EXHIBIT 10.14
LOAN AND SECURITY AGREEMENT
$7,000,000 WORKING CAPITAL LINE
($1,000,000 EQUIPMENT LINE SUBLIMIT)
PROVIDED BY
SILICON VALLEY BANK
TO
MATRIXONE, INC.
DECEMBER 29, 1998
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This LOAN AND SECURITY AGREEMENT is entered into as of December 29, 1998,
by and between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, XX 00000 and with
a loan production office located at Wellesley Office Park, 00 Xxxxxxx Xxxxxx,
Xxxxx 000, Xxxxxxxxx, XX 00000, doing business under the name Silicon Valley
East ("Bank"), and MATRIXONE, INC., a Delaware corporation with its principal
place of business at Xxx Xxxxxxxxx Xxxxx, Xxxxxxxxxx, XX 00000 ("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, but not including that portion of the Accounts that relates to sales,
use or property taxes.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"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, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Person's managers and members.
"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;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
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"Borrowers Books" means all of Borrowers books and records including,
without limitation: 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 EIGHTY percent (80%) of
Eligible Accounts as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code as the same may
be amended from time to time.
"Collateral' means the property described on Exhibit A attached
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hereto.
"Committed Revolving Line" means a credit extension of up to SEVEN
MILLION AND NO/100THS Dollars ($7,000,000).
"Committed Equipment Sublimit" means a credit extension of up to ONE
MILLION AND NO/100THS Dollars ($1,000,000).
"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
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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, Equipment 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 its 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,
including all Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than one
year from the date of determination, plus to the extent not already included
therein, all outstanding Credit Extensions made under this Agreement, but
excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrowers representations
and warranties to Bank set forth in Section 5.4. Unless otherwise agreed to by
Bank in writing, 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, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date, except as approved in writing by Bank;
(c) Accounts with respect to an account debtor, including Affiliates,
whose total obligations 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 and except for Accounts covered by
insurance complying with Section 6.6(b);
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States and Canada except for
Eligible Foreign Accounts;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof,
(f) Accounts with respect to which Borrower is liable to the account
debtor, but only to the extent of any amounts owing to the account debtor
(sometimes referred to as "contra" accounts, e.g. accounts payable, customer
deposits, credit accounts etc.);
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(g) Accounts generated by demonstration or promotional equipment, or
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;
(h) Accounts with respect to which the account debtor is an Affiliate,
officer, employee, or agent of Borrower;
(i) 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
(j) Accounts the collection of which Bank reasonably determines, in
accordance with its standard commercial practices, to be doubtful.
"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 Canada and that are: (1) covered by credit insurance in form and
amount, and by an insurer satisfactory to Bank less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by one or
more letters of credit either advised or negotiated through Bank or in favor of
Bank as beneficiary, in an amount and of a tenor, and issued by a financial
institution, acceptable to Bank; or (3) 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.
"Equipment Advance" has the meaning set forth in Section 2.1.2.
"Equipment Availability End Date" has the meaning set forth in Section
2.1.2.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States 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
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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 Assets" means:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(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, Trademarks, or Mask Works, 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, Patents, or Mask Works; and
(g) All Borrower's Books relating to the foregoing and any and 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.
"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.
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"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 present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired;
"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.
"Maturity Date" means June 1, 2002.
"Negotiable Collateral" means all of Borrowers present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"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, including without
limitation the patents and patent applications.
"Payment Date" means the first calendar day of each month commencing
on the first such date after the Closing Date.
"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) Subordinated Debt;
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(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens
(f) Other Indebtedness not exceeding FIVE HUNDRED THOUSAND AND
NO/100THS Dollars ($500,000) in the aggregate outstanding at any time.
"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 the highest rating obtainable from either Standard
& Poors Corporation or Xxxxx'x Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank; and
(c) Investments in wholly owned subsidiaries of Borrower formed after
the Closing Date of up to no more than $750,000 per subsidiary and $1,250,000 in
the aggregate.
