EXHIBIT 10.06
AVATECH SOLUTIONS SUBSIDIARY, INC.
as Borrower
and
Strategic Partner
(Name withheld and filed separately with the SEC.)
as Lender
LOAN AGREEMENT
$1,500,000
July 22, 2003
TABLE OF CONTENTS
Page
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ARTICLE 1 INTERPRETATION
1.1 Defined Terms..........................................................1
1.2 Gender and Number......................................................8
1.3 Headings, etc. ........................................................8
1.4 Currency...............................................................8
1.5 Non-Business Days......................................................8
1.6 Certain Phrases, etc. .................................................8
1.7 Accounting Terms.......................................................8
1.8 Incorporation of Schedules.............................................8
1.9 Conflict...............................................................9
1.10 Certificates...........................................................9
ARTICLE 2 CREDIT FACILITY
2.1 Availability...........................................................9
2.2 Use of Proceeds........................................................9
2.3 Mandatory Repayments..................................................10
2.4 Payments under this Agreement.........................................10
2.5 Omitted...............................................................11
2.6 Taxes.................................................................11
ARTICLE 3 INTEREST
3.1 Interest..............................................................12
ARTICLE 4 CONDITIONS
4.1 Conditions to each Loan...............................................12
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties........................................14
5.2 Survival of Representations and Warranties............................19
ARTICLE 6 COVENANTS OF THE BORROWER
6.1 Affirmative Covenants.................................................19
6.2 Negative Covenants....................................................22
6.3 Financial Covenant....................................................23
6.4 Security Covenants....................................................24
ARTICLE 7 EVENTS OF DEFAULT
7.1 Events of Default......................................................25
TABLE OF CONTENTS
(continued)
Page
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7.2 Remedies Upon Default.................................................27
ARTICLE 8 MISCELLANEOUS
8.1 Amendments, etc.......................................................27
8.2 Waiver................................................................28
8.3 Right of First Offer..................................................28
8.4 Evidence of Funded Debt...............................................28
8.5 Notices, etc. ........................................................28
8.6 Confidentiality.......................................................29
8.7 Costs, Expenses and Indemnity.........................................30
8.8 Successors and Assigns................................................31
8.9 Right of Set-Off......................................................32
8.10 Governing Law.........................................................32
8.11 Counterpart and Facsimile.............................................32
SCHEDULES
Schedule 1.1 - Permitted Credit Facilities
Schedule 5.1(w)(i) - Jurisdictions
Schedule 5.1(w)(ii) - Authorizations
Schedule 5.1(w)(iii) - Intellectual Property
Schedule 5.1(w)(iv) - Litigation
Schedule 5.1(w)(v) - Material Agreements
Schedule 5.1(v) - Certain Permitted Liens
Schedule 6.1 - Form of Compliance Certificate
Schedule 6.2(b) - Permitted Liens
LOAN AGREEMENT
THIS LOAN AGREEMENT entered into as of July 22, 2003,
BETWEEN: AVATECH SOLUTIONS SUBSIDIARY, INC., a corporation incorporated under
the laws of the State of Delaware, having its registered address at
11403 A Cronhill Drive Owings Mills, Maryland 21117,
(hereinafter referred to as the "Borrower"); and
AND: Strategic Partner (name and address withheld and filed separately with
the SEC),
(hereinafter referred to as the "Lender").
ARTICLE 1
INTERPRETATION
1.1 Defined Terms
As used in this Agreement, the following terms have the following meanings:
"Agreement" means this loan agreement and all schedules and instruments in
amendment or confirmation of it; and the expressions "Article" and
"Section" followed by a number mean and refer to the specified Article or
Section of this Agreement.
"Borrower" means, at any time, Avatech Solutions Subsidiary, Inc. and its
successors and permitted assigns.
"Borrower's Security Agreement" means, a general security agreement from
the Borrower in favour of the Lender granting the Lender a security
interest in all of the property and assets of the Borrower.
"Business Day" means any day of the year, other than a Saturday, Sunday or
other day on which banks are required or authorized to close in either
(location withheld and filed separately with the SEC) or New York, New
York.
"Business and Marketing Plan" means that business and marketing plan of the
Borrower relative to the SP Products and Services Business for the years
2003 to 2005, which is annexed to this Agreement as a supplement hereto and
which includes, among other things, a geographic roadmap for deployment of
Borrower's resources to sell SP Products and Services, quarterly staffing,
training and revenue projections
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by states and main cities and a marketing budget for the launching of the
marketing and distribution of the SP Products and Services.
"Change of Control" means the occurrence of any of the following: (i) the
acquisition, directly or indirectly, by any Person, or any group of Persons
acting jointly or in concert, of that number of voting shares of the Parent
or the Borrower which (A) provides to that Person or that group of Persons
the control over any annual or special meetings of stockholders of the
Parent or the Borrower, and (b) is equal to or greater than the number of
voting shares of the Parent or the Borrower held by any other Person, or by
any other group of Persons acting jointly or in concert, immediately after
such acquisition where, as a result of such acquisition, such person(s)
exert actual control over significant board or management decisions of the
Parent or the Borrower, or (ii) the change in a majority of the membership
of the senior executive management of the Parent or the Borrower, (iii) the
Parent or the Borrower is merged, consolidated or reorganized into or with
another Person and, as a result, less than a majority of the combined
voting power of the then outstanding securities of such Person immediately
after such Transaction are held in the aggregate by the holders of the
voting securities of the Parent or the Borrower, as the case may be,
immediately prior to such transaction, (iv) any transaction or series of
transactions resulting in the sale, transfer or other disposition of 30% or
more of the assets of the Parent, the Borrower and their Subsidiaries on a
consolidated basis, or (v) any transaction that would have, or the first of
a series of transactions to the extent that such first transaction when
completed would have, the same or similar effect as any transaction or a
series of transactions referred to in paragraphs (i) through (iv) above.
"Closing Date" means July 22, 2003.
"Collateral" means any and all property and assets of the Borrower in
respect of which the Lender has or will have a Lien pursuant to the
Borrower's Security Agreement.
"Common Stock" means the shares of common stock of the Borrower, par value
$.01 per share.
"Core Business" means the distribution, sale and manufacture of
engineering-related software and related professional services.
"Strategic Partner" means Strategic Partner (name withheld and filed
separately with the SEC).
"SP Products and Services" means the (names withheld and filed separately
with the SEC) products of the Strategic Partner and any services ancillary
or related to such products.
"SP Products and Services Business" means the business of the Borrower
which is the business of distributing SP Products and Services, and any
business ancillary or related to such business.
"Default" means an event, which with the giving of notice or passage of
time, or both, would constitute an Event of Default.
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"Event of Default" has the meaning specified in Article 7.
"Financial Quarter" means one of the financial quarters of the Borrower
being the periods of (a) January, February and March, (b) April, May and
June, (c) July, August and September, and (d) October, November and
December of each calendar year.
"Financial Year" means a financial year of the Borrower being the period
from and including July 1 in a calendar year to and including June 30 in
the succeeding calendar year.
"Fixed Rate" has the meaning ascribed thereto in Article 3.
"Funded Debt" of any Person means (i) all indebtedness of such Person for
borrowed money, including borrowings by way of bankers' acceptances and
(except for any such reimbursement obligations in respect of amounts drawn
under a letter of credit or letter guarantee to finance the payment of
indebtedness incurred in the ordinary course of business that would
ordinarily constitute a trade payable) reimbursement obligations for
amounts drawn under a letter of credit or letter of guarantee, (ii) all
indebtedness of such Person for the deferred purchase price of property or
services, other than any such indebtedness incurred in the ordinary course
of business that would ordinarily constitute a trade payable, and which is
represented by a note, bond, debenture or other evidence of Funded Debt,
(iii) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale
of such property), (iv) all current liabilities of such Person represented
by a note, bond, debenture or other evidence of Funded Debt to the extent
that such indebtedness would be considered borrowed money in accordance
with GAAP, and (v) all Capitalized Lease Obligations (as defined in the
definition of 'Permitted Liens') of such Person.
"GAAP" means generally accepted accounting principles in the United States
in effect from time to time.
"Governmental Entity" means any (i) multinational, federal, provincial,
state, municipal, local or other government, governmental or public
department, central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) any subdivision or authority of
any of the foregoing, or (iii) any quasi-governmental or private body
exercising any regulatory, expropriation or taxing authority under or for
the account of any of the above.
"Guaranty" means a guaranty from the Parent in favour of the Lender
pursuant to which the Parent agrees to guaranty all of the obligations of
the Borrower under this Agreement.
"Indemnified Person" has the meaning specified in Section 8.7(a).
"Intellectual Property" means:
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(i) all issued patents, patentable inventions, pending applications
for patents, and patents which may be issued from current
applications, (including divisions, reissues, renewals,
re-examinations, continuations, continuations in part and
extensions) applied for or registered in any jurisdiction;
(ii) all trade-marks, trade-names, brands, trade dress, business
names, domain name, tag lines, designs, graphics, logos and other
commercial symbols and indicia of origin whether registered or
not, and any goodwill associated therewith;
(iii) all copyrights, copyright registrations and applications
therefore, and all other rights corresponding thereto throughout
the world;
(iv) all industrial designs and design patents or similar rights
applied for or registered in any jurisdiction;
(v) all integrated circuit topographies or similar rights, applied
for or registered in any jurisdiction; and
(vi) all trade secrets and know-how.
