreement and a
Warrant to Purchase Stock to Sand Hill, and also one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
one or more of the notes, or any portion of the notes.
GRANT SECURITY. To grant a security interest to Sand Hill in the
Collateral described in the Agreement, which security interest shall secure all
of the Corporation's obligations, as described in the Agreement.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
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<PAGE> 8
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on ____________, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-----------------------------------
7
<PAGE> 9
SECURITY AGREEMENT
This Security Agreement is made and entered into as of August 14, 1998 by
and between the undersigned ("Debtor"), and Sand Hill Capital, LLC ("Sand
Hill").
RECITALS
WHEREAS, Sand Hill proposes to enter into a transaction with UOL
Publishing, Inc. ("Borrower"), which is an affiliate of Debtor, pursuant to a
Loan Agreement ('the "Loan Agreement") of even date herewith.
WHEREAS, Debtor has requested Sand Hill to enter into the Loan Agreement,
and expects to derive economic benefit from Sand Hill's doing so and dealing
with Borrower in accordance with the Loan Agreement.
WHEREAS Debtor wishes to guarantee performance and payment of all
obligations under the Loan Agreement, and to secure that guarantee with
substantially all of its assets, subject in all cases to the terms of the
Subordination Agreement between Sand Hill and Imperial Bank.
NOW, THEREFORE, Debtor and Sand Hill agree as follows:
1. Grant of Security Interest. Debtor hereby grants to Sand Hill a
security interest in the Collateral (as defined in Section 2 below) to secure
Debtor's performance of the obligations set forth in Section 3 below.
2. Collateral. The collateral covered by this Security Agreement (the
"Collateral") shall consist of the property described in Exhibit A attached
hereto.
3. Debtor's Obligations Secured Hereby. This Security Agreement secures
all of Debtor's obligations under that certain Unconditional Guaranty of even
date herewith, as such Guaranty is amended from time to time ("Obligations of
Debtor").
4. Debtor's Representations and Warranties. Debtor represents and
warrants as follows:
(a) Authorization. Debtor has authority and has obtained all
approvals and consents necessary to enter into this Security Agreement, and
Debtor's execution, delivery and performance of this Security Agreement will not
violate or conflict with the terms of Debtor's Articles of Incorporation or
Bylaws or any statute, regulation, ordinance, rule of law, agreement, contract,
mortgage, indenture, bond, bill, Loan Agreement, or other instrument or writing
binding upon Debtor or to which Debtor is subject.
(b) Title. All Collateral currently in Debtor's possession or
under Debtor's control is owned by and is as represented by Debtor and is free
of all liens, encumbrances and other security interests, other than security
interests or lessors' interests that are described on the attached schedule,
including the security interest of Imperial Bank (the "Prior Security
Interests").
(c) Accounts. Each of Debtor's Accounts is genuine, as appearing
on its face, enforceable in accordance with its terms (subject to reserves that
occur in the ordinary course of business and that are accounted for in
accordance with generally accepted accounting principles), free of set-off,
counterclaim and defenses, and represents indebtedness, obligations, interests
or property justly owing to and owned by Debtor in the amount or as therein
provided.
5. Debtor's Covenants. Debtor agrees and covenants as follows:
(a) Further Encumbrances. Except as may be required by the terms
and conditions of the Prior Security Interests, and except for subordinated
financing of Debtor by Sand Hills or other financial institutions or purchase
money secured financing, until the Obligations of Debtor secured under this
Security Agreement shall
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<PAGE> 10
have been repaid in full, Debtor shall not grant a security interest in any of
the Collateral other than to Sand Hill or execute any financing statements
covering any of the Collateral in favor of any person other than Sand Hill.
(b) Use of Collateral. The Collateral will not be used for any
unlawful purpose or in any way that will void any insurance required to be
carried in connection therewith. Debtor will keep the Collateral free and clear
of liens and adverse claims other than the Prior Security Interests and, as
appropriate and applicable, will keep it in good condition and repair, and will
clean, shelter, and otherwise care for the Collateral in all such ways as are
considered good practice by owners of like property.
(c) Insurance of Collateral. The Collateral will be insured at
Debtor's expense against all risks commonly insured by owners of like property.
Debtor agrees to pay when due all premiums for such insurance and all taxes,
license fees and other charges in connection with the Collateral. If Sand Hill
shall take possession of the Collateral, Sand Hill may, subject to the Prior
Security Interests, surrender the policies and receive and retain the unearned
premiums thereon.
(d) Indemnification. Debtor shall indemnify Sand Hill against all
losses, claims, demands and liabilities of any kind caused by the Collateral.
(e) Perfection of Security Interest. Debtor shall execute and
deliver such documents as Sand Hill reasonably deems necessary to create,
perfect and continue the security interest in the Collateral contemplated
hereby.
(f) Collection of Accounts. Until Sand Hill shall elect to do so
in accordance with this Security Agreement, Debtor shall diligently collect all
of its Accounts and proceeds of the Collateral and shall hold such Accounts and
proceeds subject to a security interest of Sand Hill to secure the obligations
secured hereby, provided, however, that Debtor may use such proceeds in the
ordinary course of business.
(g) Records. Debtor shall prepare and keep, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate records regarding all Collateral and, if and when requested by Sand
Hill, shall prepare and deliver a complete and accurate schedule of all the
Collateral in such detail as Sand Hill may reasonably request.
(h) Assignments. If and when requested by Sand Hill, and to the
extent consistent with the Prior Security Interests, Debtor shall upon any Event
of Default (as defined in the Loan Agreement) prepare and deliver to Sand Hill
written assignment of all Accounts, instruments, documents and other evidence
thereof.
(i) Inspection of Debtor's Books. Debtor shall permit Sand Hill or
its designee at reasonable times and from time to time to inspect Debtor's
books, records and properties and to audit and to make copies of extracts from
such books and records.
(j) Fees and Costs. Upon any Event of Default (as defined in
Section 6 below), Debtor shall pay all expenses, including reasonable attorneys'
fees, incurred by Sand Hill in the preservation, realization, enforcement or
exercise of any Sand Hill's rights under this Security Agreement.
(k) Out-of-Pocket Expenses of Sand Hill. Debtor will reimburse
Sand Hill for any out-of-pocket costs and expenses incurred by it in connection
with filings, recordations or registrations made for the purpose of perfecting
the security interest in the Collateral hereunder.
6. Events of Default. The occurrence of any Event of Default under the
Loan Agreement, the failure of Guarantor to perform any obligation under the
Guaranty or this Security Agreement, shall constitute an "Event of Default"
under this Security Agreement.
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<PAGE> 11
7. Remedies on Default. Upon the occurrence of an Event of Default,
Sand Hill shall have all rights, privileges, powers and remedies provided by
law, including, but not limited to, exercise of any or all of the following
remedies.
(a) Payment Under the Guaranty. Sand Hill may declare all amounts
outstanding under the Loan Agreement and the Guaranty to be immediately due and
payable, and thereupon all such amounts shall be and become immediately due and
payable to Sand Hill.
(b) Possession of Collateral. Sand Hill may take possession of all
Collateral covered hereby (which Collateral Debtor will assemble and make
available to Sand Hill).
(c) Use, Operation and Sale of Collateral by Sand Hill. Sand Hill
may use, operate, consume and sell the Collateral in its possession as
appropriate for the purpose of performing Debtor's obligations with respect
thereto to the extent necessary to satisfy the Obligations of Debtor.
8. Payments after an Event of Default. All payments received and
amounts realized by Sand Hill pursuant to Section 7, including all such payments
and amounts received after Sand Hill has declared the entire unpaid principal
and interest amount under the Guaranty to be due and payable pursuant to Section
7(a), as well as all payments or amounts then held or thereafter received by
Sand Hill as part of the Collateral while an Event of Default shall be
continuing, shall be promptly applied and distributed by Sand Hill in the
following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys fees, incurred or made hereunder by Sand
Hill, including any such costs and expenses of foreclosure or suit, if any, and
of any sale or the exercise of any other remedy under this Section 8, and of all
taxes, assessments or liens superior to the lien granted under this Security
Agreement;
(b) second, to the payment to Sand Hill of the amount then owing
on the Loan Agreement and in case the payments received and amounts realized by
Sand Hill shall be insufficient to pay in full the whole amount so owing, then
first to the payment of unpaid interest on the Loan Agreement and second to the
payment of unpaid principal thereof; and
(c) third, to the payment of the balance, if any, to the Debtor or
its successors and assigns.
9. Power of Attorney. Debtor hereby appoints Sand Hill, its
attorney-in-fact to prepare, sign and file or record, for Debtor in Debtor's
name, any financing statements, applications for registration and like papers
and to take any other action deemed by Sand Hill necessary or desirable in order
to perfect the security interest of Sand Hill hereunder, and to perform any
obligations of Debtor hereunder, at Debtor's expense, but without obligation to
do so.
10. Remedies Cumulative. The rights, privileges, powers and remedies
afforded to Sand Hill hereunder shall be cumulative, and no single or partial
exercise of any of them shall preclude the further or other exercise of the same
or any of them.
11. Successors and Assigns. This Security Agreement, together with the
covenants and warranties contained herein, shall inure to the benefit of Sand
Hill and its successors and assigns, and shall be binding upon Debtor and it
successors and assigns.
12. Presentment, etc. Debtor hereby waives presentment, protest, notice
of protest, notice of dishonor and notice of nonpayment with respect to any
proceeds to which Sand Hill is entitled hereunder any rights to direct the
application of payments for security for indebtedness of Debtor hereunder, or
indebtedness of customers of Debtor, and hereby waives any right to require
proceedings against others or to require exhaustion of security.
13. Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Security Agreement will be in writing and
will be effective and deemed given under this Security Agreement on the earliest
of: (a) the date of personal delivery; (b) the date of delivery by facsimile; or
(c) the business day after deposit
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<PAGE> 12
with a nationally-recognized courier or overnight service, including Federal
Express or Express Mail, for United States deliveries or three (3) business days
after such deposit for deliveries outside of the United States. All notices not
delivered personally or by facsimile will be sent with postage and other charges
prepaid and properly addressed to the party to be notified at the address set
forth in the Loan Agreement, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
All notices or delivery outside the United States will be sent by facsimile, or
by nationally recognized courier or overnight service, including Express Mail.
Any notice given hereunder to more than one person will be deemed to have been
given, for purposes of counting time periods hereunder, on the date given to the
last party required to be given such notice.
14. Governing Law; Consent to Jurisdiction;JURY WAIVER. This Security
Agreement shall be governed and construed under the laws of the State of
California as applied among California residents, made and to be performed
entirely within the State of California, without regard to conflicts of laws
principles. DEBTOR AND SAND HILL EACH WAIVES ANY RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
15. Enforcement; Counterparts. If any portion of this Security Agreement
is determined to be invalid or unenforceable, the remainder shall be valid and
enforceable to the maximum extent possible with the same effect as if the
invalid or unenforceable portion were omitted from this Security Agreement. This
Security Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one instrument.
16. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this
Agreement, which controversy, dispute or claim is not settled in writing within
thirty (30) days after the "Claim Date" (defined as the date on which a party
subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Santa Clara County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of the Court
(or any subsequently enacted Rule). Each party shall have one peremptory
challenge pursuant to CCP Section 170.6. The referee shall (a) be requested to
set the matter for hearing within sixty (60) days after the date of selection of
the referee and (b) try any and all issues of law or fact and report a statement
of decision upon them, if possible, within ninety (90) days of the Claim Date.
Any decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section 644 in any court in the State
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery or unavailability of a witness
due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice, and request for production or inspection of documents which
cannot be resolved by the parties shall be submitted to the referee as provided
herein. The Superior Court is empowered to issue temporary and/or provisional
remedies, as appropriate.
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<PAGE> 13
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
IN WITNESS WHEREOF, the parties have executed this Security Agreement on
the date set forth above.
COOPERS & ASSOCIATES, INC. SAND HILL CAPITAL, LLC
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
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<PAGE> 14
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(a) all accounts receivable, accounts, chattel paper, contract rights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(b) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Sand Hill (herein referred
to as "Sand Hill" or "Secured Party") to sue in its own name and/or the name of
the Debtor for past, present and future infringements of copyright;
(c) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(d) all guarantees and other security therefor;
(e) all trademarks, service marks, trade names and service names and the
goodwill associated therewith;
(f) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee, (c) all income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (d) the right (but not the obligation) to sue for past, present and
future infringements thereof, (e) all rights corresponding thereto throughout
the world in all jurisdictions in which such patents have been issued or applied
for, and (f) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part with any of the foregoing (all of the foregoing patents
and applications and interests under patent license agreements, together with
the items described in clauses (a) through (f) in this paragraph are sometimes
herein individually and collectively referred to as the "Patents"); and
(g) all products and proceeds, including, without limitation, insurance
proceeds, of any of the foregoing.
6
<PAGE> 15
UNCONDITIONAL GUARANTY
(Ivy Software, Inc.)
For and in consideration of the loan by SAND HILL CAPITAL, LLC ("Sand
Hill") to UOL PUBLISHING, INC., ("Borrower"), which loan is made pursuant to a
Loan Agreement of even date herewith between Borrower and Sand Hill (the
"Agreement"), the undersigned guarantor ("Guarantor") hereby unconditionally and
irrevocably guarantees the prompt and complete payment of all amounts that
Borrower owes to Sand Hill and performance by Borrower of the Agreement and any
other agreements between Borrower and Sand Hill, as amended from time to time
(collectively referred to as the "Agreements"), in strict accordance with their
respective terms.
1. If Borrower does not perform its obligations in strict accordance
with the Agreements, Guarantor shall immediately pay all amounts due thereunder
(including, without limitation, all principal, interest, and fees) and otherwise
to proceed to complete the same and satisfy all of Borrower's obligations under
the Agreements.
2. The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions. Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof, to the extent permitted by law. Guarantor's liability under this
Guaranty is not conditioned or contingent upon the genuineness, validity,
regularity or enforceability of the Agreements.
3. Guarantor authorizes Sand Hill, without notice or demand and without
affecting its liability hereunder, from time to time to (a) renew, extend, or
otherwise change the terms of the Agreements or any part thereof; (b) take and
hold security for the payment of this Guaranty or the Agreements, and exchange,
enforce, waive and release any such security; and (c) apply such security and
direct the order or manner of sale thereof as Sand Hill in its sole discretion
may determine.
4. Guarantor waives any right to require Sand Hill to (a) proceed
against Borrower or any other person; (b) proceed against or exhaust any
security held from Borrower; or (c) pursue any other remedy in Sand Hill's power
whatsoever. Sand Hill may, at its election, exercise or decline or fail to
exercise any right or remedy it may have against Borrower or any security held
by Sand Hill, including without limitation the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of Guarantor hereunder. Guarantor waives any defense arising
by reason of any disability or other defense of Borrower or by reason of the
cessation from any cause whatsoever of the liability of Borrower. Guarantor
waives any setoff, defense or counterclaim that Borrower may have against Sand
Hill. Guarantor waives any defense arising out of the absence, impairment or
loss of any right of reimbursement or subrogation or any other rights against
Borrower. Until all of the amounts that Borrower owes to Sand Hill have been
paid in full, Guarantor shall have no right of subrogation or reimbursement for
claims arising out of or in connection with this Guaranty, contribution or other
rights against Borrower, and Guarantor waives any right to enforce any remedy
that Sand Hill now has or may hereafter have against Borrower. Guarantor waives
all rights to participate in any security now or hereafter held by Sand Hill.
Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty and of the existence, creation, or incurring of
new or additional indebtedness. Guarantor assumes the responsibility for being
and keeping itself informed of the financial condition of Borrower and of all
other circumstances bearing upon the risk of nonpayment of any indebtedness or
nonperformance of any obligation of Borrower, warrants to Sand Hill that it will
keep so informed, and agrees that absent a request for particular information by
Guarantor, Sand Hill shall have no duty to advise Guarantor of information known
to Sand Hill regarding such condition or any such circumstances. Guarantor
waives the benefits of California Civil Code sections 2809, 2810, 2819, 2845,
2847, 2848, 2849, 2850, 2899 and 3433.
5. Guarantor acknowledges that, to the extent Guarantor has or may have
certain rights of subrogation or reimbursement against Borrower for claims
arising out of this Guaranty, those rights may be impaired or destroyed if Sand
Hill elects to proceed against any real property security of Borrower by
non-judicial foreclosure.
1
<PAGE> 16
That impairment or destruction could, under certain judicial cases and based on
equitable principles of estoppel, give rise to a defense by Guarantor against
its obligations under this Guaranty. Guarantor waives that defense and any
others arising from Sand Hill's election to pursue non-judicial foreclosure.
Without limiting the generality of the foregoing, Guarantor waives any and all
benefits and defenses under California Code of Civil Procedure Sections 580a,
580b, 580d and 726, to the extent they are applicable.
