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HYBRID NETWORKS, INC.
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION............................................ 1
1.1 Definitions........................................................ 1
1.2 Accounting and Other Terms......................................... 8
2. LOAN AND TERMS OF PAYMENT............................................... 8
2.1 Revolving Advances................................................. 8
2.2 Overadvances....................................................... 9
2.3 Interest Rates, Payments, and Calculations......................... 9
2.4 Crediting Payments................................................. 10
2.5 Fees............................................................... 10
2.6 Additional Costs................................................... 10
3. CONDITIONS OF CREDIT EXTENSIONS......................................... 10
3.1 Conditions Precedent to Initial Credit Extension................... 10
3.2 Conditions Precedent to all Credit Extensions...................... 11
4. CREATION OF SECURITY INTEREST........................................... 11
4.1 Grant of Security Interest......................................... 11
4.2 Delivery of Additional Documentation Required...................... 11
4.3 Right to Inspect................................................... 12
5. REPRESENTATIONS AND WARRANTIES.......................................... 12
5.1 Due Organization and Qualification................................. 12
5.2 Due Authorization; No Conflict..................................... 12
5.3 No Prior Encumbrances.............................................. 12
5.4 Bona Fide Eligible Accounts........................................ 12
5.5 Merchantable Inventory............................................. 12
5.6 Name; Location of Chief Executive Office........................... 12
5.7 Litigation......................................................... 13
5.8 No Material Adverse Change in Financial Statements................. 13
5.9 Solvency........................................................... 13
5.10 Regulatory Compliance.............................................. 13
5.11 Environmental Condition............................................ 13
5.12 Taxes.............................................................. 14
5.13 Subsidiaries....................................................... 14
5.14 Government Consents................................................ 14
5.15 Full Disclosure.................................................... 14
6. AFFIRMATIVE COVENANTS................................................... 14
6.1 Good Standing...................................................... 14
6.2 Government Compliance.............................................. 14
6.3 Financial Statements, Reports, Certificates........................ 15
6.4 Inventory; Returns................................................. 15
6.5 Taxes.............................................................. 15
6.6 Insurance.......................................................... 16
6.7 Principal Depository............................................... 16
6.8 Quick Ratio........................................................ 16
6.9 Tangible Net Worth................................................. 16
6.10 Debt Net Worth..................................................... 16
6.11 Profitability...................................................... 17
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6.12 Further Assurances................................................. 17
7. NEGATIVE COVENANTS...................................................... 17
7.1 Dispositions....................................................... 17
7.2 Changes in Business, Ownership, Management or Business Locations... 17
7.3 Mergers or Acquisitions............................................ 17
7.4 Indebtedness....................................................... 17
7.5 Encumbrances....................................................... 18
7.6 Distributions...................................................... 18
7.7 Investments........................................................ 18
7.8 Transactions with Affiliates....................................... 18
7.9 Subordinated Debt.................................................. 18
7.10 Compliance......................................................... 18
8. EVENTS OF DEFAULT....................................................... 18
8.1 Payment Default.................................................... 19
8.2 Covenant Default................................................... 19
8.3 Material Adverse Change............................................ 19
8.4 Attachment......................................................... 19
8.5 Insolvency......................................................... 19
8.6 Other Agreements................................................... 20
8.7 Subordinated Debt.................................................. 20
8.8 Judgments.......................................................... 20
8.9 Misrepresentations................................................. 20
9. BANK'S RIGHTS AND REMEDIES.............................................. 20
9.1 Rights and Remedies................................................ 20
9.2 Power of Attorney.................................................. 21
9.3 Accounts Collection................................................ 22
9.4 Bank Expenses...................................................... 22
9.5 Bank's Liability for Collateral.................................... 22
9.6 Remedies Cumulative................................................ 22
9.7 Demand; Protest.................................................... 22
10. NOTICES................................................................. 23
11. CHOICE OF LAW AND VENUE................................................. 23
12. GENERAL PROVISIONS...................................................... 23
12.1 Successors and Assigns............................................. 23
12.2 Indemnification.................................................... 24
12.3 Time of Essence.................................................... 24
12.4 Severability of Provisions......................................... 24
12.5 Amendments in Writing, Integration................................. 24
12.6 Counterparts....................................................... 24
12.7 Survival........................................................... 24
12.8 Confidentiality.................................................... 24
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This LOAN AND SECURITY AGREEMENT is entered into as of October 16, 1997,
by and between VENTURE BANKING GROUP, a division of Cupertino National Bank
("Bank") and HYBRID NETWORKS, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing.
"Advance" or "Advances" means a cash advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, partners and, for any
Person that is a limited liability company, such Persons, managers and
members, provided that for purposes of this Agreement, with respect to
Borrower, Affiliate shall mean only Borrower, Borrower's Subsidiaries and
each of Borrower's and its Subsidiaries senior executive officers, directors,
partners and for any subsidiary that is a limited liability company, such
Subsidiary's managers and members.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection
with the preparation and negotiation of the Loan Documents not to exceed
$6,000 without the prior consent of Borrower; and Bank's reasonable
attorneys' fees and expenses incurred in amending, enforcing or defending the
Loan Documents (including fees and expenses of appeal or review, or those
incurred in any Insolvency Proceeding), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers; records concerning Borrower's assets
or liabilities, the Collateral, business operations or financial condition;
and all computer programs, or tape files, and the equipment (except Equipment
that Borrower does not own, which Equipment Borrower leases from third
parties), containing such information.
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"Borrowing Base" means an amount equal to seventy-five percent
(75%) of Eligible Accounts as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
Four Million Dollars ($4,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold
with recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount equal
to the stated or determined amount of the primary obligation in respect of
which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith; provided, however, that such amount shall not
in any event exceed the maximum amount of the obligations under the guarantee
or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or any other extension of
credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries on a separate
company basis as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries on a separate company basis, as at such date, plus, to the
extent not already included therein, all outstanding Credit Extensions made
under this Agreement, including all Indebtedness that is payable upon demand
or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Default Rate" has the meaning assigned in Section 2.3(b).
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"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided,
that standards of eligibility may be fixed and revised from time to time by
Bank in Bank's reasonable judgment and upon notification thereof to Borrower
in accordance with the provisions hereof. Unless otherwise agreed to by Bank
in writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety
(90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed thirty percent (30%)
of the total of all Accounts but only to the extent that such obligations
exceed 30% of all Accounts, except as approved in writing by Bank or except
as set forth on the Schedule;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts, etc.) or except as set forth on the
Schedule;
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, xxxx and hold, or progress
xxxxxxxx, or other terms by reason of which the payment by the account debtor
may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower or except as set forth on
the Schedule;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes,
in its sole discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts owing from distributors that have not been
pre-approved by Bank or except as set forth on the Schedule; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to
which the account debtor does not have its principal place of business in the
United States and that Bank approves on a case-by-case basis. (Bank
acknowledges approving Accounts owing by entities listed in the Schedule,
that are otherwise Eligible Accounts.)
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"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest, except Equipment that
Borrower does not own, which Equipment Borrower leases from third parties.
"Equity Event" means the receipt by Borrower of not less than
Thirty Two Million Dollars ($32,000,000) from the sale or issuance of its
equity securities in its initial public offering.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and (d)
all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief for
creditors.
"Intellectual Property Collateral" means all of Borrower's
right, title and interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but
not the obligation, to xxx for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, or Trademarks and all license fees and royalties arising from such
use to the extent permitted by such license or rights (subject to the
exclusions set forth in the last paragraph of Exhibit A attached hereto);
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
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"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any non-negotiable documents of title representing any
of the above.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, in favor of Bank, and any other present or
future agreement entered into between Borrower and/or for the benefit of Bank
in connection with this Agreement, all as amended, extended or restated from
time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to
repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, negotiable documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may
have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of
the same, now or hereafter existing, created or acquired.
"Payment Date" means the fifteenth (15th) day of each month,
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
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(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
(f) Any renewal, extension or refinancing of any Indebtedness
described in clauses (a) through (e), above provided the terms of such
renewal, extension or refinancing are not more burdensome than the original
Indebtedness and the principal amount of such renewal, extension or
refinancing does not exceed the principal amount of the original Indebtedness.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) Investments in: (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America or any agency
or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1) year
from the date of creation thereof and currently having the rating of A or
higher from either Standard & Poor's Corporation or Xxxxx'x Investors
Service, Inc., (iii) certificates of deposit maturing no more than one (1)
year from the date of investment therein issued by Bank, or, as to such
certificates of deposit held by Bank of America, for thirty (30) days after
the Closing Date, and (iv) investments in securities issued by wholly-owned
Subsidiaries of Borrower;
(c) Investments consisting of (i) travel advances, employee
relocation loans and other employee loans and advances in the ordinary course
of business, and (ii) loans to employees, officers or directors relating to
the purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower's Board of
Directors;
(d) Investments (including debt obligations) received in
settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business; and
(e) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions to, customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph
(e) shall not apply to Investments by Borrower in any Subsidiary.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule (including the Lien of London Pacific Life and Annuity Company
or its assigns) or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
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(d) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens with
respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangement entered into with banks in the
ordinary course of business;
(e) Liens on insurance proceeds in favor of insurance
companies granted solely as security for financed premiums;
(f) Liens related to leases or subleases and licenses or
sublicenses granted to others in the ordinary course of Borrower's business
not interfering in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor,
licensor or under any lease or license, provided that such leases, subleases,
licenses and sublicenses do not prohibit the grant of the security interest
granted hereunder (subject to the exclusions set forth in the last paragraph
of Exhibit A attached hereto); and
(g) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) and (e) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the
existing Lien (or proceeds of such property) and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently published in the Western edition of The Wall Street Journal, as
the "prime rate," whether or not such announced rate is the lowest rate
available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and investments with
maturities of fewer than ninety (90) days of Borrower determined in
accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or
one or more Affiliates of such Person.
"Tangible Net Worth" means, as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense,
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patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (ii) Total Liabilities of
Borrower and its Subsidiaries.
"Total Liabilities" means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as
liabilities on the consolidated balance sheet of Borrower on a separate
company basis, including in any event all Indebtedness.
"Trademarks" means any trademark and service xxxx rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of
Borrower connected with and symbolized by such trademarks now or hereafter
existing, created or acquired.
1.2 Accounting and Other Terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP and all calculations and determinations
made hereunder shall be made in accordance with GAAP. When used herein, the
term "financial statements" shall refer to the financial statements of
Borrower prepared on a separate company basis and shall include the notes and
schedules thereto. The terms "including" / "includes" shall always be read
as meaning "including (or includes) without limitation," when used herein or
in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Revolving Advances
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed the lesser of the Committed Revolving Line
or the Borrowing Base, less in each case the face amount of any outstanding
Letters of Credit (as hereafter defined), including drawn but unreimbursed
Letters of Credit. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof, and
Borrower shall indemnify and hold Bank harmless for any damages or loss
suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
Borrower shall deliver to Bank a promissory note in substantially the form of
Exhibit C.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1
shall be immediately due and payable.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued letters of credit
("Letters of Credit") for the account of Borrower in an aggregate outstanding
face amount not to exceed the lesser of the Committed Revolving Line or the
Borrowing Base, minus in each case the outstanding Advances, and in any case
not to exceed Two Million Five Hundred Thousand Dollars ($2,500,000). Each
Letter of Credit shall have an expiry date
8
no later than one hundred eighty (180) days after the Revolving Maturity
Date, provided that Borrower's Letter of Credit reimbursement obligation
shall be secured by cash on terms acceptable to Bank at any time after the
Revolving Maturity Date if the term of this Agreement is not extended by
Bank. All Letters of Credit shall be, in form and substance, acceptable to
Bank in its sole discretion and shall be subject to the terms and conditions
of Bank's form of standard Application and Letter of Credit Agreement,
including without limitation an issuance fee equal to two percent (2%) of the
face amount of each Letter of Credit.
(b) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend, protect and hold
Bank harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection with
any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a demand
for payment is made under any such Letter of Credit, Bank shall treat such
demand as an Advance to Borrower of the equivalent of the amount thereof
(plus cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in
a currency other than United States Dollars, Bank shall create a reserve
under the Revolving Committed Line for Letters of Credit against fluctuations
in currency exchange rates, in an amount equal to ten percent (10%) of the
face amount of such Letter of Credit. The amount of such reserve may be
amended by Bank from time to time to account for fluctuations in the exchange
rate. The availability of funds under the Committed Revolving Line shall be
reduced by the amount of such reserve for so long as such Letter of Credit
remains outstanding. If a hedge for a currency exchange rate is in place for
any Letter of Credit, no reserve shall be required for such Letter of Credit.