"Lender" means Strategic Partner.
"Lien" means any mortgage, charge, pledge, hypothecation, security
interest, assignment, encumbrance, lien (statutory or otherwise), title
retention agreement or arrangement or other encumbrance of any nature or
any other arrangement or condition that in substance secures payment or
performance of an obligation.
"Loans" means the Initial Loan and the Second Loan and "Loan" means either
one of the Loans.
"Loan Documents" means this Agreement, the Borrower's Security Agreement,
the Guaranty and all other loan or security related documents, and all
certificates, executed and delivered to the Lender by the Borrower or the
Parent pursuant to or in connection therewith or with this Agreement.
"Material Adverse Effect" means (i) a material adverse effect on the
business, operations, results of operations, prospects, assets, liabilities
or financial condition of the Parent, the Borrower and its Subsidiaries
taken as a whole or (ii) a material adverse effect on the ability of the
Parent or the Borrower to fulfill any of their respective payment
obligations of principal or interest hereunder.
"Material Agreements" means the agreements listed in Schedule 5.1(w)(v) and
any agreement, contract or similar instrument to which the Parent, the
Borrower or any of their Subsidiaries is a party or to which any of their
property or assets may be subject for
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which breach, non-performance, cancellation, termination or failure to
renew could reasonably be expected to have a Material Adverse Effect.
"Maturity Amounts" means all outstanding principal of the Loans and all
accrued interest thereon.
"Merger Transaction" has the meaning specified in subsection 6.2(c).
"MOU" means the Memorandum of Understanding between the Parent and
Strategic Partner dated as of . (Withheld and filed separately with
the SEC).
"Parent" means Avatech Solutions, Inc., a Delaware corporation.
"Permitted Credit Facility" means the Funded Debt of the Parent or the
Borrower or any Subsidiary of the Borrower specified on Schedule 1.1, which
schedule specifies the name of each creditor, the amount of such Funded
Debt, the maturity date, the applicable interest rate and, in the event
such Funded Debt is secured, the assets subject to such security interest.
"Permitted Liens" means, in respect of any Person, any one or more of the
following:
(a) Liens for taxes, assessments or government charges or levies not at
the time due and delinquent or the validity of which is being
contested at the time by such Person in good faith by proper legal
proceedings, and which contested Liens have not had and would not
reasonably be expected to have a Material Adverse Effect and, for
which adequate provision has been made in accordance with GAAP;
(b) the Lien of any judgment rendered or claim filed against such Person
which such Person is contesting in good faith by proper legal
proceedings, and which Lien has not had and would not reasonably be
expected to have a Material Adverse Effect;
(c) inchoate or statutory Liens of contractors, subcontractors, mechanics,
workers, suppliers, materialmen, carriers and others in respect of
construction, maintenance, repair or operation of assets of the
Person, provided that such Liens are related to obligations not due or
delinquent, are not registered against title to any assets of the
Person and in respect of which adequate holdbacks are being maintained
as required by applicable law or such Liens are being contested in
good faith by appropriate proceedings and in respect of which there
has been set aside a reserve (segregated to the extent required by
GAAP) in an adequate amount and provided further that such Liens do
not reduce the value of the asset so affected or materially interfere
with the use of such asset in the operation of the business of the
Person;
(d) restrictions, easements, rights-of-way, servitudes or other similar
rights in land, real or immovable property (including rights of way
and servitudes for railways, sewers, drains, gas and oil pipelines,
gas and water mains, electric light and power
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and telephone or telegraph or cable television conduits, poles, wires
and cables) granted to or reserved by other persons; provided that,
such restrictions, easements, rights-of-way, servitudes or other
similar rights in the aggregate will not have or would not reasonably
be expected to have a Material Adverse Effect;
(e) the right reserved to or vested in any Governmental Entity, by the
terms of any statutory provision or by the terms of any lease,
license, franchise, grant or permit of the Person (whether or not
having the force of law) acquired by such Person (each, a "Permit"),
to terminate any such Permit or to require annual or other payments as
a condition to the continuance thereof;
(f) the encumbrance resulting from the deposit of cash or securities in
connection with any of the Liens referred to in paragraph (a), (b) or
(c) of this definition pending a final determination as to the
existence or amount of any obligation referred to therein;
(g) security given to a public utility or any other Governmental Entity
when required by such utility or other Governmental Entity in
connection with the operations of such Person in the ordinary course
of its business;
(h) title defects or irregularities which are of a minor nature; provided
that such title, defects or irregularities in the aggregate will not
materially impair the use of the property for the purposes for which
it is held by such Person;
(i) Liens securing Capitalized Lease Obligations of such Person and
Purchase Money Obligations of such Person not in excess of U.S.
$50,000 in the aggregate at any time for the Borrower and its
Subsidiaries taken as a whole; provided that (x) any such Lien
securing a Capitalized Lease Obligation is limited to the property or
asset including associated rights) which is the subject matter of such
Capitalized Lease Obligation, and (y) in the case any such Lien
securing a Purchase Money Obligation, such Lien is limited to the
property or asset (including associated rights) acquired, constructed,
installed or improved using the funds advanced to the Borrower or a
Subsidiary in connection with such Purchase Money Obligation;
For the purposes of this definition of Permitted Liens:
"Capital Lease" means a lease of (or other agreement conveying
the right to use) real and/or personal property, which lease is
required to be classified and accounted for as a capital lease on
a balance sheet of the lessee under GAAP; and
"Capitalized Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a
Capital Lease and, for purposes of this Agreement, the amount of
such obligations shall be the capitalized amount thereof,
determined in accordance with GAAP, or the deemed principal
amount under GAAP;
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(j) the Liens contemplated in favour of the Lender under this Agreement;
(k) Liens disclosed in Schedule 6.2(b) but only to the extent such Liens
conform to their description in such Schedule;
(l) Liens from the Borrower and any of its Subsidiaries to secure any
Permitted Credit Facility, but only to the extent such Liens conform
to their description in Schedule 1.1, including the maximum liability
subject to such Lien; and
(m) Liens to secure any refinancing (a "Refinancing"), extension, renewal
or replacement as a whole, or in part, of any indebtedness or
obligation (an "Original Obligation") secured by any Lien referred to
in the foregoing clauses of this definition which Liens are not
otherwise prohibited by the terms hereof, provided that (i) such
Refinancing will be for the same or lesser amount as the Original
Obligation that it replaces and (ii) the Lien securing such
Refinancing will be on the same assets, or a lesser portion thereof,
over which a Lien has been granted to prior to the date hereof
securing such Original Obligation.
"Person" means a natural person, partnership, corporation, joint stock
company, trust, unincorporated association, joint venture or other entity
or Governmental Entity and pronouns have a similarly extended meaning.
"Purchase Money Obligation" means indebtedness of the Borrower or a
Subsidiary thereof incurred or assumed to finance the purchase price, in
whole or in part, of any property or asset or incurred to finance the cost,
in whole or in part, of construction or installation of, or improvements
to, any property or asset of the Borrower or a Subsidiary thereof, provided
that the indebtedness is incurred or assumed within 24 months after, as the
case may, the purchase of, or the completion of the construction or
installation of, or the completion of improvements to, such property or
asset, and includes any extension, renewal or refinancing of any of that
indebtedness so long as the principal amount of such indebtedness on the
date of such extension, renewal or refinancing is not increased.
"Repayment Date" means June 1, 2013.
"SEC" means the United States Securities and Exchange Commission.
"Security" means, at any time, the Lien in favour of the Lender, in the
assets and properties of the Borrower or any of its Subsidiaries securing
its obligations under this Agreement and the other Loan Documents.
"Subsidiary" of any corporation means any other corporation or limited
liability company of which the outstanding capital stock possessing a
majority of voting power in the election of directors is owned or
controlled by such corporation directly or indirectly through Subsidiaries.
"U.S. Dollars", "United States Dollars" and "U.S. $" each mean lawful money
of the United States of America.
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1.2 Gender and Number
Any reference in the Loan Documents to gender includes all genders and
words importing the singular number only include the plural and vice versa.
1.3 Headings, etc.
The provision of a Table of Contents, the division of this Agreement into
Articles and Sections and the insertion of headings are for convenient reference
only and are not to affect the interpretation of this Agreement.
1.4 Currency
All references in the Loan Documents to dollars, unless otherwise
specifically indicated, are expressed in United States currency.
1.5 Non-Business Days
Unless otherwise expressly provided in this Agreement, whenever any payment
is stated to be due on a day other than a Business Day, the payment will be made
on the immediately following Business Day. Unless otherwise expressly provided
in this Agreement, whenever any action to be taken is stated or scheduled to be
required to be taken on, or (except with respect to the calculation of interest
or fees) any period of time is stated or scheduled to commence or terminate on,
a day other than a Business Day, the action will be taken or the period of time
will commence or terminate, as the case may be, on the immediately following
Business Day.
