LOAN AGREEMENT

 

 

 

                               LOAN AGREEMENT

 

THIS LOAN AGREEMENT (the "Agreement"), is entered into as of June 21, 2004

between DATARAM CORPORATION, a corporation organized under the laws of the

State of New Jersey (the "Borrower"), with an address at 186 Princeton Road,

West Windsor, New Jersey 08550, and PNC BANK, NATIONAL ASSOCIATION (the

"Bank"), with an address at Two Tower Center Boulevard, 16th Floor, East

Brunswick, New Jersey 08816.

 

     The Borrower and the Bank, with the intent to be legally bound, agree as

follows:

 

     1. Loan. The Bank has made or may make one or more loans (collectively,

the "Loan")to the Borrower subject to the terms and conditions and in

reliance upon the representations and warranties of the Borrower set forth in

this Agreement. The Loan is or will be evidenced by a promissory note or

notes of the Borrower and all renewals, extensions, amendments and

restatements thereof (if one or more, collectively, the "Note") acceptable to

the Bank, which shall set forth the interest rate, repayment and other

provisions, the terms of which are incorporated into this Agreement by

reference. The availability of advances under the Loan will be subject to a

borrowing base formula and other provisions as set forth in a Borrowing Base

Rider dated the same date as this Agreement between the Borrower and the

Bank, the terms of which are incorporated herein by reference (the "Borrowing

Base Rider"). At no time shall outstanding advances under the Loan exceed the

Borrowing Base (as defined in the Borrowing Base Rider).Pursuant to the

Borrowing Base Rider, the Borrower will be required to deliver periodic

Borrowing Base Certificates, reporting on its accounts in accordance with

defined eligibility standards, as a condition to advances under this

Agreement.

 

     2. Security. The security for repayment of the Loan shall include but

not be limited to the collateral, guaranties and other documents heretofore,

contemporaneously or hereafter executed and delivered to the Bank (the

"Security Documents"), which shall secure repayment of the Loan, the Note and

all other loans, advances, debts, liabilities, obligations, covenants and

duties owing by the Borrower to the Bank or to any other direct or indirect

subsidiary of The PNC Financial Services Group, Inc., of any kind or nature,

present or future (including any interest accruing thereon after maturity, or

after the filing of any petition in bankruptcy, or the commencement of any

insolvency, reorganization or like proceeding relating to the Borrower,

whether or not a claim for post-filing or post-petition interest is allowed

in such proceeding), whether direct or indirect (including those acquired by

assignment or participation), absolute or contingent, joint or several, due

or to become due, now existing or hereafter arising, whether or not (i)

evidenced by any note, guaranty or other instrument, (ii) arising under any

agreement, instrument or document, (iii) for the payment of money, (iv)

arising by reason of an extension of credit, opening of a letter of credit,

loan, equipment lease or guarantee, (v) under any interest or currency swap,

future, option or other interest rate protection or similar agreement, (vi)

under or by reason of any foreign currency transaction, forward, option or

other similar transaction providing for the purchase of one currency in

exchange for the sale of another currency, or in any other manner, or (vii)

arising out of overdrafts on deposit or other accounts or out of electronic

funds transfers (whether by wire transfer or through automated clearing

houses or otherwise) or out of the return unpaid of, or other failure of the

Bank to receive final payment for, any check, item, instrument, payment order

or other deposit or credit to a deposit or other account, or out of the

Bank's non-receipt of or inability to collect funds or otherwise not being

made whole in connection with depository or other similar arrangements; and

any amendments, extensions, renewals and increases of or to any of the

foregoing, and all costs and expenses of the Bank incurred in the

documentation, negotiation, modification, enforcement, collection and

otherwise in connection with any of the foregoing, including reasonable

attorneys' fees and expenses 2 (hereinafter referred to collectively as the

"Obligations"). Unless expressly provided to the contrary in documentation

for any other loan or loans, it is the express intent of the Bank and the

Borrower that all Obligations including those included in the Loan be cross-

collateralized and cross-defaulted, such that collateral securing any of the

Obligations shall secure repayment of all Obligations and a default under any

Obligation shall be a default under all Obligations. This Agreement, the

Note, the Security Documents and all other agreements and documents executed

and/or delivered pursuant hereto, as each may be amended, modified, extended

or renewed from time to time, are collectively referred to as the "Loan

Documents." Capitalized terms not defined herein shall have the meanings

ascribed to them in the Loan Documents.

