EXHIBIT 10.16
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POINTSHARE CORPORATION
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
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Page
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1. DEFINITIONS AND CONSTRUCTION............................. 1
1.1 Definitions......................................... 1
1.2 Accounting Terms.................................... 8
2. LOAN AND TERMS OF PAYMENT................................ 8
2.1 Credit Extensions................................... 8
2.2 Overadvances........................................ 9
2.3 Interest Rates, Payments, and Calculations.......... 9
2.4 Crediting Payments.................................. 10
2.5 Fees................................................ 10
2.6 Term................................................ 10
3. CONDITIONS OF LOANS...................................... 10
3.1 Conditions Precedent to Initial Credit Extension.... 10
3.2 Conditions Precedent to all Credit Extensions....... 11
4. CREATION OF SECURITY INTEREST............................ 11
4.1 Grant of Security Interest.......................... 11
4.2 Delivery of Additional Documentation Required....... 11
4.3 Right to Inspect.................................... 11
5. REPRESENTATIONS AND WARRANTIES........................... 12
5.1 Due Organization and Qualification.................. 12
5.2 Due Authorization; No Conflict...................... 12
5.3 No Prior Encumbrances............................... 12
5.4 Bona Fide Eligible Accounts......................... 12
5.5 Merchantable Inventory.............................. 12
5.6 Name; Location of Chief Executive Office............ 12
5.7 Litigation.......................................... 12
5.8 No Material Adverse Change in Financial Statements.. 12
5.9 Solvency, Payment of Debts.......................... 12
5.10 Regulatory Compliance............................... 13
5.11 Environmental Condition............................. 13
5.12 Taxes............................................... 13
5.13 Subsidiaries........................................ 13
5.14 Government Consents................................. 13
5.15 Full Disclosure..................................... 13
6. AFFIRMATIVE COVENANTS.................................... 13
6.1 Good Standing....................................... 14
6.2 Government Compliance............................... 14
6.3 Financial Statements, Reports, Certificates......... 14
6.4 Inventory; Returns.................................. 14
6.5 Taxes............................................... 14
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TABLE OF CONTENTS
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(continued)
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6.6 Insurance..................................... 15
6.7 Principal Depository.......................... 15
6.8 Adjusted Quick Ratio.......................... 15
6.9 Profitability................................. 15
6.10 Liquidity; Debt Service Coverage.............. 15
6.11 Registration of Intellectual Property Rights.. 16
6.11 Further Assurances............................ 16
7. NEGATIVE COVENANTS................................. 16
7.1 Dispositions.................................. 16
7.2 Change in Business............................ 17
7.3 Mergers or Acquisitions....................... 17
7.4 Indebtedness.................................. 17
7.5 Encumbrances.................................. 17
7.6 Distributions................................. 17
7.7 Investments................................... 17
7.8 Transitions with Affiliates................... 17
7.9 Subordinated Debt............................. 17
7.10 Inventory..................................... 17
7.11 Compliance.................................... 17
8. EVENTS OF DEFAULT.................................. 18
8.1 Payment Default............................... 18
8.2 Covenant Default.............................. 18
8.3 Material Adverse Change....................... 18
8.4 Attachment.................................... 18
8.5 Insolvency.................................... 18
8.6 Other Agreements.............................. 19
8.7 Subordinated Debt............................. 19
8.8 Judgments..................................... 19
8.9 Misrepresentations............................ 19
9. BANK'S RIGHTS AND REMEDIES......................... 19
9.1 Rights and Remedies........................... 19
9.2 Power of Attorney............................. 20
9.3 Accounts Collection........................... 20
9.4 Bank Expenses................................. 20
9.5 Bank's Liability for Collateral............... 21
9.6 Remedies Cumulative........................... 21
9.7 Demand; Protest............................... 21
10. NOTICES............................................ 21
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER......... 22
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TABLE OF CONTENTS
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(continued)
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12. GENERAL PROVISIONS.................................. 22
12.1 Successors and Assigns........................ 22
12.2 Indemnification............................... 22
12.3 Time of Essence............................... 23
12.4 Severability of Provisions.................... 23
12.5 Amendment in Writing, Integration............. 23
12.6 Counterparts.................................. 23
12.7 Survival...................................... 23
13. JUDICIAL REFERENCE.................................. 23
14. CONFIDENTIALITY..................................... 24
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This LOAN AND SECURITY AGREEMENT is entered into as of July 15, 1998, by
and between IMPERIAL BANK ("Bank") and POINTSHARE CORPORATION ("Borrower").
RECITALS
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Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
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1.1 Definitions. As used in this Agreement, the following terms
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shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance under the Revolving
Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to seventy-five percent
(75%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
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"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California or Washington are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
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hereto.