1.6 Certain Phrases, etc.
In any Loan Document (i) (y) the words "including" and "includes" mean
"including (or includes) without limitation" and (z) the phrase "the aggregate
of", "the total of", "the sum of", or a phrase of similar meaning means "the
aggregate (or total or sum), without duplication, of", and (ii) in the
computation of periods of time from a specified date to a later specified date,
unless otherwise expressly stated, the word "from" means "from and including"
and the words "to" and "until" each mean "to but excluding".
1.7 Accounting Terms
All accounting terms not specifically defined in this Agreement shall be
interpreted in accordance with GAAP.
1.8 Incorporation of Schedules
The schedules attached to this Agreement shall, for all purposes of this
Agreement, form an integral part hereof.
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1.9 Conflict
The provisions of this Agreement prevail in the event of any conflict or
inconsistency between its provisions and the provisions of any of the other Loan
Documents.
1.10 Certificates
Any certificate required by the terms of this Agreement or any other Loan
Document to be given by an officer of the Borrower for and on behalf of the
Borrower or any of its Subsidiaries shall be given without any personal
liability on the part of the officer giving the certificate.
ARTICLE 2
CREDIT FACILITY
2.1 Availability
(a) The Lender agrees, on the terms and conditions of this Agreement, to
lend the principal amount of U.S.$1,000,000 (the "Initial Loan") to
the Borrower upon satisfaction of the conditions set forth in Section
4.1 of this Agreement;
(b) The Lender agrees, on the terms and conditions of this Agreement, to
lend the principal amount of U.S.$500,000 (the "Second Loan") to the
Borrower on the business day following the date on which Borrower has
demonstrated to lender (terms withheld and filed separately with the
SEC).
(c) The Loans do not revolve and any amount repaid or prepaid on either
Loan, as the case may be, cannot be reborrowed and reduces the Loan
for which the repayment is made by the amount repaid or prepaid under
such Loan, as the case may be.
2.2 Use of Proceeds
The Borrower shall use the proceeds of the Loans for its general working
capital needs, including as follows: (i) to enable the Borrower and its
Subsidiaries to develop the business of the Borrower and its Subsidiaries as a
distributor of Products and Services in the United States, as identified
on the Business and Marketing Plan, and (ii) to fund the working capital
requirements of the Borrower and its Subsidiaries for the purpose of
implementing the Business and Marketing Plan. The proceeds of the Loans will not
be used for the repayment of any Funded Debt owed to any officer, director or
affiliate of the Borrower.
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2.3 Mandatory Repayments
(a) The Borrower unconditionally promises to repay (subject to Article 7)
each Loan in thirty-four (34) equal quarterly instalment_ and one
final instalment, which shall include any principal amounts then
outstanding, together with all accrued and unpaid interest and any
other amounts due hereunder on the Repayment Date. The first
instalment under each Loan shall be due and payable on the first
Business Day of January 2005 and each subsequent instalment under each
of the Loans after that date shall be due and payable on the first
Business Day of each subsequent Financial Quarter until the Repayment
Date.
(b) In addition to the payments set forth in (a) above, there shall become
due and payable and the Borrower shall prepay any outstanding
principal amount of the Loans, together with any accrued and unpaid
interest and any other amounts due hereunder on the remaining unpaid
Loans promptly upon (terms withheld and filed separately with the
SEC).
2.4 Payments under this Agreement
(a) Unless otherwise expressly provided in this Agreement, the Borrower
shall, not later than 10:00 a.m. (New York time) on the date a payment
is due, make any payment required to be made by it to the Lender by
depositing or forwarding by wire transfer the amount of the payment to
an account, and in accordance with wire transfer instructions,
specified by such Lender.
(b) All amounts (other than interest) owed by the Borrower to the Lender
under a Loan Document, which are not paid when due (whether at stated
maturity, on demand, by acceleration or otherwise), to the fullest
extent permitted by applicable law, shall bear interest (both before
and after default and judgment), from the date on which such amount is
due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to the greater of (i) the Fixed Rate (as
defined below) and (ii) Prime Rate plus 2%.
(c) For the purposes of this Agreement, "Prime Rate" means the rate of
interest that under current practice is listed under the heading
"Money Rates" in the Eastern Edition of the Wall Street Journal, and
if a range of rates is listed, the highest such rate, and should such
practice change, such other indication of the prevailing prime rate of
interest as may reasonably be chosen by the Lender.
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2.5 Omitted
2.6 Taxes
If the Borrower shall be required to deduct any Indemnified Taxes from any
payments of interest by or on account of any obligation of the Borrower
hereunder, then (i) the Borrower shall make such deduction, and (ii) the
Borrower shall pay the full amount deducted to the relevant Governmental Entity
in accordance with applicable law. The Borrower shall deliver to the Lender a
copy of the tax or other information return reporting such payment or other
evidence of such payment of such Indemnified Taxes.
In the event the Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement the Lender shall deliver to the Borrower at the
time or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
The Lender shall take all steps reasonably necessary to claim from all
applicable Governmental Entities having taxing jurisdiction over the Lender or
its business a credit against or remission for or deduction from or other
available relief with respect to any Indemnified Taxes deducted by the Borrower
and paid by the Borrower to an applicable Governmental Entity as provided for
above (any of the foregoing being a "saving"). To the extent that the amount of
any saving from which the Lender benefits is less than the amount of the
applicable Indemnified Taxes so deducted by the Borrower and paid to the
applicable Governmental Entity (any such amount being the "saving deficiency"),
the Borrower will, promptly following receipt of a written certificate from the
Lender detailing such saving deficiency pay to the Lender the amount of the
applicable saving deficiency. The Lender shall not be considered to have
benefited from any saving which has ceased to be available due to the expiration
of the carry forward period for such saving, if applicable, and shall be
considered to have realized any resulting deficiency resulting therefrom at the
time of such expiration.
In this section the following terms have the following meanings, namely:
"Indemnified Taxes" means all Taxes other than Excluded Taxes.
"Excluded Taxes" means, in relation to the Lender, those taxes on income,
net income or capital or franchise taxes which are imposed or levied by any
jurisdiction or any political subdivision of such jurisdiction solely as a
result of the Lender (a) being organized under the laws of such jurisdiction or
any political subdivision of such jurisdiction, (b) having its principal office
or lending office in such jurisdiction, (c) being resident in such jurisdiction,
(d) carrying on business in such jurisdiction, or (e) not dealing at arm's
length (as defined for the purposes of any taxing statute in the applicable
jurisdiction) with the Borrower, or which would not have been imposed had the
Lender satisfied a relevant authority that the Lender was not a Person mentioned
in clause (a), (b), (c), (d) or (e) above.
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"Taxes" means taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any kind or nature whatsoever or any instalments, interest or
penalties payable with respect thereto now or in the future imposed, levied,
collected, withheld or assessed by the United States of America or any political
subdivision of the United States of America.
ARTICLE 3
INTEREST
3.1 Interest
From and after the Closing Date, the unpaid balance of each Loan, from time
to time, shall bear interest in respect of each day, both before and after an
Event of Default or judgment, at a rate of six percent (6.0%) per annum (the
"Fixed Rate"). Such interest shall be calculated quarterly in arrears in U.S.
Dollars, and payable on the first Business Day of each Financial Quarter
commencing on the first Business Day of January 2005 until all amounts owing to
the Lender hereunder have been paid in full. For greater certainty and without
limitation, interest shall begin accruing on each Loan as of the date such Loan
is made to the Borrower; the first payment of interest on each Loan shall be
made on the first Business Day of January 2005 (which is the first Business Day
of the first Financial Quarter of 2005) which payment shall represent the
interest accrued between the date such Loan was made to the Borrower and the
first Business Day of January 2005. The second payment of interest under each
Loan shall be made on the first Business Day of the second Financial Quarter of
2005 which payment shall represent the interest accrued on each Loan between the
first Business Day of January 2005 and the first Business Day of the second
Financial Quarter of 2005 and so on for subsequent Financial Quarters.
ARTICLE 4
CONDITIONS
4.1 Conditions to each Loan
The Parties each respectively acknowledge that the obligation of the Lender
to make any of the Loans is subject to the satisfaction, on or prior to the date
such Loan is to be made to the Borrower, of the following conditions:
(a) no Default or Event of Default has occurred or is continuing or would
arise immediately after giving effect to or as a result of the Loans;
(b) the Loans will not violate any applicable law, order or judgment;
(c) no material adverse change in the business or financial condition of
the Borrower or any of its Subsidiaries shall have occurred since
March 31, 2003;
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(d) the representations and warranties of the Borrower contained in
Article 5 are true and correct on the date each Loan is to be made as
if such representations and warranties were made on that date;
(e) the Lender has received, in form, substance, scope and dated a date
satisfactory to it and its counsel certified copies of:
(i) certificates of good standing with respect to the Borrower issued
by the Secretary of State of Delaware and each other jurisdiction
where the Borrower is qualified to operate as a foreign
corporation;
(ii) all discharges, subordination agreements, waivers and
confirmations as may be required to ensure that all obligations
under the Loan Documents are secured by Liens (subject only to
Permitted Liens) on the property and assets of the Borrower with
such exceptions as are permitted pursuant to this Agreement or
any of the other Loan Documents; and
(iii) such financial and other information with respect to the
business of Borrower as the Lender shall have reasonably
requested.
