LOAN AGREEMENT
AGREEMENT (this "Agreement") is made and entered into as of
the 28th day of September, 2006, by and between COMVEST CAPITAL LLC, a Delaware
limited liability company (the "Lender"), and ALANCO TECHNOLOGIES, INC., an
Arizona corporation (the "Borrower").
W I T N E S S E T H :
WHEREAS, the Borrower is engaged in the business of (a) designing,
producing, manufacturing, marketing and distributing satellite, cellular and
radio frequency identification (RFID) tracking technology, and (b)
manufacturing, marketing and distributing data storage products (collectively,
the "Business Operations"); and
WHEREAS, in order to provide funds for the Borrower's working capital
and other general corporate purposes, and to repay certain outstanding
Indebtedness of the Borrower, the Borrower has requested the Lender to extend to
the Borrower a term loan on the terms and conditions of this Agreement; and
WHEREAS, the Lender is willing and able to provide such term loan to
the Borrower on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
I. DEFINITIONS
Section 1.01. Defined Terms. In addition to the other terms
defined elsewhere in this Agreement, as used herein, the following terms
shall have the following meanings:
"Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Affiliate" shall mean, with respect to any Person, any other
Person in Control of, Controlled by, or under common Control with the first
Person, and any other Person who has a substantial interest, direct or indirect,
in the first Person or any of its Affiliates, including, without limitation, any
officer or director of the first Person or any of its Affiliates; provided,
however, that neither the Lender nor any of its Affiliates shall be deemed an
"Affiliate" of the Borrower for any purposes (including, without limitation,
covenant compliance) of this Agreement. For the purpose of this definition, a
"substantial interest" shall mean the direct or indirect legal or beneficial
ownership of more than five (5%) percent of any class of stock or similar
interest. For purposes of this Agreement, in no event and under no circumstances
shall the Lender or any of its Affiliates be deemed to be an Affiliate of the
Borrower or any of the Subsidiaries.
"Agreement" shall mean this Loan Agreement as it may from time
to time be amended, modified and/or supplemented.
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"Applicable Law" shall mean all applicable provisions of all
(a) constitutions, statutes, ordinances, rules, regulations and orders of all
governmental and/or quasi-governmental bodies, (b) Government Approvals, and (c)
order, judgments and decrees of all courts and arbitrators.
"Bank" shall mean Wachovia Bank, N.A., any successor thereto,
or, in the event that such bank shall cease to exist and shall have no
successor, any other domestic commercial bank selected by the Lender in good
faith.
"Borrowing Date" means the Business Day on which the Lender
makes a Loan hereunder.
"Business Day" shall mean a day other than (a) a Saturday, (b)
a Sunday, or (c) a day on which banking institutions in either the State of
Florida or the State of California are authorized or required by law or
executive order to close.
"Capitalized Lease" shall mean any lease which is or should be
capitalized on the balance sheet of the lessee thereunder in accordance with
GAAP.
"Capitalized Lease Obligation" shall mean with respect to any
Person, the amount of the liability which reflects the amount of future payments
under all Capitalized Leases of such Person as at any date, determined in
accordance with GAAP.
"Cash Equivalents" shall mean (a) marketable securities
issued, or directly and fully guaranteed or insured, by the United States of
America or any agency or instrumentality thereof provided that the full faith
and credit of the United States of America is pledged in support thereof) having
maturities of not more than twelve (12) months from the date of acquisition; (b)
time deposits, demand deposits, certificates of deposit, acceptances or prime
commercial paper issued by, or repurchase obligations for underlying securities
of the types described in clause (a) entered into with any commercial bank
having a short-term deposit rating of at least A-2 or the equivalent thereof by
Standard & Poor's Corporation or at least P-2 or the equivalent thereof by
Moody's Investors Service, Inc.; (c) commercial paper with a rating of A-I or
A-2 or the equivalent thereof by Standard & Poor's Corporation or P-1 or P-2 or
the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within twelve (12) months after the date of acquisition; (d) marketable
direct obligations issued by any state in the United States or any agency or
instrumentality thereof maturing within twelve (12) months from the date of
acquisition thereof and, at the time of acquisition, have one of the two highest
ratings generally obtainable from either Standard & Poor's Corporation or
Moody's Investors Services, Inc.; (e) tax-exempt commercial paper of United
States municipal, state or local governments rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Services, Inc. and maturing within
twelve (12) months after the date of acquisition thereof; (f) any other items
selected by the Borrower and approved by the Lender (which approval shall not be
unreasonably withheld or delayed); or (g) any mutual fund or other pooled
investment vehicle which invests principally in the foregoing obligations.
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"Closing Date" shall mean the date on which the conditions
precedent set forth in Article IV hereof are satisfied and the Loan is funded to
the Borrower.
"Closing Fee" shall mean the sum of $90,000, which shall be
payable in accordance with Section 2.03(a) below.
"Code" shall mean the Internal Revenue Code of 1986, and the
rules and regulations promulgated thereunder, as in effect from time to time.
"Collateral" shall mean all collateral pledged by the Borrower
and/or any of the Subsidiaries as security for the payment and performance of
the Obligations, whether pursuant to the Collateral Agreement or any other
Security Document.
"Collateral Agreement" shall mean the Collateral Agreement, to
be dated as of the Closing Date, by and among the Borrower, the Subsidiaries and
the Lender, as same may be amended, modified, supplemented and/or restated from
time to time.
"Common Stock" shall mean the authorized common stock of the
Borrower of all classes.
"Confidential Information" shall mean information that the
Borrower furnishes to the Lender pursuant to any Loan Document, but does not
include any such information once such information has become, or if such
information is, generally available to the public or within the industry or
available to the Lender from a source other than the Borrower which is not, to
the Lender's knowledge, bound by any confidentiality agreement in respect
thereof.
"Contract" shall mean any indenture, agreement (other than
this Agreement), other contractual restriction, lease in which the Borrower or
any Subsidiary is a lessor or lessee, license or instrument.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Default" shall mean any of the events specified in Article
VII hereof, whether or not any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"Default Rate" shall mean, at any time, the Interest Rate then
in effect, plus an additional five hundred basis points (5%) per annum.
"Disclosure Schedule" shall mean the disclosure schedule,
dated the Closing Date, executed and delivered by the Borrower to the Lender,
the section numbers of which correspond to the Section numbers of this
Agreement.
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"Dollars" or "$" shall mean United States Dollars, lawful
currency for the payment of public and private debts.
"Domestic Subsidiary" shall mean any Subsidiary which is
incorporated or formed under the laws of the United States, any state or
commonwealth in the United States, or the District of Columbia.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as in effect from time to time.
"ERISA Affiliate" shall mean, with respect to any Person, any
other Person which is under common control with the first Person within the
meaning of Section 414(b) or 414(c) of the Code; provided, however, that with
respect to the Borrower, neither the Lender nor any Affiliate of the Lender
shall be deemed an ERISA Affiliate for purposes of this Agreement
"Event of Default" shall mean any of the events specified in
Article VII hereof, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder.
"Financial Statements" has the meaning set forth in Section
3.01(a) below.
"Fiscal Year" shall mean the fiscal year of the Borrower which
ends on June 30 of each year.
"Foreign Subsidiary" shall mean any Subsidiary which is not a
Domestic Subsidiary.
"GAAP" shall mean generally accepted accounting principles in
the United States of America, consistently applied, unless the context otherwise
requires, with respect to any financial terms contained herein, as then in
effect with respect to the preparation of financial statements.
"Government Approval" shall mean an authorization, consent,
non-action, approval, license or exemption of, registration or filing with, or
report to, any governmental or quasi-governmental department, agency, body or
other unit.
"Guaranty", "Guaranteed" or to "Guarantee", as applied to any
Indebtedness, liability or other obligation, shall mean (a) a guaranty, directly
or indirectly, in any manner, including by way of endorsement (other than
endorsements of negotiable instruments for collection in the ordinary course of
business), of any part or all of such obligation, and (b) an agreement,
contingent or otherwise, and whether or not constituting a guaranty, assuring,
or intended to assure, the payment or performance (or payment of damages in the
event of non-performance) of any part or all of such obligation by any means
(including, without limitation, the purchase of securities or obligations, the
purchase or sale of property or services, or the supplying of funds).
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"Guaranty Agreement" shall mean the Guaranty Agreement, to be
dated as of the Closing Date (and as same may be amended, modified, supplemented
and/or restated from time to time), executed by each Subsidiary of the Borrower
in favor of the Lender, pursuant to which such Subsidiaries will guaranty the
full and timely payment and performance of all of the Obligations.
"Indebtedness" shall mean (without duplication), with respect
to any Person, (a) all obligations or liabilities, contingent or otherwise, for
borrowed money, (b) any and all obligations represented by promissory notes,
bonds, debentures or the like, or on which interest charges are customarily
paid, (c) Capitalized Lease Obligations, and any liability secured by any
mortgage, pledge, lien or security interest on property owned or acquired,
whether or not such liability shall have been assumed, (d) obligations of such
Person under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of property or services
(excluding trade payables and accrued obligations incurred in the ordinary
course of business and not past due unless same are being contested in good
faith), (f) any obligations (contingent or otherwise) of such Person as an
account party or applicant in respect of letters of credit and/or bankers'
acceptances, and/or in respect of surety, customs, reclamation or performance
bonds, (g) all obligations, whether or not contingent, of such Person to
purchase, redeem, retire, defease or otherwise acquire for value any of its
equity securities or any security convertible or exercisable into or
exchangeable for any equity securities of such Person, and (h) Guarantees,
endorsements (other than for collection in the ordinary course of business) and
other contingent obligations in respect of the obligations of others.
"Intercreditor Agreement" shall mean the Intercreditor
Agreement, to be dated the Closing Date, by and between the Lender and Line of
Credit Lender.
"Interest Rate" shall mean, at any time, the Prime Rate then
in effect plus two hundred fifty basis points (2.5%) per annum. The Interest
Rate shall at all times be calculated based on a year of 360 days counting the
actual days elapsed.
"Investment", as applied to the Borrower or any Subsidiary,
shall mean: (a) any shares of capital stock, membership interest, partnership
interest, evidence of Indebtedness or other security issued by any other Person
to the Borrower or any Subsidiary, (b) any loan, advance or extension of credit
to, or contribution to the capital of, any other Person, other than credit terms
extended to customers in the ordinary course of business, (c) any other
investment by the Borrower or any Subsidiary in any assets or securities of any
other Person, and (d) any commitment to make any Investment.
"Knowledge" or "Known" or words of similar import shall mean,
with respect to the Borrower and/or any Subsidiary, the actual knowledge of
Robert R. Kauffman and/or John A. Carlson after reasonable inquiry of the
appropriate employees of the Borrower and the Subsidiaries.
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"Liabilities and Contingencies" has the meaning set forth in
Section 3.01(c) below.
"Lien", as applied to the property or assets (or the income or
profits therefrom) of the Borrower or any Subsidiary, shall mean (in each case,
whether the same is consensual or nonconsensual or arises by contract, operation
of law, legal process or otherwise): (a) any mortgage, lien, pledge,
hypothecation, attachment, assignment, deposit arrangement, encumbrance, charge,
lease constituting a Capitalized Lease Obligation, conditional sale or other
title retention agreement, or other security interest or encumbrance of any kind
in respect of any property (including, without limitation, stock of any
Subsidiary) of the Borrower or any Subsidiary, or upon the income or profits
therefrom; (b) any arrangement under which any property of the Borrower or any
Subsidiary is transferred, sequestered or otherwise identified for the purpose
of subjecting or making available the same for the payment of Indebtedness or
the performance of any other liability in priority to the payment of the
general, unsecured creditors of the Borrower or any Subsidiary; (c) any
Indebtedness or liability which remains unpaid after the same shall become due
and payable and which, if unpaid, by law or otherwise is given any priority
whatsoever over the general unsecured creditors of the Borrower or any
Subsidiary; and (d) any agreement (other than this Agreement) or other
arrangement which, directly or indirectly, prohibits the Borrower or any
Subsidiary from creating or incurring any lien on any of its properties or
assets or which conditions the ability to do so on the security, on a pro rata
or other basis, of Indebtedness other than Indebtedness outstanding under this
Agreement.
"Line of Credit Borrowers" shall mean, collectively, the
Borrower, Excel/Meridian Data, Inc., Alanco/TSI Prism, Inc., Startrak Systems,
LLC, and Fry Guy, Inc.
"Line of Credit Documents" shall mean, collectively, the Loan
and Security Agreement dated June 19, 2002 between the Line of Credit Lender and
the Line of Credit Borrowers, and all promissory notes, security documents,
financing statements and other agreements or instruments executed, delivered
and/or filed pursuant thereto, all as heretofore amended and as may hereafter be
amended in accordance herewith.
"Line of Credit Lender" shall mean Donald E. Anderson and
Rebecca E. Anderson, Trustees of the Anderson Family Trust, UTA dated December
20, 1993, and any assignee(s) thereof.
"Line of Credit Liens" shall mean the Liens and security
interests granted pursuant to the Line of Credit Agreement in the assets and
properties of the Line of Credit Borrowers, to the extent securing the Line of
Credit Obligations.