"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 and as to which adequate reserves are maintained on Borrowers Books
in accordance with GAAP, 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 on Equipment leased by Borrower or any Subsidiary pursuant
to an operating lease in the ordinary course of business (including proceeds
thereof and accessions thereto) incurred solely for the purpose of financing the
lease of such Equipment (including Liens pursuant to leases permitted pursuant
to Section 7.1 and Liens arising from UCC financing statements regarding leases
permitted by this Agreement);
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (d) above, provided that any extension, renewal or
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replacement Lien shall be limited to the property
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encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase;
(f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8; and
(g) Easements, reservations, rights of way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect.
"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 of interest available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means December 28, 1999.
"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 acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, a corporation,
partnership, company, association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth' means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
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the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
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"Total Liabilities" means as of any applicable date, 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,
but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and service xxxx 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.
1.2 Accounting and Other Terms. All accounting terms not
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specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/"includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
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2.1 Credit Extensions. Borrower promises to pay to the order of
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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, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the principal amount of outstanding Equipment
Advances. 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
during the term of this Agreement.
(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
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under this Agreement, 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.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2. 1.1
and other
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amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable
2.1.2 Equipment 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 June 29, 1999 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Equipment Advance" and collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the lesser of (i) the Committed
Equipment Sublimit or (ii) the Borrowing Base minus the principal amount of
outstanding Advances. To evidence the Equipment Advance or Equipment Advances,
Borrower shall deliver to Bank, at the time of each Equipment Advance request,
an invoice for the equipment to be purchased or financed. The Equipment Advances
shall not be used to purchase or finance Equipment purchased more than ninety
(90) days prior to the Equipment Advance request, except with respect to the
first Equipment Advance request, which request may include Equipment purchased
after May 31, 1998. Equipment Advances shall not exceed ONE HUNDRED
Percent(100%)of the invoice amount of such equipment approved from time to time
by Bank, excluding taxes, shipping, warranty charges, freight discounts and
installation expense.
(b) Interest shall accrue from the date of each Equipment
Advance, on the average daily balance thereof, at a per annum rate equal to ONE
(1.0) percentage point above the Prime Rate and shall be payable monthly in
arrears for each month through the month in which the Equipment Availability End
Date falls. Any Equipment Advances that are outstanding on the Equipment
Availability End Date will be payable in THIRTY SIX (36) equal monthly
installments of principal, plus all accrued interest, on the Payment Date of
each month beginning JULY 1, 1999 and ending on the Maturity Date. Borrower may
repay or prepay Equipment Advances together with all interest, fees and
expenses, at any time or from time to time, in whole or in part, prior to the
Maturity Date, without any fee or penalty. Equipment Advances, once repaid, may
not be reborrowed.
(c) When Borrower desires to obtain an Equipment 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 Equipment 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 its designee and include a copy of the
invoice(s) for the Equipment to be financed.
2.2 Over-advances. If, at any time or for any reason, the amount of
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Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
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2.3 Interest Rates, Payments, and Calculations.
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(a) Interest Rate. Except as set forth in Section 2.3(b), any
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Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to ONE HALF (0.50) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
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after the occurrence of an Event of Default, at a rate equal to four (4)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
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each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number 700442770 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. 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.
(d) Computation. In the event the Prime Rate is changed from
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time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on 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. Under no
circumstances will the interest charged pursuant to this Agreement exceed the
maximum rate permitted by law.
2.4 Crediting Payments. Prior to the occurrence of an Event of
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Default, 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, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations 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.
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2.5 Fees. Borrower shall pay to Bank the following:
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(a) Facility Fee. A Facility Fee equal to FIFTEEN THOUSAND AND
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NO/100THS Dollars ($15,000), which fee shall be due on the Closing Date and
shall be fully earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
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fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts
pursuant to Section 6.3(ii) of this Agreement, and for each appraisal of
Collateral and financial analysis and examination of Borrower performed from
time to time by Bank or its agents:
(c) Bank Expenses. Upon demand from Bank, including, without
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limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or
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official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
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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 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.