The Parties each respectively acknowledge that the obligation of the Lender
to make the Initial Loan is also subject to the delivery, on or prior to the
date such Initial Loan is to be made to the Borrower, certified copies of:
(a) the Loan Documents;
(b) a certificate of insurance with respect to the insurance policies
required pursuant to Section 6.1(j) showing the Lender as an
additional loss payee as its interests may appear relative to the
general property insurance carried with respect to the Borrower;
(c) opinion of counsel to the Borrower in form and substance reasonably
satisfactory to the Lender;
(d) the written consent of The CIT Group/Business Credit, Inc. which
consents to the Loans to be made to the Borrower pursuant to the terms
of this Agreement;
(e) an amendment to the Borrower's existing financing agreement with The
CIT Group/Business Credit, Inc. reducing the size of the revolving
line of credit from $4.0 million to not more than $2.0 million; and
(f) the distribution agreement with Strategic Partner for the distribution
of certain software products (names withheld and filed separately with
the SEC) and the Business and Marketing Plan, each of which shall be
annexed to this Agreement as a supplement hereto.
The Parties each respectively acknowledge that the obligation of the Lender
to make the Second Loan is also subject to the delivery, on or prior to the date
such Second Loan is to be
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made to the Borrower, certified copies, each in form and substance reasonably
satisfactory to the Lender, of (i) amendments to the existing compensation,
commission and incentive plans of the Borrower, which amendments clearly create
a (product withheld and filed separately with the SEC) quota for all of
Borrower's outside sales professionals (referral credit) and (ii) a separate
sales compensation plan for the dedicated xxx sales team that is exclusively
based on xxx license and services revenue.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties
The Borrower represents and warrants to the Lender, acknowledging and
confirming that the Lender is relying on such representations and warranties,
without independent inquiry in entering into this Agreement and providing the
Loans, that:
(a) Incorporation and Qualification. The Borrower is a corporation duly
incorporated, organized and validly existing under the laws of the
State of Delaware. Each of the Subsidiaries of the Borrower is a
corporation duly incorporated, organized and validly existing under
the laws of its jurisdiction of incorporation as set forth in Schedule
5.1(w)(i). Each of the Borrower and its Subsidiaries is qualified,
licensed or registered to carry on business under the laws applicable
to it in all jurisdictions in which the failure to be so qualified,
licensed or registered would have a Material Adverse Effect.
(b) Corporate Power. The Borrower and each of its Subsidiaries has all
requisite corporate power and authority to (i) own, lease and operate
its properties and assets and to carry on its business as now being
conducted by it, and (ii) enter into and perform their respective
obligations under the Loan Documents to which they are a party;
(c) Conflict With Other Instruments. The execution and delivery by the
Borrower and each of its Subsidiaries that are parties to the Loan
Documents and the performance thereby of their respective obligations
under, and compliance with the terms, conditions and provisions of,
the Loan Documents will not (i) conflict with or result in a breach of
any of the terms or conditions of (t) its charter documents or
by-laws, (u) any applicable law, rule or regulation, (v) any
contractual restriction binding on or affecting it or its properties,
or (w) any judgment, injunction, determination or award which is
binding on it, except in any such case for any such conflict or breach
which would not have, and would not be reasonably expected to have, a
Material Adverse Effect, or (ii) result in, require or permit (x) the
imposition of any encumbrance in, on or with respect to any of its
assets or property (except in favour of the Lender), (y) the
acceleration of the maturity of any Funded Debt binding on or
affecting the Borrower or any of its Subsidiaries, or (z) any third
party to terminate or acquire rights under any Material Agreement;
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(d) Corporate Action, Governmental Approvals, etc. The execution and
delivery of each of the Loan Documents by the Borrower and each of its
Subsidiaries that is a party thereto and the performance thereby of
their respective obligations under the Loan Documents have been duly
authorized by all necessary corporate action. No authorization,
consent, approval, registration, qualification, designation,
declaration or filing with any Governmental Entity or other Person, is
or was necessary in connection with the execution, delivery and
performance of obligations under the Loan Documents except (a) for
authorizations, consents, approvals, registrations, qualifications,
designations, declarations or filings which are in full force and
effect, unamended, at the date of this Agreement, (b) to the extent
that the failure to have obtained any such other authorization,
consent, approval, registration, qualification, designation,
declaration or filing would not and could not reasonably be expected
to have a Material Adverse Effect;
(e) Execution and Binding Obligation. This Agreement and the other Loan
Documents have been duly executed and delivered by the Borrower and
each of its Subsidiaries that is a party thereto and constitute legal,
valid and binding obligations of the Borrower and such Subsidiaries
enforceable against such Persons in accordance with their respective
terms, subject only to the exceptions and qualifications set forth in
the opinion, if any, of counsel for the Borrower delivered to the
Lender in connection with the closing of the transactions contemplated
under this Agreement;
(f) Authorizations, etc. The Borrower and each of its Subsidiaries possess
all authorizations, permits, consents, registrations and approvals
necessary to properly conduct their respective businesses at full
operating capacity, and all such authorizations, permits, consents,
registrations and approvals are in good standing and in full force and
effect, except to the extent that the failure to possess any such
authorization, permit, consent, registration or approval, or for the
same to be in full force and effect, would not and could not
reasonably be expected to have a Material Adverse Effect;
(g) Trademarks, Patents, etc. The Borrower and each of its Subsidiaries
possesses, licenses or otherwise has the right to use all the
trademarks, trade names, copyrights, patents and licenses reasonably
necessary for the conduct of their respective businesses, except in
any such case to the extent that the failure to do so would not have,
and could not be reasonably expected to have, a Material Adverse
Effect. To the best knowledge of the Borrower, neither it nor any of
its Subsidiaries is infringing or is alleged to be infringing on the
rights of any Person with respect to any patent, trademark, trade
name, copyright (or any application or registration in respect
thereof), license, discovery, improvement, process, formula, know-how,
data, plan or specification to the extent that any such infringement
or alleged infringement would not have, and would not be reasonably
expected to have, a Material Adverse Effect;
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(h) No Infringement. The rights of the Borrower and its Subsidiaries in or
to the Intellectual Property currently owned by the Borrower or its
Subsidiaries, or licensed and used by the Borrower or its Subsidiaries
in the conduct of its business (but excluding for greater certainty
Intellectual Property which is owned by third parties and only sold or
distributed by the Borrower or its Subsidiaries in the course of their
business), do not conflict with or infringe (a) on the copyrights,
trade secrets or know-how of any other Person, and none of the
Borrower or the Subsidiaries have received any claim or written notice
from any Person, to such effect and (b) to the best knowledge of the
Borrower and its Subsidiaries, with the published patents or
registered trademarks of any Person;
(i) Ownership and Use of Property. Except for Permitted Liens, each of the
Borrower and its Subsidiaries has good and marketable title in fee
simple to the real properties which they own and good and merchantable
title to all the tangible and intangible personal property reflected
as assets being owned by it in their books and records. The Borrower
and each Subsidiary thereof owns, leases or has the lawful right to
use all of the assets necessary for the conduct of their respective
businesses at full operating capacity except to the extent that the
failure to have such right to use would not and could not reasonably
be expected to have a Material Adverse Effect;
(j) Compliance with Laws. Each of the real properties owned or leased of
the Borrower and its Subsidiaries have been used in accordance with,
and the Borrower and each of its Subsidiaries are in compliance with,
all applicable laws, judgments and orders and rulings, guidelines and
decisions having force of law except to the extent that the failure to
be in such compliance would not and could not reasonably be expected
to have a Material Adverse Effect;
(k) No Default. Neither the Borrower nor any of its Subsidiaries is in
violation of its charter documents, its by-laws or any shareholders'
agreement applicable to it;
(l) No Material Adverse Agreements. Neither the Borrower nor any of its
Subsidiaries is a party to any agreement or instrument or subject to
any restriction (including any restriction set forth in its charter
documents, by-laws or any shareholders' agreement applicable to it)
which has or, based on the facts and circumstances in effect on the
date of this Agreement could reasonably be expected in the future to
have a Material Adverse Effect;
(m) Omitted.