"Line of Credit Obligations" shall mean, at any time, all
outstanding and/or accrued principal, interest, fees, expenses and other charges
then outstanding under the Line of Credit Documents.
"Loan" shall mean the loan in the principal amount of
$4,000,000 to be made by the Lender to the Borrower under this Agreement.
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"Loan Documents" shall mean the collective reference to this
Agreement, the Note, the Security Documents, the Warrants, the Registration
Rights Agreement, and any and all other agreements, instruments, certificates
and other documents as may be executed and delivered by the Borrower and/or any
of the Subsidiaries pursuant hereto or thereto.
"Material Adverse Effect" shall mean any event, act, omission,
condition or circumstance which has or would reasonably be expected to have a
material adverse effect on (a) the business, operations, properties, assets or
condition, financial or otherwise, of the Borrower or the Borrower and the
Subsidiaries, taken as a whole, (b) the ability of the Borrower or any
Subsidiary to perform any of its obligations under any of the Loan Documents, or
(c) the validity or enforceability of, or the Lender's rights and remedies
under, any of the Loan Documents, other than due to the acts or omissions of the
Lender or one of its Affiliates.
"Maturity Date" shall mean September 30, 2010.
"Note" shall mean the term note of the Borrower to be issued
to the Lender on the Closing Date as described in Section 2.01(d) below.
"Obligations" shall mean the collective reference to all
Indebtedness and other liabilities and obligations of every kind and description
owed by the Borrower to the Lender from time to time under or pursuant to this
Agreement, the Note, the Security Documents and the other Loan Documents
(excluding the Warrants and the Registration Rights Agreement), and/or otherwise
in respect of the Loans, however evidenced, created or incurred, fixed or
contingent, now or hereafter existing, due or to become due.
"Organic Documents" shall mean the certificate of
incorporation, articles of incorporation, certificate of formation, articles of
organization, certificate of limited partnership, by-laws, operating agreement,
limited partnership agreement or other such document of any Person.
"Permitted Liens" shall mean those Liens expressly permitted
pursuant to Section 6.02 below.
"Person" shall mean any individual, partnership, corporation,
limited liability company, banking association, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"Prime Rate" shall mean the "prime rate" or "base rate"
publicly announced by the Bank from time to time, which is merely a reference
rate for determining the interest rate to be charged on loans or other financial
transactions, and may or may not be the best rate offered by the Bank for
commercial loans. Upon each announced change of the Prime Rate by the Bank, the
Interest Rate hereunder shall be correspondingly adjusted.
"Real Properties" shall mean, collectively, any real
properties (land, buildings and/or improvements) now owned or leased or occupied
by the Borrower or any of the Subsidiaries, and, during the period of the
Borrower's and/or Subsidiary's occupancy thereof, any other real properties
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heretofore owned or leased by the Borrower or any Subsidiary (provided that,
with respect to leased properties, the "Real Property" shall refer only to the
portion of the subject property (excluding common areas) leased by the Borrower
or a Subsidiary).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, to be dated as of the Closing Date, made by the Borrower for
the benefit of the Lender and any subsequent Holders (as such term is defined in
the Registration Rights Agreement), as same may be amended, modified,
supplemented and/or restated from time to time.
"Sale" shall mean any transaction or series of related
transactions (a) whereby a majority of the outstanding capital stock of the
Borrower which ordinarily has voting power for the election of directors
(including preferred stock counted on an "as converted" basis into common stock
and common stock counted on a fully diluted basis) is sold, assigned or
transferred, (b) in which the Borrower is a constituent party to any merger or
consolidation and as a result thereof (i) the holders of the outstanding capital
stock of the Borrower which ordinarily has voting power for the election of
directors (including preferred stock counted on an "as converted" basis into
common stock) immediately prior to such merger or consolidation cease to own a
majority of the outstanding capital stock of the Borrower which ordinarily has
voting power for the election of directors (including preferred stock counted on
an "as converted" basis into common stock), or (ii) the Borrower is not the
surviving corporation, or (c) whereby all or any material portion of the assets
of the Borrower or any Subsidiary are sold, assigned or transferred (whether by
merger, consolidation, share exchange, stock sale, asset sale or otherwise).
"SEC" shall mean the United States Securities and Exchange
Commission, and any successor agency performing the functions thereof.
"SEC Reports" shall mean the periodic and current reports,
registration statements, proxy statements and other reports filed or required to
be filed by the Borrower with the SEC pursuant to the Act and/or the Exchange
Act, and any amendments or supplements thereto filed with the SEC.
"Security Documents" shall mean the Collateral Agreement, any
collateral assignments, control agreements, financing statements or other such
agreements or documents pursuant thereto, the Guaranty Agreement, and any other
agreements or instruments securing or creating or evidencing Liens securing the
Obligations.
"Series B Put" shall mean the rights of the holders of the
outstanding Series B Convertible Preferred Stock of the Borrower, in accordance
with the Organic Documents of the Borrower, to require the Borrower to redeem
such shares.
"Series B Put Price" shall mean the amounts payable by the
Borrower for the redemption of the Series B Convertible Preferred Stock of the
Borrower upon exercise of the Series B Put.
"Shares" shall mean the shares of Class A Common Stock of the
Borrower being issued and sold to the Lender on the Closing Date pursuant to
Section 2.01(e) below.
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"Subordinated Debt" shall mean all Indebtedness for money
borrowed and other liabilities of the Borrower, whether or not evidenced by
promissory notes, which is contractually subordinated in right of payment, in a
manner satisfactory to the Lender (as evidenced by the Lender's prior written
approval thereof), to all Obligations of the Borrower to the Lender.
"Subsidiary" or "Subsidiaries" shall mean the individual or
collective reference to any corporation, limited liability company, partnership
or other entity of which (a) 50% or more of the outstanding shares of stock or
other equity interests of each class having ordinary voting power and/or rights
to profits (other than stock having such power only by reason of the happening
of a contingency) is at the time owned by the Borrower, directly or indirectly
through one or more Subsidiaries of the Borrower, or (b) the Borrower or any
direct or indirect Subsidiary of the Borrower is the general partner.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York on the date hereof and hereafter from time to time.
"Warrant" shall mean the Warrant to purchase shares of Class A
Common Stock of the Borrower, to be issued by the Borrower to the Lender on the
Closing Date.
"Wholly-Owned Subsidiary" shall mean each Subsidiary of which
all of the outstanding equity securities (other than directors' qualifying
shares) are owned by the Borrower or another such Wholly-Owned Subsidiary.
Section 1.02. Use of Defined Terms. All terms defined in this Agreement
shall have their defined meanings when used in the Note, the Security Documents,
the other Loan Documents, and all certificates, reports or other documents made
or delivered pursuant to his Agreement, unless otherwise defined therein or
unless the specific context shall otherwise require.
Section 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
Section 1.04. Other Definitional Provisions. The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section references are to this Agreement unless
otherwise specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified.
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II. GENERAL TERMS
Section 2.01. Loans and Shares.
(a) Subject to all of the terms and conditions of this
Agreement, the Lender hereby agrees to lend to the Borrower a term loan in the
principal amount of $4,000,000. Such Loan shall be funded to the Borrower upon
written request of the Borrower given not less than three (3) Business Days
prior to the proposed Closing Date (which shall in no event shall be later than
September 30, 2006), provided that all of the conditions precedent set forth in
Article IV below are satisfied (or have been waived in writing by the Lender) on
the Closing Date.
(b) The principal of the Loans shall be repayable in
installments in accordance with the Note, and shall be subject to mandatory
prepayment in whole or in part in accordance with Section 2.02 below. The
Borrower may also voluntarily prepay all or any portion of the Loan at any time
and from time to time. Each and every prepayment shall be accompanied by payment
of all unpaid accrued interest on the principal amount being prepaid, and,
except for any prepayment required pursuant to Section 2.02(b) below, a
prepayment premium as provided in Section 2.03(b) below. All prepayments of
principal shall be applied to the remaining principal installments in inverse
order of maturity. Any principal amounts repaid or prepaid may not be
reborrowed.
(c) The Borrower shall pay the Lender interest on the
principal amount of all Loans outstanding from time to time at the Interest Rate
as in effect from time to time; provided, however, that upon the occurrence and
during the continuance of any Event of Default, the outstanding principal of the
Loans (and, to the extent permitted by Applicable Law, any and all unpaid
accrued interest) shall bear interest at the Default Rate as in effect from time
to time. Accrued interest shall be payable monthly in arrears on the last day of
each calendar month commencing October 31, 2006 and on the Maturity Date,
provided that interest at the Default Rate shall be payable on demand.
(d) The Loans shall be evidenced by the Note, the terms of
which are incorporated herein by reference.
(e) Simultaneous with the funding of the Loan on the Closing
Date, the Borrower shall issue and sell to the Lender, and the Lender shall
purchase from the Borrower, an aggregate of 500,000 shares of Class A Common
Stock of the Borrower for a purchase price of $.01 per share (yielding a total
price of $5,000). Such purchase price may be paid either, at the Lender's
election, by ordinary check or by wire transfer of immediately available funds.
The Lender hereby represents and warrants that it is acquiring such shares for
its own account for investment, and not with a view to the resale or
distribution thereof in violation of any federal or state securities laws.
Section 2.02. Prepayments. In addition to the Borrower's
rights to make voluntary prepayment in accordance with Section 2.01(b) above,
the Borrower shall be obligated to make prepayment in accordance with the
following:
(a) The Borrower shall be required to prepay the Obligations
in full simultaneously with the consummation of any Sale.
(b) In the event that, at any time and from time to time
subsequent to the Closing Date, the Borrower or any Subsidiary issues or sells
any of its authorized common stock or preferred stock, or any security
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convertible or exercisable into or exchangeable for any common stock or
preferred stock of the Borrower, the Borrower shall, immediately upon receipt of
any proceeds therefrom, (i) give written notice thereof to the Lender setting
forth a reasonably detailed calculation of the fair market value of the proceeds
received therefrom and the expenses incurred in such issuance or sale, and (ii)
prepay the Obligations in an amount equal to the lesser of (A) one-half of the
amount (if any) by which the aggregate net proceeds of all such securities
issuances subsequent to the Closing Date exceed $2,000,000, or (B) the remaining
balance of all Obligations; provided, however, that (x) to the extent that the
proceeds of any such issuance or sale are used exclusively for the purpose of
paying the purchase price and directly associated expenses of the acquisition of
another business (whether by means of stock sale, merger, consolidation,
purchase of all or substantially all of the assets, or otherwise), which may
include an operating division or unit of another business entity, such proceeds
shall not be counted against the aforesaid $2,000,000 threshold, and no
prepayment shall be required to be made hereunder in respect to the proceeds
used for the subject business acquisition, and (y) no notice or prepayment under
this Section 2.02(b) shall be required with respect to any proceeds from (1)
exercise of any warrants or options outstanding on the date of this Agreement,
(2) exercise of existing conversion rights of preferred stock of the Company
outstanding on the date of this Agreement or issued as in-kind dividends after
the date of this Agreement, (3) issuance and/or exercise of additional employee
stock options granted subsequent to the date of this Agreement, and (4) common
stock of the Borrower issued to former members of StarTrak pursuant to
agreements outstanding on the date of this Agreement, or common stock of the
Borrower issued subsequent to the date of this Agreement to the extent that the
net proceeds of such issuance are utilized to pay obligations of the Borrower or
StarTrak Systems, LLC under currently outstanding agreements relating to the
acquisition of StarTrak. As used herein, the term "net proceeds" of any issuance
or sale shall mean the gross proceeds (valued at fair market value at the time
of receipt) of any and all kinds received or receivable in respect of such
issuance or sale, minus the sum of all costs and expenses incurred by the
Borrower and directly related to such issuance or sale (including, without
limitation, underwriters' discounts, placement agents' fees, reasonable
attorneys' and accountants' fees, and other out-of-pocket expenses, exclusive of
amounts paid to employees, officers and/or directors of the Borrower and/or any
of their respective Affiliates).
Section 2.03. Fees and Premiums.
(a) The Borrower shall pay the Closing Fee to the Lender on
the Closing Date, simultaneously with the funding of the Loan. The Closing Fee
shall be deemed fully earned upon the funding of the Loan, and shall not be
refundable in whole or in part and shall not be subject to reduction or set-off
under any circumstances.
(b) Any prepayment (whether voluntary or mandatory), other
than a prepayment timely made when due under Section 2.02(b) above, shall
require the simultaneous payment of a premium in an amount equal to (i) three
(3%) percent of the principal amount prepaid if such prepayment is made or is
required to be made on or before September 30, 2007, and (ii) two (2%) percent
of the principal amount prepaid if such prepayment is made or is required to be
made subsequent to September 30, 2007. Any principal payment which consists
solely of the next scheduled principal payment and which is made within ten (10)
Business Days prior to the scheduled due date of such principal payment shall
not constitute a prepayment which requires the payment of any premium under this
Section 2.03(b).
11
(c) Payments received in respect of the Loans after 12:00 Noon
Eastern time on any day shall be deemed to be received on the next succeeding
Business Day, and if any payment is received other than by wire transfer of
immediately available funds, such payment shall be subject to three (3) Business
Days' clearance prior to being credited to the Obligations for interest
calculation purposes.