6. If Borrower becomes insolvent or is adjudicated bankrupt or files a
petition for reorganization, arrangement, composition or similar relief under
any present or future provision of the United States Bankruptcy Code, or if such
a petition is filed against Borrower, and in any such proceeding some or all of
any indebtedness or obligations under the Agreements are terminated or rejected
or any obligation of Borrower is modified or abrogated, or if Borrower's
obligations are otherwise avoided for any reason, Guarantor agrees that
Guarantor's liability hereunder shall not thereby be affected or modified and
such liability shall continue in full force and effect as if no such action or
proceeding had occurred. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any payment must be returned by Sand Hill
upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any
other guarantor, or otherwise, as though such payment had not been made.
7. Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to any indebtedness of Borrower to Sand Hill; and such
indebtedness of Borrower to Guarantor shall be collected, enforced and received
by Guarantor as trustee for Sand Hill and be paid over to Sand Hill on account
of the indebtedness of Borrower to Sand Hill but without reducing or affecting
in any manner the liability of Guarantor under the other provisions of this
Guaranty.
8. Guarantor agrees to pay a reasonable attorneys' fee and all
reasonable and out-of-pocket costs and expenses which may be incurred by Sand
Hill in the enforcement of this Guaranty. No terms or provisions of this
Guaranty may be changed, waived, revoked or amended without Lender's prior
written consent. Should any provision of this Guaranty be determined by a court
of competent jurisdiction to be unenforceable, all of the other provisions shall
remain effective. This Guaranty embodies the entire agreement among the parties
hereto with respect to the matters set forth herein, and supersedes all prior
agreements among the parties with respect to the matters set forth herein. No
course of prior dealing among the parties, no usage of trade, and no parol or
extrinsic evidence of any nature shall be used to supplement, modify or vary any
of the terms hereof. There are no conditions to the full effectiveness of this
Guaranty. Sand Hill may assign this Guaranty without in any way affecting
Guarantor's liability under it. This Guaranty shall inure to the benefit of Sand
Hill and its successors and assigns. This Guaranty is in addition to the
guaranties of any other guarantors and any and all other guaranties of
Borrower's indebtedness or liabilities to Sand Hill.
9. Guarantor represents and warrants to Sand Hill that (i) Guarantor
has taken all necessary and appropriate action to authorize the execution,
delivery and performance of this Guaranty, (ii) execution, delivery and
performance of this Guaranty do not conflict with or result in a breach of or
constitute a default under Guarantor's Articles of Incorporation or Bylaws or
other organizational documents or agreements to which it is party or by which it
is bound, and (iii) this Guaranty constitutes a valid and binding obligation,
enforceable against Guarantor in accordance with its terms.
10. Guarantor covenants and agrees that Guarantor shall do all of the
following:
10.1 Guarantor shall maintain its corporate existence, remain in
good standing in California, and continue to qualify in each jurisdiction in
which the failure to so qualify could have a material adverse effect on the
financial condition, operations or business of Guarantor. Guarantor shall
maintain in force all licenses, approvals and agreements, the loss of which
could have a material adverse effect on its financial condition, operations or
business.
10.2 Guarantor shall comply with all statutes, laws, ordinances,
directives, orders, and government rules and regulations to which it is subject
if non-compliance with such laws could adversely affect the financial condition,
operations or business of Guarantor.
2
<PAGE> 17
10.3 At any time and from time to time Guarantor shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Sand Hill to effect the purposes of this Agreement.
11. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered
3
<PAGE> 18
by the referee. The parties hereto expressly reserve the right to findings of
fact, conclusions of laws, a written statement of decision, and the right to
move for a new trial or a different judgment, which new trial, if granted, is
also to be a reference proceeding under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
12. This Guaranty shall be governed by the laws of the State of
California, without regard to conflicts of laws principles. GUARANTOR WAIVES ANY
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. Guarantor submits to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of this 14th day of August, 1998.
Ivy Sofware, Inc.
By:
------------------------------------
Title:
---------------------------------
4
<PAGE> 19
CORPORATE RESOLUTION TO GUARANTEE
================================================================================
GUARANTOR: IVY SOFTWARE, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Ivy Software, Inc.
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of its incorporation.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
- --------------------- -------------------- --------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTEE INDEBTEDNESS. To guarantee amounts borrowed from time to time
from Sand Hill Capital, LLC ("Sand Hill"), by UOL Publishing, Inc. ("Borrower")
pursuant to that certain Loan Agreement between Sand Hill and Borrower dated as
of August 14, 1998, as amended from time to time (the "Loan Agreement").
EXECUTE GUARANTY. To execute and deliver to Sand Hill the guaranty of the
Corporation (the "Guaranty"), on Sand Hill's forms, and also to execute and
deliver to Sand Hill one or more renewals, extensions, modifications,
consolidations, or substitutions therefor.
GRANT SECURITY. To grant a security interest to Sand Hill in the
Collateral, described in the Security Agreement, which security interest shall
secure all of the Corporation's obligations under the Guaranty.
FURTHER ACTS. To do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or proper
in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Sand Hill
1
<PAGE> 20
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Sand Hill. Any such notice shall not
affect any of the Corporation's agreements or commitments in effect at the time
notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on August __, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------
================================================================================
2
<PAGE> 21
UNCONDITIONAL GUARANTY
(Coopers & Associates, Inc.)
For and in consideration of the loan by SAND HILL CAPITAL, LLC ("Sand
Hill") to UOL PUBLISHING, INC., ("Borrower"), which loan is made pursuant to a
Loan Agreement of even date herewith between Borrower and Sand Hill (the
"Agreement"), the undersigned guarantor ("Guarantor") hereby unconditionally and
irrevocably guarantees the prompt and complete payment of all amounts that
Borrower owes to Sand Hill and performance by Borrower of the Agreement and any
other agreements between Borrower and Sand Hill, as amended from time to time
(collectively referred to as the "Agreements"), in strict accordance with their
respective terms.
1. If Borrower does not perform its obligations in strict accordance
with the Agreements, Guarantor shall immediately pay all amounts due thereunder
(including, without limitation, all principal, interest, and fees) and otherwise
to proceed to complete the same and satisfy all of Borrower's obligations under
the Agreements.
2. The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions. Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof, to the extent permitted by law. Guarantor's liability under this
Guaranty is not conditioned or contingent upon the genuineness, validity,
regularity or enforceability of the Agreements.
3. Guarantor authorizes Sand Hill, without notice or demand and without
affecting its liability hereunder, from time to time to (a) renew, extend, or
otherwise change the terms of the Agreements or any part thereof; (b) take and
hold security for the payment of this Guaranty or the Agreements, and exchange,
enforce, waive and release any such security; and (c) apply such security and
direct the order or manner of sale thereof as Sand Hill in its sole discretion
may determine.
4. Guarantor waives any right to require Sand Hill to (a) proceed
against Borrower or any other person; (b) proceed against or exhaust any
security held from Borrower; or (c) pursue any other remedy in Sand Hill's power
whatsoever. Sand Hill may, at its election, exercise or decline or fail to
exercise any right or remedy it may have against Borrower or any security held
by Sand Hill, including without limitation the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of Guarantor hereunder. Guarantor waives any defense arising
by reason of any disability or other defense of Borrower or by reason of the
cessation from any cause whatsoever of the liability of Borrower. Guarantor
waives any setoff, defense or counterclaim that Borrower may have against Sand
Hill. Guarantor waives any defense arising out of the absence, impairment or
loss of any right of reimbursement or subrogation or any other rights against
Borrower. Until all of the amounts that Borrower owes to Sand Hill have been
paid in full, Guarantor shall have no right of subrogation or reimbursement for
claims arising out of or in connection with this Guaranty, contribution or other
rights against Borrower, and Guarantor waives any right to enforce any remedy
that Sand Hill now has or may hereafter have against Borrower. Guarantor waives
all rights to participate in any security now or hereafter held by Sand Hill.
Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty and of the existence, creation, or incurring of
new or additional indebtedness. Guarantor assumes the responsibility for being
and keeping itself informed of the financial condition of Borrower and of all
other circumstances bearing upon the risk of nonpayment of any indebtedness or
nonperformance of any obligation of Borrower, warrants to Sand Hill that it will
keep so informed, and agrees that absent a request for particular information by
Guarantor, Sand Hill shall have no duty to advise Guarantor of information known
to Sand Hill regarding such condition or any such circumstances. Guarantor
waives the benefits of California Civil Code sections 2809, 2810, 2819, 2845,
2847, 2848, 2849, 2850, 2899 and 3433.
5. Guarantor acknowledges that, to the extent Guarantor has or may have
certain rights of subrogation or reimbursement against Borrower for claims
arising out of this Guaranty, those rights may be impaired or destroyed if Sand
Hill elects to proceed against any real property security of Borrower by
non-judicial foreclosure.
1
<PAGE> 22
That impairment or destruction could, under certain judicial cases and based on
equitable principles of estoppel, give rise to a defense by Guarantor against
its obligations under this Guaranty. Guarantor waives that defense and any
others arising from Sand Hill's election to pursue non-judicial foreclosure.
Without limiting the generality of the foregoing, Guarantor waives any and all
benefits and defenses under California Code of Civil Procedure Sections 580a,
580b, 580d and 726, to the extent they are applicable.
6. If Borrower becomes insolvent or is adjudicated bankrupt or files a
petition for reorganization, arrangement, composition or similar relief under
any present or future provision of the United States Bankruptcy Code, or if such
a petition is filed against Borrower, and in any such proceeding some or all of
any indebtedness or obligations under the Agreements are terminated or rejected
or any obligation of Borrower is modified or abrogated, or if Borrower's
obligations are otherwise avoided for any reason, Guarantor agrees that
Guarantor's liability hereunder shall not thereby be affected or modified and
such liability shall continue in full force and effect as if no such action or
proceeding had occurred. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any payment must be returned by Sand Hill
upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any
other guarantor, or otherwise, as though such payment had not been made.
7. Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to any indebtedness of Borrower to Sand Hill; and such
indebtedness of Borrower to Guarantor shall be collected, enforced and received
by Guarantor as trustee for Sand Hill and be paid over to Sand Hill on account
of the indebtedness of Borrower to Sand Hill but without reducing or affecting
in any manner the liability of Guarantor under the other provisions of this
Guaranty.
8. Guarantor agrees to pay a reasonable attorneys' fee and all
reasonable and out-of-pocket costs and expenses which may be incurred by Sand
Hill in the enforcement of this Guaranty. No terms or provisions of this
Guaranty may be changed, waived, revoked or amended without Lender's prior
written consent. Should any provision of this Guaranty be determined by a court
of competent jurisdiction to be unenforceable, all of the other provisions shall
remain effective. This Guaranty embodies the entire agreement among the parties
hereto with respect to the matters set forth herein, and supersedes all prior
agreements among the parties with respect to the matters set forth herein. No
course of prior dealing among the parties, no usage of trade, and no parol or
extrinsic evidence of any nature shall be used to supplement, modify or vary any
of the terms hereof. There are no conditions to the full effectiveness of this
Guaranty. Sand Hill may assign this Guaranty without in any way affecting
Guarantor's liability under it. This Guaranty shall inure to the benefit of Sand
Hill and its successors and assigns. This Guaranty is in addition to the
guaranties of any other guarantors and any and all other guaranties of
Borrower's indebtedness or liabilities to Sand Hill.
9. Guarantor represents and warrants to Sand Hill that (i) Guarantor
has taken all necessary and appropriate action to authorize the execution,
delivery and performance of this Guaranty, (ii) execution, delivery and
performance of this Guaranty do not conflict with or result in a breach of or
constitute a default under Guarantor's Articles of Incorporation or Bylaws or
other organizational documents or agreements to which it is party or by which it
is bound, and (iii) this Guaranty constitutes a valid and binding obligation,
enforceable against Guarantor in accordance with its terms.
10. Guarantor covenants and agrees that Guarantor shall do all of the
following:
10.1 Guarantor shall maintain its corporate existence, remain in
good standing in California, and continue to qualify in each jurisdiction in
which the failure to so qualify could have a material adverse effect on the
financial condition, operations or business of Guarantor. Guarantor shall
maintain in force all licenses, approvals and agreements, the loss of which
could have a material adverse effect on its financial condition, operations or
business.
10.2 Guarantor shall comply with all statutes, laws, ordinances,
directives, orders, and government rules and regulations to which it is subject
if non-compliance with such laws could adversely affect the financial condition,
operations or business of Guarantor.
2
<PAGE> 23
10.3 At any time and from time to time Guarantor shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Sand Hill to effect the purposes of this Agreement.
11. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered
3
<PAGE> 24
by the referee. The parties hereto expressly reserve the right to findings of
fact, conclusions of laws, a written statement of decision, and the right to
move for a new trial or a different judgment, which new trial, if granted, is
also to be a reference proceeding under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
12. This Guaranty shall be governed by the laws of the State of
California, without regard to conflicts of laws principles. GUARANTOR WAIVES ANY
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. Guarantor submits to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of this 14th day of August, 1998.
Coopers & Associates, Inc.
By:
--------------------------------------
Title:
-----------------------------------
4
<PAGE> 25
CORPORATE RESOLUTION TO GUARANTEE
================================================================================
GUARANTOR: COOPERS & ASSOCIATES, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Coopers &
Associates, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of its
incorporation.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
- ---------------------- ------------------- --------------------
- ---------------------- ------------------- --------------------
- ---------------------- ------------------- --------------------
- ---------------------- ------------------- --------------------
- ---------------------- ------------------- --------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTEE INDEBTEDNESS. To guarantee amounts borrowed from time to time
from Sand Hill Capital, LLC ("Sand Hill"), by UOL Publishing, Inc. ("Borrower")
pursuant to that certain Loan Agreement between Sand Hill and Borrower dated as
of August 14, 1998, as amended from time to time (the "Loan Agreement").
EXECUTE GUARANTY. To execute and deliver to Sand Hill the guaranty of the
Corporation (the "Guaranty"), on Sand Hill's forms, and also to execute and
deliver to Sand Hill one or more renewals, extensions, modifications,
consolidations, or substitutions therefor.
GRANT SECURITY. To grant a security interest to Sand Hill in the
Collateral, described in the Security Agreement, which security interest shall
secure all of the Corporation's obligations under the Guaranty.
FURTHER ACTS. To do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or proper
in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Sand Hill
1
<PAGE> 26
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Sand Hill. Any such notice shall not
affect any of the Corporation's agreements or commitments in effect at the time
notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on August __, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-----------------------------
================================================================================
2
<PAGE> 27
UNCONDITIONAL GUARANTY
(Corporate)
For and in consideration of the loan by SAND HILL CAPITAL, LLC ("Sand
Hill") to UOL PUBLISHING, INC., ("Borrower"), which loan is made pursuant to a
Loan Agreement of even date herewith between Borrower and Sand Hill (the
"Agreement"), the undersigned guarantor ("Guarantor") hereby unconditionally and
irrevocably guarantees the prompt and complete payment of all amounts that
Borrower owes to Sand Hill and performance by Borrower of the Agreement and any
other agreements between Borrower and Sand Hill, as amended from time to time
(collectively referred to as the "Agreements"), in strict accordance with their
respective terms.
1. If Borrower does not perform its obligations in strict accordance
with the Agreements, Guarantor shall immediately pay all amounts due thereunder
(including, without limitation, all principal, interest, and fees) and otherwise
to proceed to complete the same and satisfy all of Borrower's obligations under
the Agreements.
2. The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions. Guarantor waives the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof, to the extent permitted by law. Guarantor's liability under this
Guaranty is not conditioned or contingent upon the genuineness, validity,
regularity or enforceability of the Agreements.
3. Guarantor authorizes Sand Hill, without notice or demand and without
affecting its liability hereunder, from time to time to (a) renew, extend, or
otherwise change the terms of the Agreements or any part thereof; (b) take and
hold security for the payment of this Guaranty or the Agreements, and exchange,
enforce, waive and release any such security; and (c) apply such security and
direct the order or manner of sale thereof as Sand Hill in its sole discretion
may determine.
4. Guarantor waives any right to require Sand Hill to (a) proceed
against Borrower or any other person; (b) proceed against or exhaust any
security held from Borrower; or (c) pursue any other remedy in Sand Hill's power
whatsoever. Sand Hill may, at its election, exercise or decline or fail to
exercise any right or remedy it may have against Borrower or any security held
by Sand Hill, including without limitation the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of Guarantor hereunder. Guarantor waives any defense arising
by reason of any disability or other defense of Borrower or by reason of the
cessation from any cause whatsoever of the liability of Borrower. Guarantor
waives any setoff, defense or counterclaim that Borrower may have against Sand
Hill. Guarantor waives any defense arising out of the absence, impairment or
loss of any right of reimbursement or subrogation or any other rights against
Borrower. Until all of the amounts that Borrower owes to Sand Hill have been
paid in full, Guarantor shall have no right of subrogation or reimbursement for
claims arising out of or in connection with this Guaranty, contribution or other
rights against Borrower, and Guarantor waives any right to enforce any remedy
that Sand Hill now has or may hereafter have against Borrower. Guarantor waives
all rights to participate in any security now or hereafter held by Sand Hill.
Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty and of the existence, creation, or incurring of
new or additional indebtedness. Guarantor assumes the responsibility for being
and keeping itself informed of the financial condition of Borrower and of all
other circumstances bearing upon the risk of nonpayment of any indebtedness or
nonperformance of any obligation of Borrower, warrants to Sand Hill that it will
keep so informed, and agrees that absent a request for particular information by
Guarantor, Sand Hill shall have no duty to advise Guarantor of information known
to Sand Hill regarding such condition or any such circumstances. Guarantor
waives the benefits of California Civil Code sections 2809, 2810, 2819, 2845,
2847, 2848, 2849, 2850, 2899 and 3433.
5. Guarantor acknowledges that, to the extent Guarantor has or may have
certain rights of subrogation or reimbursement against Borrower for claims
arising out of this Guaranty, those rights may be impaired or destroyed if Sand
Hill elects to proceed against any real property security of Borrower by
non-judicial foreclosure.
1
<PAGE> 28
That impairment or destruction could, under certain judicial cases and based on
equitable principles of estoppel, give rise to a defense by Guarantor against
its obligations under this Guaranty. Guarantor waives that defense and any
others arising from Sand Hill's election to pursue non-judicial foreclosure.
Without limiting the generality of the foregoing, Guarantor waives any and all
benefits and defenses under California Code of Civil Procedure Sections 580a,
580b, 580d and 726, to the extent they are applicable.
6. If Borrower becomes insolvent or is adjudicated bankrupt or files a
petition for reorganization, arrangement, composition or similar relief under
any present or future provision of the United States Bankruptcy Code, or if such
a petition is filed against Borrower, and in any such proceeding some or all of
any indebtedness or obligations under the Agreements are terminated or rejected
or any obligation of Borrower is modified or abrogated, or if Borrower's
obligations are otherwise avoided for any reason, Guarantor agrees that
Guarantor's liability hereunder shall not thereby be affected or modified and
such liability shall continue in full force and effect as if no such action or
proceeding had occurred. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if any payment must be returned by Sand Hill
upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any
other guarantor, or otherwise, as though such payment had not been made.
7. Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to any indebtedness of Borrower to Sand Hill; and such
indebtedness of Borrower to Guarantor shall be collected, enforced and received
by Guarantor as trustee for Sand Hill and be paid over to Sand Hill on account
of the indebtedness of Borrower to Sand Hill but without reducing or affecting
in any manner the liability of Guarantor under the other provisions of this
Guaranty.
8. Guarantor agrees to pay a reasonable attorneys' fee and all
reasonable and out-of-pocket costs and expenses which may be incurred by Sand
Hill in the enforcement of this Guaranty. No terms or provisions of this
Guaranty may be changed, waived, revoked or amended without Lender's prior
written consent. Should any provision of this Guaranty be determined by a court
of competent jurisdiction to be unenforceable, all of the other provisions shall
remain effective. This Guaranty embodies the entire agreement among the parties
hereto with respect to the matters set forth herein, and supersedes all prior
agreements among the parties with respect to the matters set forth herein. No
course of prior dealing among the parties, no usage of trade, and no parol or
extrinsic evidence of any nature shall be used to supplement, modify or vary any
of the terms hereof. There are no conditions to the full effectiveness of this
Guaranty. Sand Hill may assign this Guaranty without in any way affecting
Guarantor's liability under it. This Guaranty shall inure to the benefit of Sand
Hill and its successors and assigns. This Guaranty is in addition to the
guaranties of any other guarantors and any and all other guaranties of
Borrower's indebtedness or liabilities to Sand Hill.
9. Guarantor represents and warrants to Sand Hill that (i) Guarantor
has taken all necessary and appropriate action to authorize the execution,
delivery and performance of this Guaranty, (ii) execution, delivery and
performance of this Guaranty do not conflict with or result in a breach of or
constitute a default under Guarantor's Articles of Incorporation or Bylaws or
other organizational documents or agreements to which it is party or by which it
is bound, and (iii) this Guaranty constitutes a valid and binding obligation,
enforceable against Guarantor in accordance with its terms.
10. Guarantor covenants and agrees that Guarantor shall do all of the
following:
10.1 Guarantor shall maintain its corporate existence, remain in
good standing in California, and continue to qualify in each jurisdiction in
which the failure to so qualify could have a material adverse effect on the
financial condition, operations or business of Guarantor. Guarantor shall
maintain in force all licenses, approvals and agreements, the loss of which
could have a material adverse effect on its financial condition, operations or
business.
10.2 Guarantor shall comply with all statutes, laws, ordinances,
directives, orders, and government rules and regulations to which it is subject
if non-compliance with such laws could adversely affect the financial condition,
operations or business of Guarantor.
2
<PAGE> 29
10.3 At any time and from time to time Guarantor shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Sand Hill to effect the purposes of this Agreement.
11. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered
3
<PAGE> 30
by the referee. The parties hereto expressly reserve the right to findings of
fact, conclusions of laws, a written statement of decision, and the right to
move for a new trial or a different judgment, which new trial, if granted, is
also to be a reference proceeding under this Section 13.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
12. This Guaranty shall be governed by the laws of the State of
California, without regard to conflicts of laws principles. GUARANTOR WAIVES ANY
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. Guarantor submits to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California.
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of this 14th day of August, 1998.
HTR, Inc.
By:
------------------------------------
Title:
----------------------------------
4
<PAGE> 31
CORPORATE RESOLUTION TO GUARANTEE
================================================================================
GUARANTOR: HTR, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of HTR, Inc. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of its incorporation.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
- ---------------------- ---------------------- -------------------
- ---------------------- ---------------------- -------------------
- ---------------------- ---------------------- -------------------
- ---------------------- ---------------------- -------------------
- ---------------------- ---------------------- -------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
GUARANTEE INDEBTEDNESS. To guarantee amounts borrowed from time to time
from Sand Hill Capital, LLC ("Sand Hill"), by UOL Publishing, Inc. ("Borrower")
pursuant to that certain Loan Agreement between Sand Hill and Borrower dated as
of August 14, 1998, as amended from time to time (the "Loan Agreement").
EXECUTE GUARANTY. To execute and deliver to Sand Hill the guaranty of the
Corporation (the "Guaranty"), on Sand Hill's forms, and also to execute and
deliver to Sand Hill one or more renewals, extensions, modifications,
consolidations, or substitutions therefor.
GRANT SECURITY. To grant a security interest to Sand Hill in the
Collateral, described in the Security Agreement, which security interest shall
secure all of the Corporation's obligations under the Guaranty.
FURTHER ACTS. To do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or proper
in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Sand Hill
1
<PAGE> 32
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Sand Hill. Any such notice shall not
affect any of the Corporation's agreements or commitments in effect at the time
notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on August __, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
---------------------------------
================================================================================
2
<PAGE> 33
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(Coopers & Associates, Inc.)
This Intellectual Property Security Agreement is entered into as of
August 14, 1998 by and between SAND HILL CAPITAL, LLC ("Sand Hill") and
Coopers & Associates, Inc. ("Grantor").
RECITALS
Sand Hill and UOL Publishing, Inc. are parties to that certain loan
agreement of even date (as amended from time to time, the "Loan Agreement").
Capitalized terms used herein have the meaning assigned in the Grantor
Documents. Pursuant to the terms of that certain Unconditional Guaranty and that
certain Security Agreement, each of even date herewith (the "Grantor
Documents"), Grantor has granted to Sand Hill a security interest in all of
Grantor's right, title and interest, whether presently existing or hereafter
acquired, in, to and under the Collateral.
NOW, THEREFORE, Grantor agrees as follows:
AGREEMENT
To secure performance of its obligations under the Grantor Documents,
Grantor grants to Sand Hill a security interest in all of Grantor's right, title
and interest in Grantor's intellectual property (including without limitation
those Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
including without limitation all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits). The security interest granted hereby shall terminate immediately and
automatically upon satisfaction of the Obligations, as defined in the Loan
Agreement.
Grantor shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Schedules A, B and C hereto within thirty (30) days of
the date of this Agreement. Grantor shall register or cause to be registered on
an expedited basis with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Grantor from time to time in connection
with any product prior to the sale or licensing of such product to any third
party (including without limitation revisions or additions to the intellectual
property rights listed on such Schedules A, B and C). Grantor shall from time to
time, execute and file such other instruments, and take such further actions as
Sand Hill may reasonably request from time to time to perfect or continue the
perfection of Sand Hill's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Sand Hill under the Grantor Documents. Each right, power and
remedy of Sand Hill provided for herein shall not preclude the simultaneous or
later exercise by Sand Hill of any or all other rights, powers or remedies.
<PAGE> 34
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Grantor: Coopers & Associates, Inc.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 -----------------------------------
Title:
--------------------------------
Attn: Joanne O'Rourke Hindman
Address of Sand Hill: SAND HILL CAPITAL, LLC
3000 Sand Hill Road By:
Building 2, Suite 110 -----------------------------------
Menlo Park, CA 94025
Attn: Daniel Corry Title:
--------------------------------
<PAGE> 35
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- -------------
<S> <C> <C>
</TABLE>
<PAGE> 36
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- -------------
<S> <C> <C>
</TABLE>
<PAGE> 37
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- -------------
<S> <C> <C>
</TABLE>
<PAGE> 38
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(HTR, Inc.)
This Intellectual Property Security Agreement is entered into as of
August 14, 1998 by and between SAND HILL CAPITAL, LLC ("Sand Hill") and
HTR, Inc. ("Grantor").
RECITALS
Sand Hill and UOL Publishing, Inc. are parties to that certain loan
agreement of even date (as amended from time to time, the "Loan Agreement").
Capitalized terms used herein have the meaning assigned in the Grantor
Documents. Pursuant to the terms of that certain Unconditional Guaranty and that
certain Security Agreement, each of even date herewith (the "Grantor
Documents"), Grantor has granted to Sand Hill a security interest in all of
Grantor's right, title and interest, whether presently existing or hereafter
acquired, in, to and under the Collateral.
NOW, THEREFORE, Grantor agrees as follows:
AGREEMENT
To secure performance of its obligations under the Grantor Documents,
Grantor grants to Sand Hill a security interest in all of Grantor's right, title
and interest in Grantor's intellectual property (including without limitation
those Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
including without limitation all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits). The security interest granted hereby shall terminate immediately and
automatically upon satisfaction of the Obligations, as defined in the Loan
Agreement.
Grantor shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Schedules A, B and C hereto within thirty (30) days of
the date of this Agreement. Grantor shall register or cause to be registered on
an expedited basis with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Grantor from time to time in connection
with any product prior to the sale or licensing of such product to any third
party (including without limitation revisions or additions to the intellectual
property rights listed on such Schedules A, B and C). Grantor shall from time to
time, execute and file such other instruments, and take such further actions as
Sand Hill may reasonably request from time to time to perfect or continue the
perfection of Sand Hill's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Sand Hill under the Grantor Documents. Each right, power and
remedy of Sand Hill provided for herein shall not preclude the simultaneous or
later exercise by Sand Hill of any or all other rights, powers or remedies.
<PAGE> 39
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Grantor: HTR, Inc.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 ------------------------------------
Title:
--------------------------------
Attn: Joanne O'Rourke Hindman
Address of Sand Hill: SAND HILL CAPITAL, LLC
3000 Sand Hill Road By:
Building 2, Suite 110 -----------------------------------
Menlo Park, CA 94025
Attn: Daniel Corry Title:
--------------------------------
<PAGE> 40
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 41
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 42
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 43
INTELLECTUAL PROPERTY SECURITY AGREEMENT
(Ivy Software, Inc.)
This Intellectual Property Security Agreement is entered into as of
August 14, 1998 by and between Sand Hill Capital, LLC ("Sand Hill") and Ivy
Software, Inc. ("Grantor").
RECITALS
Sand Hill and UOL Publishing, Inc. are parties to that certain loan
agreement of even date (as amended from time to time, the "Loan Agreement").
Capitalized terms used herein have the meaning assigned in the Grantor
Documents. Pursuant to the terms of that certain Unconditional Guaranty and that
certain Security Agreement, each of even date herewith (the "Grantor
Documents"), Grantor has granted to Sand Hill a security interest in all of
Grantor's right, title and interest, whether presently existing or hereafter
acquired, in, to and under the Collateral.
NOW, THEREFORE, Grantor agrees as follows:
AGREEMENT
To secure performance of its obligations under the Grantor Documents,
Grantor grants to Sand Hill a security interest in all of Grantor's right, title
and interest in Grantor's intellectual property (including without limitation
those Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
including without limitation all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits). The security interest granted hereby shall terminate immediately and
automatically upon satisfaction of the Obligations, as defined in the Loan
Agreement.
Grantor shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Schedules A, B and C hereto within thirty (30) days of
the date of this Agreement. Grantor shall register or cause to be registered on
an expedited basis with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Grantor from time to time in connection
with any product prior to the sale or licensing of such product to any third
party (including without limitation revisions or additions to the intellectual
property rights listed on such Schedules A, B and C). Grantor shall from time to
time, execute and file such other instruments, and take such further actions as
Sand Hill may reasonably request from time to time to perfect or continue the
perfection of Sand Hill's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Sand Hill under the Grantor Documents. Each right, power and
remedy of Sand Hill provided for herein shall not preclude the simultaneous or
later exercise by Sand Hill of any or all other rights, powers or remedies.
<PAGE> 44
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Grantor: Ivy Software, Inc.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 ---------------------------------
Title:
------------------------------
Attn: Joanne O'Rourke Hindman
Address of Sand Hill: SAND HILL CAPITAL, LLC
3000 Sand Hill Road By:
Building 2, Suite 110 ---------------------------------
Menlo Park, CA 94025
Attn: Daniel Corry Title:
------------------------------
<PAGE> 45
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 46
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 47
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- -------------- ---------------
<S> <C> <C>
</TABLE>
<PAGE> 48
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
August 14, 1998 by and between SAND HILL CAPITAL, LLC ("Sand Hill") and UOL
PUBLISHING, INC.. ("Borrower").
RECITALS
Sand Hill and Borrower are parties to that certain loan agreement of even
date (as amended from time to time, the "Loan Agreement"). Capitalized terms
used herein have the meaning assigned in the Loan Agreement. Pursuant to the
terms of the Loan Agreement, Borrower has granted to Sand Hill a security
interest in all of Borrower's right, title and interest, whether presently
existing or hereafter acquired, in, to and under the Collateral.
NOW, THEREFORE, Borrower agrees as follows:
AGREEMENT
To secure performance of its obligations under the Loan Agreement,
Borrower grants to Sand Hill a security interest in all of Borrower's right,
title and interest in Borrower's intellectual property (including without
limitation those Copyrights, Patents and Trademarks listed on Schedules A, B and
C hereto), including without limitation all proceeds thereof (such as, by way of
example but not by way of limitation, license royalties and proceeds of
infringement suits).
Grantor shall register or cause to be registered (to the extent not
already registered) with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those intellectual property
rights listed on Schedules A, B and C hereto within thirty (30) days of the date
of this Agreement. Grantor shall register or cause to be registered with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, those additional intellectual property rights developed or
acquired by Grantor from time to time in connection with any product prior to
the sale or licensing of such product to any third party (including without
limitation revisions or additions to the intellectual property rights listed on
such Schedules A, B and C). Grantor shall from time to time, execute and file
such other instruments, and take such further actions as Sand Hill may
reasonably request from time to time to perfect or continue the perfection of
Sand Hill's interest in the intellectual property.
This security interest is granted in conjunction with the security
interest granted to Sand Hill under the Loan Agreement. Each right, power and
remedy of Sand Hill provided for herein shall not preclude the simultaneous or
later exercise by Sand Hill of any or all other rights, powers or remedies.
<PAGE> 49
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed as of the first date written above.
Address of Borrower: UOL PUBLISHING, INC.
8251 Greensboro Drive, Suite 500 By:
McLean, VA 22102 -----------------------------------
Title:
--------------------------------
Attn: Joanne O'Rourke Hindman
Address of Sand Hill: SAND HILL CAPITAL, LLC
3000 Sand Hill Road By:
Building 2, Suite 110 -----------------------------------
Menlo Park, CA 94025
Attn: Daniel Corry Title:
--------------------------------
<PAGE> 50
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- --------------- ----------------
<S> <C> <C>
</TABLE>
<PAGE> 51
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- --------------- ----------------
<S> <C> <C>
</TABLE>
<PAGE> 52
x
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- --------------- ----------------
<S> <C> <C>
</TABLE>
<PAGE> 53
SECURITY AGREEMENT
(HTR, Inc.)