(n) Pension Plans. Neither the Borrower nor any of its Subsidiaries (i)
has any unfunded obligation under any pension plan, or (ii) is a party
to any pension plan which could create an unfunded obligation of the
Borrower or its Subsidiaries under such plan;
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(o) Material Agreements, etc. The Borrower and its Subsidiaries are in
compliance in all material respects with all Material Agreements and
none of the Borrower or any of its Subsidiaries, or to the best
knowledge of the Borrower, any other party to any Material Agreement,
has defaulted in any material respect under any of the Material
Agreements. No event has occurred which, with the giving of notice,
lapse of time or both, would constitute a default under, or in respect
of, any Material Agreement. There is no material dispute regarding any
Material Agreement;
(p) Labor Matters. There are no existing or, to the best knowledge of the
Borrower, threatened strikes, lock-outs or other disputes relating to
any collective bargaining agreement to which the Borrower or any of
its Subsidiaries is a party. None of the Borrower nor any of its
Subsidiaries is a party to any collective agreement;
(q) Books and Records. All books and records of the Borrower and its
Subsidiaries have been fully, properly and accurately kept and
completed and there are no material inaccuracies or discrepancies of
any kind contained or reflected therein. The Borrower's and its
Subsidiaries' books and records and other data and information are
available to the Borrower in the ordinary course of its business;
(r) Tax Liability. The Borrower and each of its Subsidiaries have filed
all tax and tax-related information returns which are required to be
filed. The Borrower and each of its Subsidiaries have paid all taxes,
interest and penalties, if any, which have become due pursuant to such
returns or pursuant to any assessment received by any of them other
than those in respect of which liability based on such returns is
being contesting in good faith and by appropriate proceedings where
adequate reserves have been established in accordance with GAAP.
Adequate provision for payment has been made in accordance with GAAP
for taxes not yet due. There are no tax disputes existing or, to the
knowledge of the Borrower, pending involving the Borrower, any of its
Subsidiaries or the Business which could reasonably be expected to
have a Material Adverse Effect;
(s) Corporate Structure. At the date of this Agreement:
(i) All material operations of the Core Business are conducted by the
Borrower; the Parent conducts no material operations and holds no
material assets other than all of the outstanding shares of
Common Stock of the Borrower; and
(ii) there are no Subsidiaries of the Borrower, other than
Subsidiaries that hold no material assets or conduct no material
operations;
(t) Financial Statements. The audited consolidated financial statements of
the Borrower for the Financial Year ended on June 30, 2002 and the
unaudited consolidated financial statements of the Borrower for the
Financial Quarter ended March 31, 2003, copies of which have been
furnished to the Lender, fairly present
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the consolidated financial position of the Borrower at such dates and
the consolidated results of the operations and changes in financial
position of the Borrower for the periods then ended, all in accordance
with GAAP. All Funded Debt of the Parent, the Borrower and its
Subsidiaries is disclosed on the financial statements furnished to the
Lender or is set forth on Schedule 1.1 and the description of such
Funded Debt on Schedule 1.1 is true and correct in all material
respects. Neither the Parent, the Borrower nor any of its Subsidiaries
have any material liabilities, contingent or otherwise, not provided
for or reflected on the financial statements furnished to the Lender
or disclosed on Schedule 1.1;
(u) Reporting Issuer. The Borrower files periodic reports with the SEC
pursuant to the requirements of the Securities Exchange Act of 1934,
as amended and it is not in default of its obligations as such under
securities legislation or regulations to which it is subject. Neither
the SEC or other regulatory authority has issued any order preventing
or suspending trading in any securities of the Borrower;
(v) Permitted Liens. Each of the security interests described in Schedule
5.1(v) against the Borrower in _avour of the secured parties (the
"Specified Secured Parties") identified in Schedule 5.1(v) only
perfect a Lien upon property or assets of the Borrower which
constitute Permitted Liens and do not perfect or otherwise relate to
any Lien generally upon all of or substantially all of the property
and assets of the Borrower; and none of the Specified Secured Parties
have rights under such Liens, or under the agreements creating the
indebtedness secured by such Liens, which materially adversely affect,
or could reasonably be expected to materially adversely affect, the
rights of the Lender under the Loan Documents;
(w) Schedule Disclosure. At the date of this Agreement:
Schedule 5.1(w)(i) is a list of (i) the chief executive office,
head office, registered office and chief place of business of the
Borrower, (ii) the jurisdictions in which the Borrower carries on
business, (iii) the jurisdictions in which the Borrower has any
account debtors, (iv) the jurisdictions in which the Borrower
stores any tangible personal property (except for goods in
transit in the ordinary course of business), and (v) the office
addresses of all of the Borrower and its Subsidiaries identifying
on such list all Subsidiaries of the Borrower;
Schedule 5.1(w)(ii) is a list of all authorizations, permits,
consents, registrations and approvals which are material to the
Borrower;
Schedule 5.1(w)(iii) is a list of all trademarks, tradenames,
copyrights and patents (and the registration particulars thereof)
which are material to the Borrower;
Schedule 5.1(w)(iv) is a list of all actions, suits, arbitrations
or proceedings pending, taken or, to the Borrower's knowledge
threatened,
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before or by any Governmental Entity or other Person affecting
the Borrower or any of its Subsidiaries involving claims which
individually or in the aggregate exceed U.S.$100,000; and
Schedule 5.1(w)(v) contains a list of all Material Agreements;
and
(x) Disclosure. All written information respecting the Parent, the
Borrower and its Subsidiaries supplied by the Borrower to the Lender
(i) was prepared in good faith, adequately disclosed all relevant
assumptions, is reasonable and (ii) is true and accurate in all
material respects and does not omit to state any fact necessary to
make such information not misleading at such time in light of the
circumstances under which such information was provided. There is no
fact known to the Borrower which could reasonably be expected to have
a Material Adverse Effect and which has not been fully disclosed.
Subject to the preceding provisions of this section, no event has
occurred which could be reasonably anticipated to have a Material
Adverse Effect since the date of the last audited financial statements
delivered to the Lender.
5.2 Survival of Representations and Warranties.
The representations and warranties in this Agreement and in any other Loan
Document shall not merge in or be prejudiced by, and shall survive (but for
greater certainty not be deemed to be repeated following) the Closing Date and
shall continue in full force and effect so long as any amounts are owing by the
Borrower to the Lender under this Agreement.
ARTICLE 6
COVENANTS OF THE BORROWER
6.1 Affirmative Covenants
So long as any amount owing by the Borrower or any of its Subsidiaries
under the Loan Documents remains unpaid, and unless consent is given in
accordance with Section 8.1, the Parent and the Borrower shall:
(a) Financial Reporting. Deliver to the Lender promptly (and in any event
within 2 Business Days) following filing the same with SEC the
quarterly and annual financial statements of the Borrower filed from
time to time by the Borrower with the SEC pursuant to the Borrower's
continuous disclosure obligations under U.S. securities legislation,
and (ii) together with each delivery of such financial statements, a
certificate (a "Compliance Certificate") of the Borrower substantially
in the form of Schedule 6.1 signed on its behalf by its president,
chief executive officer, chief operating officer, chief financial
officer or treasurer (or any other officer of the Borrower with the
duties and responsibilities of any such office notwithstanding that
the title of such officer may be different than those specified above)
any other officer acceptable to the Lender;
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(b) Environmental Reporting. Promptly, and in any event within 10 days,
deliver to the Lender a detailed statement describing any of the
following occurrences (i) any order or judgment of any Governmental
Entity requiring the Borrower or any of its Subsidiaries to incur any
liabilities ("Environmental Liabilities") imposed by, under or
pursuant to any laws, regulations, orders, judgments and all other
statutory requirements relating to public health and/or the protection
of the environment and all authorizations, permits, consents,
registrations and approvals issued pursuant to such laws, agreements
or statutory requirements ("Environmental Laws") (w) in excess of
$1,000,000 in any one instance, (x) together with all other
expenditures incurred in respect of Environmental Liabilities in any
Financial Year, in excess of $1,000,000 in the aggregate, (ii) any
state of affairs on which could result in the incurrence of
Environmental Liabilities (y) in excess of $1,500,000 in any one
instance, or (z) together with all other expenditures incurred in
respect of Environmental Liabilities in any Financial Year, in excess
of $1,500,000 in the aggregate, and (iii) the action taken or proposed
to be taken in connection with such occurrences;
(c) Corporate Existence. Except as otherwise permitted in this Agreement,
preserve and maintain, and cause each of its Subsidiaries to preserve