(d) In the event that the Closing Date has not occurred on or
prior to October 15, 2006 other than due to the fault of the Lender, then the
Lender may, at any time thereafter until the Closing Date, terminate this
Agreement by written notice to the Borrower, in which event the Borrower shall
immediately pay to the Lender an amount equal to the sum of (i) $100,000, plus
(ii) all out-of-pocket costs, charges and expenses (up to an aggregate maximum
of $55,000, of which no more than $15,000 shall be in respect of due diligence
costs not constituting attorneys' fees) incurred by the Lender in respect of the
transactions contemplated by this Agreement. Such payment shall be sooner due
and payable in the event that and at such time as the Borrower or any Subsidiary
or any shareholder(s) of the Borrower consummates an alternative financing or
agrees to a Sale prior to the earlier of the Closing Date or September 30, 2007,
or the Borrower indicates its abandonment of the financing hereunder.
Section 2.04. Use of Proceeds. The Borrower shall utilize the proceeds
of the Loans solely (a) to repay outstanding indebtedness owed to directors of
the Borrower, in a principal amount not exceeding $1,300,000, (b) to reduce
outstanding Line of Credit Obligations, and (c) for working capital and other
general corporate purposes of the Borrower which are not in violation of this
Agreement.
Section 2.05. Further Obligations. With respect to all Obligations for
which the interest rate is not otherwise specified herein (whether such
Obligations arise hereunder, pursuant to the Note or any Security Document, or
otherwise), such Obligations shall bear interest at the rate(s) in effect from
time to time pursuant to Section 2.01(c) above.
Section 2.06. Application of Payments. All amounts paid to or received
by the Lender in respect of the Loans from whatever source (whether from the
Borrower, any Subsidiary pursuant to the Guaranty Agreement, any realization
upon any Collateral, or otherwise) shall, unless otherwise directed by the
Borrower with respect to any particular payment (unless an Event of Default
shall then be continuing, in which event the Lender may disregard the Borrower's
direction), be applied (a) first, to reimburse the Lender for all out-of-pocket
costs and expenses incurred by the Lender which are reimbursable to the Lender
in accordance with this Agreement, the Note and/or any of the other Loan
Documents, (b) next, to any accrued but unpaid prepayment premiums, (c) next, to
unpaid accrued interest on the Loan, (d) next, to the outstanding principal of
the Loan, and (e) finally, to the payment of any other outstanding Obligations;
and after payment in full of the Obligations, any further amounts paid to or
received by the Lender in respect of the Loan shall be paid over to the Borrower
or such other Person(s) as may be legally entitled thereto. The foregoing
notwithstanding, during the continuance of any Event of Default, the Lender may
apply payments received to such of the Obligations as may be determined by the
Lender in its sole and absolute discretion.
12
Section 2.07. Obligations Unconditional.
(a) The payment and performance of all Obligations shall constitute the
absolute and unconditional obligations of the Borrower, and shall be independent
of any defense or rights of set-off, recoupment or counterclaim which the
Borrower might otherwise have against the Lender. All payments required by this
Agreement and/or the Note shall be paid free of any deductions or withholdings
for any taxes or other amounts and without abatement, diminution or set-off. If
the Borrower is required by law to make such a deduction or withholding from a
payment hereunder, the Borrower shall pay to the Lender such additional amount
as is necessary to ensure that, after the making of such deduction or
withholding, the Lender receives (free from any liability in respect of any such
deduction or withholding) a net sum equal to the sum which it would have
received and so retained had no such deduction or withholding been made or
required to be made. The Borrower shall (i) pay the full amount of any deduction
or withholding, which it is required to make by law, to the relevant authority
within the payment period set by the relevant law, and (ii) promptly after any
such payment, deliver to the Lender an original (or certified copy) official
receipt issued by the relevant authority in respect of the amount withheld or
deducted or, if the relevant authority does not issue such official receipts,
such other evidence of payment of the amount withheld or deducted as is
reasonably acceptable to the Lender.
(b) If, at any time and from time to time after the Closing Date, (i)
any change in any existing law, regulation, treaty or directive or in the
interpretation or application thereof, (ii) any new law, regulation, treaty or
directive enacted or application thereof, or (iii) compliance by the Lender with
any request or directive (whether or not having the force of law) from any
governmental authority (A) subjects the Lender to any tax, levy, impost,
deduction, assessment, charge or withholding of any kind whatsoever with respect
to any Loan Document, or changes the basis of taxation of payments to the Lender
of any amount payable thereunder (except for net income taxes, or franchise
taxes imposed in lieu of net income taxes, imposed generally by federal, state
or local taxing authorities with respect to interest or commitment fees or other
fees payable hereunder or changes in the rate of tax on the overall net income
of the Lender or its members), or (B) imposes on the Lender any other condition
or increased cost in connection with the transactions contemplated thereby or
participations therein, and the result of any of the foregoing is to increase
the cost to the Lender of making or continuing any Loan or to reduce any amount
receivable hereunder, then, in any such case, the Borrower shall promptly pay to
the Lender any additional amounts necessary to compensate the Lender, on an
after-tax basis, for such additional cost or reduced amount as determined by the
Lender. If the Lender becomes entitled to claim any additional amounts pursuant
to this Section 2.07(b), the Lender shall promptly notify the Borrower of the
event by reason of which the Lender has become so entitled, and each such notice
of additional amounts payable pursuant to this Section 2.07(b) submitted by the
Lender to the Borrower shall, absent manifest error, be final, conclusive and
binding for all purposes.
Section 2.08. Reversal of Payments. To the extent that any payment or
payments made to or received by the Lender pursuant to this Agreement or any
other Loan Document are subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required to be repaid to any trustee, receiver or
other person under any state or federal bankruptcy or other such law, then, to
the extent thereof, such amounts shall be revived as Obligations and continue in
full force and effect hereunder as if such payment or payments had not been
received by the Lender.
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III. REPRESENTATIONS AND WARRANTIES
As of the Closing Date and at all times thereafter while any
Obligations remain outstanding (unless the representation and warranty refers to
a specific date), the Borrower hereby makes the following representations and
warranties to the Lender, all of which representations and warranties shall
survive the Closing Date, the delivery of the Note and the making of the Loan,
shall be continuing in nature so long as any Obligations are outstanding, and
are as follows:
Section 3.01. Financial Matters.
(a) The Borrower has heretofore furnished to the Lender (i)
the audited consolidated financial statements (including balance sheets,
statements of income and statements of cash flows) of the Borrower and its
Subsidiaries as at June 30, 2004 and 2005, and for the Fiscal Years then ended,
and (ii) the draft consolidated financial statements (including balance sheet,
statement of income, and statement of cash flows) of the Borrower and its
Subsidiaries as at June 30, 2006 and for the Fiscal Year then ended
(collectively, the "Financial Statements").
(b) Subject to final audit adjustments and completion of audit
procedures (including the addition of appropriate footnotes) with respect to the
June 30, 2006 Financial Statements (none of which adjustments is expected to be
material), the Financial Statements (i) have been prepared in accordance with
GAAP and Regulation S-X promulgated under the Act on a consistent basis for all
periods, (ii) are complete and correct in all material respects, (iii) fairly
present the consolidated financial condition of the Borrower and its
Subsidiaries as at said dates, and the results of their operations for the
periods stated, (iv) contain and reflect all necessary adjustments and accruals
for a fair presentation of the Company's consolidated financial condition and
the results of its consolidated operations as of the dates of and for the
periods covered by such Financial Statements, and (v) make full and adequate
provision, subject to and in accordance with GAAP, for the various assets and
liabilities of the Company and its Subsidiaries, fixed or contingent, and the
results of their operations and transactions in their accounts, as of the dates
and for the periods referred to therein.
(c) The Borrower and its Subsidiaries do not have any
liabilities, obligations or commitments of any kind or nature whatsoever,
whether absolute, accrued, contingent or otherwise (collectively "Liabilities
and Contingencies"), including, without limitation, Liabilities and
Contingencies under employment agreements and with respect to any "earn-outs",
stock appreciation rights, or related compensation obligations, except: (i)
Liabilities and Contingencies disclosed in the Financial Statements or footnotes
thereto, (ii) Liabilities and Contingencies disclosed in Schedule 3.01 of the
Disclosure Schedule, (iii) Liabilities and Contingencies incurred in the
ordinary course of business and consistent with past practice since the date of
the most recent Financial Statements, which are not required to be disclosed in
the Disclosure Schedule, or (iv) those Liabilities and Contingencies which are
not required to be disclosed under GAAP. The reserves, if any, reflected on the
consolidated balance sheet of the Borrower and its Subsidiaries included in the
most recent Financial Statements are appropriate and reasonable. Neither the
Borrower nor any of its Subsidiaries has had or presently has any Indebtedness
14
for money borrowed, outstanding obligations for the purchase price of property,
contingent obligations or liabilities for taxes, or any unusual forward or
long-term commitments, except as specifically set forth or provided for in the
Financial Statements or in Schedule 3.01 of the Disclosure Schedule.
(d) Since the date of the most recent Financial Statements,
there has been no material adverse change in the working capital, condition
(financial or otherwise), assets, liabilities, reserves, business, management or
Business Operations of the Borrower or any of its Subsidiaries, including,
without limitation, the following:
(i) there has been no material change in any
assumptions underlying, or in any methods of calculating, any bad debt,
contingency or other reserve relating to the Borrower or any Subsidiary;
(ii) there have been (A) no material write-downs in
the value of any inventory of, and there have been
no write-offs as uncollectible of any notes, accounts receivable or other
receivables of, the Borrower or any Subsidiary other than write-offs of accounts
receivable reserved in full as of the date of the most recent Financial
Statements delivered to the Lender, and (B) no reserves established for the
uncollectibility of any notes, Accounts or other receivables of the Borrower or
any Subsidiary except to the extent that same have been disclosed to the Lender
in writing;
(iii) no debts have been cancelled, no claims or
rights of substantial value have been waived and no properties or assets (real,
personal or mixed, tangible or intangible) have been sold, transferred, or
otherwise disposed of by the Borrower or any Subsidiary except (A) for the sale
of all of the outstanding capital stock of Arraid, Inc., and (B) in the ordinary
course of business and consistent with past practice;
(iv) there has been no change in any method of
accounting or accounting practice utilized by the Borrower or any Subsidiary;
(v) no material casualty, loss or damage has been
suffered by the Borrower or any Subsidiary, regardless of whether such casualty,
loss or damage is or was covered by insurance;
(vi) Any announced changes in the policies or
practices of any customer, supplier or referral source which would reasonably be
expected to have a Material Adverse Effect;
(vii) Any incurrence of (A) any liability or
obligation outside of the ordinary course of business, or (B) any Indebtedness
for money borrowed except (1) borrowings within the limits and other terms and
conditions of the Line of Credit Agreement, and (2) as set forth in Schedule
3.01 of the Disclosure Schedule;
(viii) Any declaration, setting aside or payment of
any dividend or distribution or any other payment of any kind by the Borrower to
or in respect of any equity securities of the Borrower, other than "in-kind"
dividends paid with respect to the outstanding Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock of the Borrower; and
15
(ix) No action described in this Section
3.01(d) has been agreed to be taken by the Borrower or any Subsidiary.
(e) The Borrower has in place adequate systems of internal
controls sufficient to enable the Borrower and its management to obtain timely
and accurate information regarding the Business Operations and all material
transactions relating to the Borrower and the Subsidiaries, and no material
deficiency exists with respect to the Borrower's systems of internal controls.
(f) All of the SEC Reports, as of the respective dates
thereof, complied in all material respects, as applicable, with the Act and the
Exchange Act.
Section 3.02. Organization; Corporate Existence.
(a) The Borrower (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona, (ii) has
all requisite corporate power and authority to own its properties and to carry
on its business as now conducted and as proposed hereafter to be conducted,
(iii) is qualified to do business as a foreign corporation in each jurisdiction
in which the failure of the Borrower to be so qualified would have a Material
Adverse Effect, and (iv) has all requisite corporate power and authority to
execute and deliver, and perform all of its obligations under, the Loan
Documents. True and complete copies of the Organic Documents of the Borrower,
together with all amendments thereto, have been furnished to the Lender.
(b) On the date of this Agreement, the outstanding capital
stock of the Company, and the number and amount of all outstanding options,
warrants, convertible securities, subscriptions and other rights to acquire
capital stock of the Company, are as set forth in Schedule 3.02 of the
Disclosure Schedule.
(c) Schedule 3.02 of the Disclosure Schedule further sets
forth, with respect to each Subsidiary on the date of this Agreement, (i) its
proper legal name, (ii) its jurisdiction of incorporation or formation, (iii)
the jurisdictions in which it is qualified to do business as a foreign entity,
(iv) the number of shares of capital stock or ownership interests outstanding,
and (v) the owner(s) of such outstanding capital stock or other ownership
interests. Each of the Subsidiaries (A) is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, (B) has all requisite power and authority to own its
properties and to carry on its business as now conducted and as proposed
hereafter to be conducted, and to execute and deliver, and perform all of its
obligations under, the Loan Documents to which it is a party, and (C) is not
required to be qualified to do business as a foreign entity in any jurisdiction
in which it is not so qualified and the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect. True and complete
copies of the Organic Documents of each Subsidiary, together with all amendments
thereto to the date hereof, have been furnished to the Lender.