This Security Agreement is made and entered into as of August 14,
1998 by and between the undersigned ("Debtor"), and Sand Hill Capital, LLC
("Sand Hill").
RECITALS
WHEREAS, Sand Hill proposes to enter into a transaction with UOL
Publishing, Inc. ("Borrower"), which is an affiliate of Debtor, pursuant to a
Loan Agreement ('the "Loan Agreement") of even date herewith.
WHEREAS, Debtor has requested Sand Hill to enter into the Loan
Agreement, and expects to derive economic benefit from Sand Hill's doing so and
dealing with Borrower in accordance with the Loan Agreement.
WHEREAS Debtor wishes to guarantee performance and payment of all
obligations under the Loan Agreement, and to secure that guarantee with
substantially all of its assets, subject in all cases to the terms of the
Subordination Agreement between Sand Hill and Imperial Bank.
NOW, THEREFORE, Debtor and Sand Hill agree as follows:
1. Grant of Security Interest. Debtor hereby grants to Sand Hill a
security interest in the Collateral (as defined in Section 2 below) to secure
Debtor's performance of the obligations set forth in Section 3 below.
2. Collateral. The collateral covered by this Security Agreement
(the "Collateral") shall consist of the property described in Exhibit A attached
hereto.
3. Debtor's Obligations Secured Hereby. This Security Agreement
secures all of Debtor's obligations under that certain Unconditional Guaranty of
even date herewith, as such Guaranty is amended from time to time ("Obligations
of Debtor").
4. Debtor's Representations and Warranties. Debtor represents and
warrants as follows:
(a) Authorization. Debtor has authority and has obtained all
approvals and consents necessary to enter into this Security Agreement, and
Debtor's execution, delivery and performance of this Security Agreement will not
violate or conflict with the terms of Debtor's Articles of Incorporation or
Bylaws or any statute, regulation, ordinance, rule of law, agreement, contract,
mortgage, indenture, bond, bill, Loan Agreement, or other instrument or writing
binding upon Debtor or to which Debtor is subject.
(b) Title. All Collateral currently in Debtor's possession or
under Debtor's control is owned by and is as represented by Debtor and is free
of all liens, encumbrances and other security interests, other than security
interests or lessors' interests that are described on the attached schedule,
including the security interest of Imperial Bank (the "Prior Security
Interests").
(c) Accounts. Each of Debtor's Accounts is genuine, as appearing
on its face, enforceable in accordance with its terms (subject to reserves that
occur in the ordinary course of business and that are accounted for in
accordance with generally accepted accounting principles), free of set-off,
counterclaim and defenses, and represents indebtedness, obligations, interests
or property justly owing to and owned by Debtor in the amount or as therein
provided.
5. Debtor's Covenants. Debtor agrees and covenants as follows:
(a) Further Encumbrances. Except as may be required by the terms
and conditions of the Prior Security Interests, and except for subordinated
financing of Debtor by Sand Hills or other financial institutions or purchase
money secured financing, until the Obligations of Debtor secured under this
Security Agreement shall
1
<PAGE> 54
have been repaid in full, Debtor shall not grant a security interest in any of
the Collateral other than to Sand Hill or execute any financing statements
covering any of the Collateral in favor of any person other than Sand Hill.
(b) Use of Collateral. The Collateral will not be used for any
unlawful purpose or in any way that will void any insurance required to be
carried in connection therewith. Debtor will keep the Collateral free and clear
of liens and adverse claims other than the Prior Security Interests and, as
appropriate and applicable, will keep it in good condition and repair, and will
clean, shelter, and otherwise care for the Collateral in all such ways as are
considered good practice by owners of like property.
(c) Insurance of Collateral. The Collateral will be insured at
Debtor's expense against all risks commonly insured by owners of like property.
Debtor agrees to pay when due all premiums for such insurance and all taxes,
license fees and other charges in connection with the Collateral. If Sand Hill
shall take possession of the Collateral, Sand Hill may, subject to the Prior
Security Interests, surrender the policies and receive and retain the unearned
premiums thereon.
(d) Indemnification. Debtor shall indemnify Sand Hill against all
losses, claims, demands and liabilities of any kind caused by the Collateral.
(e) Perfection of Security Interest. Debtor shall execute and
deliver such documents as Sand Hill reasonably deems necessary to create,
perfect and continue the security interest in the Collateral contemplated
hereby.
(f) Collection of Accounts. Until Sand Hill shall elect to do so
in accordance with this Security Agreement, Debtor shall diligently collect all
of its Accounts and proceeds of the Collateral and shall hold such Accounts and
proceeds subject to a security interest of Sand Hill to secure the obligations
secured hereby, provided, however, that Debtor may use such proceeds in the
ordinary course of business.
(g) Records. Debtor shall prepare and keep, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate records regarding all Collateral and, if and when requested by Sand
Hill, shall prepare and deliver a complete and accurate schedule of all the
Collateral in such detail as Sand Hill may reasonably request.
(h) Assignments. If and when requested by Sand Hill, and to the
extent consistent with the Prior Security Interests, Debtor shall upon any Event
of Default (as defined in the Loan Agreement) prepare and deliver to Sand Hill
written assignment of all Accounts, instruments, documents and other evidence
thereof.
(i) Inspection of Debtor's Books. Debtor shall permit Sand Hill
or its designee at reasonable times and from time to time to inspect Debtor's
books, records and properties and to audit and to make copies of extracts from
such books and records.
(j) Fees and Costs. Upon any Event of Default (as defined in
Section 6 below), Debtor shall pay all expenses, including reasonable attorneys'
fees, incurred by Sand Hill in the preservation, realization, enforcement or
exercise of any Sand Hill's rights under this Security Agreement.
(k) Out-of-Pocket Expenses of Sand Hill. Debtor will reimburse
Sand Hill for any out-of-pocket costs and expenses incurred by it in connection
with filings, recordations or registrations made for the purpose of perfecting
the security interest in the Collateral hereunder.
6. Events of Default. The occurrence of any Event of Default under
the Loan Agreement , the failure of Guarantor to perform any obligation under
the Guaranty or this Security Agreement, shall constitute an "Event of Default"
under this Security Agreement.
2
<PAGE> 55
7. Remedies on Default. Upon the occurrence of an Event of Default,
Sand Hill shall have all rights, privileges, powers and remedies provided by
law, including, but not limited to, exercise of any or all of the following
remedies.
(a) Payment Under the Guaranty. Sand Hill may declare all amounts
outstanding under the Loan Agreement and the Guaranty to be immediately due and
payable, and thereupon all such amounts shall be and become immediately due and
payable to Sand Hill.
(b) Possession of Collateral. Sand Hill may take possession of
all Collateral covered hereby (which Collateral Debtor will assemble and make
available to Sand Hill).
(c) Use, Operation and Sale of Collateral by Sand Hill. Sand Hill
may use, operate, consume and sell the Collateral in its possession as
appropriate for the purpose of performing Debtor's obligations with respect
thereto to the extent necessary to satisfy the Obligations of Debtor.
8. Payments after an Event of Default. All payments received and
amounts realized by Sand Hill pursuant to Section 7, including all such payments
and amounts received after Sand Hill has declared the entire unpaid principal
and interest amount under the Guaranty to be due and payable pursuant to Section
7(a), as well as all payments or amounts then held or thereafter received by
Sand Hill as part of the Collateral while an Event of Default shall be
continuing, shall be promptly applied and distributed by Sand Hill in the
following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys fees, incurred or made hereunder by Sand
Hill, including any such costs and expenses of foreclosure or suit, if any, and
of any sale or the exercise of any other remedy under this Section 8, and of all
taxes, assessments or liens superior to the lien granted under this Security
Agreement;
(b) second, to the payment to Sand Hill of the amount then owing
on the Loan Agreement and in case the payments received and amounts realized by
Sand Hill shall be insufficient to pay in full the whole amount so owing, then
first to the payment of unpaid interest on the Loan Agreement and second to the
payment of unpaid principal thereof; and
(c) third, to the payment of the balance, if any, to the Debtor
or its successors and assigns.
9. Power of Attorney. Debtor hereby appoints Sand Hill, its
attorney-in-fact to prepare, sign and file or record, for Debtor in Debtor's
name, any financing statements, applications for registration and like papers
and to take any other action deemed by Sand Hill necessary or desirable in order
to perfect the security interest of Sand Hill hereunder, and to perform any
obligations of Debtor hereunder, at Debtor's expense, but without obligation to
do so.
10. Remedies Cumulative. The rights, privileges, powers and remedies
afforded to Sand Hill hereunder shall be cumulative, and no single or partial
exercise of any of them shall preclude the further or other exercise of the same
or any of them.
11. Successors and Assigns. This Security Agreement, together with
the covenants and warranties contained herein, shall inure to the benefit of
Sand Hill and its successors and assigns, and shall be binding upon Debtor and
it successors and assigns.
12. Presentment, etc. Debtor hereby waives presentment, protest,
notice of protest, notice of dishonor and notice of nonpayment with respect to
any proceeds to which Sand Hill is entitled hereunder any rights to direct the
application of payments for security for indebtedness of Debtor hereunder, or
indebtedness of customers of Debtor, and hereby waives any right to require
proceedings against others or to require exhaustion of security.
13. Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Security Agreement will be in writing and
will be effective and deemed given under this Security Agreement on the earliest
of: (a) the date of personal delivery; (b) the date of delivery by facsimile; or
(c) the business day after deposit
3
<PAGE> 56
with a nationally-recognized courier or overnight service, including Federal
Express or Express Mail, for United States deliveries or three (3) business days
after such deposit for deliveries outside of the United States. All notices not
delivered personally or by facsimile will be sent with postage and other charges
prepaid and properly addressed to the party to be notified at the address set
forth in the Loan Agreement, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
All notices or delivery outside the United States will be sent by facsimile, or
by nationally recognized courier or overnight service, including Express Mail.
Any notice given hereunder to more than one person will be deemed to have been
given, for purposes of counting time periods hereunder, on the date given to the
last party required to be given such notice.
14. Governing Law; Consent to Jurisdiction;JURY WAIVER. This
Security Agreement shall be governed and construed under the laws of the State
of California as applied among California residents, made and to be performed
entirely within the State of California, without regard to conflicts of laws
principles. DEBTOR AND SAND HILL EACH WAIVES ANY RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
15. Enforcement; Counterparts. If any portion of this Security
Agreement is determined to be invalid or unenforceable, the remainder shall be
valid and enforceable to the maximum extent possible with the same effect as if
the invalid or unenforceable portion were omitted from this Security Agreement.
This Security Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one
instrument.
16. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
4
<PAGE> 57
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 13.
(d) In the event that the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the Court,
in accordance with the California Arbitration Act, Section 1280 through Section
1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery as set forth hereinabove shall apply to any such arbitration
proceeding.
IN WITNESS WHEREOF, the parties have executed this Security
Agreement on the date set forth above.
<TABLE>
<CAPTION>
HTR, INC. SAND HILL CAPITAL, LLC
<S> <C>
By: By:
------------------------------------ ------------------------------------
Name: Name:
---------------------------------- ----------------------------------
Title: Title:
--------------------------------- ---------------------------------
</TABLE>
5
<PAGE> 58
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURITY AGREEMENT
All personal property of Debtor whether presently existing or
hereafter created, written, produced or acquired, including, but not limited to:
(a) all accounts receivable, accounts, chattel paper, contract
rights (including, without limitation, royalty agreements, license agreements
and distribution agreements), documents, instruments, money, deposit accounts
and general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(b) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Sand Hill (herein referred
to as "Sand Hill" or "Secured Party") to sue in its own name and/or the name of
the Debtor for past, present and future infringements of copyright;
(c) all goods, including, without limitation, equipment and
inventory (including, without limitation, all export inventory);
(d) all guarantees and other security therefor;
(e) all trademarks, service marks, trade names and service names and
the goodwill associated therewith;
(f) (a) all patents and patent applications filed in the United
States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein, (b)
licenses pertaining to any patent whether Debtor is licensor or licensee, (c)
all income, royalties, damages, payments, accounts and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (d) the right (but not the obligation) to sue for past,
present and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (f) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part with any of the foregoing (all of the
foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometimes herein individually and collectively referred to as the
"Patents"); and
(g) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
6
<PAGE> 59
SECURITY AGREEMENT
(Ivy Software, Inc.)
This Security Agreement is made and entered into as of August 14,
1998 by and between the undersigned ("Debtor"), and Sand Hill Capital, LLC
("Sand Hill").
RECITALS
WHEREAS, Sand Hill proposes to enter into a transaction with UOL
Publishing, Inc. ("Borrower"), which is an affiliate of Debtor, pursuant to a
Loan Agreement ('the "Loan Agreement") of even date herewith.
WHEREAS, Debtor has requested Sand Hill to enter into the Loan
Agreement, and expects to derive economic benefit from Sand Hill's doing so and
dealing with Borrower in accordance with the Loan Agreement.
WHEREAS Debtor wishes to guarantee performance and payment of all
obligations under the Loan Agreement, and to secure that guarantee with
substantially all of its assets, subject in all cases to the terms of the
Subordination Agreement between Sand Hill and Imperial Bank.
NOW, THEREFORE, Debtor and Sand Hill agree as follows:
1. Grant of Security Interest. Debtor hereby grants to Sand Hill a
security interest in the Collateral (as defined in Section 2 below) to secure
Debtor's performance of the obligations set forth in Section 3 below.
2. Collateral. The collateral covered by this Security Agreement
(the "Collateral") shall consist of the property described in Exhibit A attached
hereto.
3. Debtor's Obligations Secured Hereby. This Security Agreement
secures all of Debtor's obligations under that certain Unconditional Guaranty of
even date herewith, as such Guaranty is amended from time to time ("Obligations
of Debtor").
4. Debtor's Representations and Warranties. Debtor represents and
warrants as follows:
(a) Authorization. Debtor has authority and has obtained all
approvals and consents necessary to enter into this Security Agreement, and
Debtor's execution, delivery and performance of this Security Agreement will not
violate or conflict with the terms of Debtor's Articles of Incorporation or
Bylaws or any statute, regulation, ordinance, rule of law, agreement, contract,
mortgage, indenture, bond, bill, Loan Agreement, or other instrument or writing
binding upon Debtor or to which Debtor is subject.
(b) Title. All Collateral currently in Debtor's possession or
under Debtor's control is owned by and is as represented by Debtor and is free
of all liens, encumbrances and other security interests, other than security
interests or lessors' interests that are described on the attached schedule,
including the security interest of Imperial Bank (the "Prior Security
Interests").
(c) Accounts. Each of Debtor's Accounts is genuine, as appearing
on its face, enforceable in accordance with its terms (subject to reserves that
occur in the ordinary course of business and that are accounted for in
accordance with generally accepted accounting principles), free of set-off,
counterclaim and defenses, and represents indebtedness, obligations, interests
or property justly owing to and owned by Debtor in the amount or as therein
provided.
5. Debtor's Covenants. Debtor agrees and covenants as follows:
(a) Further Encumbrances. Except as may be required by the terms
and conditions of the Prior Security Interests, and except for subordinated
financing of Debtor by Sand Hills or other financial institutions or purchase
money secured financing, until the Obligations of Debtor secured under this
Security Agreement shall
1
<PAGE> 60
have been repaid in full, Debtor shall not grant a security interest in any of
the Collateral other than to Sand Hill or execute any financing statements
covering any of the Collateral in favor of any person other than Sand Hill.
(b) Use of Collateral. The Collateral will not be used for any
unlawful purpose or in any way that will void any insurance required to be
carried in connection therewith. Debtor will keep the Collateral free and clear
of liens and adverse claims other than the Prior Security Interests and, as
appropriate and applicable, will keep it in good condition and repair, and will
clean, shelter, and otherwise care for the Collateral in all such ways as are
considered good practice by owners of like property.
(c) Insurance of Collateral. The Collateral will be insured at
Debtor's expense against all risks commonly insured by owners of like property.
Debtor agrees to pay when due all premiums for such insurance and all taxes,
license fees and other charges in connection with the Collateral. If Sand Hill
shall take possession of the Collateral, Sand Hill may, subject to the Prior
Security Interests, surrender the policies and receive and retain the unearned
premiums thereon.
(d) Indemnification. Debtor shall indemnify Sand Hill against all
losses, claims, demands and liabilities of any kind caused by the Collateral.
(e) Perfection of Security Interest. Debtor shall execute and
deliver such documents as Sand Hill reasonably deems necessary to create,
perfect and continue the security interest in the Collateral contemplated
hereby.