and maintain, its corporate existence;
(d) Compliance with Laws, etc. Comply, and cause each of its Subsidiaries
to comply with the requirements of all applicable laws, judgments,
orders, decisions and awards except to the extent that the failure to
so comply would not and could not be reasonably expected to have a
Material Adverse Effect;
(e) Maintenance of Properties. From time to time, make and cause each of
the Subsidiaries of the Borrower to make all repairs, renewals,
replacements, additions and improvements to the real properties owned
or leased by the Borrower and its Subsidiaries and their other
properties and assets, so that the SP Products and Services Business
and the Borrower's Subsidiaries' respective businesses, as the case
may be, may be properly and advantageously conducted at all times in
accordance with prudent business management practice;
(f) Auditors. Continue to appoint as its auditors a firm of national
standing in the United States;
(g) Payment of Taxes and Claims. Pay or cause to be paid and cause each of
its Subsidiaries to pay or cause to be paid, when due, (i) all taxes,
assessments and governmental charges or levies imposed upon it or upon
its income, sales, capital or profit or any other property belonging
to it or upon its Subsidiaries, and (ii) all claims which, if unpaid,
might by law become a Lien upon the assets, except any such tax,
assessment, charge, levy or claim which (x) is being contested in good
faith and by proper proceedings and in respect of which the Borrower
or its Subsidiaries have established adequate reserves in accordance
with GAAP or (y) are Permitted Liens;
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(h) Keeping of Books. Keep, and cause each of the Subsidiaries of the
Borrower to keep, proper books of record and account, in which full
and correct entries shall be made in respect of the SP Products and
Services Business or businesses, as the case may be;
(i) Visitation and Inspection. At any reasonable time or times during
normal business hours and on reasonable notice to the Borrower, permit
the Lender to visit the properties of the Borrower and its
Subsidiaries, and to discuss their affairs, finances and accounts with
the officer appointed as (or performing the functions of) the chief
financial officer of the Borrower;
(j) Maintenance of Insurance. Maintain, in respect of itself and each of
the Borrower's Subsidiaries, insurance at all times with responsible
insurance carriers and in such amounts and covering such risks as are
usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or
such Subsidiaries, as the case may be, operate, such policies with
respect to the general corporate liabilities, property and assets of
the Borrower and show the Lender as an additional loss payee;
(k) SP Products and Services Business. The Parent, the Borrower and its
Subsidiaries will, pursuant to the Business and Marketing Plan and any
replacement thereof pursuant to the terms hereof: (i) continue to
carry on the Core Business (other than the SP Products and Services
Business), (ii) begin and subsequently continue to carry on the SP
Products and Services Business, (iii) use best efforts to meet the
objectives set forth in the Business and Marketing Plan, (iv) use best
efforts to ensure that the business activities of the Borrower and its
Subsidiaries are comprised primarily and substantially of the Core
Business, (v) use best efforts to ensure that the SP Products and
Services Business comprises a material part of the business activities
of the Borrower and its Subsidiaries and (vi) not make any changes to
Items (i)-(v) above;
(l) Annual Business Plan. Beginning upon the expiration of the term of the
Business and Marketing Plan, being thirty (30) days prior to the end
of the 2005 calendar year, and no less than thirty (30) days prior to
the end of each subsequent calendar year, so long as the Borrower is
liable for any amounts hereunder to the Lender, the Borrower shall
deliver to the Lender a business plan relative to the SP Products and
Services Business for the year to follow in a form reasonably
acceptable to the Lender;
(m) Availability Under Senior Credit Facility. At any time the Borrower is
subject to a mandatory repayment obligation pursuant to the terms of
Section 2.3(b) above, the Borrower shall maintain availability under
the terms of its credit agreement with The CIT Group/Business Credit,
Inc. (or any successor thereto) of at least the amount of such
mandatory repayment obligation plus $500,000; and
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(n) Further Assurances. Upon request of the Lender, execute and deliver or
cause to be executed and delivered to the Lender such further
instruments and do and cause to be done such further acts as may be
necessary or proper in the reasonable opinion of the Lender to carry
out more effectively the provisions and purposes of the Loan
Documents.
6.2 Negative Covenants
So long as any amount owing by the Borrower or any of its Subsidiaries
under the Loan Documents remains unpaid, and unless consent is given in
accordance with Section 8.1, neither the Parent nor the Borrower shall:
(a) Funded Debt. Create, incur, assume or suffer to exist or permit any of
its Subsidiaries to create, incur, assume or suffer to exist any
Funded Debt other than, without duplication, (i) Funded Debt to the
Lender under this Agreement, (ii) Funded Debt from time to time under
one or more Permitted Credit Facilities (subject to the maximum
aggregate principal amount of the indebtedness permitted to be
outstanding at such time under all such Permitted Credit Facilities
pursuant to the definition of the term `Permitted Credit Facilities'),
(iii) Funded Debt secured by any Permitted Lien (subject to the
limitations on the indebtedness permitted to be secured by such
Permitted Lien pursuant to the definition of the term `Permitted
Lien'), and (iv) any refinancing, replacement or renewal of such
Funded Debt not exceeding (y) in principal amount, the amount
outstanding on the date of the refinancing, renewal or replacement,
and (z) in interest rate, a market competitive rate on the date of the
refinancing, renewal or replacement, and otherwise on terms and
conditions no more restrictive than the terms and conditions of the
Funded Debt to be refinanced, renewed or replaced;
(b) Liens. Create, incur, assume or suffer to exist, or permit any of the
Borrower's Subsidiaries to create, incur, assume or suffer to exist,
any Lien on any of their respective properties or assets other than
Permitted Liens;
(c) Mergers, Etc. Enter into, or permit any of the Borrower's Subsidiaries
to enter into, any reorganization, consolidation, amalgamation,
arrangement, winding-up, merger or other similar transaction (any such
transaction being a "Merger Transaction"); provided, that (i) Borrower
may enter into a Merger Transaction so long as it is the surviving
corporation of any such Merger Transaction and (ii) a Subsidiary of
Borrower may enter into a Merger Transaction, in each case so long as
the purchase price of any business acquired pursuant to such Merger
Transaction does not exceed $250,000 and the Merger Transaction does
not otherwise adversely impact the Lender's security interest in the
assets of the Borrower;
(d) Disposal of Assets Generally. Sell, exchange, transfer, lease, release
or abandon or otherwise dispose (a "Disposition") of, or permit any of
its Subsidiaries to Dispose of, any assets or properties to any Person
in any way that adversely
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impacts the Lender's security interest of the assets of the Borrower
than (i) bona fide sales, exchanges, leases, abandonments or other
dispositions in the ordinary course of business for the purpose of
carrying on the Core Business, and at fair market value, (ii) property
or assets which have no material economic value in the Core Business
or the Subsidiary's business or are obsolete;
(e) Share Issuances. Issue shares of common stock or preferred stock, or
any options, warrants or securities convertible into shares of common
stock or preferred stock to any competitors of SP in the (description
withheld and filed separately with the SEC) business;
(f) Financial Year. Change its Financial Year without the prior written
approval of the Lender;
(g) Amendments. Allow any amendments to any Material Agreement if such
amendments could reasonably be expected to have a Material Adverse
Effect;
(h) (Terms withheld and filed separately with the SEC).
(i) Dividends. Declare or pay any dividends to make any distribution of
any kind on their outstanding capital stock or any other payment of
any kind to any of their stockholders or any affiliate of any of their
stockholders, provided, however, that dividends may be paid as may be
currently required by classes of preferred stock outstanding on the
date of this Agreement, so long as no Event of Default has occurred or
would exist as a result of any such payments; and
(j) Affiliate Transactions. Make any loan to any director, officer or
employee of the Parent, the Borrower or of its Subsidiaries or repay
any loans advanced by any director, officer or employee of the Parent,
the Borrower or any of its Subsidiaries; provided, however, that
Borrower may make any regularly scheduled payments of interest and/or
principal on any Funded Debt in existence on the date of this
Agreement so long as no Event of Default has occurred or would exist
as a result of any such payment and Borrower is able to make such
payment without incurring any additional Funded Debt.
6.3 Financial Covenant
So long as any amount owing by the Borrower or any of its Subsidiaries
under the Loan Documents remains unpaid, and unless consent is given in
accordance with Section 8.1, the Borrower's Adjusted Consolidated Funded Debt
(calculated as at the end of the most recently completed Financial Quarter)
shall not exceed 50% of the total assets of the Parent, the Borrower and its
Subsidiaries less any intangible assets (as determined on a consolidated basis
in
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accordance with GAAP and calculated as at the end of the most recently completed
Financial Quarter).
