Loan and Security Agreement
Exhibit 10.15
Silicon Valley Bank
Borrower:
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NETWORK SPECIALISTS, | |
| INCORPORATED | ||
Address:
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Xxx Xxxxxx Xxxxx, Xxxxx 000 | |
| Xxxxxxx, Xxx Xxxxxx 00000 | ||
Date:
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October 16, 2003 |
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK
(“Silicon”) , whose address is 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and the borrower
named above (the “Borrower”), whose chief executive office is located at the above address
(“Borrower’s Address”). The Schedule and Exhibits to this Agreement (the “Schedule” and the
“Exhibits,” respectively) shall for all purposes be deemed to be a part of this Agreement, and the
same are integral parts of this Agreement. (Definitions of certain terms used in this Agreement
are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Silicon will make loans to Borrower (the “Loans”) up to the amounts (the “Credit
Limit”) shown on the Schedule, provided no Default or Event of Default has occurred and is
continuing, and subject to deduction of any Reserves for accrued interest and such other Reserves
as Silicon deems proper from time to time in its good faith business judgment. Amounts borrowed
may be repaid and reborrowed during the term of this Agreement.
1.2 Interest. All Loans and all other monetary Obligations shall bear interest at the rate
shown on the Schedule, except where expressly set forth to the contrary in this Agreement.
Interest shall be payable monthly, on the last day of the month. Interest may, in Silicon’s
discretion, be charged to Borrower’s loan account, and the same shall thereafter bear
interest at the same rate as the other loans. Silicon may, in its discretion, charge interest to
Borrower’s Deposit Accounts maintained with Silicon. Regardless of the amount of Obligations that
may be outstanding from time to time, Borrower shall pay Silicon minimum monthly interest during
the term of this Agreement in the amount set forth on the Schedule (the “Minimum Monthly
Interest”).
1.3 Overadvances. If at any time or for any reason the total of all outstanding Loans and
all other monetary Obligations exceeds the Credit Limit (an “Overadvance”), Borrower shall
immediately pay the amount of the excess to Silicon, without notice or demand. Without limiting
Borrower’s obligation to repay to Silicon the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.
1.4 Fees. Borrower shall pay Silicon the fees shown on the Schedule, which are in addition
to all interest and other sums payable to Silicon and are not refundable.
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1.5 Letters of Credit. At the request of Borrower, Silicon may, in its good faith business
judgment, issue or arrange for the issuance of letters of credit for the account of Borrower, in
each case in form and substance satisfactory to Silicon in its sole discretion (collectively,
“Letters of Credit”). The aggregate face amount of all Letters of Credit outstanding from tine to
time (plus all Silicon exposure under any foreign exchange contracts and Cash Management Services)
shall not exceed the amount shown on the Schedule (the “Letter of Credit Sublimit”), and shall be
reserved against Loans which would otherwise be available hereunder, and in the event at any time
there are insufficient Loans available to Borrower for such reserve, Borrower shall deposit and
maintain with Silicon cash collateral in an amount at all times equal to such deficiency, which
shall be held as Collateral for all purposes of this Agreement. Borrower shall pay all bank
charges (including charges of Silicon) for the issuance of Letters of Credit, together with such
additional fee as Silicon’s letter of credit department shall charge in connection with the
issuance of the Letters of Credit. Any payment by Silicon under or in connection with a Letter of
Credit shall constitute a Loan hereunder on the date such payment is made. Each Letter of Credit
shall have an expiry date no later than thirty days prior to the Maturity Date. Borrower hereby
agrees to indemnify and hold Silicon harmless from any loss, cost, expense, or liability, including
payments made by Silicon, expenses, and reasonable attorneys’ fees incurred by Silicon arising out
of or in connection with any Letters of Credit. Borrower agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guaranteed by Silicon and opened for
Borrower’s account or by Silicon’s interpretations of any Letter of Credit issued by Silicon for
Borrower’s account, and Borrower understands and agrees that Silicon shall not be liable for any
error, negligence, or mistake, whether of omission or commission, in following Borrower’s
instructions or those contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require Silicon to indemnify
the issuing bank for certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any
loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of
Silicon’s indemnification of any such issuing bank. The provisions of this Loan Agreement, as it
pertains to Letters of Credit, and any other Loan Documents relating to Letters of Credit are
cumulative.
1.6 Cash Management Services Sublimit. In addition to Section 1.5 above, Borrower may also
use up to the amount set forth on the Schedule for Cash Management Services. Such aggregate
amounts utilized under the Cash Management Services Sublimit shall at all times reduce the amount
otherwise available for Loans, letters of credit, foreign exchange contracts or other credit
accommodations hereunder. Any amounts Silicon pays on behalf of Borrower or any amounts that are
not paid by Borrower for any Cash Management Services will be treated as Loans hereunder and will
accrue interest at the interest rate applicable to Loans.
1.7 Loan Requests. To obtain a Loan, Borrower shall make a request to Silicon by facsimile
or telephone. Loan requests received after 12:00 Noon will not be considered by Silicon until the
next Business Day. Silicon may rely on any telephone request for a Loan given by a person whom
Silicon believes is an authorized representative of Borrower, and Borrower will indemnify Silicon
for any loss Silicon suffers as a result of that reliance. In the event Borrower has elected to be
on “non-borrowing reporting status” (see Section 6 of the Schedule), Borrower shall furnish Silicon
with a Loan request at least twenty-one (21) days prior to the requested funding date.
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2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the Obligations when
due, and the performance of each of the Borrower’s duties under this Agreement and all documents
executed in connection herewith, Borrower hereby grants to Silicon a continuing security interest
in all of Borrower’s interest in the following, whether now owned or hereafter acquired, and
wherever located: All Inventory, Equipment, Payment Intangibles, Letter-of-Credit Rights,
Supporting Obligations, Receivables, and General Intangibles, Deposit Accounts, and all money, and
all property now or at any time in the future in Silicon’s possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products and all books and records related to any of the
foregoing (all of the foregoing, together with all other property in which Silicon may now or in
the future be granted a lien or security interest, is referred to herein, collectively, as the
“Collateral”). The security interest granted herein shall be a first priority security interest in
the Collateral. After the occurrence of a Default, Silicon may place a “hold” on any Deposit
Account pledged as collateral. Borrower is not a party to, nor is bound by, any license or other
agreement with respect to which the Borrower is the licensee that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such license or agreement or
any other property. Without prior consent from Silicon, Borrower shall not enter into, or become
bound by, any such license or agreement which is reasonably likely to have a material impact on
Silicon’s business or financial condition. Borrower shall take such steps as Silicon requests to
obtain the consent of, or waiver by, any person whose consent or waiver is necessary for all such
licenses or contract rights to be deemed “Collateral” and for Silicon to have a security
interest in it that might otherwise be restricted or prohibited by law or by the terms of any such
license or agreement, whether now existing or entered into in the future. If Borrower shall at any
time, acquire a commercial tort claim, Borrower shall promptly notify Silicon in a writing signed
by Borrower of the brief details thereof and grant to Silicon in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Silicon.
Notwithstanding the foregoing, unless and until the occurrence of an Intellectual Property
Granting Event, the Collateral does not include: any copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and derivative work,
whether published or unpublished, now owned or later acquired; any patents, trademarks, service
marks and applications therefor; any trade secret rights, including any rights to unpatented
inventions, now owned or hereafter acquired (the “Intellectual Property”).
