Exhibit 10.6
EXECUTION COPY
LOAN AND SECURITY AGREEMENT
by and among
BREAKAWAY SOLUTIONS, INC.,
a Delaware corporation
as Borrower,
SCP PRIVATE EQUITY PARTNERS II, L.P.,
a Delaware limited partnership
as Lender
and
SCP PRIVATE EQUITY PARTNERS II, L.P.,
a Delaware limited partnership
as Agent
LINE OF CREDIT: $10,000,000
FEBRUARY 16, 2001
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of February
16, 2001, by and among SCP PRIVATE EQUITY PARTNERS II, L.P., a Delaware limited
partnership, having an address at 435 Devon Park Drive, Building 300, Wayne,
Pennsylvania, 19087, as lender ("Lender"), SCP PRIVATE EQUITY PARTNERS II, L.P.,
a Delaware limited partnership, having an address at 435 Devon Park Drive,
Building 300, Wayne, Pennsylvania, 19087, as agent ("Agent"), and BREAKAWAY
SOLUTIONS, INC., a Delaware corporation having an address at 3 Clock Tower
Place, 4th Floor, Maynard, Massachusetts 01754 ("Borrower"), provides the terms
on which Lender will lend to Borrower and Borrower will repay Lender. The
parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation" in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 12. This Agreement shall be construed to impart
upon Lender a duty to act reasonably at all times.
2. LOAN AND TERMS OF PAYMENT
2.1. ADVANCES.
(a) Lender will make Advances not exceeding the Committed Line. The
initial Advance shall be used by Borrower for general corporate purposes. Any
amount borrowed under this Section 2.1 that is repaid may not be reborrowed.
Each Advance shall be evidenced by the Promissory Note to be executed and
delivered by Borrower to Lender on the date hereof and shall be repaid in
accordance with the terms of the Promissory Note.
(b) To obtain an Advance, Borrower must notify Lender by facsimile or
telephone by no later than one Business Day prior to the date of such Advance.
Borrower must promptly confirm the notification by delivering to Lender a Notice
of Borrowing substantially in the form attached as EXHIBIT B. Notwithstanding
anything to the contrary contained herein, Lender, in its sole discretion, shall
decide whether or not to make an Advance that is requested in a Notice of
Borrowing. If Lender decides to make any such Advance, Lender will pay each such
Advance in accordance with the payment instructions set forth on such Notice of
Borrowing. Lender may make Advances under this Agreement based on instructions
from a Responsible Officer or his or her designee or without instructions if the
Advances are necessary to meet Obligations which have become due. Lender may
rely on any telephone notice given by a person whom Lender believes is a
Responsible Officer or designee. Borrower will indemnify Lender for any loss
Lender suffers due to that reliance.
(c) The Committed Line terminates on the Maturity Date, when all
Advances are immediately payable.
2.2. INTEREST RATE; PAYMENTS.
Interest on the Committed Line is payable on the Maturity Date. Advances
under the Committed Line accrue interest on the outstanding principal balance in
accordance with the Promissory Note.
2.3. DEFAULT INTEREST. After an Event of Default, Obligations accrue
interest at eighteen percent (18%) per annum. Interest is computed on a 360-day
year for the actual number of days elapsed.
2.4. WARRANT. On the Closing Date, the Borrower shall issue to the Lender
the Warrant.
2.5. LENDER EXPENSES. Borrower will pay to Lender all Lender Expenses
(including reasonable attorneys' fees and expenses for documentation and
negotiation of this Agreement) incurred through and after the Closing Date when
due.
2.6. HIGHEST LAWFUL RATE. Anything herein to the contrary notwithstanding,
if during any period for which interest is computed hereunder, the applicable
interest rate, together with all fees, charges and other payments which are
treated as interest under applicable law, as provided for herein or in any other
Loan Document, would exceed the maximum rate of interest which may be charged,
contracted for, reserved, received or collected by Lender in connection with
this Agreement under applicable law (the "Maximum Rate"), Borrower shall not be
obligated to pay, and Lender shall not be entitled to charge, collect, receive,
reserve or take, interest in excess of the Maximum Rate, and during any such
period the interest payable hereunder shall be limited to the Maximum Rate.
3. CONDITIONS OF LOANS
3.1. CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. Lender's obligation
to make the initial Credit Extension is subject to the condition precedent that
it receive the agreements, documents and fees it requires. In addition, Lender's
obligation is further subject to the following conditions:
(a) Borrower shall have executed and delivered to Lender the Warrant;
(b) Each of Borrower's Subsidiaries shall have executed and delivered
to Agent the Guaranty Agreement Amendment;
(c) Each of Borrower's Subsidiaries shall have executed and delivered
to Agent the Security Agreement Amendment;
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(d) Borrower and each of its Subsidiaries that owns equity securities
of any Person shall have executed and delivered to Agent the Pledge Agreement
Amendment;
(e) Borrower shall have executed and delivered to Agent the Borrower
Trademark Security Agreement Amendment;
(f) Web Yes shall have executed and delivered to Agent the Web Yes
Trademark Security Agreement Amendment;
(g) Borrower shall have executed and delivered to Lender the
Registration Rights Agreement Amendment;
(h) receipt by the Lender of a duly executed Promissory Note in the
principal amount of the Committed Line;
(i) receipt by the Lender of an opinion (together with any opinions of
local counsel relied on therein) of Hale and Dorr LLP, counsel for the Borrower,
dated as of the Closing Date, substantially in the form of EXHIBIT I hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Lender may request;
(j) receipt by Lender of a duly executed Perfection Certificate from
each of Borrower and Eggrock Partners, Inc.;
(k) receipt by the Agent of certificates representing shares of all
capital stock pledged under the Pledge Agreement, as amended, to the Agent,
accompanied by instruments of transfer and stock powers endorsed in blank,
together with evidence satisfactory to the Agent that such capital stock has
been duly and validly pledged thereunder to the Agent subject to no other Lien
other than the Lien created under the Pledge Agreement, as amended, to secure
the Obligations;
(l) receipt by Lender from each of Borrower and Eggrock Partners, Inc.