2.2 Overadvances.
If, at any time or for any reason, the amount of Obligations
owed by Borrower to Bank pursuant to Section 2.1 of this Agreement is greater
than the lesser of (i) the Committed Revolving Line or (ii) the Borrowing
Base, Borrower shall immediately pay to Bank, in cash, the amount of such
excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any
Advances shall bear interest on the average daily balance thereof, at a per
annum rate equal to the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence and continuance of an Event of Default, at a rate
equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts
with Bank, including, without limitation, Account Number
for payments of principal and interest due on the Obligations and any other
amounts owing by Borrower to Bank. Bank will notify Borrower of all debits
which Bank has made against Borrower's accounts. Any such debits against
Borrower's accounts in no way shall be deemed a set-off. Any interest not
paid when due shall be compounded
9
by becoming a part of the Obligations, and such interest shall thereafter
accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate
is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments.
Prior to the occurrence and during the continuance of an Event
of Default, Bank shall credit a wire transfer of funds, check or other item
of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence and continuance of an Event of Default, the receipt by
Bank of any wire transfer of funds, check, or other item of payment, whether
directed to Borrower's deposit account with Bank or to the Obligations or
otherwise, shall be immediately applied to conditionally reduce Obligations,
but shall not be considered a payment in respect of the Obligations unless
such payment is of immediately available federal funds or unless and until
such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer
or payment received by Bank after 12:00 noon Pacific time shall be deemed to
have been received by Bank as of the opening of business on the immediately
following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall
accrue and be payable for the period of such extension.
2.5 Fees.
Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Twenty Thousand
Dollars ($20,000), which fee shall be due on the Closing Date and shall be
fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, not to exceed Seven Hundred and Fifty Dollars ($750) per audit, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents, provided that
such audits will be conducted no more often than every six months unless an
Event of Default has occurred and is continuing and such appraisals of
collateral and financial analysis shall be conducted only upon the occurrence
and during the continuance of an Event of Default.
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses without Borrower's
prior consent, and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs.
In case any law, regulation, treaty or official directive or
the interpretation or application thereof by any court or any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
10
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of
America or any State or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets
held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank,
reduce the income receivable by Bank or impose any expense upon Bank with
respect the Obligations, Bank shall notify Borrower thereof. Borrower agrees
to pay to Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and
setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 Term.
Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate
its obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF CREDIT EXTENSIONS
3.1 Conditions Precedent to Initial Credit Extension.
The obligation of Bank to make the initial Credit Extension is
subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) agreement to provide insurance;
(d) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
(e) an audit of Borrower's Accounts, the results of which
shall be satisfactory to Bank;
(f) a financing statement (Form UCC-1);
(g) a warrant to purchase stock executed as of the Closing
Date;
11
(h) subordination agreements with respect to the Debenture and
the Subordinated Notes (as each term is defined in the Schedule) executed as
of the Closing Date; and
(i) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions.
The obligation of Bank to make each Credit Extension, including
the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension
as though made at and as of each such date, and no Event of Default shall
have occurred and be continuing, or would result from such Credit Extension.
The making of each Credit Extension shall be deemed to be a representation
and warranty by Borrower on the date of such Credit Extension as to the
accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt payment of any and all Obligations and
in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule and
except for Permitted Liens, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof. From and after the occurrence and continuance of an
Event of Default, Borrower acknowledges that Bank may place a "hold" on any
Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank,
at the request of Bank, all Negotiable Collateral, all financing statements
and other documents that Bank may reasonably request, in form satisfactory to
Bank, to perfect and continue perfected Bank's security interests in the
Collateral and in order to fully consummate all of the transactions
contemplated under the Loan Documents.
4.3 Right to Inspect.
Subject to Section 12.8, Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice,
from time to time during Borrower's usual business hours, to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrower's financial condition or the
amount, condition of, or any other matter relating to, the Collateral;
provided, however, Bank shall have the right to appraise the Collateral only
upon the occurrence and continuance of an Event of Default.
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5. REPRESENTATIONS AND WARRANTIES
Except as set forth in the Schedule, Borrower represents and
warrants as follows:
5.1 Due Organization and Qualification.
Borrower and each Subsidiary is a corporation duly existing and
in good standing under the laws of its state of incorporation and qualified
and licensed to do business in, and is in good standing in, any state in
which the conduct of its business or its ownership of property requires that
it be so qualified, except for states as to which any failure to so qualify
would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict.
The execution, delivery, and performance of the Loan Documents
are within Borrower's corporate powers, have been duly authorized, and are
not in conflict with nor constitute a breach of any provision contained in
Borrower's Certificate of Incorporation or Bylaws, nor will they constitute
an event of default under any material agreement to which Borrower is a party
or by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default would
reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances.
Borrower has good and indefeasible title to the Collateral,
free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts.
The Eligible Accounts are bona fide existing obligations. The
service or property giving rise to such Eligible Accounts has been performed
or delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding
of any account debtor whose accounts are included in any Borrowing Base
Certificate as an Eligible Account.
5.5 Merchantable Inventory.
All Inventory is in all material respects of good and
marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office.
Except as disclosed in the Schedule, Borrower has not done
business and will not, without at least thirty (30) days prior written notice
to Bank, do business under any name other than that specified on the
signature page hereof. The chief executive office of Borrower is located at
the address indicated in Section 10 hereof.
5.7 Litigation.
Except as set forth in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which
an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
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5.8 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and
any Subsidiary that have been delivered by Borrower to Bank fairly present in
all material respects Borrower's consolidated financial condition as of the
date thereof and Borrower's consolidated results of operations for the period
then ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank on or about the Closing Date.
5.9 Solvency.
Borrower is solvent and Borrower is able to pay its debts
(including trade debts) as they mature.
5.10 Regulatory Compliance.
Borrower and each Subsidiary has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower's failure to comply
with ERISA that is reasonably likely to result in Borrower's incurring any
liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations G, T and U of the Board of Governors of
the Federal Reserve System). Borrower has complied with all the provisions
of the Federal Fair Labor Standards Act. Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, violation of which
could reasonably be expected to have a Material Adverse Effect.
5.11 Environmental Condition.
None of Borrower's or any Subsidiary's properties or assets has
ever been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous owners or operators, in the disposal of, or to
produce, store, handle, treat, release, or transport, any hazardous waste or
hazardous substance other than in accordance with applicable law; to the best
of Borrower's knowledge, none of Borrower's properties or assets has ever
been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site,
or a candidate for closure pursuant to any environmental protection statute;
no lien arising under any environmental protection statute has attached to
any revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or
any other federal, state or other governmental agency concerning any action
or omission by Borrower or any Subsidiary resulting in the release or other
disposition of hazardous waste or hazardous substances into the environment.
5.12 Taxes.
Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries.
Borrower does not own any stock, partnership interest or other
equity securities of any Person, except for Permitted Investments.
14
5.14 Government Consents.
Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all governmental authorities that are necessary for the
continued operation of Borrower's business as currently conducted except
where any failure to do so would not reasonably be expected to have a
Material Adverse Effect.
5.15 Full Disclosure.
No representation, warranty or other statement made by Borrower
in any certificate or written statement furnished to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in such certificates or statements
not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing.
Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a Material Adverse Effect.
Borrower shall maintain, and shall cause each of its Subsidiaries to
maintain, to the extent consistent with prudent management of Borrower's
business, in force all licenses, approvals and agreements, the loss of which
would reasonably be expected to have a Material Adverse Effect.
6.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to meet,
the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral
or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
(a) Borrower shall deliver to Bank: (i) as soon as available,
but in any event within thirty (30) days after the end of each month (and
after the Equity Event, within thirty (30) days after the end of each fiscal
quarter), a Borrower prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a form and
certified by a Responsible Officer; (ii) as soon as available, but in any
event within one hundred twenty (120) days after the end of Borrower's fiscal
year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified
opinion on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (iii) within five (5) days of
filing, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) promptly upon
15
receipt of notice thereof, a report of any legal actions pending or
threatened against Borrower or any Subsidiary that would reasonably be
expected to result in damages or costs to Borrower or any Subsidiary of One
Hundred Thousand Dollars ($100,000) or more; and (v) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time.
(b) Within thirty (30) days after the last day of each month,
if Advances or Letters of Credit are outstanding under this Agreement,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit D hereto, together
with aged listings of accounts receivable and accounts payable.
(c) Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit E hereto. After an Equity Event, the
Compliance Certificate shall be submitted on a quarterly basis or within five
(5) days after filing Form 10-K with the SEC.
(d) Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense, provided that such audits
will be conducted no more often than every six (6) months unless an Event of
Default has occurred and is continuing.
6.4 Inventory; Returns.
Borrower shall keep all Inventory in good and marketable
condition, free from all material defects. Returns and allowances, if any,
as between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all inventory related returns, and disputes and
claims regarding inventory, where the inventory related return, dispute or
claim involves more than One Hundred Twenty-Five Thousand Dollars ($125,000).
6.5 Taxes.
Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Bank, within two (2) business days after demand, appropriate
certificates attesting to the payment or deposit thereof; and Borrower will
make, and will cause each Subsidiary to make, timely payment or deposit of
all material tax payments and withholding taxes required of it by applicable
laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating
that Borrower or a Subsidiary has made such payments or deposits; provided
that Borrower or a Subsidiary need not make any payment or deposit if the
amount or validity of such payment is (i)contested in good faith by
appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against
by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's business in amounts and of a type
that are customary to businesses similar to Borrower's.
16
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional
loss payee thereof and all liability insurance policies shall show the Bank
as an additional insured, and shall specify that the insurer must give at
least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefor. So long as no Event of Default has occurred and is continuing,
Borrower shall have the option of applying the proceeds of any casualty
policy of the replacement or repair of destroyed or damaged property;
provided, that after the occurrence and during the continuance of an Event of
Default, all proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank for application to the Obligations. All proceeds
payable under any such policy shall, at the option of Bank, be payable to
Bank to be applied on account of the Obligations.
6.7 Principal Depository.
Borrower shall maintain its principal depository and operating
accounts with Bank.
6.8 Quick Ratio.
Borrower shall maintain, as of the last day of each calendar
month, beginning with the month ending October 31, 1997, a ratio of Quick
Assets to Current Liabilities, of at least 1.25 to 1.0. After the Equity
Event, Borrower shall maintain, as of the last day of each fiscal quarter, a
ratio of Quick Assets to Current Liabilities, of at least 1.25 to 1.0.
6.9 Tangible Net Worth.
Borrower shall maintain, as of the last day of each calendar
month, a Tangible Net Worth plus Subordinated Debt of not less than Three
Million Five Hundred Thousand Dollars ($3,500,000). After the Equity Event,
Borrower shall maintain, as of the last day of each fiscal quarter, a
Tangible Net Worth plus Subordinated Debt of not less than Three Million Five
Hundred Thousand Dollars ($3,500,000).
6.10 Debt Net Worth.
Borrower shall maintain as of the last day of each calendar
month, beginning with the month ending October 31, 1997, a ratio of (i) Total
Liabilities less Subordinated Debt to (ii) Tangible Net Worth plus
Subordinated Debt of not more than 1.75 to 1.0 After the Equity Event,
Borrower shall maintain as of the last day of each fiscal quarter, a ratio of
Debt to Tangible Net Worth of at least 1.75 to 1.0.
6.11 Profitability.
Borrower may incur losses not to exceed: (i) $3,800,000 for
the fiscal quarter ending September 30, 1997; (ii) $2,600,000 for the fiscal
quarter ending December 31, 1997; (iii) $1,500,000 for the fiscal quarter
ending March 31, 1998; and (iv) $300,000 for the fiscal quarter ending June
30, 1998.
6.12 Registration of Intellectual Property Rights.
(a) Borrower shall, consistent with Borrower's reasonable
business practices, register or cause to be registered (to the extent not
already registered) with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, those intellectual
17
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement; provided,
however, Borrower shall register its pending patents as soon as is reasonably
practicable, consistent with Borrower's reasonable business practices.
Borrower shall, consistent with Borrower's reasonable business practices,
register or cause to be registered with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
additional intellectual property rights developed or acquired by Borrower
from time to time in connection with any product prior to the sale or
licensing of such product to any third party, including without limitation
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request
to perfect Bank's security interest in the United States in the Intellectual
Property Collateral.
(c) Borrower shall, to the extent such Trademarks, Patents and
Copyrights are material to Borrower's business as determined by Borrower's
reasonable business practices (i) use commercially reasonable efforts to
protect, defend and maintain the validity and enforceability of the
registrations and applications for registration of the Trademarks, Patents
and Copyrights, (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise
Bank in writing of material infringements detected and (iii) not allow any
Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to
the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Borrower determines that reasonable business
practices suggest that abandonment, forfeit or dedication is appropriate.
(d) Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Section 6.12 to take but which Borrower fails to take, after fifteen
(15) days' notice to Borrower. Borrower shall reimburse and indemnify Bank
for all reasonable costs and reasonable expenses incurred in the reasonable
exercise of its rights under this Section 6.12.