Notwithstanding the foregoing, at all times the Collateral shall include all accounts, license and
royalty fees and other revenues, proceeds, or income arising out of or relating to any of the
foregoing intellectual property. To the extent a court of competent jurisdiction holds that a
security interest in any Intellectual Property is necessary to have a security interest in any
accounts, license and royalty fees and other revenues, proceeds, or income arising out of or
relating to any of the foregoing Intellectual Property, then the Collateral shall, effective as of
the date hereof, include the Intellectual Property, to the extent necessary to permit perfection of
Silicon’s security interest in such accounts, license and royalty fees and other revenues,
proceeds, or income arising out of or relating to any of the Intellectual Property.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER
In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents
and warrants to Silicon as follows, and Borrower covenants that the following representations will
continue to be true, and that Borrower will at all times comply with all of the following
covenants, throughout the terms of this Agreement and until all Obligations have been paid and
performed in full:
3.1 Corporate Existence and Authority. Borrower is and will continue to be, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its incorporation.
Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower. The execution,
delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby
(i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with
their terms (except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors’ rights generally),
(iii) do not violate Borrower’s articles or certificate of incorporation, or Borrower’s by-laws, or
any law or any material agreement or instrument which is binding upon Borrower or its property, and
(iv) do not constitute grounds for acceleration of any material indebtedness or obligation under
any material agreement or instrument which is binding on Borrower or its property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the heading to this
Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of
Borrower’s present and prior trade names. Borrower shall give Silicon 30 days’ prior written
notice before changing its name or doing business under any other name. Borrower has complied, and
will in the future comply, with all laws relating to the conduct of business under a fictitious
business name.
3.3 Place of Business; Location of Collateral. The address set forth in the heading to this
Agreement is Borrower’s chief executive office. In addition, Borrower has places of business and
Collateral is located only at the locations set forth on the Schedule. Borrower will give Silicon
at least 30 days prior written notice before opening any additional place of business, changing its
chief executive office, changing its state of formation (other than its re-incorporation in
Delaware by merger with NSI Software, Inc., a Delaware corporation, which shall be the surviving
entity, which re-incorporation is expected to occur within twenty (20) days of the date hereof (the
“Reincorporation”)) or moving any of the Collateral to a location other than Borrower’s Address or
one of the locations set forth on the Schedule, except that Borrower may maintain sales offices in
the ordinary course of business at which not more than a total of $10,000 fair market value of
Equipment is located.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all times in the
future be, the sole owner of all the Collateral, except for items of Equipment which are leased to
Borrower. The Collateral now is and will remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a fast-priority perfected and enforceable security interest in all of
the
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Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Silicon and
the Collateral against all claims of others. None of the Collateral now is or will be affixed to
any real property in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the lessor may obtain
any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Borrower’s right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an interest, Borrower
shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and
deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall
specify, so as to ensure that Silicon’s rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force and effect, and
will comply with all the terms of, any lease of real property where any of the Collateral now or in
the future may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good working
condition (ordinary wear and tear excepted), and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon writing of any material loss or damage
to the Collateral.
3.6 Boots and Records. Borrower has maintained and will maintain at Borrower’s Address
complete and accurate books and records, comprising an accounting system in accordance with GAAP.
3.7 Financial Condition, Statements and Reports. All financial statements now or in the
future delivered to Silicon have been, and will be, prepared in conformity with GAAP and now and in
the future will fairly present the results of operations and financial condition of Borrower, in
accordance with GAAP, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Silicon and the date hereof, there has been no material
adverse change in the financial condition or business of Borrower. Borrower is now and will
continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely filed, and will
timely file, all required tax returns and reports, and Borrower has timely paid, and will timely
pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in
the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower’s obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of
the commencement of, and any material development in, the proceedings, and (iii) posts bonds or
takes any other steps required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior
tax years which could result in additional taxes becoming due and payable by Borrower. Borrower
has paid, and shall continue to pay all amounts necessary to fund all present and future pension,
profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete termination of, or permit
the occurrence of any other event with respect to, any such plan which
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could reasonably be expected to result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
3.9 Compliance with Law. Borrower has, to the best of its knowledge, complied, and will
comply, in all material respects, with all provisions of all foreign, federal, state and local laws
and regulations applicable to Borrower, including, but not limited to, those relating to Borrower’s
ownership of real or personal property, the conduct and licensing of Borrower’s business, and all
environmental matters
3.10 Litigation. Except as disclosed in the Schedule, there is no claim, suit,
litigation; proceeding or investigation pending or (to best of Borrower’s knowledge)
threatened by or against or affecting Borrower in any court or before any governmental agency (or
any basis therefor known to Borrower) which may result, either separately or in the aggregate, in
any material adverse change its the financial condition or business of Borrower, or in any material
impairment in the ability of Borrower to carry on its business in substantially the same manner as
it is now being conducted. Borrower will promptly inform Silicon in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted by or against
Borrower involving any single claim of $50,000 or more, or involving $100,000 or more in the
aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for lawful business
purposes. Borrower is not purchasing or carrying any “margin stock” (as defined in Regulation U of
the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will
be used to purchase or carry any “margin stock” or to extend credit to others for the purpose of
purchasing or carrying any “margin stock.”
4. RECEIVABLES.
4.1 Representations Relating to Receivables. Borrower represents and warrants to Silicon as
follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date
each Loan is requested and made, (i) represent an undisputed bona fide existing unconditional
obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, or the non-exclusive licensing of Intellectual Property, in the ordinary
course of Borrower’s business, and (ii) meet the Minimum Eligibility Requirements set forth in
Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance. Borrower represents and
warrants to Silicon as follows: All statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing the Receivables are and shall be true and
correct and all such invoices, instruments and other documents and all of Borrower’s books and
records are and shall be genuine and in all respects what they purport to be. All sales and other
transactions underlying or giving rise to each Receivable shall fully comply in all material
respects with all applicable laws and governmental rules and regulations. To the best of
Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
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4.3 Schedules and Documents relating to Receivables. Borrower shall deliver to Silicon
transaction reports and schedules of collections, as provided in the Schedule, on Silicon’s
standard form; provided however, that Borrower’s failure to execute and deliver the same shall not
affect or limit Silicon’s security interest and other rights in all of Borrower’s Receivables, nor
shall Silicon’s failure to advance or lend against a specific Receivable affect or limit Silicon’s
security interest and other rights therein. If requested by Silicon, Borrower shall furnish
Silicon with copies (or, at Silicon’s request, originals) of all contracts, orders, invoices, and
other similar documents, and all original shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to
such Receivables, and Borrower warrants the genuineness of all of the foregoing. Borrower shall
also furnish to Silicon an aged accounts receivable trial balance in such form and at such
intervals as Silicon shall request. In addition, Borrower shall deliver to Silicon, on its
request, the originals of all instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Receivables, in the same form as received, with
all necessary indorsements, and copies of all credit memos.
4.4 Collection of Receivables. Borrower shall cause the Account Debtors to remit all
Receivables to Silicon and Silicon shall hold all payments on, and proceeds of, Receivables in a
lockbox account, or such other “blocked account” as Silicon may specify, pursuant to a
blocked account agreement in such form as Silicon may specify. All such payments on, and proceeds
of, Receivables shall be applied to the Obligations in such order as Silicon shall determine.
Silicon or its designee may, at any time, notify Account Debtors that the Receivables have been
assigned to Silicon.
4.5 Remittance of Proceeds. All proceeds arising from the disposition of any Collateral
shall be delivered in kind, by Borrower so Silicon in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower, to be applied to the
Obligations in such order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred and is continuing, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete Equipment disposed of by Borrower in good faith in an
arm’s length transaction for an aggregate purchase price of $25,000 or less (for all such
transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower’s other funds or property, but will hold such proceeds separate and
apart from such other funds and property and in an express trust for Silicon. Nothing in this
Section 4.5 limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 Disputes. Borrower shall notify Silicon promptly of all disputes or claims relating to
Receivables. Borrower shall not forgive (completely or partially), compromise or settle any
Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm’s length transactions, which are reported to Silicon
on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is
continuing: and (iii) taking into account all such discounts settlements and forgiveness, the total
outstanding Loans will not exceed the Credit Limit. Silicon may, at any time after the occurrence
of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for
amounts and upon terms which Silicon considers advisable in its reasonable credit
judgment and,
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in all cases, Silicon shall credit Borrower’s Loan account with only the net amounts received by
Silicon in payment of any Receivables.