of a certificate, dated as of the Closing Date, duly executed by the Secretary
or an Assistant Secretary of Borrower or Eggrock Partners, Inc., as the case may
be, certifying as to: (A) the copy of such entity's Certificate of Incorporation
or similar document, attached thereto, as certified by the jurisdiction of
incorporation, and stating that such charter document, is in full force and
effect as of a date no more than 10 days prior to the Closing Date and that,
since the date of issuance of such certification, there have been no amendments,
alteration or modifications of such charter document, (B) the copy of such
entity's Bylaws, attached thereto, and stating that such Bylaws are in full
force and effect as of a date no more than five days prior to the Closing Date,
(C) the good standing certificate of such entity attached thereto from such
entity's jurisdiction of incorporation and each jurisdiction where such entity
is qualified to do business, (D) the copy of the resolutions attached thereto of
the Board of Directors of such entity authorizing and approving the execution,
delivery and performance of, and the consummation of the transactions
contemplated by, this Agreement and any other documents or instruments
contemplated hereby, and stating that the resolutions thereby certified have not
been amended, modified, revoked or
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rescinded; and (E) the incumbency, authority and specimen signature of each
officer of such executing this Agreement or any other document or instrument
contemplated hereby;
(m) termination of all currently outstanding Liens of Borrower and its
Subsidiaries, other than Permitted Liens, and provision to Lender of termination
letters (or such other evidence of termination as Lender reasonably requests)
with respect thereto.
3.2. CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Notwithstanding
anything to the contrary contained herein, Lender, in its sole discretion, shall
decide whether or not to make any Credit Extension and shall in no event be
otherwise obligated to make any Credit Extension. Any requested Credit Extension
is further subject to the following:
(a) timely receipt of any Notice of Borrowing;
(b) the representations and warranties in Section 5 must be materially
true on the date of the Notice of Borrowing and on the effective date of each
Credit Extension and the Lender shall have received a certificate signed by a
duly authorized officer of Borrower confirming the foregoing;
(c) [INTENTIONALLY OMITTED]
(d) no Event of Default may have occurred and be continuing or result
from the Credit Extension.
4. SECURITY INTEREST
4.1. SECURITY INTEREST. Borrower grants Agent, on Lender's behalf, a
continuing security interest in all presently existing and later acquired
Collateral to secure all Obligations and performance of Borrower's duties under
the Loan Documents. Except for Permitted Liens, any security interest will be a
first priority security interest in the Collateral. The Agent may place a "hold"
on any deposit account pledged as Collateral. If this Agreement is terminated,
Agent's lien and security interest in the Collateral will continue until
Borrower fully satisfies its Obligations.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. DUE ORGANIZATION AND AUTHORIZATION. Borrower and each of its Material
Subsidiaries is duly existing and in good standing in its state of formation and
qualified and licensed to do business in, and in good standing in, any state in
which the conduct of its business or its ownership of property requires that it
be qualified, except where the failure to do so could not reasonably be expected
to cause a Material Adverse Change. The execution, delivery and performance
(including the issuance of the Warrant Shares) of the Loan Documents have been
duly and validly authorized, and do not conflict with Borrower's formation
documents, nor
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constitute an event of default under any material agreement by which Borrower is
bound and no other corporate proceedings on the part of the Borrower are
necessary to authorize the Loan Documents or to consummate the transactions
contemplated therein, including any stockholder approval. Each of the Loan
Documents has been duly and validly executed and delivered by the Borrower, and,
assuming such Loan Document constitutes a valid and binding obligation of
Lender, such Loan Document constitutes a valid and binding agreement of the
Borrower, enforceable against the Borrower in accordance with its terms, subject
to applicable bankruptcy and other laws affecting creditors' rights generally
and to general principles of equity. 4,856,667 shares of Common Stock are duly
authorized and reserved for issuance upon exercise of the Warrant and, upon
issuance in accordance with the Loan Documents, will be validly issued, fully
paid and non-assessable, and free from all Liens. Neither the issuance, sale or
delivery of the Promissory Note or Warrant nor the issuance or delivery of
Warrant Shares is subject to any preemptive right of stockholders of Borrower or
to any right of first refusal or similar right in favor of any person. Borrower
is not in default under any agreement to which or by which it is bound in which
the default could cause a Material Adverse Change.
5.2. CONSENTS AND APPROVALS. Except as set forth in the Schedule, neither
the execution and delivery of the Loan Documents by Borrower and its Material
Subsidiaries nor the consummation of the transactions contemplated hereby and
thereby (including the issuance of the Promissory Note or Warrant and the
issuance of the Warrant Shares) will conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of Borrower or any of its Material
Subsidiaries under,
(a) the Certificate of Incorporation or Bylaws of Borrower or the
comparable charter or organizational documents of any of its Material
Subsidiaries,
(b) any loan or credit agreement, note, bond, mortgage, indenture,
lease, contract, agreement, instrument, permit, governmental authorization,
concession, franchise or license applicable to Borrower or any of its Material
Subsidiaries or their respective properties or assets, or
(c) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Borrower or any of its Material Subsidiaries or their
respective properties or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority is required by Borrower
or any of its Material Subsidiaries in connection with the execution and
delivery of the Loan Documents by Borrower or the consummation by Borrower of
the transactions contemplated hereby or thereby (including the issuance of the
Promissory Note or Warrant and the Warrant Shares).