6.13 Further Assurances.
At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, without the prior written
consent of Bank, which may be granted or withheld in Bank's sole discretion,
so long as any Credit Extension hereunder shall be available and until
payment in full of the outstanding Obligations or for so long as Bank may
have any commitment to make any Advances, Borrower will not do any of the
following:
7.1 Dispositions.
Except as set forth in the Schedule, convey, sell, lease,
transfer or otherwise dispose of (collectively, a "Transfer"), or permit any
of its Subsidiaries to Transfer, all or any part of its business or property,
other than Transfers (i) of inventory in the ordinary course of business,
(ii) of licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business, (iii) of
worn-out or obsolete Equipment, or (iv) constituting Permitted Liens.
18
7.2 Changes in Business, Ownership, Management or Business
Locations.
Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in by
Borrower and its Subsidiaries and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership or management other than a sale by Borrower of equity
Securities of Borrower or as set forth in the Schedule. Borrower will not,
without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions.
Merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or
acquire, or permit any of its Subsidiaries to acquire, all or substantially
all of the capital stock or property of another Person; provided that this
Section 7.3 shall not apply to transactions among Subsidiaries or among
Borrower and its Subsidiaries in which Borrower is the surviving entity.
7.4 Indebtedness.
Create, incur, assume or be or remain liable with respect to
any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness, without Bank's prior written consent.
7.5 Encumbrances.
Create, incur, assume or suffer to exist any Lien with respect
to any of its property, or assign or otherwise convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries
so to do, except for Permitted Liens.
7.6 Distributions.
Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock;
provided, that (i) Borrower may declare and make any dividend payment or
other distribution payable in its equity securities, (ii) Borrower may
convert any of its convertible securities into other securities pursuant to
the terms of such convertible securities or otherwise in exchange therefor
and (iii) Borrower may repurchase stock from former employees, officers,
directors or consultants of Borrower in accordance with the terms of
repurchase or similar agreements between Borrower and such employees,
officers, directors or consultants provided that an Event of Default has not
occurred and is continuing, or would exist after giving effect to such
repurchase or similar transaction.
7.7 Investments.
Directly or indirectly acquire or own, or make any Investment
in or to any Person, or permit any of its Subsidiaries so to do, other than
Permitted Investments.
7.8 Transactions with Affiliates.
Directly or indirectly enter into any material transaction with
any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower's business, upon fair and reasonable terms that are no
less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person and except as set forth in the
Schedule.
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7.9 Subordinated Debt.
Make any payment in respect of any Subordinated Debt, or permit
any of its Subsidiaries to make any such payment, except in compliance with
the terms of such Subordinated Debt, or amend any provision contained in any
documentation relating to the Subordinated Debt, to the extent such amendment
has a material adverse effect on Bank or changes any of the terms of payment.
7.10 Compliance.
Become an "investment company" or a company controlled by an
"investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose;
fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to
comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on
the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default.
If Borrower fails to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or if Borrower fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and
Bank and as to any such default under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure such default
within fifteen (15) days after Borrower's actual knowledge thereof; provided,
however, that if the default cannot by its nature be cured within the fifteen
(15) day period or cannot after diligent attempts by Borrower be cured within
such fifteen (15) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period
(which shall not in any case exceed thirty (30) days after Borrower's actual
knowledge) to attempt to cure such default, and within such reasonable time
period the failure to have cured such default shall not be deemed an Event of
Default (provided that no Credit Extensions will be required to be made
during such cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of Borrower or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of
Bank's security interests in the Collateral; provided that the foregoing is
not intended to waive any rights available to Borrower under law.
20
8.4 Attachment.
If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has
not been removed, discharged or rescinded within thirty (30) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if
a judgment or other claim becomes a lien or encumbrance upon any material
portion of Borrower's assets, or if a notice of lien, levy, or assessment is
filed of record with respect to any material portion of Borrower's assets by
the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within thirty (30) days after Borrower receives notice
thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower (provided that no Credit
Extensions will be required to be made during such cure period);
8.5 Insolvency.
If Borrower becomes insolvent, or if an Insolvency Proceeding
is commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within sixty (60) days (provided that
no Credit Extensions will be made from the date of commencement of an
Insolvency Proceeding up to the date of the dismissal of such Insolvency
Proceeding);
8.6 Other Agreements.
If there is an uncured and unwaived default in any agreement to
which Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount equal to or in excess of Five
Hundred Thousand Dollars ($500,000) or that would reasonably be expected to
have a Material Adverse Effect;
8.7 Subordinated Debt.
If Borrower makes any payment on account of Subordinated Debt,
except to the extent such payment is required pursuant to the terms of such
Subordinated Debt which Subordinated Debt has been approved by Bank or is
allowed under any subordination agreement entered into with Bank;
8.8 Judgments.
If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made from the date of such judgment until to the
satisfaction or stay of such judgment); or
8.9 Misrepresentations.
If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or
in any certificate or writing delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or
any other Loan Document.
21
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
Upon the occurrence and during the continuance of an Event of
Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence and during the continuance of
an Event of Default described in Section 8.5 all Obligations shall become
immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any outstanding Letters of Credit remaining
undrawn, as collateral security for the repayment of any future drawings
under such Letters of Credit, and Borrower shall forthwith deposit and pay
such amounts, and (ii) pay in advance all Letters of Credit fees scheduled to
be paid or payable over the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Bank a license to enter such premises and to occupy
the same, without charge, in order to exercise any of Bank's rights or
remedies provided herein, at law, in equity, or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks,
and advertising matter, or any property of a similar nature, as it pertains
to the Collateral, in completing production of, advertising for sale, and
selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order Bank deems appropriate;
22
(i) Bank may credit bid and purchase at any public sale, or at
any sale as permitted by law; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney.
Effective only upon the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of
Bank's designated officers, or employees) as Borrower's true and lawful
attorney to: (a) send requests for verification of Accounts or notify account
debtors of Bank's security interest in the Accounts; (b) endorse Borrower's
name on any checks or other forms of payment or security that may come into
Bank's possession; (c) sign Borrower's name on any invoice or xxxx of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable and (f) dispose of the
Collateral; provided Bank may exercise such power of attorney to sign the
name of Borrower on any of the documents described in Section 4.2 regardless
of whether an Event of Default has occurred. The appointment of Bank as
Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide Advances hereunder is terminated.
9.3 Accounts Collection.
Upon the occurrence and during the continuance of an Event of
Default, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account and
Borrower shall collect all amounts owing to Borrower for Bank, receive in
trust all payments as Bank's trustee, and, if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the
terms of this Agreement, then Bank may do any or all of the following upon
the occurrence and during the continuance of an Event of Default: (a) make
payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. The foregoing
notwithstanding, if Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, immediately following
payment of all outstanding Obligations hereunder, as required under the terms
of this Agreement, then Bank may make payment of the same or any part
thereof. Any amounts so paid or deposited by Bank, except for reserves under
the Committed Revolving Line, shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any
payments made by Bank shall not constitute an agreement by Bank to make
similar payments in the future or a waiver by Bank of any Event of Default
under this Agreement.
23
9.5 Bank's Liability for Collateral.
So long as Bank complies with reasonable banking practices,
Bank shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of loss,
damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not expressly set forth herein as provided under
the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest.
Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into
in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return
receipt requested, or by telefacsimile to Borrower or to Bank, as the case
may be, at its addresses set forth below:
If to Borrower: Hybrid Networks, Inc.
00000 Xxxx Xxxx
Xxxxxxxxx, XX 00000-0000
Attn: Xxxxxx Xxxxxxx
FAX: (000) 000-0000
If to Bank: Venture Banking Group
Three Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, XX 00000
Attn: Xxx Xxxxxxxx
FAX: (000) 000-0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
24
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of Santa Xxxxx, State of California. BORROWER AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; provided,
however, that neither this Agreement nor any rights hereunder may be assigned
by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification.
Borrower shall indemnify, defend, protect and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b)
all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as
a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all obligations
set forth in this Agreement.
12.4 Severability of Provisions.
Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
12.5 Amendments in Writing, Integration.
This Agreement cannot be amended or terminated except by a
writing signed by Borrower and Bank. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
25
12.6 Counterparts.
This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and all of which,
when taken together, shall constitute but one and the same Agreement.
12.7 Survival.
All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Confidentiality.
In handling any confidential information Bank shall exercise
the same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made (i) to the
subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Advance, provided that they have entered
into a comparable confidentiality agreement in favor of Borrower and have
delivered a copy to Borrower, (iii) as required by law, regulations, rule or
order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank, and
(v) as Bank may deem appropriate in connection with the enforcement of its
remedies hereunder. Confidential information hereunder shall not include
information that either (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public
domain after disclosure to Bank through no fault of Bank; or (b) is disclosed
to Bank by a third party, provided Bank does not have actual knowledge that
such third party is prohibited from disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
HYBRID NETWORKS, INC.
By: /s/ Xxxx X. Xxxxxxxxx
---------------------
Title: President and CEO
------------------
VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: /s/ Company Officer
---------------------
Title:
------------------
26
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter
acquired; all trade secret rights, including all rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; all mask work or
similar rights available for the protection of semiconductor chips, now owned
or hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
The Collateral shall not include Equipment that Borrower does not own,
which Equipment Borrower leases from third parties. Notwithstanding the
foregoing, the term "Collateral" shall not include any general intangibles or
contracts of Borrower (whether owned or held as licensee or lessee, or
otherwise) to the extent that (i) such general intangibles or contracts are
not assignable or capable of being encumbered as a matter of law or under the
terms of the license, lease or other agreement applicable thereto (but solely
to the extent that such restriction shall be enforceable under applicable
law) without the consent of the licensor or lessor thereof or other
applicable party thereto and (ii) such consent has not been obtained:
provided, however, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any general
intangible or contract which is an Account or a proceed of, or otherwise
related to the enforcement or collection of, any Account or goods which are
the subject of any Account, and (B) any and all proceeds of any general
intangibles or contracts which are otherwise excluded to the extent that the
assignment or encumbrance of such proceeds is not so restricted, and (C) upon
obtaining the consent of any such licensor, lessor or other applicable party
with respect to any such otherwise excluded general intangibles or contracts,
such general intangibles or contracts as well as any and all proceeds thereof
that might theretofore have been excluded from such grant of a security
interest and the term "Collateral".
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX#: ______________ TIME: _______________________
FROM: ____________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY: ____________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: ____________________________________________________
PHONE NUMBER: ____________________________________________________________
FROM ACCOUNT # ________________________ TO ACCOUNT # _____________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_______________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________
INTEREST PAYMENT (ONLY) $_______________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________
OTHER INSTRUCTIONS: ______________________________________________________
__________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects
as of the date of the telephone request for and Advance confirmed by this
Borrowing Certificate; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/
loan advance on the advance designated account and is known to me.
__________________________________ ____________________________
Authorized Requester Phone #
__________________________________ ____________________________
Received by (Bank) Phone #
_____________________________________
Authorized Signature (Bank)
EXHIBIT C
REVOLVING PROMISSORY NOTE
$4,000,000 Palo Alto, California
Date: October 16, 1997
HYBRID NETWORKS, INC. ("Borrower"), for value received, hereby promises
to pay to the order of VENTURE BANKING GROUP, a division of Cupertino
National Bank ("Bank"), in lawful money of the United States of America,
pursuant to that certain Loan and Security Agreement dated as of October 16,
1997, by and between Borrower and Bank (the "Loan Agreement"), (i) the
principal amount of $4,000,000 or, if lesser, (ii) the principal amount of
all Advances outstanding as of the maturity date hereof.
This Note is one of the Notes referred to in the Loan Agreement. All
terms defined in the Loan Agreement shall have the same definitions when used
herein, unless otherwise defined herein.
Borrower further promises to pay interest on each Advance hereunder in
like funds on the principal amount hereof from time to time outstanding from
the date hereof until paid in full, at a rate or rates per annum and payable
on the dates determined pursuant to the Loan Agreement.
Payment on this Note shall be applied in the manner set forth in the Loan
Agreement. The Loan Agreement contains provisions for acceleration of the
maturity of Advances hereunder upon the occurrence of certain stated events
and also provides for optional and mandatory prepayments of principal hereof
prior to any stated maturity upon the terms and conditions therein specified.
All Advances made by Bank to Borrower pursuant to the Loan Agreement
shall be recorded by Bank on the books and records of Bank. The failure of
Bank to record any Advance or any prepayment or payment made on account of
the principal balance hereof shall not limit or otherwise affect the
obligation of Borrower under this Note and under the Loan Agreement to pay
the principal, interest and other amounts due and payable under the Advances.
Any principal or interest payments on this Note not paid when due,
whether at stated maturity, by acceleration or otherwise, shall bear interest
at the Default Rate.
Upon the occurrence and continuance of a default hereunder or an Event of
Default under the Loan Agreement, all unpaid principal, accrued interest and
other amounts owing hereunder shall, at the option of Bank, be immediately
collectible by or on behalf of Bank pursuant to the Loan Agreement and
applicable law.
Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including reasonable attorneys' fees, costs and
expenses. The right to plead any and all statutes of limitations as a
defense to any demand hereunder is hereby waived to the full extent permitted
by law.
The amount of this Note is secured by the Collateral identified and
described as security therefor in the Loan Agreement.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of California, excluding conflicts of laws
principles that would cause the application of the laws of any other
jurisdiction.
The provisions of this Note shall inure to the benefit of and be binding
upon any successor to Borrower and shall extend to any holder hereof.
HYBRID NETWORKS, INC.
By: ____________________________
Printed Name:___________________
Title: _________________________
EXHIBIT D
BORROWING BASE CERTIFICATE
______________________________________________________________________________
Borrower: Hybrid Networks, Inc.
Commitment Amount: $4,000,000
_______________________________________________________________________________
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $____________
2. Additions (please explain on reverse) $____________
3. TOTAL ACCOUNTS RECEIVABLE $____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $____________
5. Balance of 50% over 90 day accounts $____________
6. Concentration Limits (Accounts exceeding 30% total A/R) $____________
7. Foreign Accounts (unless pre-approved) $____________
8. Governmental Accounts $____________
9. Contra Accounts $____________
10. Promotion or Demo Accounts $____________
11. Intercompany/Employee Accounts $____________
12. Other (please explain on reverse) $____________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
14. Eligible Accounts (#3 minus #13) $____________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $____________
BALANCES
16. Maximum Loan Amount $____________
17. Total Funds Available [Lesser of #15 or #16] $____________
18. Present balance owing on Line of Credit $____________
19. RESERVE POSITION (#17 minus #18) $____________
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Venture Banking
Group.
COMMENTS:
BANK USE ONLY
---- --- ----
Rec'd By: ____________
Auth. Signer
HYBRID NETWORKS, INC. Date: ________________
Verified: ____________
Auth. Signer
By: ____________________________ Date:_________________
Authorized Signer ______________________
-
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: VENTURE BANKING GROUP
FROM: HYBRID NETWORKS, INC.
The undersigned authorized officer of Hybrid Networks, Inc. (the "Officer")
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in compliance in all material respects for the period ending _______________
with all required covenants except as noted below and (ii) all representations
and warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
expressly acknowledges that no borrowings may be requested by Borrower at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that such compliance is determined not just at the
date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies
------------------ -------- --------
Financial statements Within 30 days* Yes No
Annual (CPA Audited) FYE within 120 days or within 5 days Yes No
after filing with XXX
00-X, 00-X and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings Monthly within 30 days Yes No
A/R Audit Initial and Semi-Annual Yes No
* After the Equity Event, within 30 days of each quarter end or within 5 days
after filing with the SEC.
Financial Covenant Required Actual Complies
------------------ ---------- ---------- --------
Maintain on a Monthly Basis:**
Minimum Quick Ratio 1.25:1.0 _____:1.0 Yes No
Minimum Adjusted Net Worth1 $3,500,000 $________ Yes No
Minimum Debt/Tangible Net Worth1 1.75:1.0 ______:___ Yes No
Profitability: Quarterly ________ 2 $________ Yes No
** After the Equity Event, Financial Covenants to be maintained on a quarterly
basis.
1 Tangible Net Worth plus Subordinated Debt
2 Permitted losses not to exceed: $3,800,000 for quarter ending
September 30, 1997; $2,600,000 for quarter ending December 31, 1997;
$1,500,000 for quarter ending March 31, 1998; and $300,000 for quarter
ending June 30, 1998.
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Sincerely, Received by:_____________________
AUTHORIZED SIGNER
___________________________________
Signature Date:____________________________
___________________________________ Verified:________________________
Title AUTHORIZED SIGNER
___________________________________ Date:____________________________
Date
Compliance Status: Yes No
Hybrid Networks, Inc. (the "Company")
Schedule of Exceptions to Loan and Security Agreement (the "Agreement")
with Venture Banking Group
Unless otherwise defined herein, all capitalized terms in this Schedule
have the same meaning given to such terms in the Agreement. Unless otherwise
noted, references to sections herein refer to the corresponding sections of
the Agreement. Sections or headings are provided for convenience only.
Nothing in this Schedule constitutes an admission of any liability or
obligation of the Company to any third party, nor an admission to any third
party against the Company's interests. Unless otherwise stated, all
statements made herein are made as of the date of execution of the Agreement.
"Eligible Accounts"
(c) Bank acknowledges approving Accounts owing by:
AT&T
(f) Bank acknowledges approving Accounts owing by:
AT&T
(h) Bank acknowledges approving Accounts owing by:
AT&T
Itochu
Network Systems Tec
(j) Bank acknowledges approving Accounts owing by:
Alcatel
Itochu
"Eligible Foreign Accounts"
Bank acknowledges approving Accounts owing by:
Alcatel
"Permitted Indebtedness" (Indebtedness Existing on the Closing Date)
A. Senior Secured Convertible Debenture Due 2002, issued April 30, 1997
in an aggregate principal amount of $5,500,000, held by BG Services Limited (the
"Debenture").
B. Subordinated Promissory Notes issued September 25, 1997, in an
aggregate principal amount of approximately $6.9 million ("Subordinated Notes").
C. Equipment Lease with Comdisco, Inc. dated August 1, 1995 with a
maximum face amount of $500,000 (the "1995 Comdisco Lease").
D. Equipment Lease with Comdisco, Inc. dated August 19, 1996 with a
maximum face amount of $1,000,000 (the "1996 Comdisco Lease").
E. The Company is soliciting additional equipment leases with an
aggregate maximum face amount of up to $2,000,000 from Pentech Financial
Services, Phoenix Capital, Leasing Technologies International, IMF Financial
Corp. and certain other parties (the "Additional Leases").
"Permitted Investment"
(a) The Company made an installment sale of $850,000 to Internet Ventures,
which sale is expected to be fully paid in March 1998.
"Permitted Liens"
A. Liens in substantially all assets of the Company granted to the holder
of the Debenture.
B. Liens in equipment financed under the 1995 Comdisco Lease.
C. Liens in equipment financed under the 1996 Comdisco Lease.
D. Liens in equipment to be financed under the Additional Leases.
Section 4.1 (Grant of Security Interest)
The security interest granted under the Agreement shall constitute a valid,
first priority security interest to the extent that such security interest can
be perfected by the filings contemplated by the Agreement, and such filings are
made with the appropriate filing offices.
Section 5.1 (Due Organization and Qualification)
The Company is not currently qualified to do business in Illinois and is in
the process of considering whether such qualification is necessary.
Section 5.7 (Litigation)
A. The Company has determined that third parties may be infringing its
patent rights and/or may have misappropriated its trade secrets, know-how and
other proprietary rights. The
Company has sent letters to certain third parties notifying them that they
may be infringing such rights, although the Company has not yet determined if
it will assert any claims against these parties or others. The Company is
currently evaluating its intellectual property strategies. There can be no
assurance that such strategies will not involve potential litigation or that
such litigation, if brought, will not have a material adverse effect upon the
Company.
B. The Company has received two United States Patents: (i) 5,347,304
dated September 13, 1994 (the "304 Patent") and (ii) 5,586,121 dated December
17, 1996. On November 16, 1994 the Company filed an application for the
reissuance of the 304 Patent, which was subsequently allowed for reissuance by
the Patent and Trademark Office ("PTO") on August 19, 1997. Such reissue
application was formally protested by International Business Machines
Corporation ("IBM") and Xxxx Xxxxxx, Jr. ("Powers"). On December 12, 1996 the
Company filed a Complaint For Damages and Equitable Relief (the "Complaint") in
the Superior Court of the District of Columbia against both IBM and Powers.
(Civil Action No. 96CA009725). The suit arose out of IBM's filing an Invention
Disclosure with the PTO following the Company's filing for reissue of its '304
patent. In April 1997, the Company settled its claims against IBM. The claims
against the other defendant in the suit, Xxxx X. Xxxxxx were dismissed without
prejudice as to either party. In connection with the settlement, the Company
agreed to fully dismiss its complaint against IBM with prejudice and IBM agreed
to designate certain portions of the deposition of its witness, Xxxxxx X.
Xxxxxxxx, Esq. as non-confidential and not to assert any claims against the
Company arising out of the suit. As of September 18, 1997, IBM and the Company
have settled the Complaint and the Complaint against Powers was voluntarily
dismissed without prejudice.
C. The Company has been notified by Xxxx Xxx that he believes that
certain of the Company's products utilize technology invented by Xx. Xxx and
included in certain patents issued to him. Aside from the letter from Xx. Xxxx
X. Xxx dated December 18, 1996 objecting to the Company's use of certain
technology developed by Xx. Xxx and allegedly infringing upon certain patent
rights ('789, '499 and '476) of Xx. Xxx'x, the Company is not aware of any
further action taken by Xx. Xxx against the Company, and the Company does not
believe, after reasonable inquiry that the Company has or is infringing upon the
intellectual property rights of Xx. Xxx. There can be no assurance , however,
that Xx. Xxx will not assert claims against the Company or that he will not
prevail with respect to such claims.
D. The Company's trademark of "Cyber Manager" was contested by Cyber
Interactive by letter of its counsel to the Company dated March 12, 1996. On
March 3, 1997, the Company sent an e-mail to Cyber Interactive stating the
Company's position that the parties have different rights in different markets
but offering to negotiate an agreement with Cyber Interactive. No further
action has been taken or threatened by Cyber Interactive since that date. The
Company has notified Hybrid Communications, Inc. ("HCI") that it is the
Company's position that HCI's web site use of the "Hybrid" name violates the
Company's intellectual property rights. HCI notified the Company on April 12,
1995 (via e-mail) that it had already changed its web page to "Hybrid
City/Downtown" and was not in violation. The Company has taken no further
action against HCI in this matter. The Company holds a trademark for HYBRIDWARE
(Reg. No. 2,065,404) and CYBERMASTER (Reg. No. 2,058,030).
Section 6.1 Good Standing
See section 5.1.
Section 7.2 Changes in Business
Up to approximately 25% of the Company's equity securities is intended to
be sold to the public in an initial public offering, and any equity securities
sold in such offering will be tradable by the public.
Section 7.8 Transactions with Affiliates
A. The Company has entered into consulting agreements with certain
persons who may also be stockholders.
B. Certain Sequoia entities and Xxxxxx Xxxxxxx were among the purchasers
of the Subordinated Notes.
C. Network Systems Technologies, of which Xxxxxxx Xxxxx is an officer,
has an outstanding receivable for $482,299.
D. Employment Agreement with Xxxx Xxxxxxxxx dated as of January 15, 1996.
Employment offer letters from the Company which contain severance arrangements,
including offer letters to Xxxxxx Xxxxxxx, Xxxxxx Xxxxxxx and Xxxxxxx Xxx.
E. Certain of the Company's officers and employees are eligible for
commissions and/or bonuses (including stock grants) based upon the Company's
financial performance and personal objectives.
F. All of the Company's full-time employees and dependents are eligible
to participate in benefit plans covering medical insurance, dental insurance,
life insurance, long term disability insurance and worker's compensation
insurance. The Company has adopted (a) the 1997 Employee Stock Purchase Plan,
the 1997 Directors Stock Option Plan, and the 1997 Equity Incentive Plan, to
become effective upon the Company's initial public offering; and (b) the 1992
Stock Issuance Plan, the Executive Officer Incentive Plan, the 1993 Equity
Incentive Plan and the 1996 Equity Incentive Plan.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
CAN BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR OTHER TRANSFER HAS BEEN
REGISTERED UNDER SUCH ACT AND UNDER THE APPLICABLE STATE SECURITIES LAWS OR,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, BOTH AS TO THE
IDENTITY OF THE COUNSEL AND AS TO THE FORM AND SUBSTANCE OF THE OPINION, IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS.
No.___________________ Dated: October 16, 1997
HYBRID NETWORKS, INC.
Common Stock Purchase Warrant
THIS IS TO CERTIFY THAT, for value received, Venture Banking Group, a
division of Cupertino National Bank (the "Bank"), and its registered
successors and permitted assigns are entitled, subject to the terms and
conditions set forth below, to purchase from HYBRID NETWORKS, INC., a
Delaware corporation (the "Corporation"), at any time and from time to time
after 9:00 A.M., Cupertino, California time, on the Initial Exercise Date (as
defined in Section 1 below) and prior to 5:00 P.M., Cupertino, California
time, on the Expiration Date (as defined in Section 1 below), any or all of
the Warrant Shares (as defined in Section 1 below), at a purchase price per
share equal to the Exercise Price (as defined in Section 1 below). The
number and character of the Warrant Shares and the Exercise Price are subject
to adjustment as provided herein.
This Common Stock Purchase Warrant (this "Warrant") is being issued in
connection with a Loan and Security Agreement between the Corporation and
the Bank.
Section 1. Definitions. As used in this Warrant, the following terms
shall have the respective meanings set forth below or elsewhere in this
Warrant as referred to below:
"Additional Stock" shall have the meaning set forth in Section 4.3(f).