4.7 Returns. Provided no Event of Default has occurred and is continuing, if any Account
Debtor returns any Inventory to Borrower, Borrower shall promptly determine the reason for such
return and promptly issue a credit memorandum to the Amount Debtor in the appropriate amount
(sending a copy to Silicon). In the event any attempted return occurs after the occurrence and
during the continuance of any Event of Default, Borrower shall (i) hold the returned Inventory in
trust for Silicon, (ii) segregate all returned Inventory from all Borrower’s other property, (iii)
conspicuously label the returned Inventory as Silicon’s property, and (iv) immediately notify
Silicon of the return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon’s request deliver such returned Inventory to
Silicon.
4.8 Verification. Silicon may, from time to time, verify directly with the respective
Account Debtors the validity, amount and other matters relating to the Receivables, by means of
mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as
Silicon may choose.
4.9 No Liability. Silicon shall not be responsible or liable for any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives
rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the
settlement, failure to settle, collection or failure to collect any Receivable, or for settling any
Receivable in good faith for less than the full amount thereof, nor shall Silicon be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement giving
rise to a Receivable. Nothing herein shall, however, relieve Silicon from liability for its own
gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply with the financial and
other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible personal property
Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon,
in such form and amounts as Silicon may reasonably require and that are customary and in accordance
with standard practices for Borrower’s industry and locations, and Borrower shall provide evidence
of such insurance to Silicon. All such insurance policies shall name Silicon as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon.
Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction
of the Obligations as Silicon shall determine in its good faith business judgment, except that,
provided no Default or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than $250,000, which shall be
utilized by Borrower for the replacement of the Equipment with respect to which the insurance
proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so
released will be so used. If Borrower fails to provide or pay for any
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insurance, Silicon may, but is not obligated to, obtain the same at Borrower’s expense. Borrower
shall promptly deliver to Silicon copies of all material reports made to insurance companies.
5.3 Reports. Borrower, at its expense, shall provide Silicon with the written reports set
forth in the Schedule, and such other written reports with respect to Borrower (including budgets,
sales projections, operating plans and other financial documentation), as Silicon shall from time
to time specify in its good faith business judgment.
5.4 Access to Collateral, Books and Records. At reasonable times, and on one Business Day’s
notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to
audit and copy Borrower’s books and records. Silicon shall take reasonable steps to keep
confidential all information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and attorneys, and
pursuant to any subpoena or other legal process. The foregoing inspections and audits shall be at
Borrower’s expense, which inspections and audits shall not exceed four (4) per calendar year prior
to the occurrence of an Event of Default, and the charge therefor shall be $750 per person per day
(or such higher amount as shall represent Silicon’s then current standard charge for the same),
plus reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule an audit more
than 10 days in advance, and Borrower seeks to reschedule the audit with less than 10 days written
notice to Silicon, then (without limiting any of Silicon’s rights or remedies), Borrower shall pay
Silicon a cancellation fee of $1,000 plus any out-of-pocket expenses incurred by Silicon, to
compensate Silicon for the anticipated costs and expenses of the cancellation.
5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower shall not,
without Silicon’s prior written consent (which shall be a matter of its good faith business
judgment), do any of the following: (i) merge or consolidate with another corporation or entity
other than the Reincorporation; (ii) acquire any assets, except in the ordinary course of business;
(iii) enter into any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished inventory in the ordinary course of
Borrower’s business, and except for the sale of obsolete or unneeded Equipment in the ordinary
course of business; (v) store any Inventory or other Collateral with any warehouseman or other
third party; (vi) sell any inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis; (vii) make any loans of any money or other assets; (viii) incur any debts outside
the ordinary course of business; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on Borrower’s stock
(except for dividends payable solely in stock of Borrower), other than in connection with
Borrower’s Series B Preferred Stock; (xi) redeem (other than in connection with Borrower’s Series B
Preferred Stock), retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower’s stock; (xii) make any change in Borrower’s capital structure which would have
a material adverse effect on Borrower or on the prospect of repayment of the Obligations; (xiii)
engage, directly or indirectly, in any business other than the business currently engaged in by
Borrower or reasonably related thereto; or (xiv) dissolve or elect to dissolve. Transactions
permitted by the foregoing provisions of this Section are only permitted if no Default or Event of
Default would occur as a result of such transaction.
5.6 Litigation Cooperation. Should any third-party suit or proceeding be instituted by or
against Silicon with respect to any Collateral or relating to Borrower, Borrower shall, without
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expense to Silicon, make available Borrower and its officers, employees and agents and Borrower’s
books and records, to the extent that Silicon may deem them reasonably necessary in order to
prosecute or defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by Silicon, to execute
all documents and take all actions, as Silicon may, in its good faith business judgment, deem
necessary or useful in order to perfect and maintain Silicon’s perfected first-priority security
interest in the Collateral (subject to Permitted Liens), and in order to fully consummate the
transactions contemplated by this Agreement.
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the maturity date set forth
on the Schedule (the “Maturity Date”); subject to Section 6.2 below.
6.2 Payment of Obligations. On the Maturity Date or on any earlier effective date of
termination, Borrower shall pay and perform in full all Obligations, whether evidenced by
installment notes or otherwise, and whether or not all or any part of such Obligations are
otherwise then due and payable. Without limiting the generality of the foregoing, if on the
Maturity Date, or on any earlier effective date of termination, there are any outstanding Letters
of Credit issued by Silicon or issued by another institution based upon an application, guarantee,
indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to
Silicon cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit
plus all interest, fees and cost due or to become due in connection therewith (as estimated by
Silicon in its good faith business judgment), to secure all of the Obligations relating to said
Letters of Credit, pursuant to Silicon’s then standard form cash pledge agreement. Notwithstanding
any termination of this Agreement, all of Silicon’s security interests in all of the Collateral and
all of the terms and provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that Silicon may, in its sole
discretion, refuse to make any further Loans after termination. No termination shall in any way
affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of
any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon
payment and performance in full of all the Obligations and written termination of this Agreement by
Silicon, Silicon shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be required to fully terminate Silicon’s security
interests.