"Committed Revolving Line" means a credit extension of up to Two
Hundred Thousand Fifty Thousand Dollars ($250,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Term Advance, or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
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"Debt Service Coverage" means, as of any date of determination, a
ratio of (a) the sum of (i) earnings after tax annualized for the preceding
three (3) months plus interest and non-cash (i.e., depreciation and
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amortization) expenses, annualized for the preceding three months to (b) the sum
of (i) current portion of long term debt and capitalized leases plus (ii)
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interest expense, annualized for the preceding three months.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
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eligibility may be fixed and revised from time to time by Bank as a consequence
of any Collateral audits done pursuant to Section 6.3 in Bank's reasonable
judgment and upon notification thereof to Borrower in accordance with the
provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall
not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, twenty-five percent
(25%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower,
(d) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, xxxx and hold, or other terms
by reason of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower,
(f) Accounts with respect to which the account debtor does not have
its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the United
States or any department, agency, or instrumentality of the United States;
(h) Accounts with respect to which Borrower is liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower,
but only to the extent of any amounts owing to the account debtor against
amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligation to Borrower exceed twenty,
five percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
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"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit in an amount
and of a tenor, and issued by a financial institution, acceptable to Bank or
(ii) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to xxx for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
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(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
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"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness secured by a lien described in clause (c) of
the defined term "Permitted Liens," provided such Indebtedness does not exceed
the lesser of the cost or fair market value of the equipment financed with such
Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(f) Indebtedness (other than (a) through (e)) at any time
outstanding in an amount not exceeding $100,000.
"Permitted Investment" means;
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having rating of at least A-2 or P-2 from either Standard
& Poor's Corporation or Xxxxx'x Investors Service, Inc., (iii) certificates of
deposit maturing no more than one (1) year from the date of investment therein
issued by Bank, (iv) Bank's money market accounts and (v) Investments made in
connection with transactions permitted under Section 7.3; and
(c) Loans to employees to purchase Borrower's capital stock.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
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security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
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acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that
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any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof shall
be determined, the consolidated cash, cash-equivalents, accounts receivable and
investments, with maturities not to exceed 90 days, of Borrower determined in
accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
Chief Operating Officer, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Maturity Date" means July 14, 1999.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue Advances, as specified in Section 2.1.1 hereof.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, be owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof
shall be determined, the sum of the capital stock and additional paid-in capital
plus retained earnings (or minus accumulated deficit) of Borrower and its
Subsidiaries minus intangible assets, plus Subordinated Debt, on a consolidated
basis determined in accordance with GAAP.
"Term Maturity Date" means July 14, 2002.
"Total Liabilities" means at any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
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1.2. Accounting Terms. All accounting terms not specifically defined
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herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
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2.1 Credit Extensions.
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Borrower promises to pay to the order of Bank, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.
2.1.1 Revolving Advances.
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(a) Subject to and upon the terms and conditions of this
Agreement, Borrower may request Advances in an aggregate outstanding amount not
to exceed the lesser of (i) the Committed Revolving Line or (ii) the Borrowing
Base. Subject to the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1.1 may be repaid and reborrowed at any time prior to
the Revolving Maturity Date, at which time all Advances under this Section 2.1.1
shall be immediately due and payable. Borrower may prepay any Advances without
penalty or premium.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific
time, on the Business Day that the Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
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based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1.1 to Borrower's deposit account.
2.1.2 Term Advances.
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(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through July 14, 1999, Bank agrees
to make advances (each a "Term Advance" and, collectively, the "Term Advances")
to Borrower in an aggregate outstanding amount not to exceed $1,500,000. The
initial Term Advance shall be in an amount up to $500,000 and shall be used to
repay in full the obligations that Borrower owes Bank under the Starter Kit Loan
and Security Agreement dated September 22, 1997. In addition, Borrower may
request up to $500,000 of Term Advances on a non-formula basis for general
corporate purposes. Borrower may also requests up to $500,000 of Term Advances
to finance the purchase or acquisition of Equipment. Each Term Advance financing
Equipment shall not exceed one hundred percent (100%) of the invoice amount of
Equipment approved by Bank from time to time, excluding taxes, shipping,
warranty charges, freight discounts and installation expense.
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(b) Interest shall accrue from the date of each Term Advance at the
rate specified in Section 2.3(a), and shall be payable monthly on the first day
of each month through July 14, 1999. Any Term Advances that are outstanding on
July 14, 1999 shall be payable in thirty-six (36) equal monthly installments of
principal, plus all accrued interest, beginning on August 1, 1999, and
continuing on the same day of each month thereafter through July 14, 2002, at
which time all amounts due under this Section 2.1.2 and any other amounts due
under this Agreement shall be immediately due and payable. Borrower may prepay
any Term Advances without penalty or premium.