-14-
Notwithstanding termination of this Agreement, 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 duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with respect to
charter, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1 or UCC-3);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(f) Certificate of Foreign Qualification (if applicable); and
(g) 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. 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), unless such Credit Extension is
effected without instructions from Borrower.
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 payment of any and all
Obligations and in order to secure prompt
-15-
performance by Borrower of each of its covenants and duties under the Loan
Documents. Except as set forth in the Schedule, 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. Borrower acknowledges that Bank may
place a "hold" on any Deposit Account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
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 Borrowers usual business hours, to inspect Borrowers 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.
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 and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the failure to be so qualified could be
reasonably likely to 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 be reasonably likely to 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 service or property giving rise to such Eligible
Accounts has been performed or delivered in all material respects to the account
debtor or to the account debtor agent for immediate shipment to and
unconditional acceptance by the account debtor (except for inspect and return
rights or warranty rights provided by Borrower in the ordinary course of
business). Borrower has not received notice of actual or imminent Insolvency
Proceeding of any
-16-
account debtor whose accounts are 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.
5.6 Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do 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 set forth in the Schedule, there are no
----------
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could be reasonably likely to 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 Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been 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 on or about the Closing Date.
5.9 Solvency. Borrower is able to pay its debts (including trade
--------
debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrowers 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 its 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 in all material respects 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 be reasonably likely to have a Material Adverse Effect.
5.11 Environmental Condition. 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 office
-17-
products used in the ordinary course of business, 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; 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 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 release, or other disposition 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 on a timely basis, 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 where the failure
so to do could be reasonably likely to have a material adverse effect on
Borrower's ability to operate its business as currently conducted.
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 in light of the circumstances under which they were
made.
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:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could be reasonably likely to have a Material Adverse
Effect. Borrower shall use commercially reasonable efforts to maintain, and
shall cause each of its Subsidiaries to use commercially reasonable efforts to
maintain, to the extent consistent with prudent management of Borrower's
business, in force all licenses, approvals and agreements, the loss of which
could be reasonably likely to have a Material Adverse Effect.
-18-
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 be reasonably likely to 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. (i) Borrower shall
-------------------------------------------
deliver to Bank:
(a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Bank;
(b) as soon as available, but in any event within ninety (90)
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-
Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could reasonably be likely to result in damages or costs to Borrower or any
Subsidiary of One Hundred Fifty Thousand Dollars ($150,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
(f) (i) prior to any Credit Extensions at a time when no Credit
Extensions are outstanding, (ii) within thirty (30) days after the last day of
each month in which any Credit Extensions are outstanding, and (iii) within
thirty (30) days after the fifteenth day of each month in which total
outstanding Credit Extensions exceed sixty percent (60%) of the Borrowing Base,
a Borrowing Base Certificate signed by a Responsible Officer in substantially
the form of Exhibit C hereto, together with aged listings of accounts
---------
receivable.
(g) within thirty (30) days after the last day of each month,
with the monthly financial statements, and within thirty (30) days after the
fifteenth day of each month in which total outstanding Credit Extensions exceed
sixty percent (60%) of the Borrowing Base, a Compliance Certificate signed by a
Responsible Officer in substantially the form of Exhibit D hereto.
---------
-19-
(ii) Bank shall have a right from time to time hereafter, upon
reasonable prior notice, to audit Borrower's Accounts at Borrower's expense,
provided that such audits will be conducted no more often than once 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. 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 One
Hundred Thousand Dollars ($100,000).