(f) Collection of Accounts. Until Sand Hill shall elect to do so
in accordance with this Security Agreement, Debtor shall diligently collect all
of its Accounts and proceeds of the Collateral and shall hold such Accounts and
proceeds subject to a security interest of Sand Hill to secure the obligations
secured hereby, provided, however, that Debtor may use such proceeds in the
ordinary course of business.
(g) Records. Debtor shall prepare and keep, in accordance with
generally accepted accounting principles consistently applied, complete and
accurate records regarding all Collateral and, if and when requested by Sand
Hill, shall prepare and deliver a complete and accurate schedule of all the
Collateral in such detail as Sand Hill may reasonably request.
(h) Assignments. If and when requested by Sand Hill, and to the
extent consistent with the Prior Security Interests, Debtor shall upon any Event
of Default (as defined in the Loan Agreement) prepare and deliver to Sand Hill
written assignment of all Accounts, instruments, documents and other evidence
thereof.
(i) Inspection of Debtor's Books. Debtor shall permit Sand Hill
or its designee at reasonable times and from time to time to inspect Debtor's
books, records and properties and to audit and to make copies of extracts from
such books and records.
(j) Fees and Costs. Upon any Event of Default (as defined in
Section 6 below), Debtor shall pay all expenses, including reasonable attorneys'
fees, incurred by Sand Hill in the preservation, realization, enforcement or
exercise of any Sand Hill's rights under this Security Agreement.
(k) Out-of-Pocket Expenses of Sand Hill. Debtor will reimburse
Sand Hill for any out-of-pocket costs and expenses incurred by it in connection
with filings, recordations or registrations made for the purpose of perfecting
the security interest in the Collateral hereunder.
6. Events of Default. The occurrence of any Event of Default under
the Loan Agreement , the failure of Guarantor to perform any obligation under
the Guaranty or this Security Agreement, shall constitute an "Event of Default"
under this Security Agreement.
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7. Remedies on Default. Upon the occurrence of an Event of Default,
Sand Hill shall have all rights, privileges, powers and remedies provided by
law, including, but not limited to, exercise of any or all of the following
remedies.
(a) Payment Under the Guaranty. Sand Hill may declare all amounts
outstanding under the Loan Agreement and the Guaranty to be immediately due and
payable, and thereupon all such amounts shall be and become immediately due and
payable to Sand Hill.
(b) Possession of Collateral. Sand Hill may take possession of
all Collateral covered hereby (which Collateral Debtor will assemble and make
available to Sand Hill).
(c) Use, Operation and Sale of Collateral by Sand Hill. Sand Hill
may use, operate, consume and sell the Collateral in its possession as
appropriate for the purpose of performing Debtor's obligations with respect
thereto to the extent necessary to satisfy the Obligations of Debtor.
8. Payments after an Event of Default. All payments received and
amounts realized by Sand Hill pursuant to Section 7, including all such payments
and amounts received after Sand Hill has declared the entire unpaid principal
and interest amount under the Guaranty to be due and payable pursuant to Section
7(a), as well as all payments or amounts then held or thereafter received by
Sand Hill as part of the Collateral while an Event of Default shall be
continuing, shall be promptly applied and distributed by Sand Hill in the
following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys fees, incurred or made hereunder by Sand
Hill, including any such costs and expenses of foreclosure or suit, if any, and
of any sale or the exercise of any other remedy under this Section 8, and of all
taxes, assessments or liens superior to the lien granted under this Security
Agreement;
(b) second, to the payment to Sand Hill of the amount then owing
on the Loan Agreement and in case the payments received and amounts realized by
Sand Hill shall be insufficient to pay in full the whole amount so owing, then
first to the payment of unpaid interest on the Loan Agreement and second to the
payment of unpaid principal thereof; and
(c) third, to the payment of the balance, if any, to the Debtor
or its successors and assigns.
9. Power of Attorney. Debtor hereby appoints Sand Hill, its
attorney-in-fact to prepare, sign and file or record, for Debtor in Debtor's
name, any financing statements, applications for registration and like papers
and to take any other action deemed by Sand Hill necessary or desirable in order
to perfect the security interest of Sand Hill hereunder, and to perform any
obligations of Debtor hereunder, at Debtor's expense, but without obligation to
do so.
10. Remedies Cumulative. The rights, privileges, powers and remedies
afforded to Sand Hill hereunder shall be cumulative, and no single or partial
exercise of any of them shall preclude the further or other exercise of the same
or any of them.
11. Successors and Assigns. This Security Agreement, together with
the covenants and warranties contained herein, shall inure to the benefit of
Sand Hill and its successors and assigns, and shall be binding upon Debtor and
it successors and assigns.
12. Presentment, etc. Debtor hereby waives presentment, protest,
notice of protest, notice of dishonor and notice of nonpayment with respect to
any proceeds to which Sand Hill is entitled hereunder any rights to direct the
application of payments for security for indebtedness of Debtor hereunder, or
indebtedness of customers of Debtor, and hereby waives any right to require
proceedings against others or to require exhaustion of security.
13. Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Security Agreement will be in writing and
will be effective and deemed given under this Security Agreement on the earliest
of: (a) the date of personal delivery; (b) the date of delivery by facsimile; or
(c) the business day after deposit
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with a nationally-recognized courier or overnight service, including Federal
Express or Express Mail, for United States deliveries or three (3) business days
after such deposit for deliveries outside of the United States. All notices not
delivered personally or by facsimile will be sent with postage and other charges
prepaid and properly addressed to the party to be notified at the address set
forth in the Loan Agreement, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
All notices or delivery outside the United States will be sent by facsimile, or
by nationally recognized courier or overnight service, including Express Mail.
Any notice given hereunder to more than one person will be deemed to have been
given, for purposes of counting time periods hereunder, on the date given to the
last party required to be given such notice.
14. Governing Law; Consent to Jurisdiction;JURY WAIVER. This
Security Agreement shall be governed and construed under the laws of the State
of California as applied among California residents, made and to be performed
entirely within the State of California, without regard to conflicts of laws
principles. DEBTOR AND SAND HILL EACH WAIVES ANY RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
15. Enforcement; Counterparts. If any portion of this Security
Agreement is determined to be invalid or unenforceable, the remainder shall be
valid and enforceable to the maximum extent possible with the same effect as if
the invalid or unenforceable portion were omitted from this Security Agreement.
This Security Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one
instrument.
16. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Clara County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
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(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 13.
(d) In the event that the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the Court,
in accordance with the California Arbitration Act, Section 1280 through Section
1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery as set forth hereinabove shall apply to any such arbitration
proceeding.
IN WITNESS WHEREOF, the parties have executed this Security
Agreement on the date set forth above.
<TABLE>
<CAPTION>
IVY SOFTWARE, INC. SAND HILL CAPITAL, LLC
<S> <C>
By: By:
------------------------------------ ------------------------------------
Name: Name:
---------------------------------- ----------------------------------
Title: Title:
--------------------------------- ---------------------------------
</TABLE>
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EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO SECURITY AGREEMENT
All personal property of Debtor whether presently existing or
hereafter created, written, produced or acquired, including, but not limited to:
(a) all accounts receivable, accounts, chattel paper, contract
rights (including, without limitation, royalty agreements, license agreements
and distribution agreements), documents, instruments, money, deposit accounts
and general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(b) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Sand Hill (herein referred
to as "Sand Hill" or "Secured Party") to sue in its own name and/or the name of
the Debtor for past, present and future infringements of copyright;
(c) all goods, including, without limitation, equipment and
inventory (including, without limitation, all export inventory);
(d) all guarantees and other security therefor;
(e) all trademarks, service marks, trade names and service names and
the goodwill associated therewith;
(f) (a) all patents and patent applications filed in the United
States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein, (b)
licenses pertaining to any patent whether Debtor is licensor or licensee, (c)
all income, royalties, damages, payments, accounts and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (d) the right (but not the obligation) to sue for past,
present and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (f) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part with any of the foregoing (all of the
foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometimes herein individually and collectively referred to as the
"Patents"); and
(g) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
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<PAGE> 1
EXHIBIT 10.39
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: UOL Publishing, Inc.
Number of Shares: 35,000
Class of Stock: Series D Preferred
Initial Exercise Price: See below
Issue Date: August 14, 1998
Expiration Date: August 14, 2005
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SAND HILL CAPITAL, LLC ("Holder") is entitled
to purchase the number of fully paid and nonassessable shares of Series D
Preferred Stock (the "Shares") of the corporation (the "Company") at the price
per Share (the "Warrant Price") all as set forth herein and as adjusted pursuant
to Article 2 of this Warrant, subject to the provisions and upon the terms and
conditions set forth of this Warrant. The Warrant Price shall be equal to the
price per share at which the Company sold or issued its Series D Preferred Stock
prior to the Issue Date in an offering in which the Company received not less
than $5,000,000 (the "Equity Event"). If any amount is outstanding under that
certain Loan Agreement dated as of the Issue Date between Holder and the Company
(the "Loan Agreement") after February 15, 1999, then Holder may purchase an
additional number of Shares under this Warrant equal to 1,000 Shares per day for
each day through March 15, 1999 that any such amount remains outstanding. If any
such amount remains outstanding after March 15, 1999, Holder may purchase an
additional number of Shares under this Warrant equal to 2,000 Shares per day for
each day until Holder repays any such amount in full.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 No Rights of Shareholder. This Warrant does not entitle Holder to
any voting rights as a shareholder of the Company prior to the exercise hereof.
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<PAGE> 2
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking or public accounting firm to undertake such valuation. If the valuation
of such investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any Acquisition the
successor entity shall assume the obligations of this Warrant, and this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Purchase Right. At any time after the second anniversary of
the Issue Date, the Company shall, promptly upon request by Holder, given in
Holder's sole discretion, purchase all of Holder's rights under this Warrant for
$50,000 in immediately available funds. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
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<PAGE> 3
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Price Adjustment. If the Company issues additional common shares
(including shares of common stock ultimately issuable upon conversion of a
security convertible into common stock) after the date of the Warrant and the
consideration per additional common share is less than the Warrant Price in
effect immediately before such issue, the price at which the Shares are
converted to common stock if the Shares are Preferred Stock shall be adjusted in
accordance with the treatment of Series D Preferred Stock under the Company's
Certificate of Incorporation in effect on the Issue Date.
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief
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<PAGE> 4
Financial Officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.4 Registration Under Securities Act of 1933, as amended. The Company
hereby grants to Holder the same piggyback registration rights granted to the
purchasers of the Series D Preferred Stock in the Equity Event.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
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<PAGE> 5
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
UOL Publishing, Inc.
By:
---------------------------
Title:
------------------------
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of
the Stock of __________________________ pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _____________________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
-------------------------
(Name)
-------------------------
-------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
-------------------------------
(Signature)
- ------------------------
(Date)
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EXHIBIT 10.40
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into effective as of September 30, 1998, by and among UOL PUBLISHING, INC., a
Delaware corporation ("UOL"), IVY SOFTWARE, INC., a Virginia corporation
("Ivy"), and ROBERT N. HOLT (the "Purchaser"). UOL and Ivy shall sometimes
collectively be referred to as the "Transferors" and individually as a
"Transferor".
W I T N E S S E T H:
WHEREAS, Ivy has authorized capital stock of 100,000 shares of Ivy
Common Stock (as defined below), of which 51,000 shares are issued and
outstanding;
WHEREAS, UOL currently owns all of the outstanding shares of Ivy
Common Stock (collectively the "Ivy Shares");
WHEREAS, such Ivy Shares had been owned by Purchaser prior to UOL's
acquisition of such shares pursuant to that certain Stock Purchase Agreement
made and entered into effective March 1, 1997, by and among UOL, Ivy and
Purchaser (the "Original Agreement");
WHEREAS, UOL now desires to sell back to Purchaser, and Purchaser
desires to repurchase from UOL, all right, title and interest in and to the Ivy
Shares;
NOW, THEREFORE, in reliance upon the premises, representations,
warranties and covenants made herein and in consideration of the mutual
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Definitions." For purposes of this Agreement, the following
terms shall have the meaning set forth below:
"Acquiror Indemnitee" and "Acquiror Indemnitees" shall have the
respective meanings set forth in Section 10.1.
"Acquiror Indemnitor" and "Acquiror Indemnitors" shall have the
respective meanings set forth in Section 10.1.
<PAGE> 2
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly Controlling, Controlled by, or under common Control with
such other Person.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504.
"Balance Sheet" shall have the meaning set forth in subsection
4.5(a).
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"CERCLA" shall have the meaning set forth in subsection 4.23(a).
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall have the meaning set forth in
Section 6.1.
"Consulting Agreement" shall have the meaning set forth in Section
6.5.
"Controlled Group of Corporations" has the meaning set forth in Code
Section 1563.
"Control" (including, with correlative meanings, the terms
"controlled by", "controlling" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
"Employee Benefit Plan" means any: (i) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan; (ii) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan; (iii) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan); and (iv) Employee Welfare Benefit Plan or
fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
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"Encumbrances" means any and all restrictions on transfer, liens,
encumbrances, charges, pledges, security interests, taxes, options, warrants,
purchase rights, contracts, commitments, equities, claims and demands.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property" means: (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice and the record
of conception documentation relating thereto), all improvements thereto, and all
patents, patent applications, and patent disclosures, together with all
reissuances, divisions, continuations, renewals, continuations-in-part,
revisions, extensions, and reexaminations thereof; (ii) all trademarks, service
marks, certification marks, collective marks, trade dress, trade styles, logos,
trade names, company names, and corporate names, together with all translations,
adaptions, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, recordings and
renewals in connection therewith; (iii) all copyrightable works, all copyrights,
rights and interests in copyrights and all applications, registrations,
recordings and renewals in connection therewith; (iv) all mask works and all
applications, registrations, recordings and renewals in connection therewith;
(v) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals); (vi) all computer software
(including data and related documentation); (vii) all other proprietary rights;
(viii) all copies and tangible embodiments thereof (in whatever form or medium);
(ix) all income, royalties, damages or payments now and hereafter due and/or
payable under any of the foregoing with respect to any of the foregoing and the
right to sue for past, present or future infringements of any of the foregoing;
(x) all licenses with respect to any of the foregoing; and (xi) all rights
corresponding to any of the foregoing throughout the world.
"Ivy Common Stock" means the Common Stock, $1.00 par value per
share, of Ivy.
"Knowledge" means knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including liability for Taxes.
"Litigation" shall have the meaning set forth in subsection 4.7(a).
"Multiemployer Plan" has the meaning set forth in ERISA Section
3(37).
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"New Contracts" shall have the meaning set forth in subsection
4.9(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any individual, corporation, partnership, limited
partnership, limited liability company, trust, entity or unincorporated
organization or a government or any agency or political subdivision thereof.
"Prohibited Transaction" has the meaning set forth in ERISA Section
406 and Code Section 4975.
"Proprietary Information" shall have the meaning set forth in
subsection 4.15(g).
"RCRA" has the meaning set forth in subsection 4.23(a).
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Subsidiary" means any corporation with respect to which a specified
Person (or Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" or "Taxes" means any federal, state, local, foreign or other
income, gross receipts, profits, franchise, license, transfer, sales, use,
payroll, withholding, occupation, property (real or personal), excise and
similar taxes, fees, duties, assessments, withholdings or governmental charges
of any nature (including interest, penalties or additions to such taxes).
"Tax Returns" means all returns, reports, estimates, information
returns and statements of any nature with respect to Taxes.
"Transferor Indemnitee" and "Transferor Indemnitees" shall have the
respective meanings set forth in Section 10.2.
"Transferor Indemnitor" and "Transferor Indemnitors" shall have the
respective meanings set forth in Section 10.2.
ARTICLE 2
BASIC TRANSACTION
2.1 Agreement to Sell and Purchase Securities. For the consideration
hereinafter provided and subject to the terms and conditions of this Agreement,
at the Closing, UOL shall sell, assign, transfer, convey and deliver to
Purchaser, free and clear of all liens and encumbrances, and Purchaser shall
purchase and acquire from UOL, all of the Ivy Shares.
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2.2 Consideration at Closing. At the Closing, subject to the terms
and conditions hereof and subject to adjustment as set forth in Section 2.4
hereof:
(a) UOL shall cause to be delivered to Purchaser certificates
representing the Ivy Shares, together with stock powers duly endorsed in blank
for the transfer of the Ivy Shares to Purchaser, and, if applicable, with all
necessary transfer taxes paid or other revenue stamps affixed thereto;
(b) Purchaser shall deliver to UOL by check or wire transfer the
sum of $25,000.00; and
(c) Ivy shall execute the $420,919.97 promissory note in favor
of UOL attached hereto as Exhibit A.