(c) When Borrower desires to obtain a Term Advance, Borrower shall
notify Bank (which notice shall be irrevocable) by facsimile transmission to be
received no later than 3:00 p.m. Pacific time one (1) Business Day before the
day on which the Term Advance is to be made. Such notice shall be substantially
in the form of Exhibit B. The notice shall be signed by a Responsible Officer or
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its designee and, as to any Term Advance financing Equipment, shall include a
copy of the invoice for such Equipment.
2.2 Overadvances. If any Advances hereunder exceed the lesser of the
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Borrowing Base or the Committed Revolving Line, Borrower, upon written notice
from Bank, shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
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(a) Interest Rates.
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(i) Advances. Except as set forth in Section 2.3(b), the
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Advances shall bear interest, on the outstanding daily balance thereof, at a
rate equal to One Percent (1.0%) above the Prime Rate.
(ii) Term Advances. Except as set forth in Section 2.3(b), the
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Term Advances shall bear interest, on the outstanding daily balance thereof, at
a rate equal to One and One Half Percent (1.5%) above the Prime Rate.
(b) Late Fee; Default Rate. If any payment is not made within ten
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(10) days after the date such payment is due, Borrower shall pay Bank a late fee
equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount
or (ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
an Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
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first calendar day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Revolving
Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. Bank shall deliver to Borrower
statements of account in the ordinary course of business reflecting charges made
hereunder.
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(d) Computation. In the event the Prime Rate is changed from time to
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time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
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Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon Pacific time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.
2.5 Fees. Borrower shall pay to Bank the following:
----
(a) Facility Fee. On the Closing Date, a Facility Fee equal to
------------
$5,000, which shall be nonrefundable;
(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred
-------------
through the Closing Date, including reasonable attorneys' fees and expenses and,
after the Closing Date, all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
2.6 Term. This Assignment shall become effective on the Closing Date
----
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Term Maturity Date. Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS.
-------------------
3.1 Conditions Precedent to Initial Credit Extension. The obligation
------------------------------------------------
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
10
(e) an audit of the Collateral, the results of which shall be
satisfactory to Bank; and
(f) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
---------------------------------------------
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension
(provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date). The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST.
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule and for Permitted Liens, such security interest constitutes a valid,
first priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours but no more than once a year (unless an
Event of Default has occurred and is continuing), to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
11
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
----------------------------------
is a corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified, except
where failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The services giving rise to such Eligible Accounts have
been performed and the account debtor has an unconditional obligation to pay
Borrower for such services. Borrower has not received notice of actual or
imminent Insolvency Proceeding of any account debtor that is included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects
----------------------
of good and marketable quality, free from all material defects, except for
Inventory for which adequate reserves have been made.
5.6 Name; Location of Chief Executive Office. Except for
----------------------------------------
"Healthknowledge Corporation" and as disclosed in the Schedule, Borrower has not
done business under any name other than that specified on the signature page
hereof. The chief executive office of Borrower is located at the address
indicated in Section 10 hereof.
5.7 Litigation. Except as forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral.
5.8 No Material Averse Change in Financial Statements. All
-------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
are delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency, Payment of Debts. Borrower is solvent and able to pay
--------------------------
its debts (including trade debts) as they mature.
12
5.10 Regulatory Compliance. Borrower and each Subsidiary have met
---------------------
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. Except as disclosed in the Schedule,
-----------------------
none of Borrower's or any Subsidiary's properties or assets has ever been used
by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law; to the best of Borrower's knowledge,
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; to the best of Borrower's knowledge, no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and to the best of Borrower's knowledge, neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted, the
failure to obtain which could have a Material Adverse Effect.
5.15 Full Disclosure. No representation, warranty or other
---------------
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS.