16
Section 3.03. Authorization.
(a) The execution, delivery and performance by the Borrower
and the Subsidiaries of their respective obligations under the Loan Documents
have been duly authorized by all requisite corporate and other action and will
not, either prior to or as a result of the consummation of the transactions
contemplated by this Agreement: (i) violate any provision of Applicable Law, any
order of any court or other agency of government, any provision of the Organic
Documents of the Borrower or any Subsidiary, or any Contract, indenture,
agreement or other instrument to which the Borrower or any of the Subsidiaries
is a party, or by which the Borrower or any of the Subsidiaries or any of its
assets or properties are bound, or (ii) be in conflict with, result in a breach
of, or constitute (after the giving of notice or lapse of time or both) a
default under, or, except as may be provided in the Loan Documents, result in
the creation or imposition of any Lien of any nature whatsoever upon any of the
property or assets of the Borrower or any of the Subsidiaries pursuant to, any
such Contract, indenture, agreement or other instrument.
(b) Neither the Borrower nor any of the Subsidiaries is
required to obtain any Government Approval, consent or authorization from, or to
file any declaration or statement with, any governmental instrumentality or
agency in connection with or as a condition to the execution, delivery or
performance of any of the Loan Documents, except for the filing with NASDAQ of a
notice of issuance in respect of the 500,000 shares of Class A Common Stock to
be issued pursuant to Section 2.01(e) above.
(c) Without limitation of Sections 3.03(a) and 3.03(b) above,
the issuance of the Shares and the Warrant has been authorized by all requisite
corporate action of the Borrower, and such issuance does not conflict with any
shareholders' agreement, preemptive rights, limitation under or requirement of
any Organic Documents, or other agreement or commitment of the Borrower. When
issued in accordance with Section 2.01(e) above, the Shares will be validly
issued, fully paid and nonassessable; and upon exercise of the Warrant in
accordance with the terms thereof, the Warrant Shares (as such term is defined
in the Warrant) will be validly issued, fully paid and nonassessable.
Section 3.04. Litigation. Except as disclosed on Schedule 3.04 of the
Disclosure Schedule, there is no action, suit or proceeding at law or in equity
or by or before any governmental instrumentality or other agency now pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or any of the Subsidiaries or any of their respective assets, which, if
adversely determined, would have a Material Adverse Effect. The Borrower has no
Knowledge of any state of facts, events, conditions or circumstances which would
properly constitute grounds for or the basis of any meritorious suit, action,
arbitration, proceeding or investigation (including, without limitation, any
unfair labor practice charges, interference with union organizing activities, or
other labor or employment claims) against or with respect to the Borrower or any
Subsidiary.
Section 3.05. Material Contracts. Except as disclosed on Schedule 3.05
of the Disclosure Schedule, neither the Borrower nor any of the Subsidiaries is
(a) a party to any Contract, agreement or instrument or subject to any charter
or other corporate or organizational restriction which has had or could
reasonably be expected to have a Material Adverse Effect, (b) subject to any
liability or obligation under or relating to any collective bargaining
agreement, or (c) in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any Contract,
agreement or instrument to which it is a party or by which any of its assets or
properties is bound, which default, individually or in the aggregate, would have
or could reasonably be expected to have a Material Adverse Effect.
17
Section 3.06. Title to Properties. The Borrower and each of the
Subsidiaries has good title to all of its properties and assets, free and clear
of all mortgages, security interests, restrictions, encumbrances or other Liens
of any kind, except for restrictions on the nature of use thereof imposed by
Applicable Law, and except for Permitted Liens, none of which materially
interfere with the use and enjoyment of such properties and assets in the normal
course of the Business Operations, or materially impair the value of such
properties and assets for the purpose of such business.
Section 3.07. Real Property. Schedule 3.07 of the Disclosure Schedule
sets forth a correct and complete list of all Real Properties currently leased
or occupied by the Borrower and/or any of the Subsidiaries. Neither the Borrower
nor any of the Subsidiaries owns any Real Properties. The Borrower and each
Subsidiary has a valid lessee's interest in each Real Property currently leased
or occupied by the Borrower or such Subsidiary. Neither the Borrower, any
Subsidiary, or, to the Borrower's Knowledge, any other party thereto, is in
material breach or violation of any requirements of any such lease; and such
Real Properties are in good condition (reasonable wear and tear excepted) and
are adequate for the current and proposed businesses of the Borrower and the
Subsidiaries. To the Borrower's Knowledge, its use of the Real Properties in the
normal conduct of the Business Operations does not violate any applicable
building, zoning or other law, ordinance or regulation affecting such Real
Properties, and no covenants, easements, rights-of-way or other such conditions
of record impair the Borrower's use of the Real Properties in the normal conduct
of the Business Operations.
Section 3.08. Machinery and Equipment. The machinery and equipment
owned and/or used by the Borrower and the Subsidiaries is, as to each individual
material item of machinery and equipment, and in the aggregate as to all such
equipment, in good and usable condition and in a state of good maintenance and
repair (reasonable wear and tear excepted), and adequate for its use in the
Business Operations.
Section 3.09. Capitalization. Except as set forth in Schedule 3.02 of
the Disclosure Schedule and for new Subsidiaries formed in accordance with
Section 5.11 below, the Borrower does not, directly or indirectly, own any
capital stock of or any form of equity interest in any other Person.
Section 3.10. Solvency. After giving effect to the Loans and the other
transactions contemplated hereby, the borrowings made and/or to be made by the
Borrower under this Agreement do not and will not render the Borrower insolvent
or with unreasonably small capital for its business; the fair saleable value of
all of the assets and properties of the Borrower does now, and will, upon the
funding of the Loans contemplated hereby, exceed the aggregate liabilities and
Indebtedness of the Borrower (including contingent liabilities); the Borrower is
not contemplating either the filing of a petition under any state or federal
bankruptcy or insolvency law, or the liquidation of all or any substantial
18
portion of its assets or property; the Borrower has no knowledge of any Person
contemplating the filing of any such petition against the Borrower; and the
Borrower reasonably anticipates that it will be able to pay its debts as they
mature.
Section 3.11. No Investment Company. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
Section 3.12. Margin Securities. The Borrower does not own or have any
present intention of acquiring any "margin security" or any "margin stock"
within the meaning of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System (herein called "margin security" and "margin stock").
None of the proceeds of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying, or for the purpose of reducing or retiring
any Indebtedness which was originally incurred to purchase or carry, any margin
security or margin stock or for any other purpose which might constitute the
transactions contemplated hereby a "purpose credit" within the meaning of said
Regulations G, T, U or X, or cause this Agreement to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Exchange Act, or any rules or regulations promulgated under such statutes.
Section 3.13. Taxes.
(a) All federal, state and local tax returns and tax reports
required to be filed by the Borrower and/or any Subsidiary have been timely
filed with the appropriate governmental agencies in all jurisdictions in which
such returns and reports are required to be filed. All federal, state and local
income, franchise, sales, use, property, excise, ad valorem, value-added,
payroll and other taxes (including interest, penalties and additions to tax and
including estimated tax installments where required to be filed and paid) due
from or with respect to the Borrower and the Subsidiaries have been fully paid,
and appropriate accruals have been made on the Borrower's books for taxes not
yet due and payable. All taxes and other assessments and levies which the
Borrower and/or any Subsidiary is required by law to withhold or to collect have
been duly withheld and collected, and have been paid over to the proper
governmental authorities to the extent due and payable. Except as set forth in
Schedule 3.13 of the Disclosure Schedule, there are no outstanding or pending
claims, deficiencies or assessments for taxes, interest or penalties with
respect to any taxable period of the Borrower or any Subsidiary, and no
outstanding tax Liens.
(b) Except as disclosed in Schedule 3.13 of the Disclosure
Schedule, neither the Borrower nor any Subsidiary has Knowledge or received
notice of any pending audit with respect to any federal, state or local tax
returns of the Borrower or any Subsidiary, and no waivers of statutes of
limitations have been given or requested with respect to any tax years or tax
filings of the Borrower or any Subsidiary.
Section 3.14. ERISA. Except as set forth in Schedule 3.14 of the
Disclosure Schedule, neither the Borrower nor any ERISA Affiliate of the
Borrower maintains or has any obligation to make any contributions to any
pension, profit sharing or other similar plan providing for deferred
compensation to any employee. With respect to any such plan(s) as may now exist
or may hereafter be established by the Borrower or any ERISA Affiliate of the
Borrower, and which constitutes an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA, except as set forth on Schedule 3.14 of the
19
Disclosure Schedule: (a) the Borrower or the subject ERISA Affiliate has paid
and shall cause to be paid when due all amounts necessary to fund such plan(s)
in accordance with its terms, (b) except for normal premiums payable by the
Borrower to the Pension Benefit Guaranty Corporation ("PBGC"), the Borrower or
the subject ERISA Affiliate has not taken and shall not take any action which
could result in any liability to the PBGC, or any of its successors or assigns,
(c) the present value of all accrued benefits thereunder shall not at any time
exceed the value of the assets of such plan(s) allocable to such accrued
benefits, (d) there have not been and there shall not be any transactions such
as would cause the imposition of any tax or penalty under Section 4975 of the
Code or under Section 502 of ERISA, which would adversely affect the funded
benefits attributable to the Borrower or the subject ERISA Affiliate, (e) there
has not been and there shall not be any termination or partial termination
thereof (other than a partial termination resulting solely from a reduction in
the number of employees of the Borrower or an ERISA Affiliate of the Borrower,
which reduction is not anticipated by the Borrower), and there has not been and
there shall not be any "reportable event" (as such term is defined in Section
4043(b) of ERISA) on or after the effective date of Section 4043(b) of ERISA
with respect to any such plan(s) subject to Title IV of ERISA, (f) no
"accumulated funding deficiency" (as defined in Section 412 of the Code) has
been or shall be incurred on or after the effective date of Section 412 of the
Code, (g) such plan(s) have been and shall be determined to be "qualified"
within the meaning of Section 401(a) of the Code, and have been and shall be
duly administered in compliance with ERISA and the Code, and (h) the Borrower is
not aware of any fact, event, condition or cause which might adversely affect
the qualified status thereof. As respects any "multi-employer plan" (as such
term is defined in Section 3(37) of ERISA) to which the Borrower or any ERISA
Affiliate thereof has heretofore been, is now, or may hereafter be required to
make contributions, the Borrower or such ERISA Affiliate has made and shall make
all required contributions thereto, and there has not been and shall not be any
"complete withdrawal" or "partial withdrawal" (as such terms are respectively
defined in Sections 4203 and 4205 of ERISA) therefrom on the part of the
Borrower or such ERISA Affiliate.
Section 3.15. Intellectual Property. The Borrower and the Subsidiaries
own or have the valid right to use all patents, trademarks, copyrights,
software, computer programs, equipment designs, network designs, equipment
configurations, technology and other intellectual property used in the Business
Operations. Neither the Borrower nor any Subsidiary has Knowledge that or
received notice claiming that any of such intellectual property infringes upon
or violates the rights of any other Person, or has Knowledge of any other person
infringing upon any of the Borrower's and/or its Subsidiaries' intellectual
property.
Section 3.16. Compliance with Laws. The Borrower and the Subsidiaries
are in compliance with all occupational safety, health, wage and hour,
employment discrimination, environmental, flammability, labeling and other
Applicable Law which are material to the Business Operations, except where such
non-compliance would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is aware of any state or
facts, events, conditions or occurrences which may now or hereafter constitute
or result in a violation of any Applicable Law, or which may give rise to the
assertion of any such violation, which could have a Material Adverse Effect.
Neither the Borrower nor any Subsidiary has received notice of default or
violation, nor is the Borrower or any Subsidiary in default or violation, with
20
respect to any judgment, order, writ, injunction, decree, demand or assessment
issued by any court or any federal, state, local, municipal or other
governmental agency, board, commission, bureau, instrumentality or department,
domestic or foreign, relating to any aspect of the Borrower's or any
Subsidiaries' business, affairs, properties or assets. Neither the Borrower nor
any Subsidiary has received notice of or been charged with, or is, to the
Borrower's Knowledge, under investigation with respect to, any violation of any
provision of any Applicable Law, which violation would have a Material Adverse
Effect.
Section 3.17. Licenses and Permits. The Borrower and each Subsidiary
has all federal, state and local licenses and permits required to be maintained
in connection with and material to the Business Operations, and all such
licenses and permits are valid and in full force and effect. The Borrower and
each Subsidiary has complied with the requirements of such licenses and permits
in all material respects, and has received no notice of any pending or
threatened proceedings for the suspension, termination, revocation or limitation
thereof. There is no circumstance or condition Known to the Borrower or a
Subsidiary that would cause or permit any of such licenses or permits to be
voided, revoked or withdrawn.