"Bank" shall have the meaning set forth in the first paragraph hereof.
"Common Stock" shall mean shares of the Common Stock of the Corporation,
$.001 par value per share (as such par value may be amended from time to time).
"Conversion Fraction" shall have the meaning set forth in Section 2.3.
"Corporation" shall have the meaning set forth in the first paragraph of
this Warrant.
"Derivative Security" shall have the meaning set forth in Section 4.3(e).
"Effective Price" shall have the meaning set forth in Section 4.3(a).
"Exercise Date" shall have the meaning set forth in Section 2.4 hereof.
"Exercise Price" shall mean, as of the Initial Exercise Date and at any
time thereafter, the Initial Exercise Price, as adjusted from time to time
pursuant to the terms of this Warrant.
"Expiration Date" shall mean October 16, 2002.
"Fair Market Value" of a Warrant Share shall mean (i) in the case of the
exercise of this Warrant, in whole or in part, after the consummation of an
Initial Public Offering, the average of the last reported sale price per
share of Stock on the Nasdaq-NMS or any national securities exchange in which
such Stock is quoted or listed, as the case may be, for the three trading
days immediately preceding the Exercise Date, or (ii) in the case of the
exercise of this Warrant, in whole or in part, before the consummation of an
Initial Public Offering, the fair market value of a share of Stock, as
determined in good faith by the Board of Directors of the Corporation.
"Holder" shall mean, as applicable, (i) the Bank, (ii) any successor of
the Named Holder or (iii) any Person to whom this Warrant or any portion
thereof shall have been transferred in accordance with the provisions of
Section 9 hereof.
"Initial Exercise Date" shall mean the earlier to occur of (i) 180 days
after the Issue Date, or (ii) the date of consummation of an Initial Public
Offering; provided, however, that, in the event of any sale or transfer, in a
single transaction or a series of related transactions, of all or
substantially all of the Corporation's assets, or the merger, consolidation,
reorganization or dissolution of the Corporation, or the sale, in a single
transaction or a series of related transactions, of a majority of the
Corporation's voting capital stock (whether newly issued or from treasury, or
previously issued and then outstanding, or any combination thereof) (any of
such events, a "Disposal Event") occurring at any time prior to the earlier
of (A) 180 days after the Issue Date or (B) the date of consummation of an
Initial Public Offering, then the Initial Exercise Date shall be deemed to be
the date that is five business days prior to the earliest to occur of any
such Disposal Event.
"Initial Exercise Price" shall mean $4.04 per share (subject to appropriate
adjustment as provided in this Warrant).
"Initial Public Offering" shall mean the closing of an underwritten
public offering pursuant to an effective registration statement filed with
the Securities and Exchange Commission under the Securities Act covering the
offer and sale of shares of Common Stock or any other class of capital stock
of the Corporation.
"Investor Rights Agreement" shall mean that certain Hybrid Networks, Inc.
Amended and Restated Investor Rights Agreement, dated as of September 18,
1997, by and among the Corporation and certain holders of the Corporation's
securities, as amended pursuant to an amendment entered into by the
Corporation, the Bank and holders of a majority of the Registrable Securities
outstanding (as defined in the Investor Rights Agreement), and as further
amended from time to time in accordance with the terms thereof.
2
"Issue Date" shall mean October 16, 1997.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of
whatever nature.
"Registrable Securities" shall have the meaning ascribed to it in the
Investor Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock" shall mean (i) Common Stock, and/or (ii) to the extent that the
Holder is entitled to receive, or receives, upon exercise of this Warrant any
other capital stock of the Corporation (other than Common Stock), or of any
other Person or any other securities of the Corporation or of any other
Person, in lieu of or in addition to Common Stock (whether as a result of any
reclassification of Common Stock or any other Stock or reorganization,
reclassification, merger, consolidation or sale of substantially all the
assets of the Corporation or otherwise), such other capital stock or
securities.
"Subject Shares" shall have the meaning set forth in Section 2.3.
"Warrant" shall have the meaning set forth in the second paragraph of
this Warrant.
"Warrant Shares" shall mean the shares of Common Stock, as adjusted as
provided in this Warrant, that are issuable upon the exercise of this
Warrant.
Section 2. Exercise of Warrant.
Section 2.1 Number of Warrant Shares Issuable Upon Exercise. Subject to
adjustment as provided herein, the maximum number of Warrant Shares issuable
upon exercise of this Warrant shall be 7,178.
Section 2.2 Method of Exercise. Subject to and upon all of the terms
and conditions set forth in this Warrant, the Holder may exercise this
Warrant, in whole or in part with respect to any Warrant Shares as to which
this Warrant is then currently exercisable, at any time and from time to time
during the period commencing on the Initial Exercise Date and ending on the
Expiration Date, by presentation and surrender of this Warrant to the
Corporation at its principal office (or such other office or agency as the
Corporation may designate by notice in writing to the Holder in accordance
with Section 10.4), together with (a) a properly completed and duly executed
subscription form, in the form attached hereto, which subscription form shall
specify the number of Warrant Shares for which this Warrant is then being
exercised, and (b) payment of the aggregate Exercise Price payable hereunder
in respect of the number of Warrant Shares for which this Warrant is then
being exercised. Payment of such aggregate Exercise Price shall be made
either (i) in cash or by money order, certified or bank cashier's check or
wire transfer (in each case in lawful currency of the United States of
America), (ii) in the event the Holder is also the holder of a Note and such
outstanding principal amount of, and/or accrued but unpaid interest on, such
Note is equal to or greater than the Exercise Price, by decreasing the
outstanding principal amount of, and/or accrued but unpaid interest on, such
Note by the amount of the Exercise Price, or (iii) by conversion of this
Warrant as provided in Section 2.3.
3
Section 2.3 Conversion of Warrant.
(a) The Holder shall have the right to convert this Warrant,
in whole or in part with respect to any Warrant Shares as to which this
Warrant is currently exercisable, at any time and from time to time during
the period commencing on the Initial Exercise Date and ending on the
Expiration Date, by the presentation and surrender of this Warrant to the
Corporation at its principal office (or such other office or agency as the
Corporation may designate by notice in writing to the Holder in accordance
with Section 10.4, together with a properly completed and duly executed
conversion form, in the form attached hereto, which conversion form shall
specify the number of Warrant Shares as to which this Warrant is being
converted (the "Subject Shares"). Upon exercise of this conversion right,
the holder hereof shall be entitled to receive that number of Warrant Shares
equal to the quotient obtained by dividing [ (A - B) (X) ] by (A), where:
A = the Fair Market Value of one Warrant Share on the
date of conversion of this Warrant.
B = the Exercise Price for one Warrant Share under this
Warrant.
X = the number of Subject Shares as to which this Warrant
is being converted.
If the above calculation results in a negative number, then no shares of
Warrant Stock shall be issued or issuable upon conversion of this Warrant.
(b) Upon conversion of this Warrant in accordance with this
Section 2.3, the Holder shall be entitled to receive a certificate for the
number of Warrant Shares acquired by the Holder as determined in accordance
with the foregoing, and a new Warrant in substantially identical form and
dated as of such conversion for the purchase of that number of Warrant Shares
equal to the difference, if any, between (i) the number of Warrant Shares
subject to issuance upon exercise of this Warrant immediately before such
conversion and (ii) the number of Subject Shares as to which the Holder
exercised its conversion right pursuant to this Section 2.3. No fractional
shares may be issued upon any conversion of this Warrant. If any conversion
would result in a fractional share (the "Conversion Fraction"), then, at
Holder's election either (A) the number of shares issued upon the conversion
will be rounded down to the last whole share; or (B) the Holder will pay in
cash an amount equal to the Exercise Price times a fraction equal to 1 less
the Conversion Fraction, in which event the number of shares issued upon the
conversion (plus the cash payment) will be rounded up to the nearest whole
share. For example, if the Fair Market Value is $10.00 and the Exercise
Price is $4.04, then, upon exercise of the conversion right under this
Section 2.3 with respect to 100 Subject Shares, the Holder would receive, at
the Holder's election, either (1) 59 Warrant Shares without making any cash
payment or (2) 60 Warrant Shares if the Holder elected to pay $2.42 in cash
(60% of the Exercise Price for the extra share) and would receive a new
Warrant for the number of Warrant Shares subject to issuance upon exercise of
this Warrant immediately before such conversion less 100.
Section 2.4 Effectiveness of Exercise; Ownership. Each exercise of
this Warrant by the Holder shall be deemed to have been effected immediately
prior to the close of business on the date upon which all of the requirements
of Sections 2.1 and 2.2 hereof with respect to such exercise shall have been
complied within in full (each such date, an "Exercise Date"). On the
applicable Exercise Date with respect to any exercise of this Warrant by the
Holder, the
4
Corporation shall be deemed to have issued to the Holder, and the Holder
shall be deemed to have become the holder of record and legal owner of, the
number of Warrant Shares being purchased upon such exercise of this Warrant,
notwithstanding that the stock transfer books of the Corporation shall then
be closed or that certificates representing such number of Warrant Shares
being purchased shall not then be actually delivered to the Holder.
Section 2.5 Delivery of Stock Certificates on Exercise. As soon
as practicable after the exercise of this Warrant, and in any event within
ten days thereafter, the Corporation, at its expense, will cause to be issued
in the name of and delivered to the Holder, or as the Holder may direct
(subject in all cases, to the provisions of Section 9 hereof), a certificate
of certificates for the number of Warrant Shares purchased by the Holder on
such exercise.
Section 2.6 Shares to be Fully Paid and Nonassessable. All
Warrant Shares issued upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable, free of all liens, taxes, charges and
other encumbrances or restrictions on sale (other than those set forth
herein), and free and clear of all preemptive rights.
Section 2.7 Fractional Shares. This Warrant may be exercised
only for whole Warrant Shares. No fractional Warrant Shares or scrip
representing fractional Warrant Shares shall be issued upon the exercise of
this Warrant.
Section 2.8 Issuance of New Warrants; Corporation
Acknowledgment. Upon any partial exercise of this Warrant, the Corporation,
at its expense, will forthwith issue and deliver to the Holder a new warrant
or warrants of like tenor, registered in the name of the Holder, exercisable,
in the aggregate and subject to the limitations provided for in this Warrant,
for the then balance of the Warrant Shares with respect to which this Warrant
has not been exercised. Moreover, the Corporation shall, at the time of any
exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to the Holder any rights to which
the Holder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant; provided, however, that if the Holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Corporation to afford to the Holder any such
rights.
Section 2.9 Payment of Taxes. The Corporation shall pay any
transfer tax which may be payable in respect of any issuance of certificates
(if applicable) representing any Warrant Shares purchased upon exercise or
conversion of this Warrant. The Corporation shall not be required to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for Warrant Shares, or any new or replacement shares
in any name other than that of the Holder of this Warrant, and in such case
the Company shall not be required to issue or deliver any stock certificate
security or Warrant until such tax or other charge has been paid, or it has
been established to the Company's satisfaction that no tax or other charge is
due.
Section 2.10 Expiration. This Warrant and the Holder's rights
hereunder, to the extent not previously exercised or converted, shall expire
as of 5:00 P.M., California time, on the Expiration Date.
Section 3. Registration Rights. The Holder of this Warrant
shall have the benefit of the rights available to the parties to the Investor
Rights Agreement to cause the Corporation to
5
register any and all Warrant Shares under the Securities Act and under any
blue sky or securities laws of any jurisdiction within the United States, at
the time and in the manner specified in the Investor Rights Agreement, as
provided in the amendment to that agreement entered into by the Bank, the
Company and the holders of majority of the Registrable Securities outstanding
(as defined in the Investor Rights Agreement), and any and all Warrant Shares
shall be deemed to be Registrable Securities for all purposes of and as
provided in the Investor Rights Agreement.
Section 4. Adjustments. The number and character of Warrant
Shares issuable upon exercise or conversion of this Warrant (or any shares of
Stock or other assets at the time receivable or issuable upon exercise or
conversion of this Warrant) and the Exercise Price therefor, are subject to
adjustment upon occurrence of the following events:
Section 4.1 Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Exercise Price of this Warrant and the number of
Warrant Shares issuable upon exercise or conversion of this Warrant (or any
shares of Stock or other assets at the time issuable upon exercise of this
Warrant) shall each be proportionally adjusted to reflect any stock dividends
stock splits, reverse stock splits, combinations of shares,
reclassifications, recapitalizations or other similar events altering the
number of outstanding shares of Warrant Stock (or such other Stock or other
assets).