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5.3. CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Borrower
consists of 80,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock"). As of February 14,
2001, 50,856,132 shares of Common Stock are issued and outstanding, and no
shares of Common Stock are held in the treasury of Borrower. As of the date
hereof, no shares of Preferred Stock are issued and outstanding, and no shares
of Preferred Stock are held in the treasury of Borrower. The number of shares of
Common Stock reserved for issuance pursuant to options issued under any of
Borrower's stock option or similar plans and the number of shares of Common
Stock reserved in the aggregate for issuance pursuant to warrants to purchase
Common Stock are set forth in the Schedule. Except as otherwise set forth in the
Warrant and the Reissued Warrant (as defined in the ICG Loan Agreement), a
sufficient number of shares of Common Stock are reserved in the aggregate for
issuance pursuant to (i) all currently outstanding obligations (including the
effects of anti-dilution provisions contained therein as triggered by the
issuance of the Warrant) and (ii) the Warrant. All of the issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, and are not subject to preemptive rights. The Schedule
sets forth the exercise prices or conversion prices and number of shares of
Common Stock or other capital stock of Borrower issuable in respect of each
outstanding stock option, each outstanding warrant and outstanding convertible
notes.
(b) Except as set forth in paragraph (a) above (or as expressly
contemplated by this Agreement), there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which Borrower is a party or by which it is bound obligating
Borrower to issue, deliver or sell, or cause to be issued, delivered or sold,
directly or indirectly, additional shares of capital stock or other voting
securities (or securities convertible into or exchangeable for such securities)
of Borrower, or obligating Borrower to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Except for shares of capital stock of each Subsidiary of
Borrower that are owned by Borrower free and clear of Liens, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Borrower or any
Material Subsidiary of Borrower is a party or by which Borrower or any such
Material Subsidiary is bound obligating Borrower or any such Material Subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, directly or
indirectly, additional shares of capital stock or other voting securities (or
securities convertible into or exchangeable for such securities) of any Material
Subsidiary of Borrower, or obligating Borrower or any such Material Subsidiary
to issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are no bonds,
debentures, notes or other indebtedness of Borrower or any Material Subsidiary
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of Borrower or
any Material Subsidiary may vote. Except as set forth on the Schedule (or as
expressly contemplated by this Agreement), there are not any outstanding
contractual obligations of Borrower or any of its Material Subsidiaries to
repurchase, redeem or otherwise acquire, or providing preemptive or registration
rights with respect to, any
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shares of capital stock of Borrower or any of its Material Subsidiaries. Except
as set forth on the Schedule, there are no anti-dilution or price adjustment
provisions contained in any security issued by Borrower (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
any Promissory Note or Warrant or any Warrant Shares. Borrower and its Material
Subsidiaries do not have outstanding any loans to any person in respect of the
purchase of securities issued by Borrower and its Material Subsidiaries.
(c) There are no voting trusts or agreements, stockholders agreements,
pledge agreements, buy-sell agreements, rights of first refusal, preemptive
rights or proxies relating to any securities of Borrower or any of its Material
Subsidiaries to which Borrower or a Material Subsidiary is a party, or, to
Borrower's knowledge, any of such instruments to which it is not a party. All of
the outstanding securities of Borrower were issued in compliance with all
applicable federal and state securities laws, including the Securities Act of
1933, as amended (the "Securities Act").
5.4. COLLATERAL. Each of Borrower and its Material Subsidiaries has good
title to the Collateral, free of Liens except Permitted Liens. All Inventory is
in all material respects of good and marketable quality, free from material
defects. Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each Patent which has been issued is valid and enforceable and to the
best of Borrower's knowledge, each Patent that has been applied for and is
pending if issued will be valid and enforceable when issued and no part of the
Intellectual Property has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of the Intellectual Property
violates the rights of any third party.
5.5. LITIGATION. There are no actions or proceedings pending or, to
Borrower's knowledge, threatened by or against Borrower or any of its Material
Subsidiaries in which an adverse decision could cause a Material Adverse Change.
5.6. NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements for Borrower and any of its Material Subsidiaries delivered
to Lender fairly present in all material respects Borrower's consolidated
financial condition and Borrower's consolidated results of operations as of the
date of each such consolidated financial statement. As of the date of this
Agreement, the aggregate liabilities of Borrower and its Material Subsidiaries
as determined in accordance with GAAP do not exceed $60.0 million. Since
September 30, 2000, neither Borrower nor any of its Material Subsidiaries has
received notice that any single customer which had accounted for greater than 5%
of the total revenue set forth on such consolidated financial statement has or
intends to terminate its relationship with Borrower and/or any of its Material
Subsidiaries.
5.7. REGULATORY COMPLIANCE. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Each of Borrower and its Material Subsidiaries has complied in
all material respects with the Federal Fair Labor
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Standards Act. Neither Borrower nor any of its Material Subsidiaries has
violated any laws, ordinances or rules, the violation of which could cause a
Material Adverse Change. None of Borrower's or any of its Material Subsidiaries'
properties or assets has been used by Borrower or any of its Material
Subsidiaries or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each of its Material Subsidiaries has timely
filed all required tax returns and paid, or made adequate provision to pay, all
material taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each of its Material Subsidiaries has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to do so
could not reasonably be expected to cause a Material Adverse Change.
5.8. SUBSIDIARIES. Borrower does not own any stock, partnership interest or
other equity securities, except as set forth on the Schedule.