Section 3.18. Insurance. Schedule 3.18 of the Disclosure Schedule lists
all insurance coverages maintained by the Borrower and the Subsidiaries,
including the names of insurers, policy limits and deductibles. Neither the
Borrower nor any Subsidiary has received written notice of cancellation or
intent not to renew any of such policies, and there has not occurred, and there
does not exist, any condition (other than general industry-wide conditions) such
as would cause any of such insurers to cancel any of such insurance coverages,
or would be reasonably likely to materially increase the premiums charged to the
Company and the Subsidiaries for coverages consistent with the scope and amounts
of coverages as in effect on the date hereof.
Section 3.19. Environmental Laws.
(a) The Borrower and each Subsidiary has complied in all
material respects with all Environmental Laws relating to its business and
properties, and to the Knowledge of the Borrower and each Subsidiary there exist
no Hazardous Substances in amounts in violation of applicable Environmental Laws
or underground storage tanks on any of the Real Properties the existence of
which would have a Material Adverse Effect, except those that are stored and
used in compliance with Applicable Laws.
(b) Neither the Borrower nor any Subsidiary has received
notice of any pending or threatened litigation or administrative proceeding
which in any instance (i) asserts or alleges any violation of applicable
Environmental Laws on the part of the Borrower or any Subsidiary, (ii) asserts
or alleges that the Borrower or any Subsidiary is required to clean up, remove
or otherwise take remedial or other response action due to the disposal,
depositing, discharge, leaking or other release of any Hazardous Substances or
materials, or (iii) asserts or alleges that the Borrower or any Subsidiary is
required to pay all or any portion of the costs of any past, present or future
cleanup, removal or remedial or other response action which arises out of or is
related to the disposal, depositing, discharge, leaking or other release of any
Hazardous Substances or materials by the Borrower or any Subsidiary. Neither the
21
Borrower nor any Subsidiary is subject to any judgment, decree, order or
citation related to or arising out of any Environmental Laws. To the Borrower's
Knowledge, neither the Borrower nor any Subsidiary has been named or listed as a
potentially responsible party by any governmental body or agency in any matter
arising under any Environmental Laws. Neither the Borrower nor any Subsidiary is
a participant in, nor does the Borrower or any Subsidiary have Knowledge of, any
governmental investigation involving any of the Real Properties.
(c) Neither the Borrower or any Subsidiary nor, to the
Borrower's Knowledge, any other person, firm, corporation or governmental entity
has caused or permitted any Hazardous Substances or other materials to be
stored, deposited, treated, recycled or disposed of on, under or at any of the
Real Properties which materials, if known to be present, would reasonably be
expected to require or authorize cleanup, removal or other remedial action under
any applicable Environmental Laws.
(d) As used in this Section 3.19 and in Section 5.08
below, the following terms have the following meanings:
"Environmental Laws" include all federal, state, and local
laws, rules, regulations, ordinances, permits, orders, and consent decrees
agreed to by the Borrower or any Subsidiary, relating to health, safety, and
environmental matters applicable to the business and property of the Borrower or
any Subsidiary. Such laws and regulations include but are not limited to the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. #6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. #9601 et seq., as amended; the Toxic Substances
Control Act ("TSCA"), 15 U.S.C. #2601 et seq., as amended; and the Clean Water
Act, 33 U.S.C. #1331 et seq., as amended.
"Hazardous Substances", "Release", "Respond" and "Response"
shall have the meanings assigned to them in CERCLA, 42 U.S.C. #9601, as amended.
"Notice" means any summons, citation, directive, information
request, notice of potential responsibility, notice of violation or deficiency,
order, claim, complaint, investigation, proceeding, judgment, letter, or other
communication, written or oral, actual or threatened, from the United States
Environmental Protection Agency or other federal, state, or local agency or
authority, or any other entity or individual, public or private, concerning any
intentional or unintentional act or omission which involves management of
Hazardous Substances in amounts in violation of Environmental Laws on or off any
Real Properties; the imposition of any lien on any Real Properties, including
but not limited to liens asserted by government entities in connection with any
Borrower's or Subsidiary's response to the presence or Release of Hazardous
Substances in amounts in violation of Environmental Laws; and any alleged
violation of or responsibility under any Environmental Laws.
Section 3.20. Sensitive Payments. Neither the Borrower nor any
Subsidiary has (a) made any contributions, payments or gifts to or for the
private use of any governmental official, employee or agent where either the
payment or the purpose of such contribution, payment or gift is illegal under
the laws of the United States or the jurisdiction in which made, (b) established
or maintained any unrecorded fund or asset for any purpose or made any false or
artificial entries on its books, (c) made any payments to any person with the
22
intention that any part of such payment was to be used for any purpose other
than that described in the documents supporting the payment, or (d) engaged in
any "trading with the enemy" or other transactions violating any rules or
regulations of the Office of Foreign Assets Control.
Section 3.21. Full Disclosure. No statement of fact made by the
Borrower in this Agreement or any other Loan Document, in any SEC Report, or in
any information memorandum, business summary, agreement, certificate, schedule
or other written statement furnished by the Borrower to the Lender pursuant
hereto, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make any statements
contained herein or therein not misleading. Except for matters of a general
economic or political nature which do not affect the Borrower or any Subsidiary
uniquely, there is no fact presently known to the Borrower or any Subsidiary
which has not been disclosed to the Lender, which has had or would reasonably be
expected to have a Material Adverse Effect.
IV. CONDITIONS OF MAKING THE LOAN
The obligations of the Lender to make the Loan hereunder and to
consummate the other transactions contemplated hereby are subject to the
following conditions precedent:
Section 4.01. Representations and Warranties. The representations and
warranties set forth in Article III hereof and in the other Loan Documents shall
be true and correct on and as of the Closing Date.
Section 4.02. Loan Documents. The Borrower and its Subsidiaries
(as applicable) shall have duly executed and/or delivered to the Lender all
of the following:
(a) The Note;
(b) The Guaranty Agreement, the Collateral Agreement and any
and all other Security Documents required by the Lender at the Closing Date
(including, without limitation, collateral assignments of intellectual property
in recordable form);
(c) The Warrant;
(d) The Registration Rights Agreement;
(e) The Intercreditor Agreement (which shall also have
been executed and delivered by the Line of Credit Lender);
(f) Written agreements executed by all holders of Series A
Convertible Preferred Stock of the Borrower, pursuant to which such holders
agree (for themselves and their direct and indirect transferees) to accept
payment of all dividends on such preferred stock "in-kind" so long as any
Obligations remain outstanding;
(g) A certificate or certificates of insurance, with loss
payable endorsements, evidencing the insurance required by Section 5.01(d)
below;
(h) A written request for the borrowing of the Loan, which
shall include wiring instructions for the Borrower's account to which the
principal of the Loan is to be funded;
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(i) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Subsidiary, certifying the vote of the Board of
Directors or other applicable governing body of the Borrower and the
Subsidiaries, authorizing and directing the execution and delivery of the Loan
Documents and all further agreements, instruments, certificates and other
documents pursuant hereto and thereto;
(j) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Subsidiary, certifying the names of the officers of the
Borrower and the Subsidiaries who are authorized to execute and deliver the Loan
Documents and all other agreements, instruments, certificates and other
documents to be delivered pursuant hereto and thereto, together with the true
signatures of such officers. The Lender may conclusively rely on such
certificate until the Lender shall receive any further such certificate
canceling or amending the prior certificate and submitting the signatures of the
officers named in such further certificate;
(k) Copies of the Organic Documents of the Borrower and each
Subsidiary, certified to be true, complete and accurate by the respective
Secretaries thereof, and a certificate of the Secretary of State or other
appropriate official of the jurisdiction of incorporation of the Borrower and
each Subsidiary, dated reasonably prior to the Closing Date, stating that the
Borrower or the subject Subsidiary is duly formed and in good standing in such
jurisdiction; and
(l) Such other agreements, instruments, documents and
certificates (including, without limitation, satisfactory lien and judgment
searches respecting the Borrower and the Subsidiaries) as the Lender or its
counsel may reasonably request.
Section 4.03. Payoff and Release Letter. The Borrower shall have
received, and shall have delivered to the Lender, a payoff and release letter
signed by --------------[existing StarTrak factor], in form and substance
satisfactory to the Lender, confirming the amount required to be paid to such
factor on the Closing Date in order to pay all of StarTrak Systems, LLC's
obligations to such factor, and (b) confirming that, upon receipt of such amount
on the Closing Date, all outstanding accounts receivable of StarTrak Systems,
LLC theretofore purchased by such factor from StarTrak Systems, LLC shall be
reassigned to StarTrak Systems, LLC; and the amount required to be paid to such
factor shall be paid on the Closing Date out of the proceeds of the Loan.
Section 4.04. Shares. The Borrower shall have issued to the Lender,
against payment of the purchase price therefor set forth in Section 2.01(e)
above, one or more stock certificates (in such denominations as shall have been
requested by the Lender) in tradable form (but with applicable legends regarding
lack of registration under the Act) representing, in the aggregate, all of the
Shares, duly registered in the name of the Lender.
Section 4.05. Legal Opinion. The Lender shall have received the
favorable written opinion of Steven P. Oman, Esq., counsel for the Borrower and
the Subsidiaries, dated the Closing Date, satisfactory to the Lender and its
counsel in scope and substance.
Section 4.06. Fees and Reimbursements. The Borrower shall have paid the
Closing Fee, and shall have paid or reimbursed the Lender for its out-of-pocket
costs, charges and expenses incurred to the Closing Date (up to an aggregate
maximum of $55,000, of which not more than $15,000 shall be in respect of due
24
diligence costs not constituting attorneys' fees); and in connection therewith,
the Borrower hereby irrevocably authorizes the Lender, at the Lender's election,
to receive payment of any and all such costs, charges and expenses by
withholding same from the funding of the Loan.
Section 4.07. Further Matters. All legal matters, and the form and
substance of all documents, incident to the transactions contemplated hereby
shall be satisfactory to counsel for the Lender.
Section 4.08. No Default. No Default or Event of Default shall have
occurred and be continuing.
V. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that, from the date hereof and
until all Obligations (whether now existing or hereafter arising) have been paid
in full, unless the Lender shall otherwise consent in writing, the Borrower
shall, and shall cause each of its Subsidiaries to:
Section 5.01. Corporate and Insurance. Do or cause to be done all
things necessary to at all times (a) preserve, renew and keep in full force and
effect its corporate or other legal existence, rights, licenses, permits and
franchises, (b) comply with the Loan Documents and any other agreements and
instruments executed and delivered hereunder and thereunder (to the extent a
party thereto), (c) maintain, preserve and protect all of its franchises and
material trade names, and preserve all of its material property used or useful
in the conduct of its business and keep the same in good repair, working order
and condition (reasonable wear and tear excepted), and from time to time make,
or cause to be made, all needed and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the Business Operations carried on
in connection therewith may be properly and advantageously conducted at all
times, (d) maintain insurance in amounts, on such terms and against such risks
(including fire and other hazards insured against by extended coverage, public
liability insurance covering claims for products liability, personal injury,
death or property damage, and business interruption insurance) as are customary
for companies of similar size in the same or similar businesses and operating in
the same or similar locations, as well as all such other insurance as is
required by the Collateral Agreement, each of which policies (other than
workers' compensation) shall be issued by a financially sound and reputable
insurer reasonably satisfactory to the Lender and shall name the Lender as loss
payee and additional insured as its interest appears and provide for the Lender
to receive written notice thereof at least thirty (30) days prior to any
cancellation of the subject policy, and (e) comply with all material Contracts
and material obligations to which it is a party or by which it is bound, all
benefit plans which it maintains or is required to contribute to, and all
Applicable Law (including, without limitation, Environmental Laws) material to
its Business Operations, and all requirements of its insurers, whether now in
effect or hereafter enacted, promulgated or issued. The Borrower will from time
to time provide to the Lender a certificate of the foregoing insurance, promptly
upon request.
Section 5.02. Payment of Taxes. File, pay and discharge, or cause to be
paid and discharged, all taxes, assessments and governmental charges or levies
imposed upon the Borrower and/or any Subsidiary or upon its income and profits
or upon any of its property (real, personal or mixed) or upon any part thereof,
before the same shall become in default, as well as all lawful claims for labor,
25
materials, supplies and otherwise, which, if unpaid when due, might become a
Lien or charge upon such property or any part thereof; provided, however, that
neither the Borrower nor any Subsidiary shall be required to pay and discharge
or cause to be paid and discharged any such tax, assessment, charge, levy or
claim so long as (a) the validity thereof shall be contested in good faith by
appropriate proceedings and the Borrower or such Subsidiary shall have set aside
on its books adequate reserves with respect to any such tax, assessment, charge,
levy or claim so contested, and (b) payment with respect to any such tax,
assessment, charge, levy or claim shall be made before any of the Borrower's or
such Subsidiary's property shall be seized or sold in satisfaction thereof.
Section 5.03. Notices. Give prompt written notice to the Lender of (a)
the filing by the Borrower of any SEC Report, (b) any proceedings instituted
against the Borrower or any Subsidiary in any federal or state court or before
any commission or other regulatory body, whether federal, state or local, which,
if adversely determined, could reasonably be expected to have a Material Adverse
Effect, and (c) the occurrence of any material casualty to any Collateral, any
Material Adverse Effect, or any Default or Event of Default, and the action that
the Borrower has taken, is taking, or proposes to take with respect thereto.