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 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
reasonably 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 (i) contested in
good faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or 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 are 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. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
-20-
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain a ratio of Quick Assets to
-----------
Current Liabilities (exclusive of deferred revenues), (i) as of the last day of
the calendar quarters ending September 30, 1998 and June 30, 1999, of at least
1.5 to 1.0, (ii) as of the last day of the calendar quarters ending December 31,
1998 and March 31, 1999, of at least 1.25 to 1.0, and (iii) intra-quarterly, as
of the last day of each calendar month, of at least 1.0 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain a Tangible Net
------------------
Worth, (i) as of the last day of the calendar quarter ending September 30, 1998,
of not less than SEVEN MILLION FIVE HUNDRED THOUSAND Dollars ($7,500,000), (ii)
as of the last day of the calendar quarters ending December 31, 1998 and March
31, 1999, of not less than SIX MILLION Dollars ($6,000,000), and (iii) as of the
last day of the calendar quarter ending June 30, 1999, of not less than SIX
MILLION FIVE HUNDRED THOUSAND Dollars ($6,500,000).
6.10 Liquidity. Borrower shall maintain, as of the last calendar day
---------
of each month, minimum Liquidity of at least TWO MILLION FIVE HUNDRED THOUSAND
Dollars ($2,500,000). Liquidity is defined as (i) cash on hand and cash
equivalents plus the Borrowing Base (without limit for purposes of this
calculation), less (ii) total outstanding Credit Extensions.
6.11 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 Extension
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 Advances,
Borrower will not do any of the following without Bank's prior written consent,
which consent shall be withheld or given in Bank's sole discretion, except with
respect to Section 7.2, where Bank's consent may not be unreasonably withheld:
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 Transfers: (i) of
inventory in the ordinary course of business, (ii) of nonexclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business, (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business, or (iv) of worn-out
or obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business
-------------------------------------------------------
Locations. 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),
or suffer a material change in Borrower's ownership or any three (3) of the
persons holding the positions of CEO, CFO, VP-Marketing, VP-Engineering and VP-
Customer Support as of the Closing Date cease to be employees of Borrower and
replacements
-21-
reasonably satisfactory to Bank are not made within ninety (90) days from the
date such employees cease to be employees. Borrower will not, without at least
thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations; provided that
Borrower need not give Bank such notice with respect to sales offices with
equipment having a value, either per office or in the aggregate, that is
immaterial, and from which no invoices are billed or collected.
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.
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 other than payments in an aggregate amount not to exceed $200,000 made for
the repurchase of stock effected in connection with the termination of
employees.
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 Borrowers 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 non-affiliated Person.
7.9 Intellectual Property Agreements. Borrower shall not permit the
--------------------------------
inclusion in any material contract to which it becomes a party of any provisions
that would be reasonably likely to prevent the creation of a security interest
in Borrowers rights and interests in any property included within the definition
of the Intellectual Property Assets acquired under such contracts, except to the
extent that such provisions are necessary or in the best interests of Borrower
in Borrower's exercise of its reasonable business judgment.
7.10 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; provided, that with
-22-
respect to amendments that do not adversely affect Bank, Bank's consent shall
not be unreasonably withheld or delayed.
7.11 Collateral. Store the Collateral with a bailee, warehouseman,
----------
or similar party unless Bank has received a pledge of any warehouse receipt
covering such Collateral. Except for Collateral sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Collateral 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.
7.12 Compliance. Become an "investment company" or a company
----------
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become 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 Advance 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 in all material respects with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could be reasonably likely
to 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.
7.13 Negative Pledge of Intellectual Property. Without Bank's prior
----------------------------------------
written consent which consent shall not be unreasonably withheld, sell,
transfer, assign, mortgage, pledge, lease, grant a security interest in, or
encumber any of Borrower's Intellectual Property Assets; provided, however, that
Bank hereby acknowledges that Borrower shall have the right to encumber its
Intellectual Property Assets in connection with sales or licenses of same to
customers in the ordinary course of business, including by way of example and
without limitation, the right to escrow its software in various circumstances on
behalf of Borrower's customers in the ordinary course of business, in
circumstances not constituting a Material Adverse Effect.