5.9. NO BROKERS OR FINDERS. Neither Borrower, nor any of its affiliates,
nor any of their respective officers, directors or employees, (a) has employed
(or will employ) any broker or finder, or (b) has incurred (or will incur) any
liability for any brokerage fees, commissions or finders' fees or expenses or
indemnification or similar obligations in connection with the transactions
contemplated by this Agreement.
5.10. OFFERING OF THE PROMISSORY NOTE AND WARRANT. Neither Borrower nor any
person authorized or employed by Borrower as agent, broker, dealer or otherwise
in connection with the offering or sale of the Promissory Note and Warrant or
any security of Borrower similar to the Promissory Note and Warrant has offered
the Promissory Note and Warrant or any such similar security for sale to, or
solicited any offer to buy the Promissory Note and Warrant or any such similar
security from, or otherwise approached or negotiated with respect thereto with,
any person or persons, and neither Borrower nor any person acting on its behalf
has taken or will take any other action (including any offer, issuance or sale
of any security of Borrower under circumstances which might require the
integration of such security with the Promissory Note and Warrant under the
Securities Act or the rules and regulations of the U.S. Securities and Exchange
Commission thereunder), in either case so as to subject the offering, issuance
or sale of the Promissory Note and Warrant to the registration provisions of the
Securities Act.
5.11. FULL DISCLOSURE. No representation, warranty or other statement of
Borrower in any certificate or written statement given to Lender in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading.
5.12. PERFECTION CERTIFICATES. All information provided by Borrower and
Eggrock Partners, Inc. in their respective Perfection Certificates delivered to
Lender pursuant hereto is true and correct as of the date of each such
Perfection Certificate.
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5.13. OUTSTANDING LIENS. Neither Borrower nor any Material Subsidiary of
Borrower has any outstanding Liens other than Permitted Liens and Liens granted
to ICG pursuant to the ICG Loan Agreement.
6. AFFIRMATIVE COVENANTS
Borrower will, and will cause its Subsidiaries, to do all of the following:
6.1. GOVERNMENT COMPLIANCE. Borrower will maintain its and all of its
Subsidiaries' existence and good standing in its jurisdiction of incorporation
and maintain qualification in each jurisdiction in which the failure to so
qualify could have a material adverse effect on Borrower's business or
operations. Borrower will comply, and have each of its Subsidiaries comply, with
all laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on Borrower's business or operations
or cause a Material Adverse Change.
6.2. FINANCIAL STATEMENTS AND OTHER INFORMATION. Borrower shall furnish to
Lender: (i) as soon as available and in any event within 30 days after the end
of each month of each fiscal year of Borrower, its monthly consolidated
financial statements, prepared in accordance with GAAP, and, if requested by
Lender, its monthly consolidating financial statements, accompanied by a
certificate of a Responsible Officer stating that such financial statements
fairly present the financial condition of Borrower and its Subsidiaries as at
such date and the results of operations of Borrower and its Subsidiaries for the
period ended on such date and have been prepared in accordance with GAAP
consistently applied, subject to changes from normal, year-end adjustments and
except for the absence of notes, (ii) as soon as available and in any event
within 45 days after the end of the first three fiscal quarters of each fiscal
year of Borrower, its quarterly consolidated financial statements, prepared in
accordance with GAAP, and, if requested by Lender, its quarterly consolidating
financial statements, accompanied by a certificate of a Responsible Officer
stating that such financial statements fairly present the financial condition of
Borrower and its Subsidiaries as at such date and the results of operations of
Borrower and its Subsidiaries for the period ended on such date and have been
prepared in accordance with GAAP consistently applied, subject to changes from
normal, year-end adjustments and except for the absence of notes, (iii) as soon
as available and in any event within 90 days after the end of each fiscal year
of Borrower, its consolidated annual financial statements, prepared in
accordance with GAAP and, if requested by Lender, consolidating annual financial
statements, and in the case of consolidated financial statement, accompanied by
an unqualified report thereon of independent chartered accountants of recognized
standing; (iv) as soon as available and in any event not more than 90 days after
the commencement of each fiscal year, the business plan and financial
projections of Borrower and its Subsidiaries for such fiscal year; and (v) such
other information respecting the operations, properties, business or financial
condition of Borrower and its Subsidiaries as Lender may from time to time
reasonably request or as may be specified in the Schedule.
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6.3. REPORTS, CERTIFICATES. Borrower shall provide Lender with a prompt
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any of its
Subsidiaries of Fifty Thousand Dollars ($50,000.00) or more and other
financial information Lender requests.
6.4. INVENTORY; RETURNS. Each of Borrower and its Subsidiaries will keep
all Inventory in good and marketable condition, free from material defects.
Returns and allowances between Borrower and its account debtors will follow
Borrower's customary practices as they exist at the Closing Date. Borrower must
promptly notify Lender of all returns, recoveries, disputes and claims that
involve more than One Hundred Thousand Dollars ($100,000.00).
6.5. TAXES. Borrower will make, and cause each of its Subsidiaries to make,
timely payment of all material federal, state, and local taxes or assessments
and will deliver to Lender, on demand, appropriate certificates attesting to the
payment, other than those taxes being contested in good faith with adequate
reserves under GAAP.
6.6. INSURANCE. Each of Borrower and its Subsidiaries will keep its
business and the Collateral insured for risks and in amounts, as Lender
requests. Insurance policies will be in a form, with companies, and in amounts
that are satisfactory to Lender. All property policies will have a lender's loss
payable endorsement showing Agent as a loss payee and all liability policies
will show the Agent as an additional insured and provide that the insurer must
give Agent at least twenty (20) days notice before canceling its policy. At
Lender's request, Borrower will deliver certified copies of policies and
evidence of all premium payments. Proceeds payable under any policy will, at
Lender's option, be payable to Lender on account of the Obligations.