Section 5.04. Periodic Reports. Furnish to the Lender:
(a) Within ninety (90) calendar days after the end of each
Fiscal Year, consolidated and consolidating balance sheets, statements of
income, statements of stockholders' equity, and statements of cash flows of the
Borrower and its Subsidiaries, together with footnotes and supporting schedules
thereto, prepared in accordance with GAAP, and certified (as to the consolidated
statements) by independent certified public accountants selected by the Borrower
and reasonably acceptable to the Lender (with the form of certification to be
without qualification as a going concern and otherwise reasonably satisfactory
to the Lender), showing the financial condition of the Borrower and its
Subsidiaries at the close of such Fiscal Year and the results of operations of
the Borrower and its Subsidiaries during such Fiscal Year;
(b) Within thirty (30) calendar days after the end of each
calendar month (forty-five (45) calendar days in the case of the end of a fiscal
quarter), consolidated (and, if specifically requested by the Lender reasonably
in advance, but not more frequently than quarterly, consolidating) unaudited
balance sheets, statements of income and statements of cash flows of the
Borrower and its Subsidiaries, together with supporting schedules thereto,
prepared in accordance with GAAP by the Borrower and certified by the Borrower's
Chairman, President, Chief Executive Officer, Chief Financial Officer or Chief
Accounting Officer, such balance sheets to be as of the close of such calendar
month and such statements of income and statements of cash flows to be for the
period from the beginning of the then-current Fiscal Year to the end of such
calendar month, together with comparative statements of income and cash flows
for the corresponding period in the immediately preceding Fiscal Year, in each
case subject to normal audit and year-end adjustments;
(c) Concurrently with the delivery of each of the financial
statements required by Sections 5.04(a) and 5.04(b) above, a certificate on
behalf of the Borrower (signed by the Chairman, President, Chief Executive
26
Officer, Chief Financial Officer or Chief Accounting Officer of the Borrower),
certifying that he has examined the provisions of this Agreement and that no
Default or Event of Default has occurred and/or is continuing;
(d) Prior to the beginning of each Fiscal Year, a budget and
operating plan (on a month-by-month basis) for such upcoming Fiscal Year, in
such detail as is required by and regularly used by management in the conduct,
control and review of the Borrower's business;
(e) As and when distributed to the Borrower's stockholders,
copies of all proxy materials, reports and other information which the Borrower
provides to its stockholders; and as and when distributed to any other lender(s)
(including, without limitation, the Line of Credit Lender) to the Borrower or
any Subsidiary, copies of all reports, statements or other information provided
to such lender(s);
(f) From time to time as and when received, copies of all
management letters or similar letters or reports received by the Borrower or any
Subsidiary from any independent public accountants; and
(g) Promptly, from time to time, such other information
(including, without limitation, receivables and payables agings, and sales
reports) regarding the Borrower's or any Subsidiary's operations, assets,
business, affairs and financial condition, as the Lender may reasonably request.
To the extent that the financial statements required by Sections 5.04(a) and
5.04(b) are contained in any SEC Reports filed by the Borrower within the
required time period hereunder for the delivery of such financial statements,
then the Borrower shall be deemed to have complied with the subject financial
statement delivery by notifying the Lender of the filing of the subject SEC
Report.
To the extent that any report or other delivery required under this Section 5.04
or elsewhere in this Agreement will, at the time of anticipated delivery to the
Lender, contain any material non-public information, the Borrower will notify
the Lender thereof as promptly as practicable prior to the delivery of such
report (but without disclosing the specific items of material non-public
information or the nature thereof), and if so requested by the Lender prior to
the required date of the information delivery hereunder, the Borrower shall (x)
if reasonably practicable, redact such material non-public information from the
subject report prior to the delivery thereof to the Lender, or (y) defer
delivery of such report until such time as the Borrower has made public
disclosure of the subject material information or the Lender has affirmatively
requested delivery of such report. Absent timely request by the Lender as
aforesaid, the Borrower shall make the required delivery to the Lender on a
timely basis.
Section 5.05. Books and Records; Inspection. Maintain centralized books
and records regarding all of the Business Operations at the Borrower's principal
place of business, and permit agents or representatives of the Lender to
inspect, at any time during normal business hours, upon reasonable notice, and
without undue material disruption of the Business Operations, all of the
Borrower's and its Subsidiaries' various books and records, to make copies,
abstracts and/or reproductions thereof, and to discuss the business and affairs
of the Borrower and the Subsidiaries with the management of the Borrower.
27
Section 5.06. Accounting. Maintain a standard system of accounting in
order to permit the preparation of financial statements in accordance with GAAP
and Regulation S-X promulgated under the Act.
Section 5.07. Reimbursements. Whether or not the Closing Date occurs,
pay or reimburse the Lender or other appropriate Persons on demand for all
reasonable costs, expenses and other charges incurred or payable from time to
time in connection with the transactions contemplated by this Agreement, any
waivers or amendments in respect of any Loan Documents, and any "workout" or
enforcement action, including but not limited to any and all search fees,
recording fees, costs of inspections and legal and accounting fees; provided,
that such costs, expenses and other charges with respect to periods prior to the
Closing Date shall not exceed the aggregate sum of $55,000, of which no more
than $15,000 shall be in respect of due diligence costs not constituting
attorneys' fees.
Section 5.08. Environmental Response. In the event of any discharge,
spill, injection, escape, emission, disposal, leak or other Release of Hazardous
Substances in amounts in violation of applicable Environmental Laws by the
Borrower or any Subsidiary on any Real Property owned or leased by the Borrower
or any Subsidiary, which is not authorized by a permit or other approval issued
by the appropriate governmental agencies and which requires notification to or
the filing of any report with any federal or state governmental agency, the
Borrower shall promptly: (a) notify the Lender; and (b) comply with the notice
requirements of the Environmental Protection Agency and applicable state
agencies, and take all steps necessary to promptly clean up such discharge,
spill, injection, escape, emission, disposal, leak or other Release in
accordance with all applicable Environmental Laws and the Federal National
Contingency Plan, and, if required, receive a certification from all applicable
state agencies or the Environmental Protection Agency, that such Real Property
has been cleaned up to the satisfaction of such agency(ies).
Section 5.09. Management. Cause Robert Kauffman to continue to be
employed or to function as the chief executive officer of the Borrower, unless a
successor is appointed within ninety (90) days after the termination of Mr.
Kauffman's employment, and such successor shall be satisfactory to the Lender.
Section 5.10. Use of Proceeds. Cause all proceeds of the Loans to be
utilized solely in the manner and for the purposes set forth in Section 2.04
above.
Section 5.11. Future Subsidiaries.
(a) At any time and from time to time when the Borrower or any
of its Domestic Subsidiaries proposes to form or acquire any Domestic Subsidiary
subsequent to the Closing Date, the Borrower shall give written notice thereof
to the Lender reasonably in advance of the formation or acquisition of such
Domestic Subsidiary, providing information therefor of the type called for in
Schedule 3.02 of the Disclosure Schedule; and contemporaneously with the
formation or acquisition of such new Domestic Subsidiary, the Borrower shall
cause such new Domestic Subsidiary to execute and deliver (a) a guaranty
agreement in substantially the form of the Guaranty Agreement (or a joinder
agreement with respect to the existing Guaranty Agreement in form and substance
reasonably satisfactory to the Lender), and (b) a Collateral Agreement (with
28
completed perfection certificate and other appropriate Security Documents) in
substantially the form of the Collateral Agreement as currently in place (or a
joinder agreement with respect to the existing Collateral Agreement in form and
substance reasonably satisfactory to the Lender) and other Security Documents as
reasonably requested by the Lender.
(b) With respect to any Foreign Subsidiary which the Borrower
or any of its Domestic Subsidiaries proposes to form or acquire subsequent to
the Closing Date, the Borrower shall give written notice thereof to the Lender
reasonably in advance of the formation or acquisition of such Foreign
Subsidiary, providing information therefor of the type called for in Schedule
3.02 of the Disclosure Schedule; and contemporaneously with the formation or
acquisition of such Foreign Subsidiary, the Borrower shall, in accordance with
the Collateral Agreement, pledge to the Lender the lesser of (i) all shares or
equity interests held by the Borrower and/or the Domestic Subsidiaries in such
Foreign Subsidiary, or (ii) 65% of the outstanding shares or equity interests of
such Foreign Subsidiary.
(c) Nothing contained in this Section 5.11 shall be deemed to
constitute any waiver by the Lender of any consent otherwise required under this
Agreement or any other Loan Document with respect to the formation or
acquisition of any Subsidiary.
Section 5.12. Takeout of Line of Credit. In the event that, at any time
and from time to time, there shall occur any "default" or "event of default" (or
other similar or corresponding term) under the Line of Credit Documents, the
Borrower shall, immediately upon becoming aware thereof, give written notice
thereof to the Lender describing the facts or circumstances constituting or
giving rise to such default or event of default; and the Borrower shall give
further written notice to the Lender immediately upon any cure thereof or any
waiver or forbearance granted by the Line of Credit Lender in respect thereof.
During the pendency of any such default or event of default, if so required by
the Lender, the Borrower shall borrow from the Lender an additional loan in an
amount sufficient to pay the Line of Credit Obligations in full, and the
Borrower shall apply the entire proceeds of such loan to pay the Line of Credit
Obligations in full. Pending the execution and delivery of a new loan agreement,
promissory note and security documents in respect thereof, any such additional
loan made by the Lender under this Section 5.12 shall be on the same terms and
conditions as the Line of Credit Documents (as if such Line of Credit Documents
had been assigned to the Lender), including the continuance of any default or
event of default then existing under the Line of Credit Documents. The making of
any loan by the Lender under this Section 5.12 shall not constitute any waiver
or forbearance in respect of any Default or Event of Default which may then
exist under this Agreement.
Section 5.13. Series B Redemption.
(a) In the event that, at any time and from time to time, any
holder of Series B Convertible Preferred Stock of the Borrower ("Series B
Shares") exercises the Series B Put in whole or in part, the Borrower shall
immediately give written notice thereof to the Lender setting forth (i) the
number of Series B Shares as to which the Series B Put has been exercised, (ii)
the date on which the Series B Put has been exercised with respect to such
29
Series B Shares, and (iii) the date on which the applicable Series B Put Price
will become due and payable. If so elected by the Lender by written notice given
to the Borrower not less than ten (10) days prior to the due date of the subject
Series B Put Price, the Lender shall lend to the Borrower, and the Borrower
shall borrow from the Lender, an additional loan in a principal amount equal to
the subject Series B Put Price, which additional loan (A) shall bear interest on
the outstanding principal balance thereof from time to time at a rate equal to
the rate applicable from time to time to the Loan, with such accrued interest
payable monthly in arrears on the last day of each calendar month subsequent to
the funding of such additional loan, (B) shall be repayable as to principal in
equal monthly installments on the last day of each calendar month commencing
with the month in which such loan is funded and continuing through and including
the Maturity Date, (C) shall, together with all interest and other amounts
payable thereon, constitute Obligations secured by the Guaranty Agreement and
all of the Collateral, (D) shall at all times be convertible, as to the
principal balance of such loan, into common stock of the Borrower at a price per
share equal to the current market price per share of the Borrower's common stock
as of the date of the Lender's election under this Section 5.13(a) (such current
market price to be determined in accordance with Section 1.3 of the Warrant),
and (E) shall be applied to pay the Series B Put Price on or before the due date
thereof. The Borrower and the Domestic Subsidiaries shall promptly execute and
deliver any and all promissory notes and other documents as the Lender may
reasonably request to evidence each such additional loan.
(b) The Lender may, at any time, require the Borrower to
redeem all of the then-outstanding Series B Shares at a redemption price as
provided in the Organic Documents of the Borrower. In connection therewith, the
Lender shall lend to the Borrower, and the Borrower shall borrow from the
Lender, an additional loan in a principal amount equal to the required
redemption price, which additional loan shall be on terms as provided in Section
5.13(a) above, except that (i) the interest rate applicable to such additional
loan shall be fixed at ten (10%) percent per annum, and (ii) the conversion
price applicable to the principal of such additional loan shall be the same as
the conversion price applicable to the Series B Shares at the time that such
Series B Shares are redeemed (subject to subsequent adjustment thereafter in a
manner consistent with the adjustments that would have been made to the
conversion price of the Series B Shares had such Series B Shares remained
outstanding). The Borrower and the Domestic Subsidiaries shall promptly execute
and deliver any and all promissory notes and other documents as the Lender may
reasonably request to evidence such additional loan.
Section 5.14. Landlord Waivers. To the extent requested by the Lender
from time to time subsequent to the Closing Date, the Borrower and the
Subsidiaries shall use their commercially reasonable efforts to obtain any and
all landlord waivers and/or access agreements requested by the Lender, in form
and substance reasonably satisfactory to the Lender.