For the purposes of this Section 6.3:
"Adjusted Consolidated Funded Debt" means at any time the amount, if
any, by which the Funded Debt of the Parent, the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with
GAAP at such time exceeds Consolidated Cash and Short Term Investments
at such time; and
"Consolidated Cash and Short Term Investments" means, on any date, all
cash and all debt securities or debt investments (including without
limitation bankers' acceptances, government obligations, financial
institution deposit certificates or debt obligations and commercial
paper) which have terms to maturity of not more than 1 year from and
including such date held on such date by the Parent, the Borrower and
its Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
6.4 Security Covenants
So long as any amount owing by the Borrower or any of its Subsidiaries
under the Loan Documents remains unpaid, and unless consent is given in
accordance with Section 8.1, the Borrower shall:
(a) Status of Accounts Collateral. With respect to the Collateral (i)
maintain books and records pertaining to the Collateral in such
detail, form and scope as the Lender reasonably requires, and (ii)
report immediately to the Lender any matters materially adversely
affecting the value, enforceability or collectibility of the
Collateral, taken as a whole;
(b) Business Outside Certain Jurisdictions. At least 30 days prior to any
of the following changes becoming effective, notify the Lender in
writing of (i) any proposed change in the location of (w) any place of
business of the Borrower, (x) the chief executive office or head
office of the Borrower, (y) any account debtors of the Borrower, and
(z) any place where tangible property of the Borrower is stored, and
(ii) any proposed change in the name of the Borrower;
(c) Perfection and Protection of Security Interest. Promptly cure or cause
to be cured any defects in the execution and delivery of any of the
Loan Documents or any defects in the validity or enforceability of any
of the Security and execute and deliver or cause to be executed and
delivered, all such agreements, instruments and other documents
(including the filing of any financing statements or financing change
statements) as the Lender may consider necessary or desirable to
protect or otherwise perfect the Security;
(d) Release of Security. On the date of the due payment and performance in
full of all Maturity Amounts, under each of the Loans to the Lender
this Agreement shall
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terminate, the Lender will release and discharge, and will cause the
Lender to release and discharge, the Security and all right, title and
interest of the Lender in the property and assets of the Borrower and
its Subsidiaries under the Borrower's Security Agreement. In addition,
if any asset or property of the Borrower or a Subsidiary thereof is
Disposed of as specifically permitted by this Agreement, the Lender,
at the request of the Borrower, will, and will cause the Lender to,
discharge such asset or property from the Security and deliver and
re-assign to the Borrower or the applicable Subsidiary (without any
representation or warranty) any such asset or property then in the
possession of the Lender. If any Liens are permitted to be placed over
any part of the assets or property of the Borrower or any of its
Subsidiaries (whether in priority to any of the Security or otherwise)
pursuant to the provisions of this Agreement, or otherwise at the
direction or with the consent of the Lender, the Lender shall, at the
request of the Borrower, will, and will cause the Lender to, provide
such assurances, confirmations, postponements and subordinations
respecting such assets and property and the Security as the Borrower
may reasonably request in the circumstances.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default
If any of the following events (each an "Event of Default") occurs and is
continuing:
(a) the Borrower fails to pay any principal or interest in respect of a
Loan when such amount becomes due and payable and such failure remains
unremedied for a period of ten (10) Business Days;
(b) any representation or warranty or certification made or deemed to be
made by the Parent, the Borrower or any of its Subsidiaries thereof in
any Loan Document shall prove to have been incorrect in any material
respect when made or deemed to be made; and, if the circumstances
giving rise to the materially incorrect representation or warranty are
capable of modification or rectification (such that, thereafter the
representation or warranty would not be incorrect in any material
respect), the representation or warranty remains uncorrected for a
period of thirty (30) days following written notice of such material
incorrectness by the Lender to the Borrower;
(c) the Parent or the Borrower fails to perform or observe or comply with
any of the covenants contained in Section 6.2 (Negative Covenants) or
Section 6.3 (Financial Covenant), and such failure remains unremedied
for thirty (30) days following notice of such failure by the Lender to
the Borrower;
(d) the Parent or the Borrower fails to perform, observe or comply with
any of the covenants contained in Section 6.1 (Affirmative Covenants)
and such failure
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remains unremedied for thirty (30) days following notice of such
failure by the Lender to the Borrower;
(e) a Subsidiary of the Borrower fails to perform or observe or comply
with any material term or agreement contained in any Loan Document to
which it is a party and such failure remains unremedied for thirty
(30) days following notice of such failure by the Lender to the
Borrower;
(f) the Parent or the Borrower fails to perform, observe or comply with
any other term, covenant or agreement contained in any Loan Document
and such failure remains unremedied for thirty (30) days following
written notice of such failure by the Lender to the Borrower;
(g) a Change of Control of Parent or the Borrower shall have occurred;
(h) if an event or events of default, as defined in any one or more
indentures or instruments evidencing or under which the Parent, the
Borrower or any of its Subsidiaries has incurred Funded Debt in an
aggregate principal amount in excess of U.S. $300,000 shall happen and
be continuing and (i) shall consist of a failure to make any payment
when due and payable of any amount or amounts (whether principal,
interest or both) exceeding in the aggregate under all such indentures
and instruments U.S.$300,000, or (ii) shall have resulted in the
acceleration of such Funded Debt so that Funded Debt in an aggregate
amount (whether principal, interest or both) under all such indentures
and instruments in excess of U.S.$300,000 shall be or become due and
payable prior to the date on which the same would otherwise have
become due and payable; provided, however, that if such event or
events of default under such indentures or instruments is remedied or
cured by the Borrower or its Subsidiaries, or waived by the holders of
such Funded Debt, then the Event of Default occurring by reason
thereof shall be deemed likewise to have been thereupon remedied,
cured or waived without further action;
(i) the Borrower or any of its Subsidiaries fails to perform, observe or
comply with any of the provisions of the distribution agreement (at
any time following the execution of such agreement) and such failure
remains unremedied for thirty (30) days following notice of such
failure by the Lender to the Borrower;
(j) any judgment or order for the payment of money in excess of U.S.
$100,000 (subject to no further right of appeal) is rendered against
the Parent, the Borrower or any of its Subsidiaries and enforcement
proceedings have been commenced by a creditor upon the judgment or
order and such proceedings have not been effectively stayed;
(k) the Parent, the Borrower or any of its Subsidiaries (i) becomes
insolvent or generally not able to pay its debts as they become due,
(ii) admits in writing its inability to pay its debts generally or
makes a general assignment for the benefit
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of creditors, (iii) institutes or has instituted against it any
proceeding seeking (x) to adjudicate it a bankrupt or insolvent, (y)
liquidation, winding-up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of
debtors including any plan of compromise or arrangement or other
corporate proceeding involving or affecting its creditors, or (z) the
entry of an order for relief or the appointment of a receiver, trustee
or other similar official for it or for any substantial part of its
properties and assets, and in the case of any such proceeding
instituted against it (but not instituted by it), either the
proceeding remains undismissed or unstayed for a period of thirty (30)
days, or any of the actions sought in such proceeding (including the
entry of an order for relief against it or the appointment of a
receiver, trustee, custodian or other similar official for it or for
any substantial part of its properties and assets) occurs, or (iv)
takes any corporate action to authorize any of the above actions.
Then the Lender may declare any or all of the Loans, all accrued interest
and all other amounts payable under this Agreement to be immediately due
and payable, without presentment, demand, protest or further notice of any
kind, all of which are expressly waived by the Borrower.
7.2 Remedies Upon Default
(1) Upon a declaration that a Loan is immediately due and payable pursuant to
this Article 7, the Lender that has made the declaration may commence such
legal action or proceedings as it, in its sole discretion, deems expedient,
including, the commencement of enforcement proceedings under the Loan
Documents all without any additional notice, presentation, demand, protest,
notice of _ishonour, entering into of possession of any property or
assets, or any other action or notice, all of which are expressly waived by
the Borrower.
(2) The rights and remedies of the Lender under the Loan Documents are
cumulative and are in addition to, and not in substitution for, any other
rights or remedies. Nothing contained in the Loan Documents with respect to
the indebtedness or liability of the Borrower to the Lender, nor any act or
omission of the Lender with respect to the Loan Documents or the Security
shall in any way prejudice or affect the rights, remedies and powers of the
Lender under the Loan Documents and the Security.
ARTICLE 8
MISCELLANEOUS
8.1 Amendments, etc.
No amendment or waiver of any provision of any of the Loan Documents, nor
consent to any departure by the Borrower or any other Person from such
provisions, is effective unless in writing and approved by the Lender. Any
amendment, waiver or consent is effective only in the specific instance and for
the specific purpose for which it was given.
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8.2 Waiver
(a) No failure on the part of the Lender to exercise, and no delay in
exercising, any right under any of the Loan Documents shall operate as
a waiver of such right; nor shall any single or partial exercise of
any right under any of the Loan Documents preclude any other or
further exercise of such right or the exercise of any other right.
(b) Except as otherwise expressly provided in this Agreement, the
covenants, representations and warranties shall not merge on and shall
survive the initial advance and, notwithstanding such initial advance
or any investigation made by or on behalf of any party, shall continue
in full force and effect. The closing of this transaction shall not
prejudice any right of one party against any other party in respect of
anything done or omitted under this Agreement or in respect of any
right to damages or other remedies.
8.3 Right of First Offer
In the event the Borrower desires to sell, exchange or otherwise transfer
any assets or portion of its business representing in either case at least 10%
of the consolidated revenues of the Borrower (determined in accordance with the
most recent audited financial statements of the Borrower), the Borrower shall
give the Lender written notice, which shall set forth in reasonable detail the
assets or portion of the business to be sold or otherwise transferred. The
Lender shall have the right, exercisable upon written notice to the Borrower
within thirty (30) days after receipt of any written notice from the Borrower,
to offer to purchase all, but not less than all, of the assets or portion of the
business to be sold or otherwise transferred by the Borrower, at a purchase
price and on such terms and conditions as specified by the Lender in an offer
letter (the "Offer"). In the event that Borrower declines to accept the Lender's
terms as provided in the Offer, the Borrower may transfer such assets or portion
of its business to any third party at any time within six months following the
receipt of the Offer from the Lender, provided that the Borrower may not sell
such assets or portion of its business on for a price and on terms less
satisfactory than the price and the terms set forth in the Offer. In the event
the sale or transfer is not consummated within such six-month period, any
proposed transfer of assets or portion of its business by the Borrower shall
again be subject to the requirements of this Section 8.3.