6.7. INTELLECTUAL PROPERTY RIGHTS. Each of Borrower and its Subsidiaries
will: (i) protect, defend and maintain the validity and enforceability of the
Intellectual Property; (ii) promptly advise Lender in writing of material
infringements of the Intellectual Property; and (iii) not allow any Intellectual
Property to be abandoned, forfeited or dedicated to the public without Lender's
written consent.
6.8. BOOKS AND RECORDS; INSPECTIONS. Borrower shall, and shall cause each
of its Subsidiaries to, keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP. Borrower shall provide
Lender and its agents access to its premises and the premises of its
Subsidiaries at any time and from time to time, during normal business hours and
upon reasonable notice under the circumstances, and at any time on and after the
occurrence of an Event of Default, for the purposes of (i) inspecting and
verifying the Collateral, (ii) inspecting and copying any and all records
pertaining thereto other than records subject to the attorney-client privilege,
and (iii) discussing the affairs, finances and business of Borrower and its
Subsidiaries with any officer, employee or director of Borrower (other than
legal personnel with respect to matters subject to the attorney-client
privilege) or with its accountants. Borrower shall reimburse Lender for the
reasonable travel and related expenses of Lender's employees or, at Lender's
option, of such outside accountants or examiners as may be
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retained by Lender to verify or inspect Collateral, records or documents of
Borrower on a regular basis or for a special inspection if Lender deems the same
appropriate.
6.9. NOTICE OF DEFAULT AND MATERIAL ADVERSE CHANGE. As soon as possible and
in any event within 3 Business Days after Borrower obtains knowledge of the
occurrence of an Event of Default, Borrower shall provide to Lender the written
statement of a Responsible Officer setting forth the details of such Event of
Default and the action which Borrower proposes to take with respect thereto.
6.10. FURTHER ASSURANCES. Borrower will execute any further instruments and
take further action as Lender requests to perfect or continue Lender's security
interest in the Collateral or to effect the purposes of this Agreement.
6.11. CLOSING CONDITIONS. As soon as possible after the Closing Date, but
in any event no later than five Business Days after the Closing Date, Borrower
shall (i) satisfy all conditions set forth in Section 3.1 hereof which have not
been satisfied on or prior to the Closing Date and (ii) deliver to Lender all
other items, and take all actions, as reasonably requested by Lender in
connection with the consummation of the transactions contemplated herein.
6.12. INCREASE AUTHORIZED SHARES OF COMMON STOCK. Borrower will use
reasonable best efforts to (i) take all actions necessary to increase the
number of authorized shares of Common Stock to permit the full exercise of
the Warrant and (ii) have its stockholders approve an increase of the number
of authorized shares of Common Stock to at least 245,000,000 at a meeting of
Borrower's stockholders which will be held no later than April 9, 2001.
Borrower will, as soon as reasonably practicable following the increase in
the number of authorized shares of Common Stock contemplated in clause (i)
above, reserve a sufficient number of shares of Common Stock for issuance
pursuant to the full exercise of the Warrant and continue to reserve a
sufficient number of authorized shares of Common Stock issuance pursuant to
the full exercise of the Warrant until the Warrant is exercised in full and,
if at any time prior to a full exercise of the Warrant Borrower fails to
maintain a sufficient number of shares of authorized Common Stock for such
issuance, Borrower will use reasonable best efforts to increase the number of
authorized shares of Common Stock to permit the full exercise of the Warrant.
7. NEGATIVE COVENANTS
Borrower will not, and will cause its Subsidiaries to not, do any of the
following without the Lender's written consent:
7.1. DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than a Transfer (i) of Inventory
in the ordinary course of business; (ii) of exclusive or non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; or (iii) of worn-out or
obsolete Equipment.
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7.2. CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto,
have a material change in its ownership or cause a material change in its
management. Borrower will not, without at least ten (10) days prior written
notice to Lender, relocate its principal executive office or add any new offices
outside of its current location or add any new business locations.
7.3. MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary of Borrower may be
merged into another Subsidiary of Borrower and/or into Borrower.
7.4. INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any of its Subsidiaries to do so, other than Permitted
Indebtedness.
7.5. ENCUMBRANCE. Create, incur, or allow any Lien on any of its property,
or assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit Agent's first priority security interest in the Collateral to
change.
7.6. INVESTMENTS; DISTRIBUTIONS. (i) Directly or indirectly acquire or own
any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock.
7.7. TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter or permit
any material transaction with any Affiliate, except (i) transactions that are in
the ordinary course of Borrower's business, on terms less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person, and (ii) transactions under agreements existing as of the date hereof
with investors or members of Borrower's senior management that Borrower is
legally obligated to perform.
7.8. SUBORDINATED DEBT. Make or permit any payment on any Subordinated
Debt.
7.9. COMPLIANCE. Undertake as one of its important activities extending
credit to purchase or carry margin stock, or use the proceeds of any Advance for
that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could have a material adverse effect on Borrower's
business or operations or cause a Material Adverse Change, or permit any of its
Subsidiaries to do so.