VI. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, until all Obligations
(whether now existing or hereafter arising) have been paid in full, unless the
Lender shall otherwise consent in writing, the Borrower shall not, and shall not
permit any Subsidiary to, directly or indirectly:
Section 6.01. Indebtedness. Incur, create, assume, become or be liable
in any manner with respect to, or permit to exist, any Indebtedness, other than:
(a) Indebtedness to the Lender pursuant to the Loan Documents;
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(b) liabilities with respect to trade obligations, accounts
payable, advances, royalty or other similar payments, operating leases and other
normal accruals incurred in the ordinary course of business, or with respect to
which the Borrower or the subject Subsidiary is contesting in good faith the
amount or validity thereof by appropriate proceedings, and then only to the
extent that the Borrower or the subject Subsidiary has set aside on its books
adequate reserves therefor;
(c) Indebtedness existing on the date of this Agreement and
reflected in the Financial Statements or the footnotes thereto or owed to those
Persons, in those amounts and having those maturities as set forth in Schedule
3.01 of the Disclosure Schedule;
(d) Capitalized Leases reflected in the Financial Statements,
and Capitalized Leases hereafter entered into by the Borrower or its
Subsidiaries within the limitations of Section 6.09 below;
(e) purchase money Indebtedness incurred in connection with
the Borrower's or its Subsidiaries' acquisition of capital assets, within the
limitations of Section 6.09 below;
(f) Indebtedness incurred under and in accordance with the
Line of Credit Agreement, provided that the principal amount of Line of Credit
Obligations shall at no time exceed $2,000,000;
(g) Subordinated Debt in such amounts and upon such terms and
conditions as shall be acceptable to the Lender in its sole and absolute
discretion;
(h) intercompany Indebtedness between the Borrower and any
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries; and
(i) Guarantees to the extent permitted pursuant to Section
6.03 below.
Section 6.02. Liens. Create, incur, assume or suffer to exist any
Lien or other encumbrance of any nature whatsoever on any of its assets, now
or hereafter owned, other than:
(a) subject to Section 5.02 above, Liens securing the payment
of taxes which are either not yet due or the validity of which is being
contested in good faith by appropriate proceedings, and as to which the Borrower
or the subject Subsidiary shall have set aside on its books adequate reserves;
(b) deposits under workers' compensation, unemployment
insurance and social security laws, or to secure the performance of bids,
tenders, contracts (other than for the repayment of money borrowed) or leases,
or to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(c) statutory Liens of landlords and Liens imposed by law,
such as, carriers', warehousemen's, materialmen's or mechanics' liens, incurred
by the Borrower or any Subsidiary in good faith in the ordinary course of
business and discharged promptly after same are incurred; fully bonded Liens
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arising out of a judgment or award against the Borrower or any Subsidiary with
respect to which the Borrower or such Subsidiary shall currently be prosecuting
an appeal, a stay of execution pending such appeal having been secured; and
Liens arising out of a judgment or award against the Borrower or any Subsidiary
which are fully covered by insurance (subject to applicable deductibles) and for
which the relevant insurer has not denied or disclaimed coverage;
(d) other Liens incurred in connection with Indebtedness
expressly permitted pursuant to Section 6.01(d) and/or Section 6.01(e) above,
but only to the extent that such Liens secure Indebtedness in amounts not in
excess of those permitted by such Section 6.01(d) and/or Section 6.01(e), and
only to the extent that such Liens to not extend to any assets or property other
than the specific assets or properties acquired pursuant to such permitted
Indebtedness;
(e) encumbrances consisting of easements, rights-of-way,
survey exceptions and other similar restrictions on the use of Real Property, or
minor irregularities in title thereto which do not materially impair the use of
such property in the operation of the business of the Borrower and its
Subsidiaries;
(f) Liens in existence on the date of this Agreement which are
expressly subordinated to the Liens securing the Obligations pursuant to
subordination and/or intercreditor agreements satisfactory to the Lender in its
sole and absolute discretion;
(g) Liens arising out of judgments or awards (i) which are
fully covered by insurance (subject to applicable deductibles) and for which the
relevant insurer has not denied or disclaimed coverage, or (ii) with respect to
which the Borrower or the subject Subsidiary shall be prosecuting an appeal in
good faith and in respect of which a stay of execution shall have been issued;
(h) the Line of Credit Liens, so long as (i) such Liens extend
only to personal property of the Line of Credit Borrowers, and (ii) the Line of
Credit Liens relating to StarTrak Systems, LLC are at all times subject to the
Intercreditor Agreement;
(i) Liens in favor of the Lender; and
(j) extensions, renewals or replacements of any Lien referred
to in clauses (a) through (e) and (h) above, provided that same shall not effect
any increase in any principal amount secured thereby at the time of such
extension, renewal or replacement.
Section 6.03. Guarantees. Guarantee, endorse or otherwise in any manner
become or be responsible for obligations of any other Person, except (a)
endorsements of negotiable instruments for collection in the ordinary course of
business, and (b) guarantees by the Borrower of obligations of Wholly-Owned
Subsidiaries in the ordinary course of business.
Section 6.04. Sales of Assets and Management. (a) Sell, lease,
transfer, encumber or otherwise dispose of any of the Borrower's or any
Subsidiary's properties, assets, rights, licenses or franchises other than (i)
sales of inventory in the ordinary course of business, (ii) licenses, joint
ventures and related transactions entered into, modified or terminated in the
ordinary course of business, or (iii) the disposition of surplus or obsolete
32
personal properties in the ordinary course of business, or (b) permit any
Affiliate of the Borrower (other than a Subsidiary which is a party to the
Collateral Agreement) to own or obtain any patent, patent application,
copyright, copyright application, trademark, trademark application, license, or
other intangible asset relating to the Business Operations except in the normal
course of business on terms and conditions no less favorable to the Borrower or
any Subsidiary than those which could be obtained in an arms' length transaction
with an unaffiliated third party.
Section 6.05. Sale-Leaseback. Enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or any Subsidiary shall sell or
transfer any property (real, personal or mixed) used or useful in the Business
Operations, whether now owned or hereafter acquired, and thereafter rent or
lease such property.
Section 6.06. Investments; Acquisitions. Purchase any real property; or
make any Investment in, or otherwise acquire or hold securities (including,
without limitation, capital stock and evidences of Indebtedness) of, or make
loans or advances to, or enter into any arrangement for the purpose of providing
funds or credit to, any other Person (including any Affiliate), except:
(a) Investments in Wholly-Owned Subsidiaries which have
complied (if applicable) with the requirements of Section 5.11 above;
(b) advances (to the extent permitted by Applicable Law,
including federal securities laws) to employees of the Borrower or any
Wholly-Owned Subsidiaries for normal business expenses not to exceed at any time
$10,000 in the aggregate;
(c) Investments of excess cash generated in the Business
Operations in Cash Equivalents;
(d) Investments of cash in overnight deposits or other
customary cash management Investments with commercial banks or in commercial
paper satisfying the criteria for such banks or commercial paper as set forth in
the definition of Cash Equivalents; and
(e) Investments, solely utilizing the proceeds of equity
issuances described in Section 2.02(b) above, for the acquisition of businesses
as described in Section 2.01(e) above.
Section 6.07. Corporate Form; Acquisitions. Dissolve or liquidate, or
consolidate or merge with or into, sell all or substantially all of the assets
of the Borrower or any Subsidiary to, or acquire all or substantially all of the
securities, assets or properties of, any other Person, except for (a)
consolidations solely among Wholly-Owned Subsidiaries; (b) mergers of a
Wholly-Owned Subsidiary into the Borrower or into a Wholly-Owned Subsidiary; (c)
sales to the Borrower or another Subsidiary for fair value; or (d) acquisitions
of other businesses, the purchase price and related expenses of which are funded
entirely from the net proceeds of equity issuances described in Section 2.02(b)
above.
Section 6.08. Dividends and Redemptions. Directly or indirectly declare
or pay any dividends, or make any distribution of cash or property, or both, to
any Person in respect of any of the shares of the capital stock or other equity
securities of the Borrower, or directly or indirectly redeem, purchase or
33
otherwise acquire for consideration any options, warrants, shares of the capital
stock or other equity securities of the Borrower or any other Person; provided,
that this Section 6.08 shall not be deemed to prohibit the payment of (a)
"paid-in-kind" dividends on the Borrower's outstanding preferred stock from time
to time, (b) dividends or distributions by any Subsidiary to the Borrower or to
any other direct or indirect Wholly-Owned Subsidiary, or (c) the Series B Put
Price upon exercise of the Series B Put at any time and from time to time.
Section 6.09. Compensation. Directly or indirectly pay any cash
compensation to any executive officers of the Borrower in any amounts which are
inconsistent with the compensation policies approved from time to time by the
independent members of the Borrower's Board of Directors or by the Compensation
Committee of such Board of Directors.
Section 6.10. Change of Business. Directly or indirectly: (a) engage in
a business materially different from the general nature of the Business
Operations (i) as now being conducted, or (ii) as the same may hereafter be
reasonably expanded from time to time in like areas of business; (b) wind up the
Business Operations or cease substantially all of its normal Business Operations
for a period in excess of ten (10) consecutive days; or (c) suffer any material
disruption, interruption or discontinuance of a material portion of its normal
Business Operations for a period in excess of ten (10) consecutive days.
Section 6.11. Receivables. Sell or assign in any way any accounts
receivable, promissory notes or trade acceptances held by the Borrower or any
Subsidiary with or without recourse, except for collections (including
endorsements) in the ordinary course of business.
Section 6.12. Certain Amendments. Agree, consent, permit or otherwise
undertake to amend (a) any of the terms or provisions of the Borrower's or any
Subsidiary's Organic Documents in a manner which may impair in any respect any
of the Lender's rights under any of the Loan Documents, or may constitute or
give rise to any Default or Event of Default, or (b) any of the terms or
provisions of any of the Line of Credit Documents.
Section 6.13. Affiliate Transactions. Enter into any Contract,
agreement or transaction with any Affiliate of the Borrower except (a) as
disclosed in Schedule 6.13 of the Disclosure Schedule, (b) for intercompany
Indebtedness between the Borrower and any Wholly-Owned Subsidiary or between any
Wholly-Owned Subsidiaries, or (c) in the normal course of business on terms and
conditions no less favorable to the Borrower or any Subsidiary than those which
could be obtained in an arms' length transaction with an unaffiliated third
party.
Section 6.14. Fiscal Year. Amend its Fiscal Year.
Section 6.15. Subordinated Debt. Prepay, redeem or purchase any
Subordinated Debt.
Section 6.16. Securities Issuances. Issue any additional Series B
Shares (other than as in-kind dividends), or any other securities (other than
in-kind dividends paid on the Series A Convertible Preferred Stock of the
Borrower) which, by their terms, entitle the holder thereof to require (a) the
payment of dividends in cash, or (b) the redemption of such securities.
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VII. DEFAULTS
Section 7.01. Events of Default. Each of the following events is
herein, and in the Note, sometimes referred to as an Event of Default:
(a) if any representation or warranty made herein or in any
other Loan Document, or in any certificate, financial statement or other written
statement furnished by the Borrower or any Subsidiary in connection with this
Agreement or the borrowing hereunder, shall be false, inaccurate or misleading
in any material respect when made or when deemed made hereunder;
(b) any default in the payment of any principal or interest
under the Note or any other Obligations when the same shall be due and payable,
whether at the due date thereof or at a date required for prepayment or by
acceleration or otherwise, and the continuance of any such non-payment (in whole
or in part) for a period of three (3) Business Days;
(c) any default in the due observance or performance of any
covenant, condition or agreement contained in any Section of Article VI hereof,
which, if capable of being cured, is not fully cured within thirty (30) days
after the occurrence thereof;
(d) any default in the due observance or performance of any
covenant, condition or agreement to be observed or performed under Article V
hereof, or otherwise pursuant to the terms hereof or any other Loan Document and
not addressed in Sections 7.01(a), (b) or (c), and the continuance of such
default unremedied for a period of thirty (30) days (five (5) Business Days in
the case of Section 5.01(d) above) after written notice thereof to the Borrower,
or such other cure period (if any) provided in the subject Loan Document;
(e) any default with respect to any Indebtedness for money
borrowed of the Borrower or any of the Subsidiaries (other than to the Lender)
in an amount in excess of $25,000, if the effect of such default is to permit
the holder, with or without notice or lapse of time or both, to accelerate the
maturity of any such Indebtedness for money borrowed or to cause such
Indebtedness for money borrowed to become due prior to the stated maturity
thereof;
(f) if the Borrower or any Subsidiary shall: (i) apply for or
consent to the appointment of a receiver, trustee, custodian or liquidator of it
or any of its properties, (ii) admit in writing its inability to pay its debts
as they mature, (iii) make a general assignment for the benefit of creditors,
(iv) be adjudicated a bankrupt or insolvent or be the subject of an order for
relief under Title 11 of the United States Code, or (v) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage or any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material allegations of a petition filed
against him or it in any proceeding under any such law, or (vi) take or permit
to be taken any action in furtherance of or for the purpose of effecting any of
the foregoing;
(g) if any order, judgment or decree shall be entered, without
the application, approval or consent of the Borrower or any Subsidiary, by any
court of competent jurisdiction, approving a petition seeking reorganization of
the Borrower or any Subsidiary, or appointing a receiver, trustee, custodian or
liquidator of the Borrower or any Subsidiary, or of all or any substantial part
of its assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) days;
(h) if final judgment(s) for the payment of money in an
uninsured amount in excess of $25,000 individually or in the aggregate shall be
35
rendered against the Borrower and/or any Subsidiary, and the same shall remain
undischarged or unbonded for a period of thirty (30) consecutive days, during
which execution shall not be effectively stayed;
(i) the occurrence of any levy upon or seizure or attachment
of, or any uninsured loss of or damage to, any property of the Borrower or any
Subsidiary having an aggregate fair value or repair cost (as the case may be) in
excess of $25,000 individually or in the aggregate, and any such levy, seizure
or attachment shall not be set aside, bonded or discharged within thirty (30)
days after the date thereof;
(j) if any Lien purported to be created by any Security
Document shall cease to be a valid perfected first priority Lien (subject only
to any priority accorded by law to Permitted Liens) on the assets or properties
covered thereby, or the Borrower or any Subsidiary shall assert in writing that
any Lien purported to be created by any Security Document is not a valid
perfected first priority lien (subject only to any priority accorded by law to
Permitted Liens) on the assets or properties purported to be covered thereby;
(k) if any of the Loan Documents shall cease to be in full
force and effect (other than as a result of the discharge thereof in accordance
with the terms thereof or by written agreement of all parties thereto);
(l) if the Borrower or any Subsidiary shall be indicted for or
convicted of any criminal offense; or
(m) the occurrence of a Material Adverse Effect.