7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any of the following events shall constitute an
“Event of Default’ under this Agreement, and Borrower shall give Silicon immediate written notice
thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to
Silicon by Borrower or any of Borrower’s officers, employees or agents, now or in the future, shall
be untrue or misleading in a material respect; or (b) Borrower shall fail to pay when due any Loan
or any interest thereon or any other monetary Obligation or (c) the total Loans and other
Obligations outstanding at any time shall exceed the Credit Limit for two (2) or more consecutive
days; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the
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| Silicon Valley Bank | Loan and Security Agreement |
Schedule or shall fail to perform any other non-monetary Obligation to Silicon which by its nature
cannot be cured, or shall fail to permit Silicon to conduct an inspection or audit as specified in
Section 5.4 hereof; or (e) Borrower shall fail to perform any other non-monetary Obligation, which
failure is not cured within 5 Business Days after the date due; or (f) any levy, assessment,
attachment, seizure; lien or encumbrance (other than a Permitted Lien) is made on all or
any part of the Collateral which is not cured within 10 days after the occurrence of the same, or
immediately upon the service of process upon Silicon seeking to attach by trustee or other process,
any of Borrower’s funds on deposit with, or assets of the Borrower in the possession of, Silicon;
or (g) any default or event of default occurs under any obligation secured by a Permitted Lien,
which is not cured within any applicable cure period or waived in writing by the holder of the
Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower’s business or financial
condition; or (i) Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property
of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower
under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the
commencement of any proceeding against Borrower or any guarantor of any of the Obligations under
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or stature of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 45 days after the date commenced; or (k) revocation or termination
of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations
under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or
denial of liability upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against any such third
party under any bankruptcy or insolvency law; or (m) Borrower defaults under any agreement
evidencing any indebtedness to any third party in excess of $50,000 in any single instance or
$250,000 in the aggregate; or (n) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or a default occurs under any instrument evidencing such subordinated
indebtedness, or the holder of any such subordinated indebtedness accelerates all or any portion of
such subordinated indebtedness or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or (o) there shall be a
change in the record or beneficial ownership of an aggregate of more than 49% of the outstanding
shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding
shares of stock of Borrower in effect on the date hereof, without the prior written consent of
Silicon, which consent shall not be unreasonably withheld; or (p) Borrower shall generally not pay
its debts as they become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or
make or suffer any transfer of
any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (q) there shall be (i) a material impairment in the perfection or priority of Silicon’s
security interest in the Collateral or in the value of such Collateral; (ii) a material adverse
change in the business, operations or condition (financial or otherwise) of the
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| Silicon Valley Bank | Loan and Security Agreement |
Borrower; (iii) a material impairment of the prospect of repayment of any portion of the
Obligations; or (iv) Silicon determines, based upon information available to it and in its
reasonable judgment, that there is substantial likelihood that Borrower shall fail to comply with
one or more of the financial covenants in Section 5.1 during the next succeeding financial
reporting period; or (r) Silicon, acting in good faith and in a commercially reasonable manner,
deems itself insecure because of the occurrence of an event prior to the effective date hereof of
which silicon had no knowledge on the effective date; or (s) Borrower shall breach any term of the
Negative Pledge Agreement or the Warrant granted by the Borrower to Silicon. Silicon may cease
making any Loans hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred and is continuing.
7.2 Remedies. Upon the occurrence and during the continuance of any Event of Default, and at
any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which
are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making
Loans or otherwise extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due,
payable, and performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the
Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon
without judicial process to enter onto any of Borrower’s premises without interference to search
for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises
or cause a custodian to remain on the premises in exclusive control thereof, without charge for so
long as Silicon deems it reasonably necessary in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should Silicon seek to take
possession of any of the Collateral by court process, Borrower hereby irrevocably waives: (i) any
bond and any surety of security relating thereto required by any statute, court rule or otherwise
as an incident to such possession; (ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and (iii) any requirement that Silicon retain
possession of, and not dispose of, any such Collateral until after trial or final judgment; (d)
Require Borrower to assemble any or all of the Collateral and make it available to Silicon at
places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove
the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and
for the purpose of removal, Silicon shall have the right to use Borrower’s premises, vehicles,
hoists, lifts, cranes, and other Equipment and all other property without charge; (f) Sell, lease
or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains
possession of it or after further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral announcement at the time
scheduled for sale. Silicon shall have the right to conduct such disposition on Borrower’s
premises without charge, for such time or times as Silicon deems reasonable, or on Silicon’s
premises, or elsewhere and the Collateral need not be located at the place of disposition. Silicon
may directly or through any affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private disposition. Any sale or
other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if
any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g)
Demand payment of,
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| Silicon Valley Bank | Loan and Security Agreement |
and collect any Receivables and General Intangibles comprising Collateral and, in connection
therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower’s name on all
collections, receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral
or proceeds thereof, and, in Silicon’s sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face value; (h) Offset against
any sums in any of Borrower’s general, special or other Deposit Accounts with Silicon against any
or all the Obligations; and (i) Demand and receive possession of any of Borrower’s federal and
state income tax returns and the books and records utilized in the preparation thereof or referring
thereto. All reasonable attorneys’ fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall
be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations. Without limiting any of Silicon’s rights and remedies, from and after
the occurrence and during the continuance of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum (the “Default Rate”).
7.3 Standards for Determining Commercial Reasonableness. Borrower and Silicon agree that a
sale or other disposition (collectively, “sale”) of any Collateral which complies with the
following standards will conclusively be deemed to be commercially reasonable: (i) Notice of the
sale is given to Borrower at least ten days prior to the sale, and, in the case of a public sale,
notice of the sale is published at least five Business Days before the sale in a newspaper of
general circulation in the county where the sale is to be conducted; (ii) Notice of the sale
describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place
designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price in cash or by cashier’s
check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon
may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower
any and all information concerning the same. Silicon shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance of any Event of
Default, without limiting Silicon’s other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting
through any of its employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower’s expense, to do any or all of the
following, in Borrower’s name or otherwise, but Silicon agrees to exercise the following powers in
a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Silicon
may, in its good faith business judgment, deem advisable in order to perfect and maintain Silicon’s
security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in
order to fully consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of Silicon’s Collateral or in which
Silicon has an interest; (c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic’s, materialman’s or other lien, or
assignment or satisfaction of
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| Silicon Valley Bank | Loan and Security Agreement |
mechanic’s, materialman’s or other lien; (d) Take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into Silicon’s
possession; (e) Endorse all checks and other forms of remittances received by Silicon; (f) Pay,
contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any
of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables
and General intangibles for less than face value and execute all releases and other documents in
connection therewith; (h) Pay any sums required on account of Borrower’s taxes or to secure the
release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third
party having custody or control of any books or records belonging to, or relating to, Borrower to
give Silicon the same rights of access and other rights with respect thereto as Silicon has under
this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements. Any and all reasonable sums paid and any and
all reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Silicon
with respect to the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations. In no event shall Silicon’s rights under the foregoing power of
attorney or any of Silicon’s other rights under this Agreement be deemed to indicate that Silicon
is in control of the business, management or properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any sale of the
Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities,
obligations and attorneys’ fees incurred by Silicon in the exercise of its rights under this
Agreement, second to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus
shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Silicon for any deficiency. If, Silicon, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Silicon shall have the option, exercisable at any time, in its good faith
business judgment, of either reducing the Obligations by the principal amount of purchase price, or
deferring the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 Remedies Cumulative. In addition to any rights and remedies set forth in this Agreement,
Silicon shall have all the other rights and remedies accorded a secured party under the
Massachusetts Uniform Commercial Code and under all other applicable laws, and under any other
instrument or agreement now or in the future entered into between Silicon and Borrower, and all of
such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon
from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay
of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights
and remedies shall continue in full force and effect until all of the Obligations have been fully
paid and performed.
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| Silicon Valley Bank | Loan and Security Agreement |
8. DEFINITIONS.
As used in this Agreement, the following terms have the following meanings:
“Account Debtor” means the obligor on a Receivable.
“Affiliate” means, with respect to any Person, a relative, partner, shareholder,
director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any
Person controlling, controlled by or under common control with such Person.
“Adjusted Quick Ratio” is the ratio of (i) Quick Assets to (ii) Current Liabilities
minus 50% of Borrower’s Deferred Revenue liabilities.
“Business Day” means a day on which Silicon is open for business.
“Cash Management Services” means Silicon’s cash management services, direct
deposit of payroll, business credit card, and check cashing services as may be further identified
in the various cash management services agreements related to such Cash Management Services.
“Code” means the Uniform Commercial Code as adopted and in effect in the Commonwealth
of Massachusetts from time to time.
“Collateral” has the meaning set forth in Section 2.1 above.
“Current Liabilities” is all obligations and liabilities of Borrower to Silicon, plus,
without duplication, the aggregate amount of Borrower’s Total Liabilities which mature within one
(1) year.