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8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1. PAYMENT DEFAULT. Borrower fails to pay any of the Obligations within
two (2) Business Days after their due date. During the additional period the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);
8.2. COVENANT DEFAULT. Borrower does not perform any obligation in Section
6 or violates any covenant in Section 7 or does not perform or observe any other
material term, condition or covenant in this Agreement, any Loan Documents, the
Purchase Agreement or in any agreement between Borrower and Lender and as to any
default under a term, condition or covenant that can be cured, has not cured the
default within ten (10) Business Days after Borrower has notice that it
occurred;
8.3. MATERIAL ADVERSE CHANGE. (i) A material impairment in the perfection
or priority of the Lender's security interest in the Collateral or in the value
of such Collateral which is not covered by adequate insurance occurs; (ii) a
material adverse change in the business, operations, or condition (financial or
otherwise) of Borrower and its Material Subsidiaries taken as a whole occurs; or
(iii) a material impairment of the prospect of repayment of any portion of the
Obligations occurs;
8.4. ATTACHMENT. (i) Any material portion of Borrower's or any of its
Material Subsidiaries' assets is attached, seized, levied on, or comes into
possession of a trustee or receiver and the attachment, seizure or levy is not
removed in ten (10) days; (ii) Borrower or any of its Material Subsidiaries are
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iii) a judgment or other claim becomes a Lien on a
material portion of Borrower's or any of its Material Subsidiaries' assets; or
(iv) a notice of lien, levy, or assessment is filed against any of Borrower's
assets by any government agency and not paid within ten (10) days after Borrower
or any of its Material Subsidiaries receive notice. These are not Events of
Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extension will be made during the cure period);
8.5. INSOLVENCY. (i) Borrower or any of its Material Subsidiaries begins an
Insolvency Proceeding; or (ii) an Insolvency Proceeding is begun against
Borrower or any of its Material Subsidiaries and not dismissed or stayed within
forty five (45) days (but no Credit Extensions will be made before any
Insolvency Proceeding is dismissed);
8.6. MISREPRESENTATIONS. If Borrower, any of its Material Subsidiaries, or
any Person acting for Borrower makes any material misrepresentation or material
misstatement now or later in any warranty or representation in this Agreement,
the Purchase Agreement or in any communication delivered to Lender or to induce
Lender to enter this Agreement, any Loan Document or the Purchase Agreement.
8.7. DEFAULT UNDER ICG LOAN AGREEMENT. The occurrence of an Event of
Default (as defined in the ICG Loan Agreement).
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9. LENDER'S RIGHTS AND REMEDIES
9.1. RIGHTS AND REMEDIES. When an Event of Default occurs and continues
Lender may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Lender);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Lender;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Lender considers
advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Lender requests and make it available as Lender
designates. Lender may enter premises where the Collateral is located, take
and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Lender a
license to enter and occupy any of its premises, without charge, to exercise
any of Lender's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Lender owing to or for the
credit or the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Lender is
granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower's labels, Patents, Copyrights, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral
and, in connection with Lender's exercise of its rights under this Section,
Borrower's rights under all licenses and all franchise agreements inure to
Lender's benefit; and
(g) Dispose of the Collateral according to the Code.
9.2. POWER OF ATTORNEY. When an Event of Default occurs and continues,
Borrower irrevocably appoints Lender as its lawful attorney to: (i) endorse
Borrower's name on any checks or other forms of payment or security; (ii) sign
Borrower's name on any invoice or bill of lading for any Account or drafts
against account debtors, (iii) make, settle, and adjust all claims under
Borrower's insurance policies; (iv) settle and adjust disputes and claims about
the Accounts directly with account debtors, for amounts and on terms Lender
determines reasonable; and (v) transfer the Collateral into the name of Lender
or a third party as the Code permits. Lender may exercise the power of attorney
to sign Borrower's name on any documents necessary to perfect
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or continue the perfection of any security interest regardless of whether an
Event of Default has occurred. Lender's appointment as Borrower's attorney in
fact, and all of Lender's rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Lender's obligation to provide Credit Extensions terminates. Notwithstanding
anything contained in this Section 9.2 to the contrary, in no event shall Lender
take any action using any rights granted to it under this Section 9.2 if such
action creates, or would reasonably be expected to create, personal liability
for any director, officer, employee, agent or stockholder of Borrower.
9.3. ACCOUNTS COLLECTION. When an Event of Default occurs and continues,
Lender may notify any Person owing Borrower money of Lender's security interest
in the funds and verify the amount of the Account. Borrower must collect all
payments in trust for Lender and, if requested by Lender, immediately deliver
the payments to Lender in the form received from the account debtor, with proper
endorsements for deposit.
9.4. LENDER EXPENSES. If Borrower fails to pay any amount or furnish any
required proof of payment to third persons Lender may make all or part of the
payment or obtain insurance policies required in Section 6.5, and take any
action under the policies Lender deems prudent. Any amounts paid by Lender are
Lender Expenses and immediately due and payable, bearing interest at the then
applicable rate and secured by the Collateral. No payments by Lender are deemed
an agreement to make similar payments in the future or Lender's waiver of any
Event of Default.
9.5. LENDER'S LIABILITY FOR COLLATERAL. If Lender complies with reasonable
banking practices, it is not liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in
the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other person. Borrower bears all risk of loss, damage
or destruction of the Collateral.
9.6. REMEDIES CUMULATIVE. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Lender
has all rights and remedies provided under the Code, by law, or in equity.
Lender's exercise of one right or remedy is not an election, and Lender's waiver
of any Event of Default is not a continuing waiver. Lender's delay is not a
waiver, election, or acquiescence. No waiver is effective unless signed by
Lender and then is only effective for the specific instance and purpose for
which it was given.
9.7. DEMAND WAIVER. Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guaranties held by Lender on which Borrower is
liable.
9.8. AGENT. With respect to any action relating to the Collateral, the term
"Lender" as used in this Article 9 shall mean the "Agent", as applicable.