Section 7.02. Remedies. Upon the occurrence of any Event of Default,
and at all times thereafter during the continuance thereof: (a) the Note, and
any and all other Obligations, shall, at the Lender's option (except in the case
of Sections 7.01(f) and 7.01(g) above, the occurrence of which shall
automatically effect acceleration, regardless of any action or forbearance in
respect of any prior or ongoing Default or Event of Default which may be
inconsistent with such automatic acceleration), become immediately due and
payable, both as to principal, interest and other charges, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Note or other evidence of such Obligations
to the contrary notwithstanding, (b) all outstanding Obligations under the Note,
and all other outstanding Obligations, shall bear interest at the Default Rate,
(c) the Lender may file suit against the Borrower on the Note and under the
other Loan Documents and/or seek specific performance or injunctive relief
thereunder (whether or not a remedy exists at law or is adequate), and (d) the
Lender shall have the right, in accordance with the Security Documents, to
exercise any and all remedies in respect of such or all of the Collateral as the
Lender may determine in its discretion (without any requirement of marshalling
of assets, or other such requirement).
36
VIII. PARTICIPATING LENDERS; ASSIGNMENT.
Section 8.01. Participations. Anything in this Agreement to the
contrary notwithstanding, the Lender may, at any time and from time to time,
without in any manner affecting or impairing the validity of any Obligations,
transfer, assign or grant participating interests in the Loans as the Lender
shall in its sole discretion determine, to such other Persons (the
"Participants") as the Lender may determine. Upon any such transfer, assignment
or granting of participating interests, the Participants shall be deemed to be
included within the term "Lender" for all purposes of this Agreement, subject to
such agreements and arrangements as the Lender and the Participants may agree
upon. Notwithstanding the granting of any such participating interests: (a) the
Borrower shall look solely to the Lender for all purposes of this Agreement and
the transactions contemplated hereby, (b) the Borrower shall at all times have
the right to rely upon any waivers or consents signed by the Lender as being
binding upon all of the Participants, and (c) all communications in respect of
this Agreement and such transactions shall remain solely between the Borrower
and the Lender (exclusive of Participants) hereunder.
Section 8.02. Transfer. Anything contained in this Agreement to the
contrary notwithstanding, the Lender may, at any time and from time to time,
without in any manner affecting or impairing the validity of any Obligations,
transfer and assign all or any portion of its interest in this Agreement, the
Note and the other Loan Documents to any Person (an "Assignee Lender") as the
Lender may determine. Upon any such transfer or assignment, the Assignee Lender
shall be deemed to succeed (to the extent of the interest assigned) to the
rights and obligations of the Lender for all purposes of this Agreement. In the
event of any transfer and assignment of the Lender's entire interest in this
Agreement, the Note and the Security Documents, the Lender shall be replaced by
the Assignee Lender as "Secured Party" under the Collateral Agreement and all
other Security Documents.
IX. MISCELLANEOUS
Section 9.01. Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the making by the Lender of the Loans and the
execution and delivery to the Lender of the Note, and shall continue in full
force and effect for so long as the Note or any other Obligations are
outstanding and unpaid. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
permitted assigns of such party; and all covenants, promises and agreements in
this Agreement contained, by or on behalf of the Borrower shall inure to the
benefit of the successors and assigns of the Lender.
Section 9.02. Indemnification. The Borrower shall indemnify the Lender
and its directors, officers, employees, attorneys and agents against, and shall
hold the Lender and such Persons harmless from and against, any and all losses,
claims, damages and liabilities and related expenses, including reasonable
counsel fees and expenses, incurred by the Lender or any such Person arising out
of, in any way connected with, or as a result of: (a) the use of any of the
proceeds of the Loans made by the Lender to the Borrower; (b) this Agreement,
the ownership and operation of the Borrower's and the Subsidiaries' assets,
including all Real Properties and improvements or any Contract, the performance
by the Borrower or any other Person of their respective obligations thereunder,
and the consummation of the transactions contemplated by this Agreement; and/or
(c) any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not the Lender or its directors, officers, employees,
attorneys or agents are a party thereto; provided that such indemnity shall not
apply to any such losses, claims, damages, liabilities or related expenses
37
arising from (i) any unexcused breach by the Lender of any of its obligations
under this Agreement, (ii) the willful misconduct or gross negligence of the
Lender as determined by a final, non-appealable judgment of a court of competent
jurisdiction, or (iii) the breach of any commitment or legal obligation of the
Lender to any Person other than the Borrower or its Affiliates, provided that
such breach, willful misconduct or gross negligence is determined pursuant to a
final and nonappealable decision of a court of competent jurisdiction. The
foregoing indemnity shall remain operative and in full force and effect
regardless of the expiration or any termination of this Agreement, the
consummation of the transactions contemplated by this Agreement, the repayment
of the Loans, the invalidity or unenforceability of any term or provision of any
Loan Document, any investigation made by or on behalf of the Lender, and the
content or accuracy of any representation or warranty made by the Borrower or
any Subsidiary in any Loan Document. All amounts due under this Section 9.02
shall be payable on written demand therefor.
Section 9.03. Governing Law. This Agreement and the other Loan
Documents shall (irrespective of where same are executed and delivered) be
governed by and construed in accordance with the laws of the State of New York
(without giving effect to principles of conflicts of laws other than Section
5-1401 of the New York General Obligations Law).
Section 9.04. Waiver and Amendment. Neither any modification or waiver
of any provision of this Agreement, the Note, or any other Loan Document, nor
any consent to any departure by the Borrower or any Subsidiary therefrom, shall
in any event be effective unless the same shall be set forth in writing duly
signed or acknowledged by the Lender and the Borrower, and then such waiver or
consent shall be effective only in the specific instance, and for the specific
purpose, for which given. No notice to or demand on the Borrower in any instance
shall entitle the Borrower to any other or future notice or demand in the same,
similar or other circumstances.
Section 9.05. Reservation of Remedies. Neither any failure nor any
delay on the part of the Lender in exercising any right, power or privilege
hereunder or under the Note or any other Loan Document shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
future exercise, or the exercise of any other right, power or privilege.
Section 9.06. Notices. All notices, requests, demands and other
communications under or in respect of this Agreement or any transactions
hereunder shall be in writing (which may include telegraphic or telecopied
communication) and shall be personally delivered or mailed (by prepaid
registered or certified mail, return receipt requested), sent by prepaid
recognized overnight courier service, or telegraphed or telecopied by facsimile
transmission to the applicable party at its address or telecopier number
indicated below.
38
If to the Lender:
ComVest Capital LLC
One North Clematis, Suite 300
West Palm Beach, FL 33401
Attention: Chief Financial Officer
Telecopier: (212) 829-5986
with a copy to:
Greenberg Traurig, LLP
200 Park Avenue
New York, New York 10166
Attention: Shahe Sinanian, Esq.
Telecopier: (212) 801-6400
If to the Borrower:
Alanco Technologies, Inc.
15575 North 83rd Way, Suite 3
Scottsdale, Arizona 85260
Attention: Chief Executive Officer
Telecopier: (480) 607-1515
with a copy to:
Steven P. Oman, Esq.
8664 East Chama Road
Scottsdale, Arizona 85255
Telecopier: (480) 348-1471
or, as to each party, at such other address or telecopier number as shall be
designated by such party in a written notice to the other party delivered as
aforesaid. All such notices, requests, demands and other communications shall be
deemed given (a) when personally delivered, (b) three (3) Business Days after
being deposited in the mails with postage prepaid (by registered or certified
mail, return receipt requested), (c) one (1) Business Day after being delivered
to the telegraph company or overnight courier service, if prepaid and sent
overnight delivery, addressed as aforesaid and with all charges prepaid or
billed to the account of the sender, or (d) when sent by facsimile transmission
to a telecopier number designated by such addressee.
Section 9.07. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower shall not assign any of its
rights or obligations hereunder without the prior written consent of the Lender.
Section 9.08. Consent to Jurisdiction; Waiver of Jury Trial. The
Borrower hereby consents to the jurisdiction of all courts of the State of New
York and the United States District Court for the Southern District of New York,
39
as well as to the jurisdiction of all courts from which an appeal may be taken
from such courts, for the purpose of any suit, action or other proceeding
arising out of or with respect to this Agreement, any other Loan Document, any
other agreements, instruments, certificates or other documents executed in
connection herewith or therewith, or any of the transactions contemplated hereby
or thereby, or any of the Borrower's or any Subsidiary's obligations hereunder
or thereunder. The Borrower hereby waives the right to interpose any
counterclaims (other than compulsory counterclaims) in any action brought by the
Lender hereunder or in respect of any other Loan Document, provided that this
waiver shall not preclude the Borrower from pursuing any such claims by means of
separate proceedings. THE BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL
OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS, AND ALSO WAIVES
TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. The Lender may file a copy
of this Agreement as evidence of the foregoing waiver of right to jury trial.
Section 9.09. Certain Waivers. The Borrower and the Lender each hereby
waives any claims for special, consequential or punitive damages in any way
arising out of or relating to this Agreement, any of the other Loan Documents,
or any breach hereof or thereof.
Section 9.10. Severability. If any provision of this Agreement is held
invalid or unenforceable, either in its entirety or by virtue of its scope or
application to given circumstances, such provision shall thereupon be deemed
modified only to the extent necessary to render same valid, or not applicable to
given circumstances, or excised from this Agreement, as the situation may
require, and this Agreement shall be construed and enforced as if such provision
had been included herein as so modified in scope or application, or had not been
included herein, as the case may be.
Section 9.11. Captions. The Article and Section headings in this
Agreement are included herein for convenience of reference only, and shall not
affect the construction or interpretation of any provision of this Agreement.
Section 9.12. Sole and Entire Agreement. This Agreement, the Note, the
other Loan Documents, and the other agreements, instruments, certificates and
documents referred to or described herein and therein constitute the sole and
entire agreement and understanding between the parties hereto as to the subject
matter hereof, and supersede all prior discussions, agreements and
understandings of every kind and nature between the parties as to such subject
matter.
Section 9.13. Confidentiality. The Lender shall not disclose any
Confidential Information to any Person without the prior consent of the
Borrower; provided, however, that nothing herein contained shall limit any
disclosure of the tax structure of the transactions contemplated hereby, or the
disclosure of any information (a) to the extent required by statute, rule,
regulation or judicial or administrative process, (b) to counsel for the Lender,
(c) to bank examiners, auditors, accountants or, if required by law, any
regulatory authority, (d) to the officers, partners, managers, directors,
employees, agents and advisors (including independent auditors and counsel) of
the Lender, (e) in connection with any litigation which relates to this
Agreement to which the Lender is a party, (f) to a subsidiary or Affiliate of
40
the Lender, or (g) to any assignee or participant (or prospective assignee or
participant) which agrees to be bound by this Section 9.13; and further
provided, that in no event shall the Lender be obligated or required to return
any materials furnished by the Borrower. The obligations of the Lender under
this Section 9.13 shall supersede and replace the obligations of the Lender
under any confidentiality letter in respect of this financing previously signed
and delivered by the Lender to the Borrower.
Section 9.14. Counterparts; Fax Signatures. This Agreement may be
executed in any number of counterparts, all of which shall constitute one and
the same agreement. This Agreement and each other Loan Document may be executed
by fax signatures, each of which shall be fully binding on the signing party.
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41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officer as of the day and year first
written above.
COMVEST CAPITAL LLC
By: /s/ Larry E. Lenig, Jr.
-------------------------
Name: Larry E. Lenig, Jr.
Title:Senior Partner/Portfolio Manager
ALANCO TECHNOLOGIES, INC.
By: /s/ Robert R. Kauffman
-------------------------
Name:Robert R. Kauffman
Title: President & Chairman