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.
----------------
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.6, 6.7, 6.8, 6.9 or 6. 1 0 or violates any of the covenants contained in
Article 7 of this Agreement, or
-23-
(b) If Borrower 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
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 ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) 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 thirty (30) 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 Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse
-----------------------
change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations, or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets 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 ten (10) 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
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets 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 ten (10) 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 is not able to pay its debts (including
----------
trade debts) as they mature, 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 30 days (provided that no Advances will be made
prior to the dismissal of such Insolvency Proceeding);
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 Fifty
Thousand Dollars ($150,000) or that could be reasonably likely to have a
Material Adverse Effect;
-24-
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;
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, which is not covered by
insurance, 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 or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf 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) Without notice to or demand upon Borrower, 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 Borrowers premises, Borrower hereby grants Bank a license to
enter 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;
-25-
(e) Without notice to Borrower 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;
(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 nonexclusive, royalty-free
license or other right, for the purpose of exercising Bank's rights hereunder,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
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 the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; 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 Borrowers 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
Borrowers name on any checks or other forms of payment or security that may come
into Bank's possession; (c) sign Borrowers 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) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 4.2, with
respect to the preservation of Bank's interests in the Collateral, regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrowers
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.
-26-
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 if requested or required by Bank,
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:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Committed Revolving Line 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, shall be immediately due and
payable, and shall bear interest at the then applicable interest 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 and does not act with gross negligence or willful
misconduct, (i) 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, (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever, and (ii) 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 expressly set forth herein 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 Borrowers 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
-27-
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, by 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; provided, however,
that the effectiveness of any of the provisions of this Agreement shall not
require notice to Borrower's legal counsel:
If to Borrower: MatrixOne, Inc.
Two Executive Drive
Chelmsford, MA 01824
Attn: Xxxx Xxxxxxxxxxx
FAX: (000) 000-0000
With a copy to: Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP
High Street Tower
000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, Xx., Esq.
FAX: (000) 000-0000
If to Bank: Silicon Valley Bank
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, m A 02481
Attn: Xxxxxx Xxxx
FAX: (000) 000-0000
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
-----------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. EACH OF BORROWER AND BANK ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK OR
BORROWER CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS,
BORROWER AND BANK EACH ACCEPT JURISDICTION OF THE COURTS AND VENUE IN SANTA
XXXXX COUNTY, 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 ORA NY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
-28-
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 successor 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 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, and Bank shall provide Borrower with prompt
notice of any such event.
12.2 Indemnification. Borrower shall indemnify, defend, protect and
---------------
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
part in connection with the transactions contemplated by the Loan Documents; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by the
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys' fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
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 except by a writing signed by Borrower and Bank. 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,
-29-
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.
12.8 Effectiveness. This Agreement shall become effective only when
-------------
it shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
MATRIXONE, INC. SILICON VAKKET BANK, doing business as
SILICON VALLEY EAST
By: /s/ Xxxx X'Xxxxxxx By: /s/ Xxxxxx X. Xxxx
------------------------------- -----------------------------------
Xxxx X'Xxxxxxx, President & CEO Xxxxxx X. Xxxx, VP
SILICON VALLEY BANK
By: /s/ Authorized Signatory
--------------------------
Title: Authorized Signatory
------------------------
(Signed in Santa Xxxxx County,California)
-30-
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired; and
(f) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any of Borrower's Intellectual Property Assets.
-31-
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
-------------------------------------------
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
----------------------------------------------------
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_________________________
FAX #: (408)_______________ TIME: ____________________
FROM:___________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
_______________________________________________________________________________
AUTHORIZED SIGNATURE
FROM ACCOUNT #______________________TO ACCOUNT #___________________
--------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $_________________
PRINCIPAL PAYMENT (ONLY) $_________________
INTEREST PAYMENT (ONLY) $_________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________
OTHER INSTRUCTIONS:
--------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of December 29, 1998, as may be amended from time to time,
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Advance Request; 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.