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10. NOTICES
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses listed at the beginning of this Agreement.
A party may change its notice address by giving the other party written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Pennsylvania law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Lender each submit to the exclusive jurisdiction
of the state and federal courts sitting in Chester County in the Commonwealth of
Pennsylvania and New Castle County in the State of Delaware.
BORROWER AND LENDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
12.1. SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or Obligations under it without Lender's prior
written consent which may be granted or withheld in Lender's discretion. Lender
has the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Lender's obligations, rights and benefits under this Agreement, the Loan
Documents or any related agreement.
12.2. INDEMNIFICATION. Borrower will indemnify, defend and hold harmless
Lender and its officers, employees and agents against: (a) all obligations,
demands, claims, and liabilities asserted by any other party in connection with
the transactions contemplated by the Loan Documents; and (b) all losses or
Lender Expenses incurred, or paid by Lender from, following, or consequential to
transactions between Lender and Borrower (including reasonable attorneys' fees
and expenses), except for losses caused by Lender's gross negligence or willful
misconduct.
12.3. TIME OF ESSENCE. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4. SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
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12.5. AMENDMENTS IN WRITING, INTEGRATION. All amendments to this Agreement
must be in writing signed by both Lender and Borrower. This Agreement and the
Loan Documents represent the entire agreement about this subject matter, and
supersedes prior or contemporaneous negotiations or agreements. All prior or
contemporaneous agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Agreement and
the Loan Documents merge into this Agreement and the Loan Documents.
12.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, are one
Agreement.
12.7. SURVIVAL. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 11.2 to indemnify Lender will survive until
all statutes of limitations for actions that may be brought against Lender have
run.
12.8. CONFIDENTIALITY. In handling any confidential information, Lender
will exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Lender's
subsidiaries or affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of any interest under the Loan Documents; (iii) as required by law, regulation,
subpoena, or other order, (iv) as required in connection with Lender's
examination or audit; and (v) as Lender considers appropriate in exercising
remedies under this Agreement. Confidential information does not include
information that either: (a) is in the public domain or in Lender's possession
when disclosed to Lender, or becomes part of the public domain after disclosure
to Lender; or (b) is disclosed to Lender by a third party, if Lender does not
know that the third party is prohibited from disclosing the information.
13. DEFINITIONS
13.1. DEFINITIONS.
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" is a loan advance under the Committed Line which in no event
shall be less than $100,000 individually.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
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"BORROWER'S BOOKS" are all of Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWER TRADEMARK SECURITY AGREEMENT" means the Trademark Security
Agreement substantially in the form of EXHIBIT J attached hereto.
"BORROWER TRADEMARK SECURITY AGREEMENT AMENDMENT" means the Trademark
Security Agreement Amendment substantially in the form of EXHIBIT J-1 attached
hereto.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or legal holiday.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Pennsylvania Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A, or described in the
Pledge Agreement, Security Agreement or in any other Loan Document.
"COMMITTED LINE" is a Credit Extension of up to $10,000,000; provided, that
any Credit Extension after the date hereof shall be made at Lender's sole
discretion.
"COMMON STOCK" means the Common Stock of Borrower, par value $.000125 per
share.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designed to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
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"CREDIT EXTENSION" is each Advance or any other extension of credit by
Lender for Borrower's benefit.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"GUARANTOR" is any present or future guarantor of any or all of the
Obligations.
"GUARANTY AGREEMENT" means the Guaranty Agreement substantially in the form
of EXHIBIT E attached hereto.
"GUARANTY AGREEMENT AMENDMENT" means the Guaranty Agreement Amendment
substantially in the form of EXHIBIT E-1 attached hereto.
"ICG" means ICG Holdings, Inc., a Delaware corporation.
"ICG LOAN AGREEMENT" is the Loan and Security Agreement between Borrower
and ICG, dated as of January 19, 2001, as amended on February 8, 2001 and on the
date hereof, and as may be further amended from time to time.
"ICG LOAN DOCUMENTS" has the meaning ascribed to the term "Loan Documents"
in the ICG Loan Agreement.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks and Patents including amendments, renewals,
extensions, and all licenses or other rights to use and all license fees and
royalties from the use;
(b) Any trade secrets and any Intellectual Property rights in computer
software and computer software products now or later existing, created, acquired
or held;
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(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above; and
(e) All proceeds and products of the foregoing, including all
insurance, indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LENDER EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, the Promissory Note,
Warrant, Pledge Agreement, Security Agreement, Guaranty Agreement, Registration
Rights Agreement, Borrower Trademark Security Agreement, Web Yes Trademark
Security Agreement, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower, or any
Guarantor and/or for the benefit of Lender in connection with this Agreement,
all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" has been defined in Section 8.3 hereof.
"MATERIAL SUBSIDIARY" means, for any Person, a Subsidiary of such Person
which accounts for (i) more than 1% of the consolidated net income of such
Person or (ii) more than 1% of such Person's consolidated assets.
"MATURITY DATE" means April 9, 2001.
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"OBLIGATIONS" are debts, principal, interest, Lender Expenses and other
amounts Borrower owes Lender pursuant to the Loan Documents now or later,
including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Lender.
"PATENTS" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations in part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Lender under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness of Borrower to any of its Subsidiaries and Contingent
Obligations of any Subsidiary of Borrower with respect to obligations of
Borrower (provided that the primary obligations are not prohibited hereby), and
Indebtedness of any Subsidiary of Borrower to any other Subsidiary of Borrower
and Contingent Obligations of any Subsidiary of Borrower with respect to
obligations of any other Subsidiary of Borrower (provided that the primary
obligations are not prohibited hereby);
(g) Borrower's indebtedness to ICG under the ICG Loan Documents.