“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.
“Default Rate” has the meaning set forth in Section 7.2 above.
“Deferred Revenue” is all amounts received in advance of performance under contracts
and not yet recognized as revenue.
“Deferred Revenue Offsets” is calculated by Silicon and is equal to either, at
Silicon’s discretion in each instance: (i) 35% of the total Deferred Revenue liabilities of
Borrower or (ii) the total amount of Deferred Revenue liabilities for each specific Account Debtor
related to specific Eligible Receivables.
“Deposit Account” has the meaning set forth in Section 9-102 of the Code.
“Eligible Receivables” means Receivables and General Intangibles arising in the
ordinary course of Borrower’s business from the sale of goods or the rendition of services, or the
non-exclusive licensing of Intellectual Property, which Silicon, in its good faith business
judgment, shall deem eligible for borrowing. Without limiting the fact that the determination of
which
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| Silicon Valley Bank | Loan and Security Agreement |
Receivables are eligible for borrowing is a matter of Silicon’s discretion, the following (the
“Minimum Eligibility Requirements”) are the minimum requirements for a Receivable to be an
Eligible Receivable: (i) the Receivable must not be outstanding for more than 90 days from its
invoice data, (ii) the Receivable must not represent progress xxxxxxxx, be due under a fulfillment
or requirements contract with the Account Debtor or represent Deferred Revenue, (iii) the
Receivable most not be subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be
conditional, except as may otherwise be acceptable to Silicon in its discretion), (iv) the
Receivable must not be owing from an Account Debtor with whom the Borrower has any dispute of a
material nature (whether or not relating to the particular Receivable), (v) the Receivable must not
be owing from an Affiliate of Borrower, (vi) the Receivable must not be owing from an Account
Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is
not acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii)
the Receivable must not be owing from the United States or any department, agency or
instrumentality thereof (unless there has been compliance, to Silicon’s satisfaction, with the
United States Assignment of Claims Act), (viii) the Receivable must not be owing from an Account
Debtor located outside the United States (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to
Silicon), and (ix) the Receivable must not be owing from an Account Debtor to whom Borrower is or
may be liable for goods purchased from such Account Debtor or otherwise. Receivables owing from
one Account Debtor will not be deemed Eligible Receivables to the extent they exceed 25% (35% with
respect to Receivables owing from Dell, Inc.) of the total Receivables outstanding. In addition, if
more than 50% of the Receivables owing from an Account Debtor are outstanding more than 90 days
from their invoice date (without regard to unapplied credits) or are otherwise not eligible
Receivables, then all Receivables owing from that Account Debtor will be deemed ineligible for
borrowing. Silicon may, from time to time, in its good faith business judgment, revise the Minimum
Eligibility Requirements, upon ten (10) days’ written notice to the Borrower.
“Equipment” means all of Borrower’s present and hereafter acquired machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles.
tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of
every kind and description used in Borrower’s operations or owned by Borrower and any interest in
any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions,
additions or improvements to any of the foregoing, wherever located.
“Event of Default” means any of the events set forth in Section 7.1 of this Agreement.
“GAAP” means generally accepted accounting principles, consistently applied.
“General Intangibles” means all general intangibles of Borrower, whether now owned or
hereafter created or acquired by Borrower, including, without limitation, all choses in action,
rights to payment for credit extended, amounts due to Borrower, credit memoranda in favor of
Borrower, warranty claims, causes of action, corporate or other business records, deposits, Deposit
Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and
the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and other deposits,
rights in
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| Silicon Valley Bank | Loan and Security Agreement |
all litigation presently or hereafter pending for any cause or claim (whether in contract,
tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower
against Silicon, rights to purchase or sell real or personal property, rights as a licensor or
licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and
all insurance policies and claims (including without limitation life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance), tax refunds and
claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests
or other security held by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
“Intellectual Property” has the meaning set forth in Section 2.1 above.
“Intellectual Property Granting Event” has the meaning set forth in Section 8(4) of
the Schedule.
“Inventory” means all of Borrower’s now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under any contract of
service or held for sale or lease (including without limitation all raw materials, work in process,
finished goods and goods in transit), and all materials and supplies of every kind, nature and
description which are or might be used or consumed in Borrower’s business or used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
“Letter of Credit Rights” means all letter-of-credit rights including, without
limitation, “letter-of-credit rights” as defined in the Code and also any right to payment or
performance under a letter of credit, whether or not the beneficiary has demanded or is at the time
entitled to demand payment or performance.
“Obligations” means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to
Silicon, whether evidenced by this Agreement or any note or other instrument or document,
including, without limitation, the Borrower’s obligations pursuant to the Negative Pledge Agreement
and the Warrant, whether arising from an extension of credit, opening of a letter of credit,
banker’s acceptance, foreign exchange contracts, loan, Cash Management Services, guaranty,
indemnification or otherwise, whether direct or indirect (including without limitation, those
acquired by assignment and any participation by Silicon in Borrower’s debts owing to others),
absolute or contingent, due or to become due, including, without limitation, all interest, charges,
expenses, fees, attorney’s fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other present or future
instrument or agreement between Borrower and Silicon.
“Payment Intangibles” means all payment intangibles including, without limitation,
“payment intangibles” as defined in the Code and also any general intangible under which the
Account Debtor’s primary obligation is a monetary obligation.
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| Silicon Valley Bank | Loan and Security Agreement |
“Permitted Liens” means the following: (i) purchase money security interests in
specific items of Equipment in an amount not to exceed $100,000 in the aggregate at any time during
the term of this Agreement; (ii) leases of specific items of Equipment in an amount not to exceed
$500,000 in the aggregate at any time during the term of this Agreement; (iii) liens for taxes not
yet payable or otherwise being contested in good faith with evidence satisfactory to Silicon of
prevision of adequate reserves therefor; (iv) additional security interests and liens consented to
in writing by Silicon, which content shall not be unreasonably withheld; (v) security interests
being terminated substantially concurrently with this Agreement; (vi) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by liens of the type described
above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is
limited to the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; and (viii)Liens in favor of
customs and revenue authorities which secure payment of customs duties in connection with the
importation of goods. Silicon will have the right to require, as a condition to its consent under
subsection (iv) above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon’s then standard form, acknowledge that the security interest is
subordinate to the security interest in favor of Silicon, and agree not to take any action to
enforce its subordinate security interest so long as any Obligations remain outstanding, and that
Borrower agree that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
“Person” means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any agency or political
division thereof, or any other entity.
“Quick Assets” is, on any date, the Borrower’s consolidated, unrestricted cash, cash
equivalents, net accounts receivable and investments with maturities of fewer than 12 months
determined according to GAAP.
“Receivables” means all of Borrower’s now owned and hereafter acquired accounts
(whether or not earned by performance), accounts receivable, health-care insurance receivables,
rights to payment, letters of credit, contact right, chattel paper, instruments, securities,
securities accounts, investment property, documents and all other forms of obligations at any time
owing to Borrower, all guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of
an unpaid vendor, lienor or secured party.
“Reserves” means, as of any date of determination, such amounts as Silicon may from
time to time establish and revise in good faith reducing the amount of Loans, Letters of Credit and
other financial accommodations which would otherwise be available to Borrower under the lending
formula(s) provided in the Schedule: (a) to reflect events, conditions, contingencies or risks
which, as determined by Silicon in good faith, do or may affect (i) the Collateral or any other
property which is security for the Obligations or its value (including without limitation any
increase in delinquencies of Receivables), (ii) the assets, business or prospects of Borrower or
any Guarantor,
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| Silicon Valley Bank | Loan and Security Agreement |
or (iii) the security interests and other rights of Silicon in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Silicon’s good faith belief
that any collateral report or financial information furnished by or on behalf of Borrower or any
guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material
respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes
an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.