ARTICLE 3
CLOSING
3.1 Closing. The closing of the transactions provided for herein
(the "Closing") shall be effective as of 2:00 p.m. on September 30, 1998 (the
"Closing Date"), at the offices of UOL Publishing, Inc., 8251 Greensboro Drive,
Suite 500, McLean, Virginia 22102.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TRANSFERORS
Except as otherwise set forth in the Disclosure Schedule attached
hereto as Exhibit B, UOL and Ivy hereby jointly and severally represent and
warrant to Purchaser as follows:
4.1 Organization of Ivy; Authority. Ivy is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, with the full power and authority, corporate and
otherwise, to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement. Ivy has the full and unrestricted
power and authority, corporate and otherwise, to own, operate and lease its
assets and properties and to carry on its business as currently conducted and in
which it presently proposes to engage. Ivy is not qualified to do business in
any other jurisdiction, and the nature of Ivy's business does not require it to
be so qualified. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all requisite corporate or other action on the part of UOL and Ivy. This
Agreement has been duly executed and delivered by UOL and Ivy and constitutes
the valid, binding and enforceable obligation of UOL and Ivy, enforceable in
accordance with its terms and conditions.
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4.2 Ability to Carry Out the Agreement. Neither UOL nor Ivy is
subject to or bound by any provision of:
(i) any law, statute, rule, regulation, ordinance or judicial or
administrative decision;
(ii) any articles or certificate of incorporation or bylaws;
(iii) any mortgage, deed of trust, lease, note, stockholders'
agreement, bond, indenture, other instrument or agreement, license,
permit, trust, custodianship, or other restriction of any kind or
character whatsoever, at any time entered into by UOL, or entered
into by Ivy since March 1, 1997;
(iv) any judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator, at
any time entered against UOL, or entered against Ivy since March 1,
1997;
that would prevent or be violated by, or would result in any penalty, forfeiture
or contract termination as a result of, or under which there would be a default
as a result of, nor is the consent of any Person under any contract or agreement
disclosed in Schedule 4.9(a) which has not been obtained required for, the
execution, delivery and performance by UOL and Ivy of this Agreement and the
transactions contemplated hereby.
4.3 Capitalization of Ivy; Ownership; Investment. (a) The authorized
capital stock of Ivy consists solely of 100,000 shares of Ivy Common Stock. No
shares of Ivy Common Stock, nor any other securities of Ivy, have been issued
since March 1, 1997. None of the directors and officers of Ivy has any Basis to
believe that there are shares of Ivy Common Stock or other securities of Ivy
issued and outstanding other than the Ivy Shares. The Ivy Shares are held of
record by UOL. Since March 1, 1997, Ivy has neither authorized nor issued any
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, rights of first refusal, preemptive rights or other rights of
any kind to acquire, directly or indirectly, any shares of capital stock of Ivy
or securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any shares of capital stock or
securities of Ivy, nor, since March 1, 1997, has Ivy committed itself to issue
any such capital stock option, warrant, right or security. Prior to the Closing,
any and all notes and debts of Ivy to UOL or its Affiliates, any advances made
by UOL to Ivy, any similar or related rights or interests owed to UOL, and any
and all interest or dividends payable with respect to any of the foregoing
shall, without any liability on the part of Ivy, be repaid or converted into
shares of Ivy Common Stock. Since March 1, 1997, Ivy has neither authorized nor
issued any stock appreciation, phantom stock, profit participation or other
similar rights with respect to Ivy. UOL is not party to any voting trust, proxy,
or other agreement, commitment, obligation, or understanding with respect to the
voting of the Ivy Shares.
(b) The Ivy Shares are owned of record and beneficially by UOL.
UOL has good, valid, and marketable title to the Ivy Shares, free and clear of
any and all
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Encumbrances, with full right and lawful authority to transfer, assign, deliver,
convert and exchange the Ivy Shares pursuant to this Agreement. UOL is not party
to any option, warrant, purchase right, or other contract or commitment that
could require UOL to sell, transfer, or otherwise dispose of any capital stock
of Ivy (other than pursuant to this Agreement).
4.4 Subsidiaries and Affiliates. Since March 1, 1997, Ivy has formed
no Subsidiaries and has not acquired control, directly or indirectly, or any
direct or indirect equity participation or any interest in any corporation,
partnership, trust, venture, business, enterprise, firm or other business
association.
4.5 Balance Sheet; Liabilities. (a) Attached hereto as Exhibit C is
Ivy's unaudited balance sheet as of September 30, 1998 (the "Balance Sheet").
The Balance Sheet (including the notes thereto) is true, correct, and complete,
fairly presents the financial position of Ivy at the date thereof, and is
consistent with the books and records of Ivy (which books and records are
correct and complete).
(b) None of the directors and officers of Ivy has any Basis to
believe that there are Liabilities of Ivy (and there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claims or demand against Ivy since March 1, 1997, giving rise to any Liability),
except for those: (i) accrued or reflected on the face of the Balance Sheet; or
(ii) arising in the ordinary course of business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort infringement, or violation of law).
4.6 Title to Tangible Personal Properties; Absence of Liens. (a) Ivy
has good, valid and marketable title to, or valid and subsisting leasehold
interests in, all buildings, machinery, equipment and other tangible personal
properties and assets acquired since March 1, 1997 that are used in the business
of Ivy, located on its premises, or shown on the Balance Sheet, free and clear
of any and all Encumbrances, except for Encumbrances reflected on the Balance
Sheet. All such personal property is free from defects, has been maintained in
accordance with normal industry practice, is in good operating condition and
repair, ordinary wear and tear excepted, and is suitable for the purposes for
which it presently is used and presently is proposed to be used.
(b) None of the directors and officers of Ivy has any Basis to
believe that Ivy does not have good, valid and marketable title to, or valid and
subsisting leasehold interests in, all buildings, machinery, equipment and other
tangible personal properties and assets acquired prior to March 1, 1997 that are
used in the business of Ivy, located on its premises, or shown on the Balance
Sheet, free and clear of any and all Encumbrances, except for Encumbrances
reflected on the Balance Sheet. Since March 1, 1997, all such personal property
has been maintained in accordance with normal industry practice, is in good
operating condition and repair, ordinary wear and tear excepted, and is suitable
for the purposes for which it presently is used and presently is proposed to be
used.
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(c) The assets and properties of Ivy as reflected on the Balance
Sheet constitute all of the assets and properties necessary to conduct the
business of Ivy in the manner in which it has previously been conducted and as
presently proposed to be conducted.
4.7 Litigation. (a) There is no charge, complaint, action, suit,
arbitration, proceeding, hearing, or investigation (collectively, "Litigation")
pending or, to the best knowledge and belief of Ivy and UOL, threatened against
Ivy in, before, or by any court or arbitrator or governmental agency or
authority. None of the directors and officers of Ivy has any Basis to believe
that any Litigation may be brought or threatened against Ivy. Since March 1,
1997, Ivy has not become subject to any injunction, judgment, order, decree,
ruling, or charge that remains outstanding.
(b) Ivy has not breached, and is not in default of, any of the
legal obligations it has undertaken since March 1, 1997, with respect to any of
its licensors, licensees, collaborative and other partners, joint venturers,
brokers, distributors, business consultants, franchisees, franchisors,
representatives or other independent contractors since that date. None of the
directors and officers of Ivy has any Basis to believe that Ivy has breached, or
is in default of, any other of its legal obligations with respect to any of its
licensors, licensees, collaborative and other partners, joint venturers,
brokers, distributors, business consultants, franchisees, franchisors,
representatives or other independent contractors.
4.8 Compliance with Law. Since March 1, 1997, UOL and Ivy have
complied in all material respects with all applicable statutes, laws,
ordinances, regulations, rules, orders, determinations, writs, injunctions,
awards, judgments, and decrees of every kind whatsoever of any and all
governmental authorities applicable to Ivy (including all agencies thereof) or
to the assets, properties and business of Ivy, and no suit, action, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice has been
filed, commenced or threatened against Ivy alleging any failure to so comply.
All material governmental approvals, permits and licenses required by Ivy in
connection with the conduct of its business have been obtained, are in full
force and effect, and are being complied with in all respects. Since March 1,
1997, neither Ivy nor any of its employees, agents, distributors or
representatives has paid or received any bribe or other unlawful, questionable
or unusual payment of money or other thing of more than nominal value, granted
or accepted any extraordinary discount, or furnished or been given any other
unlawful or unusual inducement to or from any person, business association or
governmental entity in the United States or elsewhere in connection with or in
furtherance of the business of Ivy, and such business, since March 1, 1997, is
not in any manner dependent upon the making or receipt of such payment,
discounts or other inducements.
4.9 Contracts. (a) Section 4.9(a) of the Disclosure Schedule sets
forth a list of each written and oral contract or agreement to which Ivy has
become a party since March 1, 1997 (collectively, the "New Contracts"):
(i) which involves the lease of personal property from or to
third parties providing for lease payments in excess of $1,000 per
annum;
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(ii) under which it has created, incurred, assumed or guaranteed
(or may create, incur, assume or guarantee) indebtedness for
borrowed money (including capitalized lease obligations) involving
more than $1,000;
(iii) which is in the nature of an employment, consulting or
severance agreement or collective bargaining agreement involving
the payment of more than $1,000 or not entered into in the ordinary
course of business;
(iv) which is with any of UOL and its Affiliates (other than
Ivy);
(v) which concerns confidentiality, nondisclosure or
noncompetition;
(vi) which is a profit sharing, stock option, stock
appreciation, deferred compensation, severance or other plan or
arrangement for the benefit of its current or former directors,
officers and employees;
(vii) which by its terms is not terminable without liability and
involves the payment or receipt of $1,000 or more;
(viii) which the consequences of a default or termination could
have an adverse effect on the business, assets, financial
condition, operations, results of operations, or future prospects
of Ivy;
(ix) which is in the nature of a partnership, joint venture, or
collaborative arrangement or relationship;
(x) which involves the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for
the furnishing or receipt of services, the performance of which
shall extend over a period of more than one year, result in
financial loss to Ivy, or involves consideration in excess of
$1,000; or
(xi) which is outside of the ordinary course of business or
contains any provision requiring Ivy to indemnify any other party
thereto.
(b) Ivy has delivered or made available to Purchaser a correct
and complete copy of each written New Contract, as amended to date, and a
written summary setting forth the terms and conditions of each oral New
Contract. All of the New Contracts are legal, valid, binding, enforceable in
accordance with their respective terms against Ivy and any other parties
thereto, and are in full force and effect on identical terms following the
consummation of the transactions contemplated in this Agreement. There is not
under any New Contract: (i) any existing default, breach or violation by Ivy or
by any other party thereto; (ii) an event which, after notice or lapse of time
or both, would constitute a default or breach by Ivy or by any other party, or
permit termination, modification, or acceleration, under the New Contract; or
(iii) any repudiation of any provision of any New Contract.
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4.10 Brokers and Intermediaries. None of the Transferors has
employed any broker, finder, advisor, or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to a
broker's, finder's, or similar fee or commission in connection therewith or upon
the consummation thereof.
4.11 Tax Matters. Since March 1, 1997:
(a) Ivy has filed all Tax Returns that it has been required to
file. All such Tax Returns were correct and complete in all respects. All Taxes
owed by Ivy (whether or not shown on any Tax Return) have been paid. Ivy
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a jurisdiction
where Ivy does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Encumbrances on any of the assets of Ivy that
arose in connection with any failure (or alleged failure) to pay any Tax.
(b) Ivy has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
consultant, independent contractor, creditor, stockholder, or other third
Person.
(c) No Transferor or director or officer (or employee
responsible for Tax matters) of Ivy expects any authority to assess any
additional Taxes for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax Liability of Ivy either: (i) claimed or
raised by any authority in writing; or (ii) as to which any of the Transferors
or the directors and officers (and employees responsible for Tax matters) of Ivy
has Knowledge based upon personal contact with any agent of such authority. No
federal, state, local, and foreign income Tax Returns filed with respect to Ivy
for the tax year ended December 31, 1997 are currently the subject of any audit.
The Transferors have delivered or made available to Purchaser correct and
complete copies of all federal, state and local income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by Ivy for
the tax year ended December 31, 1997.
(d) Ivy has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) Ivy has not filed a consent under Code Section 341(f)
concerning collapsible corporations. Ivy has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that shall not be
deductible under Code Section 280G. Ivy has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). Ivy has
disclosed on its Federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662. Ivy is not a party to any Tax allocation or
sharing agreement. Ivy is not a member of an Affiliated Group filing a
consolidated Federal income Tax Return and has no Liability for the Taxes of any
Person
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(other than Ivy) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract, or
otherwise.
(f) The unpaid Taxes of Ivy: (i) did not, as of the Most Recent
Fiscal Month End exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the Balance Sheet (rather than in any notes
thereto); and (ii) do not exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
Ivy in filing its Tax Returns.
(g) As of the Closing, Ivy shall not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any Person could acquire stock in Ivy that, if exercised or converted,
would affect Purchaser's acquisition or retention of control of Ivy as defined
in Code Section 368(c)(1).
(h) Ivy operates at least one significant historic business
line or owns at least a significant portion of its historic business assets, in
each case within the meaning of Treas. Reg. Section 1.368-1(d).
4.12 Employee Benefits. Section 4.12 of the Disclosure Schedule
lists each Employee Benefit Plan that Ivy maintains or to which Ivy contributes.
Each such Employee Benefit Plan (and each related trust, insurance contract, or
fund) complies in form and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable laws. Since March 1, 1997:
(a) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code Section 4980B have been met with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(b) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan, and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of Ivy. All premiums or other
payments for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(c) None of the directors and officers of Ivy has any Basis to
believe that each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Section
401(a) and has not received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
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(e) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
Liabilities thereunder determined in accordance with PBGC methods, factors, and
assumptions applicable to an Employee Pension Benefit Plan terminating on the
date for determination.
(f) The Transferors have delivered or made available to
Purchaser correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which implement
each such Employee Benefit Plan.
(g) With respect to each Employee Benefit Plan that Ivy and the
Controlled Group of Corporations which includes Ivy maintains or has maintained
within the last five years, or has contributed, or been required to contribute
within the last five years:
(i) No such Employee Benefit Plan which is in Employee
Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of
a Reportable Event as to which notices would be required to be
filed with the PBGC. No proceeding by the PBGC to terminate any
such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No
action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or threatened. None of Purchaser and
the directors and officers (and employees with responsibility
for employee benefits matters) of Ivy has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) Ivy has not incurred, and none of Purchaser and the
directors and officers (and employees with responsibility for
employee benefits matters) of Ivy has any reason to expect that
Ivy shall incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(h) None of Ivy and the other members of the Controlled Group
of Corporations that includes Ivy contributes to, has contributed to, or has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan.
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(i) Ivy does not maintain or contribute and has not maintained
or contributed, and has not been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Code Sec. 4980B).
4.13 Articles of Incorporation and Bylaws. Ivy has delivered or made
available to Purchaser complete and correct copies of the Articles of
Incorporation and Bylaws of Ivy, as currently in effect. Since March 1, 1997,
the Transferors have not defaulted under or violated any provision of the
Articles of Incorporation or Bylaws of Ivy.
4.14 Insurance. Section 4.14 of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which Ivy has been a party, a
named insured, or otherwise the beneficiary of coverage since March 1, 1997:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage;
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements; and
(vi) any self-insurance arrangements affecting Ivy.
With respect to each such insurance policy: (i) the policy is legal, valid,
binding, enforceable, and in full force and effect; (ii) the policy shall
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
by this Agreement; (iii) Ivy is not nor is any other party to the policy in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (iv) no party to the policy
has repudiated any provision thereof. Ivy has been covered since March 1, 1997,
by insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period.
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4.15 Intellectual Property. (a) Ivy hereby represents and warrants
that it owns or has the legal right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property reasonably necessary for the
operation of the businesses of Ivy as presently conducted and as presently
proposed to be conducted (except that Ivy so represents and warrants only with
respect to Intellectual Property that Ivy has acquired since March 1, 1997, and
with respect to Intellectual Property acquired before that date, Ivy only
represents and warrants that none of its directors and officers has any Basis to
believe that Ivy does not own or have the legal right to use such Intellectual
Property). Each item of Intellectual Property owned or used by Ivy immediately
prior to the Closing hereunder shall be owned or used by Ivy on identical terms
and conditions subsequent to the Closing, subject to the provisions of any
license agreement as to the term thereof. Since March 1, 1997, Ivy has taken
reasonable actions to maintain and protect each item of Intellectual Property
that it owns or uses.
(b) Since March 1, 1997, Ivy has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with, any Intellectual
Property rights of third Persons, and none of the Transferors and the directors
and officers of Ivy has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that Ivy must license or refrain from using any
Intellectual Property rights of any third party), except where such action would
not have a material adverse effect upon Ivy. To the Knowledge of any of the
Transferors and the directors and officers of Ivy, no third Person has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of Ivy since March 1, 1997.