Section 4.2 Adjustment for Capital Reorganization, Consolidation,
Merger, Sale or Conversion. If any reorganization of the capital stock of
the Corporation, or any consolidation or merger of the Corporation with or
into another entity, or the sale of all or substantially all of the
Corporation's assets to another entity shall be effected in such a way that
holders of Common Stock will be entitled to receive stock, securities or
assets with respect to or in exchange for their Common Stock, then, in each
such case, the Holder, upon the exercise or conversion of this Warrant, at
any time after the consummation of such capital reorganization,
consolidation, merger or sale, shall receive, in lieu of the stock or other
securities and property receivable upon the exercise or conversion, as
applicable, of this Warrant prior to such consummation, the Stock or other
assets to which the Holder would have been entitled upon such consummation if
the Holder had exercised or converted, as applicable, this Warrant
immediately prior thereto, all subject to further adjustment as provided in
this Section 4; and in each such case, the terms of this Warrant shall be
applicable to the shares of Stock or other assets receivable upon the
exercise or conversion, as applicable, of this Warrant after such
consummation.
Section 4.3 Adjustment for Issuance for Additional Stock. The
Exercise Price of this Warrant and the number of Warrant Shares issuable upon
exercise or conversion of this Warrant shall be further subject to adjustment
from time to time as follows:
(a) Upon each issuance by the Corporation of any Additional
Stock (as defined below), after the Issue Date and before the consummation by
the Company of an Initial Public Offering, for a consideration per share less
than the Exercise Price in effect immediately prior to the issuance of such
Additional Stock (except as provided in Section 4.1 above), (i) the Exercise
Price in effect immediately prior to each such issuance shall forthwith
(except as otherwise provided in this Section 4.3) be adjusted to the
Effective Price (as defined below) at which the Additional Stock is issued,
and (ii) the number of Warrant Shares issuable upon exercise or conversion of
this Warrant shall forthwith be adjusted by dividing the number of Warrant
Shares into which this Warrant is exercisable immediately before the
adjustment
6
provided for herein by a fraction the numerator of which shall be the
Effective Price and the denominator of which shall be the Exercise Price
immediately before the adjustment provided for herein. The "Effective Price"
for any issuance of Additional Stock shall mean the lesser of $4.04 or the
quotient determined by dividing the total number of shares of Additional
Stock issued (or deemed issued pursuant to Section 4.3(e)) by the Corporation
in such issuance into the aggregate amount of consideration received by the
Corporation therefor, as provided in this Section 4.3.
(b) No adjustment of the Exercise Price shall be made in an
amount less than one cent per share, provided that any adjustments which are
not required to be made by reason of this sentence shall be carried forward
and shall be either taken into account in any subsequent adjustment made
prior to three years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of three years from the
date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in Section 4.3(e)(3) and 4.3(e)(4)
below, no adjustment of the Exercise Price pursuant to this Section 4.3(a)
shall have the effect of increasing the Exercise Price above the Exercise
Price in effect immediately prior to such adjustment.
(c) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed,
paid or incurred by the Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(d) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(e) In the case of the issuance (whether before, on or after
the Issue Date) of options to purchase or rights to subscribe for Common
Stock, securities that are by their terms convertible into or exchangeable
for Common Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions shall apply
for all purposes of this Section 4.3.
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but
without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided
in Sections 4.3(c) and 4.3(d), except as provided in subsection 4.3(e)(5)),
if any, received by the Corporation upon the issuance of such options or
rights plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for the
Common Stock converted thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities (assuming the satisfaction of any conditions to
convertibility or exchangeability, including without limitation, the passage
of time, but without taking into account potential antidilution adjustments)
or upon the exercise of options to purchase or rights to subscribe for
7
such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Corporation
(without taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be determined in the
manner provided in Section 4.3(c) and 4.3(d), except as provided in
subsection 4.3(e)(5)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation
upon exercise of such options or rights or upon conversion of or in exchange
for such convertible or exchangeable securities, including, but not limited
to, a change resulting from the antidilution provisions thereof, the Exercise
Price, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or change of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Exercise Price, to the extent in any way affected by or computed using
such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which
remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities; provided that
no such recomputation shall have the effect of increasing or decreasing the
Exercise Price to an amount other than the amount that would have existed on
the recomputation date had the unexercised options or rights never been
issued.
(5) In determining the amount of consideration received by
the Corporation for or upon the issuance of any Additional Stock or other
securities for the purposes of this Section 4.3, the value of any options to
purchase or rights to subscribe for Common Stock, securities that are by
their terms convertible onto or exchangeable for Common Stock or options to
purchase or rights to subscribe for such convertible or exchangeable
securities (each a "Derivative Security") issued by the Corporation shall be
deemed to be zero (so that the issuance itself of any such Derivative
Security shall not be deemed to increase or decrease the consideration
otherwise received by the Corporation under this Section 4.3, inasmuch as the
rights under such Derivative Security shall be deemed to have been exercised
immediately upon the issuance of such Derivative Security (as contemplated by
Sections 4.3(e)(1) and 4.3(e)(2)).
(f) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been pursuant to Section 4.3(e)) by the Corporation after
the Issue Date other than
(1) Common Stock issued pursuant to a transaction described in
Section 4.1 or 4.2 hereof:
8
(2) An aggregate of up to 250,000 shares of, and/or options or
rights to acquire shares of, Common Stock, issuable or issued to employees of
the Corporation pursuant to an existing stock option plan or restricted stock
plan of the Corporation; as provided in Section 4.3(e), the term "Additional
Stock" shall not include any shares of capital stock that are issued upon the
exercise of any options, warrants or rights excluded from the definition of
Additional Stock pursuant to this Section (2);
(3) shares of Common Stock issued or issuable (i) upon
exercise or conversion of this Warrant, any securities issued pursuant to the
Purchase Agreement or any options, warrants, convertible securities or other
securities of the Corporation outstanding as of the Issue Date or (ii) upon
conversion of shares of any series of Preferred Stock authorized as of the
Issue Date.
(g) No fractional shares shall be issued upon conversion of this
Warrant or any portion thereof, and the number of Warrant Shares issuable as
a result of any adjustment provided for in this Section 4.3 shall be rounded
to the nearest whole share.
Section 5. Officer's Certificate as to Adjustments. In each
case of any adjustment or readjustment in the number and kind of Warrant
Shares (or other Stock or assets), issuable hereunder from time to time, or
in the Exercise Price, the Corporation, at its expense, will promptly cause
an officer of the Corporation to compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing the facts upon which such
adjustment or readjustment is based. The Corporation will forthwith send a
copy of each such certificate to the Holder in accordance with Section 10.4
below.
Section 6. Notices of Record Date, etc. In the event of
(a) any taking by the Corporation of a record of the
holders of Stock for the purpose of determining the holders thereof who are
entitled to receive any shares of Stock as a dividend or other distribution
or pursuant to a stock split, or
(b) any reorganization or the Corporation, or any sale or
transfer, in a single transaction or a series of related transactions, of all
or substantially all the assets of the Corporation to, or the consolidation
or merger of the Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Corporation, or
(d) any sale, in a single transaction or a series of
related transactions, of a majority of the Corporation's voting stock
(whether newly issued, or from treasury, previously issued and then
outstanding, or any combination thereof),
then and in each such event the Corporation will mail or cause to be mailed
to the Holder a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or stock split, and
stating the amount and character of such dividend, distribution or stock
split, or (ii) the date on which any such reorganization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take
place, and the time, if any
9
is to be fixed, as of which the holders of record of any one or more classes
of Stock shall be entitled to exchange their shares of Stock for securities
or other property deliverable on such reorganization, transfer,
consolidation, merger, dissolution, liquidation or winding-up or (iii) the
date on which any such sale of a majority of the Corporation's voting stock
is to take place and the material terms thereof, as the case may be. Such
notice shall be mailed at least 15 days prior to the date specified in such
notice on which any such action is to be taken.
Section 7. Exchange of Warrant. Subject to the provisions of
Section 9 hereof (if and to the extent applicable), this Warrant shall be
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Corporation, for new warrants of like tenor, each registered in the
name of the Holder or in the name of such other Persons as they may direct,
subject to Sections 9 and 10.5 (upon payment by the Holder of any applicable
transfer taxes). Each of such new warrants shall be exercisable for such
number of Warrant Shares as the Holder shall direct, provided that all of
such new warrants shall represent, in the aggregate, the right to purchase
the same number of Warrant Shares and cash, securities or other property, if
any, which may be purchased by the Holder upon exercise of this Warrant at
the time of its surrender.
Section 8. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Corporation of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Corporation or, in
the case of any such mutilation, on surrender and cancellation of this
Warrant, the Corporation at its expense will execute and deliver, in lieu
thereof, a new warrant of like tenor.
Section 9. Transfer Provisions, etc. By accepting this
Warrant, Holder makes the representations set forth in 9.1, 9.2, 9.3 and 9.4
below and agrees to the restrictions set forth in 9.5, 9.6, 9.7 and 9.8
below, and, by exercising or converting this Warrant in whole or in part, the
Holder agrees that Holder will then represent and will be deemed to represent
that such representations are true and complete as of the date of such
exercise or conversion.
Section 9.1 Purchase Entirely for Own Account. This Warrant
is, and any Warrant Shares received by the Holder upon exercise or conversion
of this Warrant will be, acquired for investment for Holder's own account,
not as a nominee or agent, and not with a view to the resale or distribution
of any part thereof, and the Holder has no present intention of selling,
granting any participation in, or otherwise distributing any such securities.
The Holder does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or
to any third person, with respect to any of such securities.
Section 9.2 Investment Experience. The Holder is an investor
in securities of companies in the development stage and acknowledges that the
Holder is able to fend for itself, can bear the economic risk of the Holder's
investment and has such knowledge and experience in financial or business
matters that the Holder is capable of evaluating the merits and risks of the
investment in this Warrant and the Warrant Shares.
Section 9.3 Accredited Investor. The Holder is an
"accredited investor" within the meaning of Rule 501 of Regulation D under
the Securities Act, as presently in effect.
10
Section 9.4 Restricted Securities. The Holder understands
that this Warrant and the Warrant Shares are characterized as restricted
securities under the federal securities laws and applicable state securities
laws inasmuch as such securities are being (or will be) acquired from the
Corporation in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act, only in certain limited circumstances.
Section 9.5 Transfer Restrictions. Without in any way
limiting the representations set forth above, the Holder agrees not to make
any transfer of all or any portion of this Warrant or the Warrant Shares
unless and until (a) such transfer is registered under the Securities Act and
all applicable state securities laws, or (ii) Holder shall have notified the
Corporation of the proposed transfer and shall have furnished the Corporation
with a detailed statement of the circumstances surrounding the proposed
transfer, and, if the Corporation requests, Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such transfer will not require registration of such shares under the
Securities Act and applicable state securities laws.
Section 9.6 Legends.
(a) Each certificate representing any Warrant Shares
issued upon exercise of this Warrant shall bear the legend set forth below,
or a legend substantially equivalent thereto:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
DISPOSED OF UNLESS THEY ARE SO REGISTERED OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, BOTH AS
TO THE IDENTITY OF COUNSEL AND AS TO THE FORM AND SUBSTANCE
OF SUCH OPINION, AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
(b) Each certificate representing any shares of Stock
issued from time to time upon exercise of this Warrant shall also bear any
legend required under any applicable state securities or blue sky laws.
(c) The Corporation may issue appropriate "stop
transfer" instructions and may take such other steps as it may deem
appropriate to cause the restrictions referred to in this Section 9 to be
complied with.
Section 9.7 Survival. The obligations of the Holder (and/or
of any transferee of this Warrant or any Warrant Shares issued from time to
time upon exercise of this Warrant) under this Section 9 shall, with respect
to any Warrant Shares issued from time to time upon exercise of this Warrant,
survive the exercise, expiration or other termination, or transfer, of this
Warrant indefinitely.
Section 9.8 Mechanics of Transfer. Subject to the terms and
conditions of this Warrant and subject to compliance with all applicable
securities laws, any transfer of all or any portion of
11
this Warrant, or of any interest therein, that is otherwise in compliance
with applicable law shall be effected by surrendering this Warrant to the
Corporation at its principal office, together with (i) a duly executed form
of assignment, in the form attached hereto, (ii) payment of all applicable
transfer taxes, if any. In the event of any such transfer of this Warrant,
in whole, the Corporation shall issue a new warrant of like tenor to the
transferee, representing the right to purchase the same number of Warrant
Shares, and cash, securities or other property, if any, which were
purchasable by the Holder upon exercise of this Warrant at the time of its
transfer. In the event of any such transfer of any portion of this Warrant,
(i) the Corporation shall issue a new warrant of like tenor to the
transferee, representing the right to purchase the same number of Warrant
Shares, and cash, securities or other property, if any, which were
purchasable by the Holder upon exercise of the transferred portion of this
Warrant at the time of such transfer, and (ii) the Corporation shall issue a
new warrant of like tenor to the Holder, representing the right to purchase
the number of Warrant Shares, and cash, securities or other property, if any,
purchasable by the Holder upon exercise of the portion of this Warrant not
transferred to such transferee. Until this Warrant or any portion thereof is
transferred on the books of the Corporation, the Corporation may treat the
Holder as the absolute holder of this Warrant and all right, title and
interest therein for all purposes, notwithstanding any notice to the
contrary. Notwithstanding the foregoing, neither this Warrant nor any rights
hereunder may be transferred unless such transfer complies with all
applicable securities laws and the provisions of this Section 9.