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
13
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a Material Adverse Effect. Borrower shall maintain, and shall cause
each of its Subsidiaries to maintain in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each calendar month, a Borrower prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during such period, in a form and certified by a Responsible Officer; (b) as
soon as available, but in any event within ninety (90) days after the end of
Borrower's fiscal year (beginning with the year ended December 31, 1998),
audited consolidated Financial statements of Borrower prepared in accordance
with GAAP, consistently applied; (c) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of Fifty Thousand Dollars ($50,000) or more; and (d) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time generally prepared by Borrower in the
ordinary course of business.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
---------
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
---------
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts and appraise Collateral at Borrower's expense, provided that such
audits will be conducted no more often than every twelve (12) months unless an
Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
------------------
and marketable condition, free from all material defects except for Inventory
for which adequate reserves have been made. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable
14
laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon
request, furnish Bank with proof satisfactory to Bank indicating that Borrower
or a Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is contested in good faith, by appropriate proceedings and is reserved against
(to the extent required by GAAP) by Borrower.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss damage by fire, theft, explosion, sprinklers, and all other hazards
and risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premium therefor. All proceeds
over $50,000 payable under any such policy shall, at the option of Bank, be
payable to Bank to be applied in account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal depository
--------------------
and operating accounts with Bank.
6.8 Adjusted Quick Ratio. Beginning as of November 30, 1998, Borrower
--------------------
shall maintain, as of the last day of each calendar month, a ratio of Quick
Assets to Current Liabilities, less deferred revenue and the current portion of
Subordinated Debt, of at least 1.50 to 1.00.
6.9 Profitability. Borrower shall not suffer a loss for the fiscal quarter
-------------
ended June 30, 1998 in excess of $1,600,000, a loss in excess of $1,300,000 for
the fiscal quarter ended September 30, 1998, or a loss in excess of $1,000,000
for the fiscal quarter ended December 31, 1998.
6.10 Liquidity; Debt Service Coverage. Beginning as of November 30, 1998,
--------------------------------
Borrower shall maintain a balance of unrestricted cash and cash equivalents plus
the Borrowing Base minus the outstanding Advances that is one and one half (1.5)
times such balance. Notwithstanding the foregoing, after Borrower has maintained
a Debt Service Coverage of at least 1.50 to 1.00 for six consecutive months,
Borrower thereafter shall maintain such Debt Service Coverage of at least 1.50
to 1.00 as of the last day of each month in lieu of the liquidity covenant set
forth in the first sentence of this section 6.10.
6.11 Equity Infusion. On or before November 30, 1998, Borrower shall
---------------
receive no less than Five Million Dollars ($5,000,000) in cash proceeds from
institutional venture capital investors acceptable to Bank from the sale of its
Series B capital stock.
15
6.11 Registration of Intellectual Property Rights.
--------------------------------------------
(a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable, those intellectual property rights listed on Exhibits A, B and C to
the Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement within thirty (30) days of the date of this
Agreement. Borrower shall register or cause to be registered with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to any third party, including without limitation
major revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use
its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any material Trademarks, Patents or Copyrights to
be abandoned, forfeited or dedicated to the public without the written consent
of Bank, which shall not be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual Property Collateral
to confirm compliance with this Section, provided such audit may not occur more
often than once per year, unless an Event of Default has occurred and is
continuing. Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section.
6.12 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
------------------
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Credit
Extensions, Borrower will not do any of the following without Bank's prior
written consent, which Bank may grant or withhold in its sole discretion:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of surplus, worn-out or obsolete Equipment.
16
7.2 Change in Business. Engage in any business, or permit any of its
------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto). Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person in any
transaction involving consideration of more than $100,000; provided, however,
that Borrower or any Subsidiary may merge, consolidate or reorganize with or
into another entity as long as Borrower or such Subsidiary is the surviving
corporation and an Event of Default does not exist before or after giving effect
to such transaction.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock, except that Borrower may repurchase the stock of former employees,
officers, directors or consultants pursuant to stock repurchase agreements as
long as an Event of Default does not exist or would not exist after giving
effect to such repurchase.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory; provided, however, that Borrower may deposit software
code in escrow for customers in the ordinary course of business. Except for
Inventory sold in the ordinary course of business and except for such other
locations as Bank may approve in writing, Borrower shall keep the Inventory only
at the location set forth in Section 10 hereof and such other locations of which
Borrower gives Bank prior written notice and as to which Borrower signs and
files a financing statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or be controlled by
----------
an "investment company," within the meaning of the Investment Company Act of
1940, or become
17
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Credit Extension for such purpose. Fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT.
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
---------------
Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future written
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within thirty (30) days after Borrower receives written notice
thereof or any officer of Borrower becomes aware thereof; provided, however,
that if the default cannot by its nature be cured within the thirty (30) day
period or cannot after diligent attempts by Borrower be cured within such thirty
(30) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed forty-five (45) days) to attempt to cure such default, and
within such reasonable time period the failure to have cured such default shall
not be deemed an Event of Default (provided that no Credit Extensions will be
required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a Material Adverse
-----------------------
Effect;
8.4 Attachment. If any material portion of the Collateral is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within twenty (20) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of the
Collateral, or if a notice of lien, levy, or assessment is filed of record with
respect to any of the Collateral by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within twenty (20)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
18
8.6 Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank or otherwise consented to in
writing by Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES.