 

     3. Representations and Warranties. The Borrower hereby makes the

following representations and warranties, which shall be continuing in nature

and remain in full force and effect until the Obligations are paid in full,

and which shall be true and correct except as otherwise set forth on the

Addendum attached hereto and incorporated herein by reference (the

"Addendum"):

 

        3.1. Existence, Power and Authority. The Borrower is duly organized,

validly existing and in good standing under the laws of the State of its

incorporation or organization and has the power and authority to own and

operate its assets and to conduct its business as now or proposed to be

carried on, and is duly qualified, licensed and in good standing to do

business in all jurisdictions where its ownership of property or the nature

of its business requires such qualification or licensing. The Borrower is

duly authorized to execute and deliver the Loan Documents, all necessary

action to authorize the execution and delivery of the Loan Documents has been

properly taken, and the Borrower is and will continue to be duly authorized

to borrow under this Agreement and to perform all of the other terms and

provisions of the Loan Documents.

 

        3.2. Financial Statements. Borrower has delivered or caused to be

delivered to the Bank its most recent balance sheet, income statement and

statement of cash flows (as applicable, the "Historical Financial

Statements"). The Historical Financial Statements are true, complete and

accurate in all material respects and fairly present the financial condition,

assets and liabilities, whether accrued, absolute, contingent or otherwise

and the results of the Borrower's operations for the period specified

therein. The Historical Financial Statements have been prepared in accordance

with generally accepted accounting principles ("GAAP") consistently applied

from period to period, subject in the case of interim statements to normal

year-end adjustments and to any comments and notes acceptable to the Bank in

its sole discretion.

 

        3.3. No Material Adverse Change. Since the date of the most recent

Financial Statements (as hereinafter defined), the Borrower has not suffered

any damage, destruction or loss, and no event or condition has occurred or

exists, which has resulted or could result in a material adverse change in

its business, assets, operations, condition (financial or otherwise) or

results of operation.

 

        3.4. Binding Obligations. The Borrower has full power and authority

to enter into the transactions provided for in this Agreement and has been

duly authorized to do so by appropriate action of its Board of Directors if

the Borrower is a corporation, all its general partners if the Borrower is a

partnership or otherwise as may be required by law, charter, other

organizational documents or agreements; and the Loan Documents, when executed

and delivered by the Borrower, will constitute the legal, valid and binding

obligations of the Borrower enforceable in accordance with their terms.

 

        3.5. No Defaults or Violations. There does not exist any Event of

Default under this Agreement or any default or violation by the Borrower of

or under any of the terms, conditions or obligations of: (i) its partnership

agreement if the Borrower is a partnership, its articles or certificate of

incorporation, regulations or bylaws if the Borrower is a corporation or its

other organizational documents as applicable; (ii) any indenture, mortgage,

deed of trust, franchise, permit, contract, agreement, or other instrument to

which it is a party or by which it is bound; or (iii) any law, ordinance,

regulation, ruling, order, injunction, decree, condition or other requirement

applicable to or imposed upon it by any law, the action of any court or any

governmental authority or agency; and the consummation of this Agreement and

the transactions set forth herein will not result in any such default or

violation or Event of Default.

 

        3.6. Title to Assets. The Borrower has good and marketable title to

the assets reflected on the most recent Financial Statements, free and clear

of all liens and encumbrances, except for (i) current taxes and assessments

not yet due and payable, (ii) assets disposed of by the Borrower in the

ordinary course of business since the date of the most recent Financial

Statements, and (iii) those liens or encumbrances, if any, specified on the

Addendum.