Section 10. General.
Section 10.1 Authorized Shares; Reservation of Shares for
Issuance. At all times while this Warrant is outstanding, the Corporation
shall maintain its corporate authority to issue, and shall have authorized
and reserved for issuance upon exercise of this Warrant, such number of
shares of Common Stock as shall be sufficient to perform its obligations
under this Warrant (after giving effect to any and all adjustments to the
number and kind of Warrant Shares purchasable upon exercise of this Warrant).
Section 10.2 No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities, sale or other transfer of any of its assets or properties, or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of
the Holder hereunder against impairment. Without limiting the generality of
the foregoing, the Corporation (a) will not increase the par value of any
shares of Stock receivable upon the exercise of this Warrant above the amount
payable therefor on such exercise,
12
and (b) will take all action that may be necessary or appropriate in order
that the Corporation may validly and legally issue fully paid and
nonassessable shares of Stock on the exercise of this Warrant.
Section 10.3 No Rights as Stockholder. The Holder shall not
be entitled to vote or to receive dividends or to be deemed the holder of
Stock that may at any time be issuable upon exercise of this Warrant for any
purpose whatsoever, nor shall anything contained herein be construed to
confer upon the Holder any of the rights of a stockholder of the Corporation
or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance
or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings (except to the extent otherwise provided in this Warrant),
or to receive dividends or subscription rights, until the Holder shall have
exercised the Warrant and been issued Warrant Shares in accordance with the
provisions hereof.
Section 10.4 Notices. All notices, demands, requests,
certificates or other communications under this Warrant shall be in writing
and shall be either mailed by first class mail, postage prepaid, in which
case such notice, demand, request, certificate or other communication shall
be deemed to have been given three business days after the date on which it
is first deposited in the mails, or hand delivered or sent by facsimile
transmission, by tested or otherwise authenticated telex or cable or by
expedited courier for overnight delivery with signature required, in each
such case, such notice, demand, request, certificate or other communication
being deemed to have been given upon delivery or receipt, as the case may be:
(i) if to the Corporation, at 00000 Xxxx Xxxx,
Xxxxxxxxx, Xxxxxxxxxx 00000 Attention: Chief Financial Officer, or at such
other address as the Corporation may have furnished in writing to the Holder;
and
(ii) if to the Holder, at the Holder's address appearing
in the books maintained by the Corporation.
Section 10.5 Assignment. Notwithstanding anything contained
herein to the contrary, this Warrant and all rights hereunder are assignable
or transferable (subject to the legend set forth in the heading on the first
page hereof), in whole or in part, by the Bank to affiliates of the Bank.
Section 10.6 Amendment and Waiver. No failure or delay of
the Holder in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of
any other right or power. The rights and remedies of the Holder are
cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Corporation and the
Holder.
Section 10.7 Governing Law. This Warrant shall be governed
by, and construed and enforced in accordance with, the laws of California.
13
Section 10.8 Covenants to Bind Successor and Assigns. All
covenants, stipulations, promises and agreements in this Warrant contained by
or on behalf of the Corporation shall bind its successors and assigns,
whether so expressed or not.
Section 10.9 Severability. In case any one or more of the
provisions contained in this Warrant shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
Section 10.10 Construction. The definitions of this Warrant
shall apply equally to both the singular and the plural forms of the terms
defined. Wherever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The section and
paragraph headings used herein are for convenience of reference only, are not
part of this Warrant and are not to affect the construction of or be taken
into consideration in interpreting this Warrant.
Section 10.11 Remedies. The Holder and the Corporation, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will each be entitled to specific performance of its
rights under this Warrant. The Holder and the Corporation each agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at
law would be adequate. In any action or proceeding brought to enforce any
provision of this Warrant or where any provision hereof is invalidly asserted
as a defense, the successful party to such action or proceeding shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
[rest of page intentionally left blank]
14
IN WITNESS WHEREOF, the Corporation has caused this Warrant to
be executed in its corporate name by one of its officers thereunto duly
authorized, all as of the day and year first above written.
HYBRID NETWORKS, INC.
By:
---------------------------
Xxxx X. Xxxxxxxxx
Chief Executive Officer
15
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: HYBRID NETWORKS, INC.
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the attached Warrant for, and to exercise
thereunder, shares of Common Stock, $.001 par value per share
--------
("Common Stock"), of Hybrid Networks, Inc., a Delaware corporation, and
tenders herewith payment of $ , representing the aggregate purchase
--------
price for such shares based on the price per share provided for in such
Warrant. The undersigned hereby confirms that the representations set forth
in Section 9 of the Warrant are true and complete with respect to the
undersigned as of the date hereof.
Please issue a certificate or certificates for such shares of
Common Stock in the following name or names and denominations and deliver
such certificate or certificates to the person or persons listed below at
their respective addresses set forth below:
If said number of shares of Common Stock shall not be all the
shares of Common Stock issuable upon exercise of the attached Warrant, a new
Warrant is to be issued in the name of the undersigned for the balance
remaining of such shares of Common Stock less any fraction of a share of
Common Stock paid in cash.
Dated: , 19
------------- --
------------------------------
(Name of Holder)
By:
---------------------------
Its:
--------------------------
Address:
----------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant.
NOTICE OF CONVERSION
To: Hybrid Networks, Inc.
(1) The undersigned hereby elects to convert that portion of
the attached Warrant representing the right to purchase shares of
----------
Common Stock of Hybrid Networks, Inc. into such number of shares of Common
Stock of Hybrid Networks, Inc. as is determined pursuant to Section 2.3 of
such Warrant, which conversion shall be effected pursuant to the terms of
such Warrant.
(2) The undersigned represents that the aforesaid shares are
being acquired for the account of the undersigned for investment and not with
a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling
such shares, except in compliance with applicable federal and state
securities laws. The undersigned hereby confirms that the representations
set forth in Section 9 of the Warrant are true and complete with respect to
the undersigned as of the date hereof.
(3) The undersigned accepts such shares subject to the terms
relating to registration rights under the Investor Rights Agreement (as
defined in the Warrant).
------------------------
(Date)
------------------------------
(Name of Holder)
By:
---------------------------
Its:
--------------------------
Address:
----------------------
------------------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant.
FORM OF ASSIGNMENT
For value received, hereby sells, assigns
----------------------------
and transfers unto (the "Transferee") the
-----------------------------
attached Warrant [ % of the attached Warrant], together with all right,
--
title and interest therein, and does hereby irrevocably constitute and
appoint attorney to transfer said Warrant
----------------------------
[said percentage of said Warrant] on the books of Hybrid Networks, Inc., a
Delaware corporation, with full power of substitution in the premises.
The Transferee, by signing below, hereby confirms that the
representations set forth in Section 9 of the Warrant are true and complete
with respect to the Transferee as of the date hereof, and that the Transferee
agrees to be bound by the restrictions of Section 9 of the Warrant.
If not all of the attached Warrant is to be so transferred, a new
Warrant is to be issued in the name of the undersigned for the balance of
said Warrant.
Dated: , 19
------------- --
------------------------------
(Name of Holder)
By:
---------------------------
Its:
--------------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant.
Agreed to and Accepted
------------------------------
Name of Transferee
By:
------------------------------
Its:
------------------------------
Address:
------------------------------
------------------------------
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of October 16, 1997,
by and between the undersigned creditor ("Creditor"), and VENTURE BANKING
GROUP, a division of Cupertino National Bank ("Bank").
Recitals
A. Hybrid Networks, Inc. ("Borrower") has requested and/or
obtained certain loans or other credit accommodations from Bank to Borrower
which are or may be from time to time secured by assets and property of
Borrower.
B. Creditor has extended loans or other credit
accommodations to Borrower, and/or may extend loans or other credit
accommodations to Borrower from time to time.
C. In order to induce Bank to extend credit to Borrower and,
at any time or from time to time, at Bank's option, to make such further
loans, extensions of credit, or other accommodations to or for the account of
Borrower, or to purchase or extend credit upon any instrument or writing in
respect of which Borrower may be liable in any capacity, or to grant such
renewals or extension of any such loan, extension of credit, purchase, or
other accommodation as Bank may deem advisable, Creditor is willing to
subordinate: (i) all of Borrower's indebtedness and obligations to Creditor,
whether presently existing or arising in the future (the "Subordinated Debt")
to all of Borrower's indebtedness and obligations to Bank; and (ii) all of
Creditor's security interests, if any, to all of Bank's security interests in
the Borrower's property.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or
lien that Creditor may have in any property of Borrower. Notwithstanding the
respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Bank, the security interest of Bank in
the Collateral, as defined in the Loan and Security Agreement, of even date
herewith, between Borrower and Bank (the "Loan Agreement"), shall at all
times be prior to the security interest of Creditor.
2. All Subordinated Debt is subordinated in right of payment
to all obligations of Borrower to Bank now existing or hereafter arising,
together with all costs of collecting such obligations (including attorneys'
fees), including, without limitation, all interest accruing after the
commencement by or against Borrower of any bankruptcy, reorganization or
similar proceeding, and all obligations under the Loan Agreement (the "Senior
Debt"), subject to the following Section 3; provided, however, the
Subordinated Debt shall only be subordinated to the Senior Debt in an amount
up to Five Million Dollars ($5,000,000) of principal, plus costs and interest.
3. Creditor will not demand or receive from Borrower (and
Borrower will not pay to Creditor) all or any part of the Subordinated Debt,
by way of payment, prepayment, setoff, lawsuit or otherwise, nor will
Creditor exercise any remedy with respect to the Collateral, nor will
Creditor commence, or cause to commence, prosecute or participate in any
administrative, legal or equitable action against Borrower, for so long as
any portion of the Senior Debt remains outstanding. The foregoing
notwithstanding, Creditor shall be entitled to receive each regularly
scheduled payment of principal and interest in respect of the Subordinated
Debt, including any installment payment and/or payment of the entire
outstanding principal amount thereof on the maturity date thereof, provided
that an Event of Default, as defined in the Loan Agreement, has not occurred
and is not continuing and would not exist immediately after such payment.
The foregoing notwithstanding, after the occurrence and during the
continuation of an event of default under the Subordinated Debt, Creditor
shall be entitled to accelerate the Subordinated Debt, and exercise its
remedies thereunder, but not
1
earlier than one hundred eighty (180) days after Bank has received written
certification from Creditor that (1) an event of default has occurred in
respect of the Subordinated Debt, and (2) such event permits an acceleration
of the Subordinated Debt; provided, that for one hundred eighty (180) days
after the date that Bank notifies Creditor that a default has occurred under
the Senior Debt, Creditor shall not be permitted to exercise its remedies on
account of the Subordinated Debt and provided, further, that any payment,
distribution or other amounts received pursuant to the exercise of such
remedies by Creditor shall first be delivered to Bank, in the form received,
for application to the Senior Debt, until the Senior Debt has been repaid in
full.
4. Creditor shall promptly deliver to Bank in the form
received (except for endorsement or assignment by Creditor where required by
Bank) for application to the Senior Debt any payment, distribution, security
or proceeds received by Creditor with respect to the Subordinated Debt other
than in accordance with this Agreement. The foregoing notwithstanding, after
the occurrence and during the continuation of an event of default under the
Subordinated Debt, Creditor shall be entitled to accelerate the Subordinated
Debt, and exercise its remedies thereunder, but not earlier than one hundred
eighty (180) days after Bank has received written certification from Creditor
that (1) an event of default has occurred in respect of the Subordinated
Debt, and (2) such event permits an acceleration of the Subordinated Debt;
provided, that for one hundred eighty (180) days after the date that Bank
notifies Creditor that a default has occurred under the Senior Debt, Creditor
shall not be permitted to exercise its remedies on account of the
Subordinated Debt and provided, further, that any payment, distribution or
other amounts received pursuant to the exercise of such remedies by Creditor
shall first be delivered to Bank, in the form received, for application to
the Senior Debt, until the Senior Debt has been repaid in full.
5. In the event of Borrower's insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws
relating to the relief of debtors, these provisions shall remain in full
force and effect, and Bank's claims against Borrower and the estate of
Borrower shall be paid in full before any payment is made to Creditor.
6. For so long as any of the Senior Debt remains unpaid,
Creditor irrevocably appoints Bank as Creditor's attorney-in-fact, and grants
to Bank a power of attorney with full power of substitution, in the name of
Creditor or in the name of Bank, for the use and benefit of Bank, without
notice to Creditor, in any bankruptcy, insolvency or similar proceeding
involving Borrower, at Bank's option, to file the appropriate claim or claims
in respect of the Subordinated Debt on behalf of Creditor if Creditor does
not do so prior to 30 days before the expiration of the time to file claims
in such proceeding and if Bank elects, in its sole discretion, to file such
claim or claims.