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time
owing to or for the credit or the account of Borrower held by Bank;
19
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
-----------------
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
xxxx of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all
claims under and decisions with respect to Borrower's policies of insurance; and
(f) settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; provided Bank may exercise such power of attorney to sign the name
of Borrower on any of the documents described in Section 4.2 regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 Accounts Collection. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following
after reasonable notice to Borrower: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Facility as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type discussed in Section 6.6 of
this Agreement, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses,
20
shall be immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by Bank shall not constitute an agreement by Bank to make
similar payments in the future or a waiver by Bank of any Event of Default under
this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES.
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Pointshare Corporation
0000 000xx Xxx. XX, Xxxxx 000
Xxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxx
FAX: (000) 000-0000
with a copy to: Xxxxx Xxxxxxxx
Venture Law Group
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
FAX: (000) 000-0000
21
If to Bank: Imperial Bank
000 Xxxxxxx Xxxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Corporate Banking Center
FAX: (000) 000-0000
with a copy to: Imperial Bank
000 000xx Xxxxxx XX, Xxxxx 0000
Xxxxxxxx, XX 00000
Attn: J. P. Michael
FAX: (000) 000-0000
Any notice received by Borrower shall be effective notwithstanding the lack
of receipt by Borrower's counsel. The parties hereto may change the address at
which they are to receive notices hereunder, by notice in writing in the
foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER.
------------------------------------------
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the nonexclusive
jurisdiction of the state and Federal courts located in the County of Santa
Xxxxx, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO a JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS.
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
22
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
13. JUDICIAL REFERENCE.
------------------
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
----------
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
------
section ("CCP"), which shall constitute the exclusive remedy for the settlement
---
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Xxxxx County if none (the "Court"). The referee shall be a
-----
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP (S)170.6.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the date of selection of the referee and (b) try any and all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall be entered pursuant CCP
(S)644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at
23
any time after thirty (30) days following notice to any other party of the
nature of the controversy, dispute or claim, by filing a petition for a hearing
and/or trial, All discovery permitted by this Agreement shall be completed no
later than fifteen (15) days before the first hearing date established by the
referee. The referee may extend such period in the event of a party's refusal to
provide requested discovery or unavailability of a witness due to absence or
illness. No party shall be entitled to "priority" in conducting discovery.
Dispositions may be taken by either party upon seven (7) days written notice,
and request for production or inspection of documents which cannot be resolved
by the parties shall be submitted to the referee as provided herein. The
Superior Court is empowered to issue temporary and/or provisions remedies, as
appropriate.
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a difficult
judgment, which new trial, if granted, is also to be a reference proceeding
under this provisions.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, (S)1280 through (S)1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.
14. CONFIDENTIALLY.
--------------
In handling any confidential information Bank shall exercise the same
degree of care that it exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Agreement except that disclosure
of such information may be made (i) to the Subsidiaries or Affiliates of Bank in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Advances or
Term Advances, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order,
24
(iv) as may be required in connection with the examination, audit or similar
investigation of Bank and (v) as Bank may determine in connection with the
enforcement of any remedies hereunder. Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, as evidenced by Bank's
records in existence at the time of such disclosure, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information and
provided such disclosure is not otherwise in violation of Borrower's rights.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
POINTSHARE CORPORATION
By: /s/ X. Xxxxxxxxx
--------------------------------
Title: CEO
-----------------------------
IMPERIAL BANK:
By: /s/ J.P. Michael
--------------------------------
Title: AVP
-----------------------------
25
EXHIBIT A
---------
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(i) all accounts receivable, accounts, chattel paper, contract
rights (including, without limitation, royalty agreements, license agreements
and distribution agreements), documents, instruments, money, deposit accounts
and general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(ii) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Bank (herein referred to as
"Bank" or "Secured Party") to xxx in its own name and/or the name of the Debtor
for past, present and future infringements of copyright;
(iii) all goods, including, without limitation, equipment and
inventory (including, without limitation, all export inventory);
(iv) all guarantees and other security therefor;
(v) all trademarks, service marks, trade names and service names and
the goodwill associated therewith;
(vi) (a) all patents and patent applications filed in the United
States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein, (b)
licenses pertaining to any patent whether Debtor is licensor or licensee, (c)
all income, royalties, damages, payments, accounts, and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (d) the right (but not the obligation) to xxx for past,
present and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (f) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part with any of the foregoing (all of the
foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometimes herein individually and collectively referred to as the
"Patents"); and
(vii) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
26