 

         3.7. Litigation. Except as listed on the Addendum, there are no

actions, suits, proceedings or governmental investigations pending or, to the

knowledge of the Borrower, threatened against the Borrower, which could

result in a material adverse change in its business, assets, operations,

condition (financial or otherwise) or results of operations and there is no

basis known to the Borrower for any action, suit, proceeding or investigation

which could result in such a material adverse change. All pending and

threatened litigation against the Borrower is listed on the Addendum.

 

        3.8. Tax Returns. The Borrower has filed all returns and reports that

are required to be filed by it in connection with any federal, state or local

tax, duty or charge levied, assessed or imposed upon it or its property or

withheld by it, including income, unemployment, social security and similar

taxes, and all of such taxes have been either paid or adequate reserve or

other provision has been made therefor.

 

      3.9. Employee Benefit Plans. Each employee benefit plan as to which the

Borrower may have any liability complies in all material respects with all

applicable provisions of the Employee Retirement Income Security Act of 1974

(as amended from time to time, "ERISA"), including minimum funding

requirements, and (i) no Prohibited Transaction (as defined under ERISA) has

occurred with respect to any such plan, (ii) no Reportable Event (as defined

under Section 4043 of ERISA) has occurred with respect to any such plan which

would cause the Pension Benefit Guaranty Corporation to institute proceedings

under Section 4042 of ERISA, (iii) the Borrower has not withdrawn from any

such plan or initiated steps to do so, and (iv) no steps have been taken to

terminate any such plan.

 

        3.10. Environmental Matters. The Borrower is in compliance, in all

material respects, with all Environmental Laws (as hereinafter defined),

including, without limitation, all Environmental Laws in jurisdictions in

which the Borrower owns or operates, or has owned or operated, a facility or

site, stores Collateral, arranges or has arranged for disposal or treatment

of hazardous substances, solid waste or other waste, accepts or has accepted

for transport any hazardous substances, solid waste or other wastes or holds

or has held any interest in real property or otherwise. Except as otherwise

disclosed on the Addendum, no litigation or proceeding arising under,

relating to or in connection with any Environmental Law is pending or, to the

best of the Borrower's knowledge, threatened against the Borrower, any real

property which the Borrower holds or has held an interest or any past or

present operation of the Borrower.   No release, threatened release or

disposal of hazardous waste, solid waste or other wastes is occurring, or to

the best of the Borrower's knowledge has occurred, on, under or to any real

property in which the Borrower holds or has held any interest or performs or

has performed any of its operations, in violation of any Environmental Law.

As used in this Section, "litigation or proceeding" means any demand, claim

notice, suit, suit in equity, action, administrative action, investigation or

inquiry whether brought by a governmental authority or other person, and

"Environmental Laws" means all provisions of laws, statutes, ordinances,

rules, regulations, permits, licenses, judgments, writs, injunctions,

decrees, orders, awards and standards promulgated by any governmental

authority concerning health, safety and protection of, or regulation of the

discharge of substances into, the environment.

 

        3.11. Intellectual Property. The Borrower owns or is licensed to use

all patents, patent rights, trademarks, trade names, service marks,

copyrights, intellectual property, technology, know-how and processes

necessary for the conduct of its business as currently conducted that are

material to the condition (financial or otherwise), business or operations of

the Borrower.

 

        3.12. Regulatory Matters. No part of the proceeds of the Loan will be

used for "purchasing" or "carrying" any "margin stock" within the respective

meanings of each of the quoted terms under Regulation U of the Board of

Governors of the Federal Reserve System as now and from time to time in

effect or for any purpose which violates the provisions of the Regulations of

such Board of Governors.