7. Creditor shall immediately affix a legend to the
instruments evidencing the Subordinated Debt stating that the instruments are
subject to the terms of this Agreement. Without Bank's prior written
consent, amendment of the documents evidencing or relating to the
Subordinated Debt shall not directly or indirectly modify the provisions of
this Agreement in any manner which might terminate or impair the
subordination of the Subordinated Debt or the subordination of the security
interest or lien that Creditor may have in any property of Borrower. By way
of example, such instruments shall not be amended to (i) increase the rate of
interest with respect to the Subordinated Debt, or (ii) accelerate the
payment of the principal or interest or any other portion of the Subordinated
Debt.
8. This Agreement shall remain effective for so long as
Borrower owes any amounts to Bank under the Loan Agreement or otherwise. If,
at any time after payment in full of the Senior Debt any payments of the
Senior Debt must be disgorged by Bank for any reason (including, without
limitation, the bankruptcy of Borrower), this Agreement and the relative
rights and priorities set forth herein shall be reinstated as to all such
disgorged payments as though such payments had not been made and Creditor
shall immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any
2
time and from time to time, without notice to Creditor, Bank may take such
actions with respect to the Senior Debt as Bank, in its sole discretion, may
deem appropriate, including, without limitation, terminating advances to
Borrower, increasing the principal amount, extending the time of payment,
increasing applicable interest rates, renewing, compromising or otherwise
amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction
shall impair or otherwise affect Bank's rights hereunder. To the extent
permitted by law, Creditor waives the benefits, if any, of Civil Code
Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.
9. Provided that the Senior Debt has been indefeasibly
finally paid and discharged, Creditor shall be subrogated to the rights of
Bank to receive payments or distributions of cash, property or securities
payable or distributable on account of the Senior Debt, to the extent of all
payments and distributions paid over to or for the benefit of Bank pursuant
to this Agreement. In no event, however, shall Creditor have any rights or
claims against Bank for any alleged impairment of Creditor's subrogation
rights, Creditor acknowledging that any actions taken by Bank with respect to
the Senior Debt or the Collateral are authorized and consented to by
Creditor. No payments or distributions made to Bank to which Creditor would
be entitled except for the subordination provisions of this Agreement, and no
payment to Bank by Creditor, as between Borrower, its creditors (other than
Bank) and Creditor shall be deemed to discharge any of the Senior Debt.
10. This Agreement shall bind any successors or assignees of
Creditor and shall benefit any successors or assigns of Bank. This Agreement
is solely for the benefit of Creditor and Bank and not for the benefit of
Borrower or any other party. Creditor further agrees that if Borrower is in
the process of refinancing a portion of the Senior Debt with a new lender,
and if Bank makes a request of Creditor, Creditor shall agree to enter into a
new subordination agreement with the new lender on substantially the terms
and conditions of this Agreement.
11. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
12. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the state and federal courts located in Santa Xxxxx County,
California. CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
13. This Agreement represents the entire agreement with
respect to the subject matter hereof, and supersedes all prior negotiations,
agreements and commitments. Creditor is not relying on any representations
by Bank or Borrower in entering into this Agreement, and Creditor has kept
and will continue to keep itself fully apprised of the financial and other
condition of Borrower. This Agreement may be amended only by written
instrument signed by Creditor and Bank.
14. In the event of any legal action to enforce the rights of
a party under this Agreement, the party prevailing in such action shall be
entitled, in addition to such other relief as may be granted, all reasonable
costs and expenses, including reasonable attorneys' fees, incurred in such
action.
3
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
"Creditor" "Bank"
HOLDERS OF CONVERTIBLE SUBORDINATED VENTURE BANKING GROUP, a division of
NOTES OF HYBRID NETWORKS, INC. DATED Cupertino National Bank
SEPTEMBER 25, 1997
By: Tudor BVI Futures, Ltd.
By: Tudor Investment Corporation,
Investment Adviser
By: /s/ Xxxxxx X. Xxxxxxxx By: /s/ Company Officer
---------------------- -----------------------
Xxxxxx X. Xxxxxxxx
Vice President By: -----------------------
By: Tudor Arbitrage Partners, L.P.
By: Tudor Global Trading, Inc.
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------
Xxxxxx X. Xxxxxxxx
Vice President
By: Raptor Global Fund, Ltd.
By: Tudor Investment Corporation,
Investment Adviser
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------
Xxxxxx X. Xxxxxxxx
Vice President
By: Raptor Global Fund, L.P.
By: Tudor Investment Corporation,
Investment Adviser
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------
Xxxxxx X. Xxxxxxxx
Vice President
The undersigned approves of the terms of this Agreement.
"Borrower"
HYBRID NETWORKS, INC.
By: /s/ Xxxx X. Xxxxxxxxx
----------------------
Title: President and CEO
----------------------
4
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of October 16, 1997,
by and between the undersigned creditor ("Creditor"), and VENTURE BANKING
GROUP, a division of Cupertino National Bank ("Bank").
Recitals
A. Hybrid Networks, Inc. ("Borrower") has requested and/or
obtained certain loans or other credit accommodations from Bank to Borrower
which are or may be from time to time secured by assets and property of
Borrower.
B. Creditor has extended loans or other credit
accommodations to Borrower, and/or may extend loans or other credit
accommodations to Borrower from time to time.
C. In order to induce Bank to extend credit to Borrower and,
at any time or from time to time, at Bank's option, to make such further
loans, extensions of credit, or other accommodations to or for the account of
Borrower, or to purchase or extend credit upon any instrument or writing in
respect of which Borrower may be liable in any capacity, or to grant such
renewals or extension of any such loan, extension of credit, purchase, or
other accommodation as Bank may deem advisable, as of October 31, 1997,
Creditor is willing to subordinate: (i) all of Borrower's indebtedness and
obligations to Creditor, whether presently existing or arising in the future
(the "Subordinated Debt") to all of Borrower's indebtedness and obligations
to Bank; and (ii) all of Creditor's security interests, if any, to all of
Bank's security interests in the Borrower's property.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or
lien that Creditor may have in any property of Borrower. Notwithstanding the
respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Bank, the security interest of Bank in
the Collateral, as defined in the Loan and Security Agreement, of even date
herewith, between Borrower and Bank (the "Loan Agreement"), shall at all
times be prior to the security interest of Creditor.
2. All Subordinated Debt is subordinated in right of payment
to all obligations of Borrower to Bank now existing or hereafter arising,
together with all costs of collecting such obligations (including attorneys'
fees), including, without limitation, all interest accruing after the
commencement by or against Borrower of any bankruptcy, reorganization or
similar proceeding, and all obligations under the Loan Agreement (the "Senior
Debt"), subject to the following Section 3; provided, however, the
Subordinated Debt shall be subordinated to the Senior Debt only in an amount
up to Five Million Dollars ($5,000,000) of principal, plus costs and interest.
3. Creditor will not demand or receive from Borrower (and
Borrower will not pay to Creditor) all or any part of the Subordinated Debt,
by way of payment, prepayment, setoff, lawsuit or otherwise, nor will
Creditor exercise any remedy with respect to the Collateral, nor will
Creditor commence, or cause to commence, prosecute or participate in any
administrative, legal or equitable action against Borrower, for so long as
any portion of the Senior Debt remains outstanding. The foregoing
notwithstanding, Creditor shall be entitled to receive each regularly
scheduled payment of principal and interest that constitutes Subordinated
Debt, provided that an Event of Default, as defined in the Loan Agreement,
has not occurred and is not continuing and would not exist immediately after
such payment. The foregoing notwithstanding, after the occurrence and during
the continuation of an event of default under the Subordinated Debt, Creditor
shall be entitled to accelerate the Subordinated Debt, and exercise its
remedies thereunder, but not earlier than one hundred eighty (180) days after
Bank has received written certification from Creditor that (1) an event of
default has occurred in respect of the Subordinated Debt, and (2) such event
permits an acceleration
1
of the Subordinated Debt; provided, that for one hundred eighty (180) days
after the date that Bank notifies Creditor that a default has occurred under
the Senior Debt (provided, that only one (1) such one hundred eighty (180)
day period shall apply to Creditor within any continuous three hundred sixty
(360) day period unless all defaults in any such one hundred eighty (180) day
period are cured before such one hundred eighty (180) day period expires),
Creditor shall not be permitted to exercise its remedies on account of the
Subordinated Debt and provided, further, that any payment, distribution or
other amounts received pursuant to the exercise of such remedies by Creditor
shall first be delivered to Bank, in the form received, for application to
the Senior Debt, until the Senior Debt has been repaid in full.
4. Creditor shall promptly deliver to Bank in the form
received (except for endorsement or assignment by Creditor where required by
Bank) for application to the Senior Debt any payment, distribution, security
or proceeds received by Creditor with respect to the Subordinated Debt other
than in accordance with this Agreement.
5. In the event of Borrower's insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws
relating to the relief of debtors, these provisions shall remain in full
force and effect, and Bank's claims against Borrower and the estate of
Borrower shall be paid in full before any payment is made to Creditor.
6. Until an Equity Event (as defined in the Loan Agreement)
and for so long as any of the Senior Debt remains unpaid, Creditor
irrevocably appoints Bank as Creditor's attorney-in-fact, and grants to Bank
a power of attorney with full power of substitution, in the name of Creditor
or in the name of Bank, for the use and benefit of Bank, without notice to
Creditor, to perform at Bank's option the following acts in any bankruptcy,
insolvency or similar proceeding involving Borrower:
(i) To file the appropriate claim or claims in respect
of the Subordinated Debt on behalf of Creditor if Creditor does not do so
prior to 30 days before the expiration of the time to file claims in such
proceeding and if Bank elects, in its sole discretion, to file such claim or
claims; and
(ii) To accept or reject any plan of reorganization or
arrangement on behalf of Creditor and to otherwise vote Creditor's claims in
respect of any Subordinated Debt in any manner that Bank deems appropriate
for the enforcement of its rights hereunder.
7. Creditor shall immediately affix a legend to the
instruments evidencing the Subordinated Debt stating that the instruments are
subject to the terms of this Agreement. Without Bank's prior written
consent, amendment of the documents evidencing or relating to the
Subordinated Debt shall not directly or indirectly modify the provisions of
this Agreement in any manner which might terminate or impair the
subordination of the Subordinated Debt or the subordination of the security
interest or lien that Creditor may have in any property of Borrower. By way
of example, such instruments shall not be amended to (i) increase the rate of
interest with respect to the Subordinated Debt, or (ii) accelerate the
payment of the principal or interest or any other portion of the Subordinated
Debt.
8. This Agreement shall remain effective for so long as
Borrower owes any amounts to Bank under the Loan Agreement or otherwise. If,
at any time after payment in full of the Senior Debt any payments of the
Senior Debt must be disgorged by Bank for any reason (including, without
limitation, the bankruptcy of Borrower), this Agreement and the relative
rights and priorities set forth herein shall be reinstated as to all such
disgorged payments as though such payments had not been made and Creditor
shall immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Creditor,
Bank may take such actions with respect to the Senior Debt as Bank, in its
sole discretion, may deem appropriate, including, without limitation,
terminating advances to Borrower, increasing the principal amount, extending
the time of payment, increasing applicable interest rates, renewing,
compromising or otherwise amending the terms of any
2
documents affecting the Senior Debt and any collateral securing the Senior
Debt, and enforcing or failing to enforce any rights against Borrower or any
other person. No such action or inaction shall impair or otherwise affect
Bank's rights hereunder. To the extent permitted by law, Creditor waives the
benefits, if any, of Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
9. This Agreement shall bind any successors or assignees of
Creditor and shall benefit any successors or assigns of Bank. This Agreement
is solely for the benefit of Creditor and Bank and not for the benefit of
Borrower or any other party. Creditor further agrees that if Borrower is in
the process of refinancing a portion of the Senior Debt with a new lender,
and if Bank makes a request of Creditor, Creditor shall agree to enter into a
new subordination agreement with the new lender on substantially the terms
and conditions of this Agreement.
10. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
11. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the state and federal courts located in Santa Xxxxx County,
California. CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
12. This Agreement represents the entire agreement with
respect to the subject matter hereof, and supersedes all prior negotiations,
agreements and commitments. Creditor is not relying on any representations
by Bank or Borrower in entering into this Agreement, and Creditor has kept
and will continue to keep itself fully apprised of the financial and other
condition of Borrower. This Agreement may be amended only by written
instrument signed by Creditor and Bank.
13. In the event of any legal action to enforce the rights of
a party under this Agreement, the party prevailing in such action shall be
entitled, in addition to such other relief as may be granted, all reasonable
costs and expenses, including reasonable attorneys' fees, incurred in such
action.
14. Creditor's subordination shall be effective as of October
31, 1997.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
"Creditor" "Bank"
BG SERVICES LIMITED VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: /s/ Company Officer By: /s/ Company Officer
---------------------- -----------------------
Title: ------------------- Title: --------------------
3
The undersigned approves of the terms of this Agreement.
"Borrower"
HYBRID NETWORKS, INC.
By: /s/ Xxxx X. Xxxxxxxxx
------------------------
Title: President and CEO
---------------------
4