“Supporting Obligations” means all supporting obligations including, without
limitation, “supporting obligations” as defined in the Code and also any letter-of-credit right or
secondary obligation which supports the payment or performance of an account, chattel paper, a
document, a general intangible, an instrument, or investment property.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified
as liabilities on Borrower’s consolidated balance sheet, including all indebtedness.
Other Terms. All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all checks, wire
transfers and other items of payment received by Silicon (including proceeds of Receivables and
payment of the Obligations in full) shall be deemed applied by Silicon on account of the
Obligations three Business Days after receipt by Silicon of immediately available funds, and, for
purposes of the foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to credit Borrower’s
account for the amount of any item of payment which is unsatisfactory to Silicon in its good faith
business judgment, and Silicon may charge Borrower’s loan account for the amount of any item of
payment which is returned to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the Obligations may be applied,
and in Silicon’s xxxx xxxxx business judgment reversed and re-applied, to the Obligations, in such
order and manner as Silicon shall determine in its good faith business judgment.
9.3 Charges to Accounts. Silicon may, in its discretion, require that Borrower pay monetary
Obligations in cash to Silicon, or charge them to Borrower’s Loan account, in which event they will
bear interest at the same rate applicable to the Loans. Silicon may also, in its discretion,
charge any monetary Obligations to Borrower’s Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an account of advances,
charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed
correct, accurate and binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by Silicon), unless
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| Silicon Valley Bank | Loan and Security Agreement |
Borrower notifies Silicon in writing to the contrary within sixty days after such account is
rendered, describing the nature of any alleged errors or ommissions.
9.5 Notices. All notices to be given under this Agreement shall be in writing and shall be
given either personally or by reputable private delivery service or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in
the heading to this Agreement, or at any other address designated in writing by one party to the
other party. Notices to Silicon shall be directed to the Commercial Finance Division, to the
attention of the Division Manager or the Division Credit Manager. All notices shall be deemed to
have been given upon delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two Business Days following
the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any court of competent
jurisdiction to be void or enforceable, such defect shall not affect the remainder of this
Agreement, which shall continue in full force and effect.
9.7 Integration. This Agreement and such other written agreements, documents and instruments
as may be executed in connection herewith are the final, entire and complete agreement between
Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in this Agreement. There
are no oral understandings, representations or agreements between the parties which are not set
forth in this Agreement or in other written agreements signed by the parties in connection
herewith.
9.8 Waivers; Indemnity. The failure of Silicon at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other present or future
agreement between Borrower and Silicon shall not waive or diminish any right of Silicon later to
demand and receive strict compliance therewith. Any waiver of any default stall not waive or
affect any other default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future executed by Borrower and
delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its
agents or employees, but only by a specific written waiver signed by an authorized officer of
Silicon and delivered to Borrower. Borrower waives the benefit of all states of limitations
relating to any of the Obligations or this Agreement or any document related hereto, and Borrower
waives demand, protest, notice of protest and novice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held by Silicon on which
Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless
expressly required by this Agreement. Borrower hereby agrees to indemnify Silicon and its
affiliates, subsidiaries, parent, directors, officers, employees, agents, and attorneys, and to
hold them harmless from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including reasonable attorneys’ fees), of
every kind, which they may sustain or incur based upon or arising out of any of the Obligations, or
any relationship or agreement between Silicon and Borrower, or any other matter, relating to
Borrower or the Obligations; provided, that this indemnity shall not extend to damages proximately
caused
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| Silicon Valley Bank | Loan and Security Agreement |
by the indemnitee’s own gross negligence or willful misconduct. Notwithstanding any provision
in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive
any termination of this Agreement and shall for all purposes continue in full force and effect.
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its directors,
officers, employees, agents, attorneys or any Other Person affiliated with or representing Silicon
shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or
any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or
representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross
negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be waived or amended,
except in a writing executed by Borrower and a duly authorized officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by Borrower of each and
every obligation under this Agreement.
9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all reasonable
attorneys’ fare and all filing, recording, search, title insurance, appraisal, audit, and other
reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this
Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable
attorneys’ fees and costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and all present and future documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend
any action or proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower’s books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon’s security
interest in, the Collateral; and otherwise represent Silicon in any litigation relating to
Borrower. In satisfying Borrower’s obligation hereunder to reimburse Silicon for attorneys fees,
Borrower may, for convenience, issue checks directly to Silicon’s attorneys, Xxxxxx & Xxxxxxxxxx,
LLP, but Borrower acknowledges and agrees that Xxxxxx & Xxxxxxxxxx, LLP is representing only
Silicon and not Borrower in connection with this Agreement. If either Silicon or Borrower files
any lawsuit against the other predicated on a breach of this Agreement, Silicon shall be entitled
to recover its reasonable costs and attorneys’ fees, including (but not limited to)
reasonable attorneys’ lees and costs incurred in the enforcement of execution upon or defense of
any order, decree, award or judgment. All attorneys’ fees and costs to which Silicon may be
entitled pursuant to this Section 9.12 shall immediately become part of Borrower’s Obligations,
shall be due on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be binding upon and inure
to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of
Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its
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| Silicon Valley Bank | Loan and Security Agreement |
rights under this Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release Borrower from its
liability for the Obligations.
9.14 Joint and Several Liability. If Borrower consists of more than one Person, their
liability shall be joint and several, and the compromise of any claim with, or the release of, any
Borrower shall not constitute a comprise with, or a release of, any other Borrower.
9.15 Limitation of Actions. Any claim or cause of action by Borrower against Silicon, its
directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Loan Agreement or any other present or future document or agreement, or any other
transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter,
cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted
by Borrower by the commencement of an action or proceeding in a court of competent
.jurisdiction by the filing of a complaint within the earlier to occur of (1) one year
after the Borrower becomes aware of the first act, occurrence or omission upon which such claim or
cause of action, or any part thereof, is based, and the service of a summons and complaint on an
officer of Silicon, or on any other person authorized to accept service on behalf of Silicon,
within thirty (30) days thereafter, or (ii) two years from the date of this Agreement. Borrower
agrees that such period is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This provision shall
survive any termination of this Loan Agreement or any other present or future agreement
9.16 Right of Set-Off. Borrower and any guarantor hereby grant to Silicon a lien, security
interest, and right of setoff as security for all Obligations to Silicon, whether now existing or
hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter
in the possession, custody, safekeeping, or control of Silicon or any entity under the control of
Silicon Valley Bank or in transit to any of them. At any time after the occurrence and during the
continuance of an Event of Default, without demand or notice, Silicon may set off the same or any
part thereof and apply the same to any liability or obligation of Borrower and any guarantor then
due and regardless of the adequacy of any other collateral securing the loan. ANY AND ALL RIGHTS
TO REQUIRE SILICON TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS,
OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY, AND
IRREVOCABLY WAIVED.
9.17 Section Headings; Construction. Section headings are only used in this Agreement for
convenience. Borrower and Silicon acknowledge that the headings may not describe completely the
subject matter of the applicable section, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provisions of this Agreement. The term
“including”, whenever used in this Agreement, shall mean “including (but not limited
to)”. This Agreement has been fully reviewed and negotiated between the parties and no uncertainty
or
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| Silicon Valley Bank | Loan and Security Agreement |
ambiguity in any term or provision of this Agreement shall be construed strictly against
Silicon or Borrower under any rule of construction or otherwise.