 

        3.13. Solvency. As of the date hereof and after giving effect to the

transactions contemplated by the Loan Documents, (i) the aggregate value of

the Borrower's assets will exceed its liabilities (including contingent,

subordinated, unmatured and unliquidated liabilities), (ii) the Borrower will

have sufficient cash flow to enable it to pay its debts as they become due,

and (iii) the Borrower will not have unreasonably small capital for the

business in which it is engaged.

 

        3.14. Disclosure. None of the Loan Documents contains or will contain

any untrue statement of material fact or omits or will omit to state a

material fact necessary in order to make the statements contained in this

Agreement or the Loan Documents not misleading. There is no fact known to the

Borrower which materially adversely affects or, so far as the Borrower can

now foresee, might materially adversely affect the business, assets,

operations, condition (financial or otherwise) or results of operation of the

Borrower and which has not otherwise been fully set forth in this Agreement

or in the Loan Documents.

 

     4. Affirmative Covenants. The Borrower agrees that from the date of

execution of this Agreement until all Obligations have been paid in full and

any commitments of the Bank to the Borrower have been terminated, the

Borrower will:

 

        4.1. Books and Records. Maintain books and records in accordance with

GAAP and give representatives of the Bank access thereto at all reasonable

times, including permission to examine, copy and make abstracts from any of

such books and records and such other information as the Bank may from time

to time reasonably request, and the Borrower will make available to the Bank

for examination copies of any reports, statements and returns which the

Borrower may make to or file with any federal, state or local governmental

department, bureau or agency.

 

        4.2. Interim Financial Statements; Certificate of No Default. Furnish

the Bank within forty five (45) days after the end of each quarter the

Borrower's Financial Statements for such period, in reasonable detail,

certified by an authorized officer of the Borrower and prepared in accordance

with GAAP consistently applied from period to period. The Borrower shall also

deliver a certificate as to its compliance with applicable financial

covenants (containing detailed calculations of all financial covenants) for

the period then ended and whether any Event of Default exists, and, if so,

the nature thereof and the corrective measures the Borrower proposes to take.

As used in this Agreement, "Financial Statements" means the Borrower's

consolidated and, if required by the Bank in its sole discretion,

consolidating balance sheets, income statements and statements of cash flows

for the year, month or quarter together with year-to-date figures and

comparative figures for the corresponding periods of the prior year.

 

        4.3. Annual Financial Statements. Furnish the Borrower's Financial

Statements to the Bank within ninety (90) days after the end of each fiscal

year. Those Financial Statements will be prepared on a audited basis in

accordance with GAAP by an independent certified public accountant selected

by the Borrower and satisfactory to the Bank. Audited Financial Statements

shall contain the unqualified opinion of an independent certified public

accountant and all accountant examinations shall have been made in accordance

with GAAP consistently applied from period to period. The Borrower shall also

deliver a certificate as to its compliance with applicable financial

covenants (containing detailed calculations of all financial covenants) for

the period then ended and whether any Event of Default exists, and, if so,

the nature thereof and the corrective measures the Borrower proposes to take

 

        4.4. Payment of Taxes and Other Charges. Pay and discharge when due

all indebtedness and all taxes, assessments, charges, levies and other

liabilities imposed upon the Borrower, its income, profits, property or

business, except those which currently are being contested in good faith by

appropriate proceedings and for which the Borrower shall have set aside

adequate reserves or made other adequate provision with respect thereto

acceptable to the Bank in its sole discretion.

 

        4.5. Maintenance of Existence, Operation and Assets. Do all things

necessary to (i) maintain, renew and keep in full force and effect its

organizational existence and all rights, permits and franchises necessary to

enable it to continue its business as currently conducted; (ii) continue in

operation in substantially the same manner as at present; (iii) keep its

properties in good operating condition and repair; and (iv) make all

necessary and proper repairs, renewals, replacements, additions and

improvements thereto.

 

        4.6. Insurance. Maintain, with financially sound and reputable

insurers, insurance with respect to its property and business against such

casualties and contingencies, of such types and in such amounts, as is

customary for established companies engaged in the same or similar business

and similarly situated. In the event of a conflict between the provisions of

this Section and the terms of any Security Documents relating to insurance,

the provisions in the Security Documents will control.