--------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
-------------------------------------
Authorized Requestor
__________________________________
Authorized Signature (Bank)
Phone #___________________________
--------------------------------------------------------------------------------
-32-
EXHIBIT C
---------
BORROWING BASE CERTIFICATE
--------------------------
Borrower: MatrixOne, Inc. Bank: Silicon Valley Bank
Two Executive Drive 0000 Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000 Xxxxx Xxxxx, XX 00000
Commitment Amount: $7,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $________
2. Additions (please explain on reverse) $________
3. TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days $________
5. Balance of 50% over 90 day accounts $________
6. Concentration Limits $________
7. Ineligible Foreign Accounts $________
8. Governmental Accounts $________
9. Contra Accounts $________
10. Promotion or Demo Accounts $________
11. Intercompany/Employee Accounts $________
12. Other (Please explain on reverse) $________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
14. Eligible Accounts (#3 - #13) $________
15. LOAN VALUE OF ACCOUNTS (80% OF #14) $________
BALANCES
16. Maximum Loan Amount $7,000,000
17. Total Funds Available (Lesser of #16 or #15) $________
18. Present balance owing on Line of Credit $________
19. Outstanding under Sublimits (Equipment Line - $1,000,000) $________
20. RESERVE POSITIVE (#17 minus #18 and #19) $________
The undersigned represents and warrants that the foregoing is true,
complete and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement dated as of December 29, 1998, as may be amended
from time to time, between the undersigned and Silicon Valley Bank.
COMMENTS: ---------------------------------------
BANK USE ONLY
Rec'd By:______________________________
Date:__________________________________
Reviewed By:___________________________
Compliance Status: Yes / No
---------------------------------------
____________________________________
By:_________________________________
Authorized Signer
-33-
EXHIBIT D
---------
COMPLIANCE CERTIFICATE
----------------------
Borrower: MatrixOne, Inc. Bank: Silicon Valley Bank
Two Executive Drive 0000 Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000 Xxxxx Xxxxx, XX 00000
The undersigned authorized officer of MATRIXONE, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
dated as of December 29, 1998 between Borrower and Bank, as may be amended from
time to time (the "Agreement"), (i) Borrower is in complete compliance for the
period ending ________________ of all required conditions and terms except as
noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true, accurate and complete in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principals (GAAP) and are
consistent from one period to the next except as explained in an accompanying
letter or footnotes. The Officer further expressly acknowledges Borrower may
not request any borrowings at any time or date of determination that Borrower is
not in compliance with any of the terms of the Agreement, and that such
compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "`Complies"
column
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Borrowing Base Certificate and A/R Monthly within 30 days and semi-monthly within 30 Yes No
Agings days+
A/R Audit Initial and Annual Yes No
+ semi-monthly reporting required only when total outstanding advances exceed 60% of borrowing base.
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
Maintain on a quarterly Basis:
Minimum Quick Ratio - 9/30/98 and 1.5:1.0 _________:1.0 Yes No
6/30/99
Minimum Quick Ratio - 12/31/98 and 1.25:1.0 _________:1.0 Yes No
3/31/99
Minimum TNW - 9/30/98 $7,500,000 $___________ Yes No
Minimum TNW - 12/31/98 and 3/31/99 $6,000,000 $___________ Yes No
Minimum TNW - 6/30/99 $6,500,000 $___________ Yes No
Maintain on a Monthly Basis -
Intraquarterly
Minimum Quick Ratio 1.0:1.0 _________:1.0 Yes No
Minimum Liquidity $2,500,000 $___________ Yes No
Comments Regarding Exceptions:
-----------------------------------------------
Sincerely, BANK USE ONLY
Rec'd By:______________________________
----------------------------------- Date:__________________________________
Signature Reviewed By:___________________________
Compliance Status: Yes / No
----------------------------------- --------------------------------------------------
Title
-----------------------------------
Date