9.18 Governing Law; Jurisdiction; Venue. This Agreement and all acts and transactions
hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of
the Commonwealth of Massachusetts. As a material part of the consideration to Silicon to enter
into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at Silicon’s option, be litigated in state or federal courts
located within Massachusetts; (ii) consents to the jurisdiction and venue of any such court and
consents to service of process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such action or
proceeding, provided, however, that if for any reason Silicon cannot avail itself of such courts in
the Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Clara, California.
9.19 Mutual Waiver of Jury Trial. BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS
AGREEMENT OR ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
9.20 Confidentiality. In handling any confidential information, Silicon shall exercise the
same degree of care that it exercises for its own proprietary information, but disclosure of
information may be made: (i) to Silicon’s subsidiaries or affiliates in connection with their
present or prospective business relations with Borrower; (ii) to prospective transferees or
purchasers of any interest in the Loans who agree to be bound by the terms thereof; (iii) as
required by law, regulation, subpoena, or other order, (iv) as required in connection with
Silicon’s examination or audit; and (v) as Silicon considers appropriate in exercising remedies
under this Agreement. Confidential information does not include information that either: (a) is
in the public domain or in Silicon’s possession when disclosed to Silicon, or becomes part of the
public domain after disclosure to Silicon (through no act or omission of Silicon); or (b) is
disclosed to Silicon by a third party, which third party is not under any non-disclosure
obligation.
9.20 Reincorporation. Borrower has advised Silicon that the Reincorporation shall be
consummated within twenty (20) days of the date hereof. Borrower and NSI Software, Inc.
acknowledge and agree that Silicon is hereby authorized to file such financing statements in such
jurisdictions as Silicon deems appropriate vesting a first-perfected security interest in their
assets in favor of Silicon and Borrower and NSI Software, Inc. agree to execute and deliver to
Silicon such additional documents, instruments and agreements as Silicon may reasonable require to
confirm same (including, without limitation, an assumption and/or joinder agreement in form and
substance reasonably satisfactory to Silicon). NSI Software, Inc. further acknowledges
and agrees that upon consummation of the Reincorporation, NSI Software, Inc. shall be liable
to Silicon for
23
| Silicon Valley Bank | Loan and Security Agreement |
all Obligations, and shall be bound by and comply with all terms and provisions of this
Agreement and each document, instrument and agreement executed in connection herewith, to the same
extent and the same manner as if NSI Software, Inc. was the original Borrower under this Agreement
and each document, instrument and agreement executed in connection herewith.
24
| Silicon Valley Bank | Loan and Security Agreement |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed
instrument under the laws of the Commonwealth of Massachusetts as of the date first above written.
| Borrower: | ||||
| NETWORK SPECIALISTS, INCORPORATED |
||||
By
|
/s/ S. Xxxxx Xxxx
|
|||
| President or Vice President | ||||
By |
||||
| Silicon: | ||||
| SILICON VALLEY BANK, d/b/a SILICON VALLEY EAST |
||||
By
|
/s/ Xxxx X. Atenasoff
|
|||
Title
|
Vice President | |||
| Acknowledged and Agreed: | ||||
| NSI SOFTWARE, INC. | ||||
By
|
/s/ S. Xxxxx Xxxx
|
|||
| President or Vice President | ||||
Title |
||||
25
Silicon Valley Bank
Schedule to
Loan and Security Agreement
Loan and Security Agreement
| Borrower: | NETWORK SPECIALISTS INCORPORATED |
| Address: | Xxx Xxxxxx Xxxxx, Xxxxx 000 Xxxxxxx, Xxx Xxxxxx 000000 |
| Date: | October 16, 2003 |
This Schedule forms an integral part of the Loan and Security Agreement between Silicon Valley
Bank and the above-borrower of even date.
| 1. | Credit Limit | |
| (Section 1.1): An amount not to exceed the lesser of (A) or (B), below: | ||
| (A) |
(i) $4,500,00.00 at any one time outstanding (the “Maximum Credit Limit’’);
minus
(ii) the aggregate amounts then undrawn on all outstanding letters of credit,
foreign exchange contracts, or any other accommodations issued or incurred, or
caused to be issued or incurred by Silicon for the account and/or benefit of the
Borrower.
| (B) |
(i) 75% of the amount of the Borrower’s Eligible Receivables, exclusive of Deferred
Revenue Offsets and rebate accruals; provided, however, in the event that Borrower
has an Adjusted Quick Ratio (to be tested on a monthly basis, as of the end of each
month) of at least 1.0 to 1.0, then Silicon will not exclude such Deferred Revenue
Offsets or rebate accruals; minus
(ii) the aggregate amounts then undrawn on all outstanding letters of credit,
foreign exchange contracts, or any other accommodations issued or incurred, or
caused to be issued or incurred by Silicon for the account and/or benefit of the
Borrower.
Silicon may, from time to time, modify the advance rate(s) set forth herein in its good faith
business judgment upon notice to Borrower based on changes in collection experience with respect to
the Receivables or other issues or factors relating to the Receivables or the Collateral.
Letter of Credit/Foreign Exchange Contract/Cash Management Services Sublimit
(Section 1.5, 1.6): $1,000,000.00
1
| Silicon Valley Bank | Loan and Security Agreement | |
| 2. | Interest. |
Interest Rate (Section 1.2):
A rate equal to the “Prime Rate” in effect from time to time, plus 2.5% per annum. Interest
shall be calculated on the basis of a 360-day year for the actual number of days elapsed. “Prime
Rate” means the greater of (i) 4.00%, or (ii) the rate announced from time to time by Silicon as
its “prime rate;” it is a base rate upon which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The interest rate applicable to the
Obligations shall change on each date there is a change in the Prime Rate.
Minimum Monthly
Interest (Section 1.2): $5,000.00.
Interest (Section 1.2): $5,000.00.
| 3. | Fees (Section 1.4): |
Loan Fee: $45,000.00 payable concurrently herewith.
Collateral Handling Fee: $1,000.00 ($500.00 when not borrowing and Borrower has advised
Silicon that it has elected to be on “non-borrowing reporting status” pursuant to Section 6, below)
per month, payable in arrears.
Unused Line Fee: (Intentionally omitted).
Early Termination Fee: If the Obligations are voluntarily or involuntarily prepaid or if this
Agreement is otherwise terminated prior to its maturity, the Borrower shall pay to Silicon a
termination fee in the amount equal to $45,000.00, provided that no such termination fee shall be
charged if the credit facility hereunder is replaced or transferred to another division of Silicon.
The termination fee shall be due and payable upon prepayment by the Borrower in the case of
voluntary prepayments or upon demand by Silicon in the event of involuntary prepayment, and if not
paid immediately shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations.
| 4. | Maturity Date |
(Section 6.1): 364 days from the date of this Agreement
2
| Silicon Valley Bank | Loan and Security Agreement | |
| 5. | Financial Covenants |
(Section 5.1): Borrower shall comply with each of the following covenant(s). Compliance shall
be determined as of the end of each month, except as otherwise specifically provided below:
a. Minimum Tangible Net Worth:
Borrower shall maintain a Tangible Net Worth of not less than the sum of (i) plus (ii)
‘below:
(i)(a) $100,000, as of August 31, 2003;
(b) $800,000, at September 30, 2003;
(c) $0, at October 31, 2003;
(d) ($700,000), at November 30, 2003;
(e) $300,000, at December 31, 2003;
(f) ($450,000), at January 31, 2004;
(g) ($900,000), at February 28, 2004;
(h) ($400,000), at March 31, 2004;
(i) ($1,200,000), at April 30, 2004;
(j) ($1,650,000), at May 31, 2004;
(k) ($650,000), at June 30, 2004;
(l) ($1,100,000), at May 31, 2004;
(m) ($1,500,000), at August 31, 2004; and
(n) $0 at September 30, 2004 and thereafter,
(b) $800,000, at September 30, 2003;
(c) $0, at October 31, 2003;
(d) ($700,000), at November 30, 2003;
(e) $300,000, at December 31, 2003;
(f) ($450,000), at January 31, 2004;
(g) ($900,000), at February 28, 2004;
(h) ($400,000), at March 31, 2004;
(i) ($1,200,000), at April 30, 2004;
(j) ($1,650,000), at May 31, 2004;
(k) ($650,000), at June 30, 2004;
(l) ($1,100,000), at May 31, 2004;
(m) ($1,500,000), at August 31, 2004; and
(n) $0 at September 30, 2004 and thereafter,
plus
(ii)(a) 30% of all consideration received from September 1, 2003 through November 30, 2003,
and (b) 80% of all consideration received from December 1, 2003 and thereafter from proceeds
from the issuance of any equity securities of the Borrower and/or subordinated debt incurred
by the Borrower.