(h) Extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or any Subsidiary
of Borrower, as the case may be.
"PERMITTED INVESTMENTS" are Investments by Borrower's Subsidiaries in other
Subsidiaries of Borrower which are Guarantors or in Borrower, and Investments by
Borrower in its Subsidiaries which are Guarantors.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
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(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which a
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Lender's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by a
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on Equipment when acquired, if the Lien is confined
to the property and improvements and the proceeds of the Equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of a Borrower's business, if the leases, subleases, licenses and
sublicenses permit granting Lender a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) or (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
(f) Liens arising from judgments, decrees or attachments which would
not cause an Event of Default;
(g) Landlord liens and inchoate liens arising by operation of law to
secure claims for the purchase of labor, services, materials, equipment or
supplies to the extent that payment thereof shall not at the time be required to
be made; and
(h) Liens granted to ICG pursuant to the ICG Loan Documents.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PLEDGE AGREEMENT" means the Pledge Agreement substantially in the form of
EXHIBIT F attached hereto.
"PLEDGE AGREEMENT AMENDMENT" means the Pledge Agreement Amendment
substantially in the form of EXHIBIT F-1 attached hereto.
"PROMISSORY NOTE" means a Promissory Note from Borrower in favor of Lender
substantially in the form of EXHIBIT C attached hereto, dated the date hereof,
together with all renewals, amendments, modifications and substitutions,
therefor.
"PURCHASE AGREEMENT" means the Series A Preferred Stock Purchase Agreement,
dated as of the date hereof, among Borrower, Lender and ICG.
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"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
substantially in the form of EXHIBIT G attached hereto.
"REGISTRATION RIGHTS AGREEMENT AMENDMENT" means the Registration Rights
Agreement Amendment substantially in the form of EXHIBIT G-1 attached hereto.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the Chief
Financial Officer and the Controller of Borrower.
"SCHEDULE" is any attached schedule of exceptions.
"SECURITY AGREEMENT" means the Security Agreement substantially in the form
of EXHIBIT H attached hereto.
"SECURITY AGREEMENT AMENDMENT" means the Security Agreement Amendment
substantially in the form of EXHIBIT H-1 attached hereto.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
indebtedness owed to Lender and which is reflected in a written agreement in a
manner and form acceptable to Lender and approved by Lender in writing.
"SUBSIDIARY" is for any Person, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by the Person or one
or more Affiliates of the Person.
"TRADEMARKS" are trademark and service mark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Borrower connected with the trademarks.
"WARRANT" means the Warrant to Purchase Common Stock of Borrower in the
form of EXHIBIT D attached hereto.
"WARRANT SHARES" means the shares of Common Stock into which the Warrant is
exercisable.
"WEB YES" means Web Yes, Inc., a Massachusetts corporation and Subsidiary
of Borrower.
"WEB YES TRADEMARK SECURITY AGREEMENT" means the Trademark Security
Agreement substantially in the form of EXHIBIT K attached hereto.
"WEB YES TRADEMARK SECURITY AGREEMENT AMENDMENT" means the Trademark
Security Agreement Amendment substantially in the form of EXHIBIT K-1 attached
hereto.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
-23-
BORROWER:
BREAKAWAY SOLUTIONS, INC.
By: /s/ Gordon Brooks
----------------------------------
Name: Gordon Brooks
Title: President and Chief
Executive Officer
LENDER:
SCP PRIVATE EQUITY PARTNERS II, L.P.
BY: SCP PRIVATE EQUITY II GENERAL PARTNER, L.P., ITS GENERAL PARTNER
BY: SCP PRIVATE EQUITY II, LLC
By: /s/ Wayne B. Weisman
----------------------------------
Name: Wayne B. Weisman
Title: Manager
AGENT:
SCP PRIVATE EQUITY PARTNERS II, L.P.
BY: SCP PRIVATE EQUITY II GENERAL PARTNER, L.P., ITS GENERAL PARTNER
BY: SCP PRIVATE EQUITY II, LLC
By: /s/ Wayne B. Weisman
----------------------------------
Name: Wayne B. Weisman
Title: Manager
-24-
EXHIBIT A
DESCRIPTION OF COLLATERAL
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, knowhow, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
A-1
EXHIBIT B
NOTICE OF BORROWING
Date:
----------------------------------
To: SCP Private Equity Partners II, L.P.
435 Devon Park Drive, Building 300
Wayne, Pennsylvania 19087
Attn:________________________
Fax No:_____________________
Ladies and Gentlemen:
The undersigned, Breakaway Solutions, Inc. ("Borrower"), refers to the Loan
and Security Agreement dated as of February ____, 2001 (as amended, modified,
renewed or extended from time to time, the "Loan Agreement"), by and between
Borrower and SCP Private Equity Partners II, L.P. ("Lender"), the terms defined
therein being used herein as therein defined, and hereby gives you notice
irrevocably, pursuant to Section 2.1(b) of the Loan Agreement, of the borrowing
of the Advance specified herein:
1. The date of the proposed borrowing is _______________. [Date of proposed
borrowing must be at least one Business Day after the date of this Notice of
Borrowing.]
2. The amount of the proposed borrowing is $__________.
3. The purpose of the borrowing is _______________. Detailed information on
any purchase transaction being financed by the proposed borrowing is attached
hereto.
4. The payment instructions with respect to the funds to be made available
by Lender are as follows: _______________.
Breakaway Solutions, Inc.
By: __________________________
Title: _________________________