8.4 Evidence of Funded Debt
The indebtedness of the Borrower hereunder shall be evidenced by the
records of the Lender which shall constitute prima facie evidence of such
indebtedness.
8.5 Notices, etc
Any notice, direction or other communication to be given under this
Agreement shall, except as otherwise permitted, be in writing and given by
delivering it or sending it by facsimile or other similar form of recorded
communication addressed:
(a) to the Borrower at:
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11403 A Cronhill Drive
Owings Mills, MD 21117
Attention: Donald R. Walsh
Telephone: +1-410-902-6900
Facsimile: +1-410-902-8324
with a copy to:
Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.
One South Street
27th Floor
Baltimore, Maryland 21202
Attention: Christopher Olander
Telephone: +1-410-332-8550
Facsimile: +1-410-332-8594
(b) to the Lender :
Strategic Partner
(Address withheld and filed separately with the SEC.)
with a copy to:
Ropes & Gray LLP
45 Rockefeller Plaza
New York, New York 10111
Attention: Jonathan Cramer, Esq.
Telephone: +1-212-841-0690
Facsimile: +1-212-841-5725
Any such communication shall be deemed to have been validly and effectively
given if (i) personally delivered, on the date of such delivery if such date is
a Business Day and such delivery was made prior to 4:00 p.m. (New York time),
otherwise on the next Business Day, (ii) transmitted by facsimile or similar
means of recorded communication on the Business Day following the date of
transmission. Any party may change its address for service from time to time by
notice given in accordance with the foregoing and any subsequent notice shall be
sent to the party at its changed address.
8.6 Confidentiality
The Lender shall use reasonable efforts to ensure that financial statements
or other information relating to the Borrower which may be delivered to it
pursuant to this Agreement
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and which are not publicly filed or otherwise made available to the public
generally (and which are not independently known to the Lender) will be treated
confidentially by such Lender and will not, except with the consent of the
Borrower, be distributed or otherwise made available by the Lender to any Person
other than its directors, officers, employees, authorized agents, counsel or
other representatives (provided the other representatives have agreed or are
under a duty to keep all information confidential) required, in the reasonable
opinion of the Lender, to have such information. The Lender is authorized to
deliver a copy of any financial statements or any other information which may be
delivered to it pursuant to this Agreement to (i) any potential or actual
Assignee, as such term is defined below in Section 8.8(c) provided notice is
given to the Borrower and provided that such Assignee agrees in writing in
favour of the Borrower to be bound by the confidentiality provisions of this
Agreement, (ii) any Governmental Entity having jurisdiction over the Lender in
order to comply with any applicable law; and (iii) any Subsidiary of the Lender
required, in the reasonable opinion of the Lender, to have such information
provided that such Subsidiary will be advised by the Lender of and will be bound
by, and the Lender will be responsible for any breach by such Subsidiary of any
of, the confidentiality provisions of this Agreement.
8.7 Costs, Expenses and Indemnity
(a) The Borrower shall, whether or not the transaction contemplated in
this Agreement are completed, indemnify and hold the Lender and its
officers, directors, employees and agents (each an "Indemnified
Person") harmless from, and shall pay to such Indemnified Person on
demand, any amounts required to compensate the Indemnified Person for,
any claim or loss suffered by, imposed on, or asserted against, the
Indemnified Person as a result of, connected with or arising out of
(i) a default (whether or not constituting a Default or an Event of
Default) by the Borrower, (ii) any proceedings brought against the
Indemnified Person due to its entering into of any of the Loan
Documents and performing its obligations under the Loan Documents
except to the extent caused by the gross negligence or wilful
misconduct of an Indemnified Person, and (iii) the presence at, on or
under or the discharge or likely discharge of contaminants from any of
any of the properties now or previously used by the Borrower or any of
its Subsidiaries, or the breach by or non-compliance with any
Environmental Law by any mortgagor, owner, or lessee of such
properties, except to the extent that any of the same have been caused
by an Indemnified Party.
(b) The Borrower shall pay to the Lender on demand any amounts required to
compensate the Lender for any loss suffered or incurred by it as a
result of (i) the failure of the Borrower to give any notice in the
manner and at the times required by this Agreement, or (ii) the
failure of the Borrower to make a payment or a mandatory repayment in
the manner and at the time specified in this Agreement. A certificate
as to the amount of any loss submitted in good faith by the Lender to
the Borrower shall be prima facie evidence of the amount of such loss,
absent manifest error.
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(c) The provisions of this Section 8.7 shall survive the termination of
this Agreement and the repayment of all Maturity Amounts. The Borrower
acknowledges that neither its obligation to indemnify nor any actual
indemnification by it of the Lender or any other Indemnified Person in
respect of such Person's losses for legal fees and expenses shall in
any way affect the confidentiality or privilege relating to any
information communicated by such Person to its counsel.
8.8 Successors and Assigns
(a) This Agreement shall become effective when executed by the Borrower
and the Lender and after that time shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective
successors and permitted assigns.
(b) The Borrower shall not have the right to assign its rights or
obligations under this Agreement or any interest in this Agreement
without the prior consent of the Lender.
(c) Subject to the next sentence, the Lender shall not have the right to
assign its rights or obligations under any Loan Document or any
interest in any Loan Document without the prior consent of the
Borrower, unless such assignment is to a Subsidiary of , in which
-----
case no consent of the Borrower is required. Notwithstanding the
foregoing, at any time following the second anniversary of the Closing
Date the Lender may assign all or any part of its interest in any Loan
(but for greater certainty not in any other right or entitlement under
any Loan Document) to (each an "Assignee") (i) one or more Persons
that is not a competitor of the Borrower or its Subsidiaries, or (ii)
a Person that is a competitor of the Borrower or its Subsidiaries, if
such Person acquires the Lender or is acquired by the Lender, or any
of its Subsidiaries, pursuant to a Change of Control of such Person or
the Lender, as the case may be, without any requirement for notice to,
or consent of, the Borrower or any other Person. Upon an assignment,
(i) the Borrower shall assign any and all benefit of all Security to
the Assignee and (ii) the Assignee shall have the same rights and
benefits and be subject to the same limitations under the Loan
Documents with respect to such Loan (but for greater certainty not
with respect to any other right or entitlement under any Loan
Documents) as it would have if it was the Lender, provided that no
Assignee shall be entitled to receive any greater payment, on a
cumulative basis, pursuant to Section 8.7 than the Lender which
granted the assignment would have been entitled to receive.
(d) The Borrower shall provide such certificates, acknowledgements and
further assurances in respect of this Agreement and the Loans as the
Lender may reasonably require in connection with any assignment,
pursuant to this Section 8.8.
(e) In the case of an assignment, the Lender shall deliver to the Borrower
and the Borrower shall execute an assignment and assumption agreement
pursuant to
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which the Assignee assumes the obligations of the Lender and agrees to
be bound by all the terms and conditions of this Agreement, all as if
the Assignee had been an original party. Upon receipt by the Lender of
the assignment and assumption agreement, the assigning Lender and the
Borrower shall be released from their respective obligations under
this Agreement (to the extent of such assignment and assumption) and
shall have no liability or obligations to each other to such extent,
except in respect of matters arising prior to the assignment.
(f) Any assignment pursuant to this Section 8.8 will not constitute a
repayment by the Borrower to the assigning or granting Lender of a
Loan nor a new loan to the Borrower by the Lender or by the Assignee
and the parties acknowledge that the Borrower's obligations with
respect to such Loan will continue and will not constitute new
obligations.
8.9 Right of Set-off
Each party is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply the amount owed, due and
payable by the other hereunder to it hereunder against any and all of its
obligations to the other party hereunder or pursuant to any other agreement
entered into between the parties or otherwise, as the case may be, irrespective
of whether or not demand shall have been made. The rights of the parties under
this Section 8.9 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the parties may have. Each
party acknowledges that it would be inequitable and unconscionable not to allow
the non-defaulting party a right of set-off.
8.10 Governing Law
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the State of Delaware without regard of the
principles of conflicts of laws thereof.
8.11 Counterparts and Facsimile
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument. Delivery of an executed
signature page to this Agreement by any party by facsimile transmission shall be
as effective as delivery of a manually executed copy of this Agreement by such
party.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF the parties have executed this Loan Agreement on the
date appearing on the first page hereof.
AVATECH SOLUTIONS SUBSIDIARY, INC.
By: /s/
--------------------------------------
Name: Donald R. "Scotty" Walsh
Title: Chief Executive Officer
Strategic Partner.
By: /s/
--------------------------------------
Name: (Name and title withheld and
Title: filed separately with the SEC.)
WITH RESPECT TO ARTICLES VI AND VIII:
AVATECH SOLUTIONS, INC.
By: /s/
--------------------------------------
Name: Donald R. "Scotty" Walsh
Title: Chief Executive Officer