In no event shall the amount of this Minimum Tangible Net Worth covenant be decreased.
b. Minimum Cash or Excess Availability:
The Borrower shall at all times maintain $750,000.00 in (i) cash deposits maintained at
Silicon, and/or (ii) excess “availability” under this Agreement (net of Loans, Letters of
Credit or other indebtedness under this Agreement), as determined by Silicon based upon the
Credit Limit restrictions set forth in Section 1 above).
Definitions. For purposes of the foregoing financial covenants, the following term shall have
the following meaning:
“Liabilities” shall have the meaning ascribed thereto by generally accepted accounting
principles.
3
| Silicon Valley Bank | Loan and Security Agreement | |
“Tangible Net Worth” shall mean the excess of total assets over total liabilities, determined
in accordance with generally accepted accounting principles, with the following adjustments:
(A) there shall be excluded from assets: (i) notes, accounts receivable and other obligations
owing to the Borrower from its officers or other Affiliates, and (ii) all assets which would be
classified as intangible assets under generally accepted accounting principles, including without
limitation goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software
and organizational costs, licenses and franchises
(B) there shall be excluded from liabilities: all indebtedness which is subordinated to the
Obligations under a subordination agreement in form specified by Silicon or by language in the
instrument evidencing the indebtedness which is acceptable to Silicon in its discretion.
| 6. | Reporting. |
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Weekly (monthly, if no amounts are outstanding under this Agreement and Borrower has
advised Silicon in writing that it has elected to be on “non-borrowing reporting status”), and upon
each loan request, borrowing base certificates and transaction reports.
2. Monthly accounts payable agings, aged by invoice date, and outstanding or held check
registers, if any, within fifteen days after the end of each month.
3. Monthly Receivable agings, aged by invoice date, and receivable reconciliations, within
fifteen days after the end of each month.
4. Monthly unaudited financial statements, as soon as available, and in any event within
thirty days after the end of each month.
5. Monthly Compliance Certificates, within thirty days after the end of each month, in such
form as Silicon shall reasonably specify, signed by the Chief Financial Officer of Borrower,
certifying that as of the end of such month Borrower was in full compliance with all of the terms
and conditions of this Agreement, and setting forth calculations showing compliance with the
financial covenants set forth in this Agreement and such other information as Silicon shall
reasonably request, including, without limitation, a statement that at the end of such month there
were no held checks.
6. Quarterly unaudited financial statements, as soon as available, and in any event within
forty-five days after the end of each fiscal quarter of Borrower.
4
| Silicon Valley Bank | Loan and Security Agreement | |
7. Annual operating budgets (including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower within thirty days prior to the end
of each fiscal year of Borrower.
8. Annual audited financial statements, as soon as available, and in any event within 120 days
following the end of Borrower’s fiscal year, prepared under GAAP, consistently applied, together
with an unqualified opinion on the financial statements from an independent certified public
accounting firm reasonably acceptable to Silicon.
9. Such additional reports and information as Silicon may from time to time specify.
| 7. | Borrower Information: |
Prior
Names of Borrower
(Section 3.2): See Perfection Certificate of even date herewith
Prior Trade
Names of Borrower
Names of Borrower
(Section 3.2): See Perfection Certificate of even date herewith
Existing Trade
Names of Borrower
(Section 3.2) See Perfection Certificate of even data herewith
Names of Borrower
(Section 3.2) See Perfection Certificate of even data herewith
Other Locations and
Addresses (Section 3.3): See Perfection certificate of even date herewith
Addresses (Section 3.3): See Perfection certificate of even date herewith
Material Adverse
Litigation (Section 3.10): See Attached Memorandum
Litigation (Section 3.10): See Attached Memorandum
| 8. | Other Covenants |
(Section 5.1): Borrower shall at all times comply with all of the following additional
covenants:
(1) Banking Relationship. In order for Silicon to properly monitor its loan arrangement with
the Borrower, Borrower shall at all times maintain its primary banking relationship with Silicon,
with all significant deposits to be maintained at Silicon.
(2) Subordination of Inside Debt. All present and future indebtedness of the Borrower to its
officers, directors and shareholders (“Inside Debt”) shall, at all times, be
5
| Silicon Valley Bank | Loan and Security Agreement | |
subordinated to the Obligations pursuant to a subordination agreement on Silicon’s standard
form. Borrower represents and warrants that there is no Inside Debt presently outstanding. Prior
to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside
Debt will be owed to execute and deliver to Silicon a subordination agreement on Silicon’s standard
form.
(3) Subordination Agreements. Borrower represents and warrants that Borrower is not presently
indebted to any third party for borrowed money. Prior to incurring any indebtedness, Borrower
shall cause each creditor to execute and deliver to Silicon a subordination agreement on Silicon’s
standard form subordinating to the Obligations the indebtedness of Borrower to any such creditor.
(4) Intellectual Property Security Agreement. As a condition precedent to the effectiveness
of this Agreement, Borrower shall have executed and delivered to Silicon (i) an Intellectual
Property Security Agreement (the “IP Security Agreement”) substantially in the form attached hereto
as Exhibit B, to be held in escrow unless and until the occurrence of an Intellectual Property
Granting Event, and (ii) a Negative Pledge Agreement (the “Negative Pledge Agreement”) in the form
of Exhibit C. As used herein, an “Intellectual Property Granting Event” shall be deemed to have
occurred if either (a) Borrower fails to receive at least $1,000,000 from the issuance of equity
securities of Borrower on or before October 31, 2003, or (b) a judgment is entered against Borrower
in connection with the pending action filed by Legato Systems, Inc. against the Borrower on March
16, 2002 or in connection with any action related thereto. Upon the occurrence of an Intellectual
Property Granting Event, the Intellectual Property Security Agreement shall be released from escrow
and Silicon may file the IP Security Agreement with any appropriate filing office and amend any UCC
financing statement confirming and perfecting Silicon’s security interest in the Intellectual
Property if appropriate. In the event the Intellectual Property Granting Event occurs pursuant to
subsection (b) above and the judgment against Borrower is subsequently overturned, Silicon shall
release its lien on the Borrower’s Intellectual Property.
6
| Silicon Valley Bank | Loan and Security Agreement | |
| Borrower: | Silicon: | |||||||
| NETWORK SPECIALISTS, | SILICON VALLEY BANK, d/b/a | |||||||
| INCORPORATED | SILICON VALLEY EAST | |||||||
By
|
/s/ S. Xxxxx Xxxx | By | /s/ Xxxx X. Atenasoff | |||||
| President or Vice President | Title | Vice President | ||||||
By |
||||||||
| Secretary or Ass’t Secretary | ||||||||
| Acknowledged and Agreed: | ||||||||
| NSI SOFTWARE, INC. | ||||||||
By
|
/s/ S. Xxxxx Xxxx | |||||||
| President or Vice President | ||||||||
Title |
||||||||
| Secretary or Ass’t Secretary | ||||||||
7