 

        4.7. Compliance with Laws. Comply with all laws applicable to the

Borrower and to the operation of its business (including without limitation

any statute, ordinance, rule or regulation relating to employment practices,

pension benefits or environmental, occupational and health standards and

controls).

 

        4.8. Bank Accounts. Establish and maintain at the Bank (i) the

Borrower's primary depository accounts, and (ii) all treasury management and

foreign exchange services.

 

        4.9. Financial Covenants. Comply with all of the financial and other

covenants, if any, set forth on the Addendum.

 

        4.10. Additional Reports. Provide prompt written notice to the Bank

of the occurrence of any of the following (together with a description of the

action which the Borrower proposes to take with respect thereto): (i) any

Event of Default or any event, act or condition which, with the passage of

time or the giving of notice, or both, would constitute an Event of Default

(a "Default"), (ii) any litigation filed by or against the Borrower, (iii)

any Reportable Event or Prohibited Transaction with respect to any Employee

Benefit Plan(s) (as defined in ERISA) or (iv) any event which might result in

a material adverse change in the business, assets, operations, condition

(financial or otherwise) or results of operation of the Borrower.

 

     5. Negative Covenants. The Borrower covenants and agrees that from the

date of this Agreement until all Obligations have been paid in full and any

commitments of the Bank to the Borrower have been terminated, except as set

forth in the Addendum, the Borrower will not, without the Bank's prior

written consent:

 

        5.1. Indebtedness. Create, incur, assume or suffer to exist any

indebtedness for borrowed money other than: (i) the Loan and any subsequent

indebtedness to the Bank; and (ii) open account trade debt incurred in the

ordinary course of business and not past due; (iii) indebtedness in respect

of purchase money financings of personal property in an aggregate amount not

to exceed Five Hundred Thousand Dollars ($500,000.00) at any time; and (iv)

indebtedness that is expressly subordinated to the Borrower's indebtedness to

the Bank, on terms and conditions that are satisfactory of the Bank pursuant

to any subordination agreement required in connection with this Agreement.

 

         5.2. Liens and Encumbrances. Except as provided in Section 3.6,

create, assume, incur or permit to exist any mortgage, pledge, encumbrance,

security interest, lien or charge of any kind upon any of its property, now

owned or hereafter acquired, or acquire or agree to acquire any kind of

property subject to any conditional sales or other title retention agreement,

except liens securing purchase money indebtedness permitted pursuant to

Section 5.1 above.

 

        5.3. Guarantees. Guarantee, endorse or become contingently liable for

the obligations of any person, firm, corporation or other entity, except in

connection with the endorsement and deposit of checks in the ordinary course

of business for collection.

 

        5.4. Loans or Advances. Purchase or hold beneficially any stock,

other securities or evidences of indebtedness of, or make or have

outstanding, any loans or advances to, or otherwise extend credit to, or make

any investment or acquire any interest whatsoever in, any other person, firm,

corporation or other entity, except investments disclosed on the Borrower's

Historical Financial Statements or acceptable to the Bank in its sole

discretion.

 

        5.5. Merger or Transfer of Assets. Liquidate or dissolve, or merge or

consolidate with or into any person, firm, corporation or other entity, or

sell, lease, transfer or otherwise dispose of all or any substantial part of

its property, assets, operations or business, whether now owned or hereafter

acquired.

 

        5.6. Change in Business. Make or permit any change in its form of

organization, or the nature of its business as carried on as of the date

hereof.

 

        5.7. Dividends. Declare or pay any dividends on or make any

distribution with respect to any class of its equity or ownership interest,

or purchase, redeem, retire or otherwise acquire any of its equity; provided,

however, that so long as no Event of Default has occurred and is continuing,

Borrower shall be permitted to redeem any common or preferred stock or

options of Borrower