(c) Since March 1, 1997, Ivy has not utilized any inventions of
any of its employees (or people it currently intends to hire, if any) made prior
to their employment by Ivy. To its Knowledge, Ivy believes that all of the
Intellectual Property owned by it was conceived of during the corporate
existence of Ivy and was created by its employees within the scope of their
employment with Ivy. Section 4.15(c) of the Disclosure Schedule identifies each
new trade name or unregistered trademark used by Ivy in connection with its
business since March 1, 1997, and each new patent or registration which has been
issued to Ivy with respect to any of its Intellectual Property since March 1,
1997, identifies each pending patent application or application for registration
which Ivy has made since March 1, 1997, with respect to any of its Intellectual
Property, identifies any of its Intellectual Property since March 1, 1997, which
is either a trade secret or claimed as proprietary and not subject to a patent
or pending patent application, and identifies each license, agreement, or other
permission which Ivy has granted since March 1, 1997, to any third Person with
respect to any of its Intellectual Property (together with any exceptions). Ivy
has delivered to Purchaser correct and complete copies of all such
registrations, applications, licenses, agreements, and permissions (as amended
to date) since March 1, 1997, and has made available to Purchaser correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. With respect to each such item of
Intellectual Property:
(i) Ivy possesses all right, title, and interest in and to the
item, free and clear of any Encumbrance, license, or other
restriction;
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(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(iv) Ivy has never agreed in writing, or to its Knowledge
verbally, to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to
the item, except as set forth in the standard agreements with Ivy
customers.
(d) Section 4.15(d) of the Disclosure Schedule identifies each
item of Intellectual Property that any third Person owns and that Ivy uses
pursuant to any license, sublicense, agreement, or permission entered into or
materially amended since March 1, 1997. Ivy has delivered to Purchaser correct
and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each such item of Intellectual
Property:
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force
and effect;
(ii) the license, sublicense, agreement, or permission shall
continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the Closing, subject
to the provisions of any license agreements as to the term thereof;
(iii) to the Transferors' Knowledge, no party to the license,
sublicense, agreement, or permission is in breach or default, and
no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification,
or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in clauses (i) through (iv) immediately above
are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
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(viii) Ivy has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission which
violates any term or condition thereof.
(e) Ivy's ownership and/or right to the use of its Intellectual
Property acquired after March 1, 1997, shall not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third Persons as a result of the continued operation of its business
as presently conducted and as presently proposed to be conducted.
(f) None of the Transferors and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Ivy has or
had any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third Persons have
developed since March 1, 1997, which reasonably could be expected to supersede
or make obsolete any product or process of Ivy.
(g) Since March 1, 1997, none of the Transferors and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of Ivy has done anything to compromise the secrecy,
confidentiality or value of any of its trade secrets, know-how, inventions,
prototypes, designs, processes or technical data (collectively "Proprietary
Information") required to conduct its business as now conducted and as proposed
to be conducted. Since March 1, 1997, Ivy has taken reasonable security measures
to protect the secrecy, confidentiality, and value of its Proprietary
Information important to the conduct of its business, including requiring each
employee and consultant to acknowledge a requirement to safeguard proprietary or
sensitive information of Ivy in accordance with the employee handbook of Ivy.
(h) None of the Transferors and the directors and officers (or
employees with responsibility for Intellectual Property matters) of Ivy has any
Knowledge that any of Ivy's employees, officers, or consultants is in violation
of his or her obligations of confidentiality.
4.16 Bank Accounts. Section 4.16 of the Disclosure Schedule sets
forth a true and complete list of all bank accounts of Ivy and all authorized
signatories to each such account.
4.17 Directors, Officers and Employees. Ivy has heretofore delivered
or made available to Purchaser a correct and complete listing as of the date
hereof of all of the directors, officers and employees of Ivy, showing their
names, positions, and current wage or salary and bonuses.
4.18 Labor Relations; Employees. (a) Since March 1, 1997, Ivy has
entered no collective bargaining agreements with any of its employees; there has
been no labor union organizing activity pending or threatened with respect to
Ivy; and Ivy has not experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes.
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Since March 1, 1997, Ivy has not committed any unfair labor practices. To the
Knowledge of the Transferors, no executive, key employee or group of employees
has any plans to terminate employment with Ivy. Copies of all personnel
brochures or handbooks delivered to employees or in effect since March 1, 1997,
have been delivered or made available to Purchaser.
(b) Since March 1, 1997, there has been no claim nor any Basis
or grounds for any claim by any Person or party (including, but not limited to,
governmental agencies of any kind) against Ivy arising out of any federal,
state, county, local or foreign statute, ordinance or regulation relating to
discrimination against employees or any other employee practices, including
without limitation retirement or labor relations, or occupational, safety and/or
health standards, sexual harassment or intentional infliction of emotional
distress.
4.19 Transactions with Related Parties. Since March 1, 1997, none of
UOL or any present or former officer, director or shareholder of UOL, and no
Affiliate of UOL or of such officer, director or shareholder: (a) has been
involved in any business (excluding relationships and payments arising from the
employment or retention by Ivy of any such persons in the ordinary course of
business) arrangement or relationship with Ivy, including, without limitation,
any contract, agreement, or other arrangement providing for the employment of,
furnishing of services, by, rental of real or personal property from or
otherwise requiring payment to any such officer, director, shareholder or
Affiliate; or (b) owns any asset, tangible or intangible, which is used in the
business of Ivy.
4.20 Copies of Documents. True, correct, and complete copies of all
documents listed in the Disclosure Schedule have been heretofore delivered or
made available to Purchaser and identified in writing as constituting such
delivery.
4.21 Real Property. (a) Ivy owns no real estate.
(b) Section 4.21(b) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to or by Ivy since March
1, 1997. UOL has delivered or made available to Purchaser correct and complete
copies of such leases and subleases, as amended to date. With respect to each
such lease and sublease:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease shall continue to be legal, valid,
binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby;
(iii) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
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(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(vi) with respect to each sublease, the representations and
warranties set forth in clauses (i) through (v) above are true and
correct with respect to the underlying lease;
(vii) Ivy has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(viii) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations;
(ix) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of
said facilities; and
(x) the owner of the facility leased or subleased has good and
marketable title to the parcel of real property, free and clear of
any Encumbrance, easement, covenant, or other restriction, except
for installments of special easements not yet delinquent and
recorded easements, covenants, and other restrictions which do not
impair the current use, occupancy, or value, or the marketability of
title, of the property subject thereto.
4.22 Books and Records. The stock records of Ivy since March 1,
1997, are in all respects complete and accurate, and the minute books of Ivy
since March 1, 1997, accurately reflect the actions taken at shareholder and
director meetings or by unanimous written consent since that date and are in all
respects correct, complete, and accurate.
4.23 Environmental Matters. (a) Ivy has complied, since March 1,
1997, and is in compliance with all local, state, and federal statutes,
ordinances, and regulations dealing with the protection of the environment or
public health and safety, including, but not limited to, the Comprehensive
Environmental Response, Compensation, and Liability Act (codified as amended, 42
U.S.C. Sections 9601 et seq.) ("CERCLA") and the Resource Conservation and
Recovery Act (codified as amended, 42 U.S.C. Sections 6901 et seq.) ("RCRA").
(b) Since March 1, 1997, Ivy has obtained all required local,
state and federal permits, licenses, certificates and approvals relating to: (i)
air emissions; (ii) discharges to surface water or groundwater; (iii) noise
emissions, (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such materials listed in
any local, state or
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federal statute, ordinance, or regulation); (vi) the use, storage,
transportation or disposal of petroleum or petroleum products; or (vii) other
environmental, health and safety matters.
(c) Since March 1, 1997, Ivy has not caused, suffered,
permitted or sustained any emission, spill, release or discharge of any toxic or
hazardous substances or wastes, or any petroleum products, into or upon: (i) the
air; (ii) soils or any improvements located thereon, whether on Ivy' property or
elsewhere; (iii) surface water or groundwater; or (iv) a sewer, septic system or
waste treatment, storage or disposal system except in accordance with applicable
law or a valid government permit, license, certificate or approval.
(d) Since March 1, 1997, none of the Transferors or the
officers and directors (including employees responsible for environmental
matters) of Ivy has received written or oral notice of any actual or potential
claims, orders, directives, citations, or causes of action based on actual or
alleged violations of any local, state, or federal statutes, ordinances, or
regulations dealing with the protection of the environment or public health and
safety, including, but not limited to, CERCLA or RCRA, or oral or written notice
of any actual or potential common law claims or causes of action based upon Ivy'
actual or alleged involvement with or use of any substance regulated by local,
state, or federal statutes, ordinances, or regulations dealing with the
protection of the environment or public health and safety.
(e) Since March 1, 1997, none of the Transferors or the
officers and directors (including employees responsible for environmental
matters) of Ivy has received oral or written notice of any actual or potential
claims, orders, directives, citations or causes of action under any local,
state, or federal statutes, ordinances, or regulations dealing with the
protection of the environment or public health and safety, including, but not
limited to, CERCLA and RCRA, based upon or arising out of its actual or alleged
disposal of hazardous wastes or substances, whether on or off real property
being operated by Ivy.
(f) None of the Transferors and the officers and directors
(including employees responsible for environmental matters) of Ivy has any
Knowledge of any condition on any of the real property owned by Ivy which may
give rise to any claim, order, directive, citation, or cause of action based on
any local, state, or federal statute, ordinance, or regulation dealing with
protection of the environment or public health and safety, including, but not
limited to, CERCLA or RCRA.
4.24 Guaranties. Ivy is not a guarantor or otherwise liable for any
Liability or obligation of any Person other than itself (including indebtedness
of any other Person) accrued since March 1, 1997.
4.25 Government Consents. No consent, approval or authorization of
or designation, declaration or filing with any state, federal, or foreign
governmental authority on the part of UOL or Ivy because of any special
characteristic of UOL or Ivy is required in connection with the valid execution
and delivery of this Agreement and the consummation by UOL or Ivy of the
transactions contemplated hereby.
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4.26 Manufacturing Rights. Since March 1, 1997, Ivy has not granted
rights to manufacture or sell its products, processes, Intellectual Property or
technology to any other Person.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to UOL that:
5.1 Authority. This Agreement has been duly executed and delivered
by Purchaser and constitutes the valid, binding and enforceable obligation of
Purchaser, subject to applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting creditors' rights generally from time to
time in effect and to general equitable principles.
5.2 Ability to Carry Out the Agreement. Purchaser is not subject to
or bound by any provision of: Out the Agreement
(i) any law, statute, rule, regulation, ordinance or judicial
or administrative decision;
(ii) any articles or certificate of incorporation or by-laws;
(iii) any mortgage, deed of trust, lease, note, stockholders'
agreement, bond, indenture, other instrument or agreement, license,
permit, trust, custodianship, other restriction, of any kind or
character whatsoever; or
(iv) any judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator;
that would prevent or be violated by or would result in any penalty, forfeiture
or contract termination as a result of, or under which there would be a default
as a result of, nor is the consent of any Person under any material agreement
which has not been obtained required for, the execution, delivery and
performance by Purchaser of this Agreement and the transactions contemplated
hereby, other than violations, penalties, forfeitures, contract terminations,
defaults or failure to obtain consents which, singly or in the aggregate, shall
not have a material adverse effect on the enforceability or validity of this
Agreement or the ability of Purchaser to perform its obligations hereunder.
5.3 Brokers and Intermediaries. Purchaser has not employed any
broker, finder, advisor, or intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to a broker's, finder's,
or similar fee or commission in connection therewith or upon the consummation
thereof.
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5.4 Solvency of Ivy. Purchaser represents and warrants that Ivy is
not insolvent under any definition, and that the consummation of the
transactions contemplated hereby do not and will not render Ivy insolvent under
any definition.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS
6.1 Confidentiality. Each party to this Agreement agrees and
covenants to the other that all information concerning the business and offices
of the other parties to the Agreement that is not generally available to the
public ("Confidential Information") and obtained from such other party shall be
deemed confidential and shall not be disclosed to, or utilized by, any Person
for any reason or purpose whatsoever, except in connection with this Agreement,
to the parties and their representatives involved in this transaction, or as may
by required by law or stock exchange or market regulation. Notwithstanding any
provision herein to the contrary, any party failing to comply in a full and
timely fashion with Section 6.4 shall indemnify the other for all losses,
damages, claims or expenses of any nature whatsoever, including reasonable
attorneys' fees, incurred by the other party and related to the unauthorized
disclosure or use of Confidential Information.
6.2 Books and Records. Purchaser shall retain all books, records and
other documents pertaining to the business of Ivy in existence on the Closing
Date for a period of at least three years from the Closing Date and to make the
same reasonably available after the Closing Date for such three year period for
inspection and copying by UOL at UOL's expense during normal business hours,
upon reasonable request and upon reasonable notice.
6.3 Best Efforts. Without limiting the specific obligations of any
party hereto under any agreement or covenant hereunder, each of the parties
hereto shall use its respective best efforts to take all action and do such acts
and things necessary in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
conditions to Closing set forth in Articles 7 and 8 below).
6.4 Cooperation in Litigation. Each party hereto shall fully
cooperate with the other in the defense or prosecution of any litigation or
proceeding already instituted or which may be instituted hereafter against or by
such party relating to or arising out of the conduct of the business of Ivy
prior to or after the Closing Date (other than litigation arising out of the
transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or similar expenses paid by the party providing such
cooperation to its officers, directors, employees and agents while assisting in
the defense or prosecution of any such litigation or proceeding.
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6.5 Other Agreements. Each party to this Agreement hereby agrees and
covenants to the other that consummation of the transactions contemplated hereby
(a) shall terminate any and all obligations of the parties under the Original
Agreement, including but not limited to any obligation of UOL or Ivy to pay to
Purchaser any consideration; and (b) shall terminate the Consulting Agreement
dated March 1, 1997, between UOL and Purchaser (the "Consulting Agreement"),
other than the $35,000.00 payment currently due to Purchaser from UOL under the
Consulting Agreement, including but not limited to the consideration set forth
in Sections 1.3 and 1.4 of the Consulting Agreement, as well as Exhibit A
thereto. As and when his duties as owner, sole officer, and sole director of Ivy
may permit, Robert N. Holt agrees to provide consulting services upon request by
UOL at his current consulting rate of $2,500.00 per day (subject to reasonable
increases as may occur from time to time) from the date of this Agreement until
December 31, 2005, such services to specifically include advice concerning the
updating of Ivy products utilized by UOL and market guidance with respect to
such products.
ARTICLE 7
CONDITIONS PRECEDENT OF TRANSFERORS
The obligation of the Transferors to consummate the transactions to
be performed by them in connection with the Closing is subject to the
satisfaction, or written waiver by the Transferors, of each of the following
conditions prior to or at the Closing:
7.1 No Injunction. No injunction, restraining order or decree of any
nature of any court or governmental or regulatory authority shall exist against
Purchaser, the Transferors or any of their respective Affiliates, or any of the
principals, officers or directors of any of them, that restrains, prevents or
materially adversely changes the transactions contemplated hereby.
7.2 No Violation. The consummation of the transactions contemplated
hereunder shall not be in violation of any material applicable law, statute,
rule or regulation for which a waiver has not been obtained and where such
violation would make illegal or otherwise prevent the consummation of the
transactions contemplated hereby.
7.3 Consents. All material consents, approvals and authorizations of
governmental and regulatory authorities, and all material filings with and
notifications of governmental authorities and regulatory agencies or other
entities which regulate the business of Ivy or UOL, necessary on the part of Ivy
or UOL, or their respective Affiliates, to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, shall
have been obtained or effected (and all applicable waiting periods, if any,
including any extensions thereof, under any applicable law, statute, regulation
or rule, including but not limited to the HSR Act, if applicable, shall have
expired or terminated, as applicable). UOL shall have received the written
consents or approvals of any and all third Persons required under the terms of
the Contracts to the consummation of the transactions contemplated hereunder.
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7.4 No Proceedings. No claim, suit, action or other proceeding shall
be pending or threatened in writing before or by any court, governmental agency
or other entity against any of the parties to this Agreement with respect to the
transactions contemplated by this Agreement or which materially adversely affect
the assets, property, operations, results of operations, financial condition, or
prospects of Purchaser.
7.5 License Agreement. Ivy and UOL shall have entered into the
license agreement in form and substance as set forth in Exhibit D and the same
shall be in full force and effect.
7.6 Miscellaneous Closing Deliveries. The Transferors shall have
received such evidence as they may reasonably request in order to establish: (a)
the power and authority of Purchaser to consummate the transactions contemplated
by this Agreement; and (b) compliance with the conditions of Closing set forth
herein.
ARTICLE 8
CONDITIONS PRECEDENT OF THE PURCHASER
The obligation of Purchaser to consummate the transactions to be
performed by them in connection with the Closing is subject to the satisfaction,
or written waiver by Purchaser, of each of the following conditions prior to or
at the Closing:
8.1 No Injunction. No injunction, restraining order or decree of any
nature of any court or governmental or regulatory authority shall exist against
Purchaser, the Transferors or any of their respective Affiliates, or any of the
principals, officers or directors of any of them, that restrains, prevents or
materially adversely changes the transactions contemplated hereby.
8.2 No Violation. The consummation of the transactions contemplated
hereunder shall not be in violation of any material applicable law, statute,
rule or regulation for which a waiver has not been obtained.
8.3 Consents. All material consents, approvals and authorizations of
governmental and regulatory authorities, and all material filings with and
notifications of governmental authorities and regulatory agencies or other
entities which regulate the business of Ivy or UOL, necessary on the part of Ivy
or UOL, or their respective Affiliates, to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, shall
have been obtained or effected (and all applicable waiting periods, if any,
including any extensions thereof, under any applicable law, statute, regulation
or rule, including but not limited to the HSR Act, if applicable, shall have
expired or terminated, as applicable). UOL shall have received the written
consents or approvals of any and all third Persons required under the terms of
the Contracts to the consummation of the transactions contemplated hereunder.
23
<PAGE> 24
8.4 Resignations. Purchaser shall have received resignations,
effective as of the Closing, of each officer and director of Ivy other than
those whom Purchaser shall have specified in writing prior to the Closing.
8.5 No Proceedings. No claim, suit, action or other proceeding shall
be pending or threatened in writing before or by any court, governmental agency
or other entity against any of the parties to this Agreement with respect to the
transactions contemplated by this Agreement or which materially adversely affect
the assets, property, operations, results of operations, financial condition, or
prospects of Ivy.
8.6 License Agreement. Ivy and UOL shall have entered into the
license agreement in form and substance as set forth in Exhibit D and the same
shall be in full force and effect.
8.7 Miscellaneous Closing Deliveries. Purchaser shall have received
such evidence as Purchaser may reasonably request in order to establish: (a) the
power and authority of the Transferors to consummate the transactions
contemplated by this Agreement; and (b) compliance with the conditions of
Closing set forth herein.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties hereto contained in the Agreement
shall survive the Closing (even if the damaged party knew or had reason to know
of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of two years. Any claims with
respect to the foregoing sentence under Sections 10.1 and 10.2 below must be
asserted in writing with reasonable particularity by the party making such claim
within two years of the Closing, and the obligations of the indemnifying party
under Section 10.1 and 10.2 below with respect to such claims shall continue
until such claims have been resolved.
9.2 Survival of Covenants and Agreements. The respective covenants
and agreements of the parties contained in this Agreement shall survive the
Closing without limitation as to time. Any claims as to a breach of a covenant
or agreement under Sections 10.1 and 10.2 below must be asserted in writing with
reasonable particularity by the party making such claims.
24
<PAGE> 25
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification of Purchaser. UOL (the "Acquiror Indemnitor")
agrees to defend, indemnify and hold harmless Purchaser and its successors and
assigns (each individually an "Acquiror Indemnitee", and collectively the
"Acquiror Indemnitees") from, against, and in respect of the following:
(a) any and all losses, damages, deficiencies or liabilities
caused by, resulting or arising from, or otherwise relating to: (i) any breach
of the representations and warranties of the Transferors contained in this
Agreement; (ii) any failure by any of the Transferors to perform or otherwise
fulfill or comply with any undertaking or other agreement or obligation
hereunder to be performed, fulfilled or otherwise complied with by UOL after the
Closing (including but not limited to the undertakings, agreements and
obligations to be performed by UOL pursuant to Section 6.4); (iii) any unknown
or undisclosed Liabilities of Ivy arising out of or related to the conduct or
operation of Ivy's business prior to the Closing (other than Liabilities
incurred in the ordinary course of business subsequent to the execution of this
Agreement); and (iv) except as disclosed in Schedule 4.11, any and all legal,
investment banking, accounting, auditing, and other professional fees and
expenses of Ivy related to this Agreement and the transactions contemplated
hereby; and
(b) any and all actions, suits, proceedings, claims,
liabilities, demands, assessments, judgments, interest, penalties, costs and
expenses, including reasonable attorneys' fees (whether or not incurred by the
Acquiror Indemnitees or in connection with investigating, defending, settling or
prosecuting any action, suit, proceeding or claim against the Acquiror
Indemnitor hereunder), incident to any of the items referred to herein or such
indemnification;
provided, however, that if any action, suit, proceeding, claim, liability,
demand or assessment shall be asserted against any Acquiror Indemnitee in
respect of which such Acquiror Indemnitee proposes to demand indemnification,
such Acquiror Indemnitee shall notify UOL thereof within a reasonable period of
time after assertion thereof, and such notice shall include copies of all suit,
service and claim documents, all other relevant documents in the possession of
the Acquiror Indemnitee, and an explanation of the Acquiror Indemnitee's
contentions and defenses with as much specificity and particularity as the
circumstances permit, provided that the failure of the Acquiror Indemnitee to
give such notice shall not relieve UOL of its obligations under this Section
10.1, if the Acquiror Indemnitee shall have demonstrated that: (i) it acted in
good faith and without unreasonable delay; and (ii) UOL shall not have been
prejudiced thereby. Subject to rights of or duties to any insurer or other third
Person having liability therefor, UOL shall have (subject to the prior written
consent of Acquiror Indemnitee, which consent shall not be unreasonably
withheld) the right within 10 days after receipt of such notice to assume the
control of the defense, compromise or settlement of any such action, suit,
proceeding, claim, liability, demand, or assessment, including, at its own
expense, employment of counsel; provided further, however, that if UOL shall
have exercised his right to assume such control, the Acquiror Indemnitee: (x)
may, in its sole discretion and expense, employ counsel to represent it (in
25
<PAGE> 26
addition to counsel employed by UOL) in any such matter, and in such event
counsel selected by UOL shall be required to cooperate with such counsel of the
Acquiror Indemnitee in such defense, compromise or settlement for the purpose of
informing and sharing information with such Acquiror Indemnitee; and (y) shall,
at its own expense, make available to UOL those employees of the Acquiror
Indemnitees whose assistance, testimony or presence is reasonably deemed by UOL
necessary or beneficial to assist UOL in evaluating and in defending any such
action, suit, proceeding, claim, liability, demand or assessment; provided
further, however, that any such access shall be conducted in such a manner as
not to interfere unreasonably with the operations of the businesses of the
Acquiror Indemnitees.
Notwithstanding any other provisions of this Agreement to the
contrary, UOL shall have no liability under this Article 10 unless the aggregate
amount of the damages and losses to the Acquiror Indemnitees from all claims
finally determined and arising under the provisions of this Agreement exceed
$10,000.00, and in such event UOL shall be required to pay only the amount by
which the aggregate amount of such claims exceeds such amount. In calculating
amounts payable pursuant to this Article 10, UOL shall receive credit for (i)
any reduction of actual tax liabilities of any Acquiror Indemnitee arising from
facts giving rise to a claim of indemnification, and (ii) any insurance proceeds
received with respect to any damages or losses that are the subject of a claim
for indemnification hereunder.
10.2 Indemnification of UOL. Purchaser and Ivy (each individually a
"Transferor Indemnitor", and collectively the "Transferor Indemnitors") agree to
defend, indemnify and hold harmless UOL and its successors and assigns (each
individually a "Transferor Indemnitee", and collectively the "Transferor
Indemnitees") from, against and in respect of:
(a) any and all losses, damages, deficiencies or liabilities
caused by, resulting or arising from or otherwise relating to: (i) any breach of
the representations and warranties of Purchaser contained in this Agreement; and
(ii) any failure by Purchaser to perform or otherwise fulfill or comply with any
undertaking or other agreement or obligation hereunder to be performed,
fulfilled or otherwise complied with by Purchaser and Ivy after the Closing
(including, but not limited to, the undertaking, agreements and obligations to
be performed pursuant to Section 6.4 hereof); and
(b) any and all actions, suits, proceedings, claims,
liabilities, demands, assessments, judgments, interest, penalties, costs and
expenses, including reasonable attorneys' fees (whether or not incurred by the
Transferor Indemnitees in connection with investigating, defending, settling or
prosecuting any action, suit, proceeding or claim against any of the Transferor
Indemnitors hereunder), incident to any of the items referred to herein or such
indemnification;
provided, however, that if any action, suit, proceeding, claim, liability,
demand or assessment shall be asserted against any Transferor Indemnitee in
respect of which such Transferor Indemnitee proposes to demand indemnification,
such Transferor Indemnitee shall notify Purchaser thereof within a reasonable
period of time after assertion thereof, and such notice shall include copies of
all suit, service and claim documents, all other relevant documents in the
26
<PAGE> 27
possession of the Transferor Indemnitees and an explanation of the Transferor
Indemnitees' contentions and defenses with as much specificity and particularity
as the circumstances permit, provided that the failure of the Transferor
Indemnitee to give such notice shall not relieve Purchaser of its obligations
under this Section 10.2 if the Transferor Indemnitee shall have demonstrated
that: (i) it acted in good faith and without unreasonable delay; and (ii)
Purchaser shall not have been prejudiced thereby. Subject to rights of or duties
to any insurer or other third Person having liability therefor, Purchaser shall
have (subject to the prior written consent of Transferor Indemnitee, which
consent shall not be unreasonably withheld) the right within 10 days after
receipt of such notice to assume the control of the defense, compromise or
settlement of any such action, suit, proceeding, claim, liability, demand, or
assessment, including, at its own expense, employment of counsel; provided
further, however, that if Purchaser shall have exercised its right to assume
such control, the Transferor Indemnitees: (x) may, in their sole discretion and
expense, employ one counsel to represent them (in addition to counsel employed
by Purchaser) in any such matter, and in such event counsel selected by
Purchaser shall be required to cooperate with such counsel of the Transferor
Indemnitees in such defense, compromise or settlement for the purpose of
informing and sharing information with such Transferor Indemnitees; and (y)
shall, at its own expense, make available to Transferor Indemnitees those
employees of Purchaser or any Affiliate of Purchaser whose assistance, testimony
or presence is reasonably deemed by the Transferor Indemnitees necessary or
beneficial to assist the Transferor Indemnitees in evaluating and in defending
any such action, suit, proceedings, claim, liability, demand or assessment;
provided further, however, that any such access shall be conducted in such a
manner as not to interfere unreasonably with the operations of the business of
Purchaser or any of its Affiliates.
Notwithstanding any other provisions of this Agreement to the
contrary, Transferor Indemnitors shall have no liability under this Article 10
unless the aggregate amount of the damages and losses to the Transferor
Indemnitees from all claims finally determined and arising under the provisions
of this Agreement exceed $10,000.00, and in such event Transferor Indemnitors
shall be required to pay only the amount by which the aggregate amount of such
claims exceeds such amount. In calculating amounts payable pursuant to this
Article 10, Transferor Indemnitors shall receive credit for (i) any reduction of
actual tax liabilities of any Transferor Indemnitee arising from facts giving
rise to a claim of indemnification, and (ii) any insurance proceeds received
with respect to any damages or losses that are the subject of a claim for
indemnification hereunder.
10.3 Remedies. The indemnification provisions of this Article 10 are
in addition to, and not in lieu or in derogation of, any other rights or
remedies any party may have in equity for a breach of representations, warranty
or covenant. Each of the parties acknowledges and agrees that the other parties
hereto would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties hereto agrees the other parties
hereto shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any competent court having jurisdiction over
the parties (subject to the provisions of Section 11.11 below), in addition to
any other remedy to which they may be entitled in equity.
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<PAGE> 28
10.4 Survival. Except as otherwise expressly set forth herein, this
Article 10 shall survive termination of this Agreement without limitation.
ARTICLE 11
MISCELLANEOUS
11.1 Further Assurances. From time to time at or after the Closing,
each of the parties agrees to take, or cause to be taken, such further actions,
to execute, deliver and file, or cause to be executed, delivered and filed, such
further documents and instruments, and to obtain consents, as may be necessary
or reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
11.2 Expenses. Each of Purchaser and UOL shall bear its respective
legal, investment banking, accounting, audit, and other costs and expenses
associated with this Agreement and the consummation of the transactions
contemplated hereby.
11.3 Applicable Law. Except as otherwise expressly provided herein,
this Agreement shall be governed by, and construed in accordance with, the law
of the Commonwealth of Virginia without reference to any choice or conflict of
law principle, provision or rule, including all matters of construction,
validity and performance.
11.4 Notices. All notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon personal delivery or receipt of a telecopy transmission,
(ii) two days after being sent by registered or certified United States mail,
return receipt requested, or (iii) one day after being transmitted by a
nationally recognized overnight courier service, properly addressed and postage
prepaid to the intended recipient as follows:
If to Purchaser or Ivy to:
Ivy Software, Inc.
P.O. Box 5124
Charlottesville, Virginia 22905
Telephone No.: (804) 293-7105
Telecopy No.: (804) 293-9356
28
<PAGE> 29
with a copy to:
Lindsay R. Barnes, Esq.
McCallum & Kudravetz, P.C.
250 High Street East
Charlottesville, Virginia 22902
Telephone No.: (804) 293-8191
Telecopy No.: (804) 296-9641
If to UOL, to:
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
Telephone No.: (703) 893-7800
Telecopy No.: (703) 893-1905
Attention: Chief Executive Officer
Chief Financial Officer
with a copy to:
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Telephone No.: (919) 781-4000
Telecopy No.: (919) 781-4865
Attention: Donald R. Reynolds, Esq.
11.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules attached hereto and the documents referred to herein, all of which are
a part hereof) constitutes the entire agreement and understanding of the parties
hereto with respect to the subject matter contained herein, supersedes and
cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject matter.
There are no restrictions, promises, representations, warranties, agreements or
undertakings of any party hereto with respect to the transactions under this
Agreement other than those set forth herein or made hereunder.
11.6 Amendments. This Agreement may be amended only by a written
instrument executed by the parties or their respective successors or assigns.
11.7 Headings; References. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles", "Sections", "Exhibits" or
29
<PAGE> 30
"Schedules" shall be deemed to be references to Articles or Sections hereof or
Exhibits or Schedules hereto unless otherwise indicated.
11.8 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original.
11.9 Parties in Interest; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors. Nothing in this Agreement, express or implied, is intended to confer
upon any Person not a party to this Agreement any rights or remedies under or by
reason of this Agreement. No party to this Agreement may assign or delegate all
or any portion of its rights, obligations or liabilities under this Agreement
without the prior written consent of the other parties to this Agreement.
11.10 Severability; Enforcement. The invalidity of any portion
hereof shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
11.11 JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF
THE COMMONWEALTH OF VIRGINIA AND TO VENUE IN VIRGINIA AS THE SAME SHALL BE
DETERMINED.
11.12 Waiver. Any of the conditions to Closing set forth in this
Agreement may be waived at any time prior to or at the Closing hereunder by the
party entitled to the benefit thereof. The failure of any party hereto to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of such party
thereafter to enforce each and every such provision. No waiver of any breach of
or non-compliance with this Agreement shall be held to be a waiver of any other
or subsequent breach or non-compliance.
11.13 Incorporation of Exhibits and Schedules. All of the Exhibits
and Schedules identified in this Agreement are incorporated by reference into
this Agreement and made a part hereof.
11.14 Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event of any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if grafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party hereto by virtue of the
authorship of any of the provisions of this Agreement.
[The next page is the signature page.]
30
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have duly executed this Stock
Purchase Agreement effective as of the date first above written.
UOL:
UOL PUBLISHING, INC.
By:
----------------------------
Title: President
IVY SOFTWARE, INC.
By:
----------------------------
Title:
-------------------------
-------------------------------
Robert N. Holt
31
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 384,473
<SECURITIES> 0
<RECEIVABLES> 5,397,233
<ALLOWANCES> 1,764,426
<INVENTORY> 0
<CURRENT-ASSETS> 4,878,308
<PP&E> 4,148,626
<DEPRECIATION> 1,485,973
<TOTAL-ASSETS> 21,156,397
<CURRENT-LIABILITIES> 7,830,467
<BONDS> 0
0
17,089
<COMMON> 38,387
<OTHER-SE> 11,911,296
<TOTAL-LIABILITY-AND-EQUITY> 21,156,397
<SALES> 11,311,618
<TOTAL-REVENUES> 11,311,618
<CGS> 7,391,608
<TOTAL-COSTS> 7,391,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 430,727
<INCOME-PRETAX> (12,847,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,847,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,847,595)
<EPS-PRIMARY> (3.39)
<EPS-DILUTED> (3.39)
</TABLE>
