EXHIBIT 10.3
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated December ___,
2001 between SILICON VALLEY BANK ("Bank") and Lantronix, Inc., UNITED STATES
SOFTWARE CORPORATION, LIGHTWAVE COMMUNICATION, INC. and SYNERGETIC MICRO
SYSTEMS, INC. (jointly and severally referred to herein as the "Borrower"),
provides the terms on which Bank will lend to Borrower and Borrower will repay
Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
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Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation" in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13.
2. LOAN AND TERMS OF PAYMENT
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2.1 Credit Extensions. Borrower will pay Bank the unpaid principal amount
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of all Credit Extensions and interest on the unpaid principal amount of the
Credit Extensions.
2.1.1 Revolving Advances.
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(a) Bank will make Advances not exceeding (i) the Committed Revolving
Line, minus (ii) all amounts for services utilized under the Cash Management
Services Sublimit, minus (iii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit), and minus (iv) the FX
Reserve. Amounts borrowed under this Section may be repaid and reborrowed during
the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 12:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
2.1.2 Letters of Credit. Bank will issue or have issued letters of credit for
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Borrower's account (individually referred as a "Letter of Credit" and
collectively referred to herein as the "Letters of Credit") not exceeding (i)
the Committed Revolving Line, minus (ii) the outstanding principal
balance of the Advances, minus (iii) the Cash Management Sublimit, and minus
(iv) the FX Reserve; provided, however, the face amount of outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit) may not exceed
$1,000,000, on a joint basis for all Borrowers. Each Letter of Credit will have
an expiry date of no later than 180 days after the Revolving Maturity Date, but
Borrower's 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. Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request.
2.1.3 Foreign Exchange Sublimit. If there is availability under the Committed
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Revolving Line for new Advances, then Borrower may enter in foreign exchange
forward contracts with the Bank under which Borrower commits to purchase from or
sell to Bank a set amount of foreign currency more than one business day after
the contract date (the "FX Forward Contract"). Bank will subtract 10% of each
outstanding FX Forward Contract from the foreign exchange sublimit which is a
maximum of $500,000, on a joint basis for all Borrowers (the "FX Reserve"). The
total FX Forward Contracts at any one time may not exceed 10 times the amount of
the FX Reserve and a proposed new FX Forward Contract may be entered into only
if the amount of the increase in the FX Reserve relating thereto would otherwise
be available for the making of an Advance in such amount. Bank may terminate the
FX Forward Contracts if an Event of Default occurs.
2.1.4 Cash Management Sublimit. Borrower may use up to $1,000,000 on a joint
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basis for all Borrowers (the "Cash Management Services Sublimit") for Bank's
cash management services, which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in various
cash management services agreements related to such services (the "Cash
Management Services"). The aggregate amounts utilized under the Cash Management
Services Sublimit will at all times reduce the amount otherwise available to be
borrowed under the Committed Revolving Line and new Cash Management Services may
be extended only if the amount of such proposed new extension of such services
would otherwise be available for the making of an Advance in such amount. Any
amounts Bank pays on behalf of Borrower or any amounts that are not paid by
Borrower for any Cash Management Services will be treated as Advances under the
Committed Revolving Line and will accrue interest at the rate for Advances
2.2 Overadvances. If Borrower's Obligations under Section 2.1.1, 2.1.2,
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2.1.3 or 2.1.4 exceed the applicable limitations set forth therein, Borrower
must immediately pay any such excess in cash to Bank.
2.3 Interest Rate; Payments.
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(a) Interest Rate. At Borrower's option, and all as more fully set
forth in the Interest Rate Supplement, Advances accrue interest on the
outstanding principal balance at a per annum rate equal to either (i) the Prime
Rate or (ii) the LIBOR Rate plus 200 basis points. Any prepayment of Advances
that is requested at the LIBOR Rate must include the applicable Prepayment Fee.
After an Event of Default, Obligations accrue interest at 5 percent above the
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rate effective immediately before the Event of Default. If the applicable
interest rate is the Prime Rate, the interest rate increases or decreases when
the Prime Rate changes. Interest is computed on a 360 day year for the actual
number of days elapsed. Further, reference is made to the Interest Rate
Supplement, which is attached hereto as Exhibit A-1, and the terms and
provisions thereof are hereby incorporated herein by this reference, as if such
terms and provisions were fully set forth herein.
(b) Payments. Interest is payable no later than the twenty-second
(22/nd/) day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number _______________ for principal and interest payments or
any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not set-offs. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.4 Fees. Borrower will pay to Bank:
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(a) Facility Fee. A fully earned, non-refundable facility fee of
$50,000 due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the Closing Date when due,
provided it is understood that the attorneys' fees and expenses incurred in
connection with the negotiation and documentation of the Loan Documents will not
exceed $16,000.
(c) Unused Line Fee. Borrower shall pay Bank the "Unused Line Fee", in
addition to all interest and other fees payable hereunder. The "Unused Line Fee"
shall be .125% per annum multiplied by an amount equal to Committed Revolving
Line minus the average daily balance of the outstanding Advances, and shall be
computed and paid quarterly, in arrears, on the last day of March, June,
September and December, commencing on December 31, 2001 during the term of this
Agreement.
3. CONDITIONS OF LOANS
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3.1 Conditions Precedent to Initial Credit Extension. Bank's obligation to
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make the initial Credit Extension is subject to the condition precedent that it
receive the agreements, documents and fees it requires, including, without
limitation, the following:
(a) this Agreement;
(b) the Guaranty;
(c) Certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement and the Guaranty;
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(d) Legal opinion of counsel to Borrower, in form acceptable to
the Bank;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due;
(h) Certificate(s) of good standing regarding Borrower in
applicable jurisdictions; 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. Bank's obligations to
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make each Credit Extension, including the initial Credit Extension, is subject
to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
in Section 5 remain true.
4. CREATION OF SECURITY INTEREST
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4.1 Grant of Security Interest. Borrower grants Bank a continuing security
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interest in all presently existing and later acquired Collateral to secure all
Obligations and performance of each of Borrower's duties under the Loan
Documents. Except for Permitted Liens, any security interest will be a first
priority security interest in the Collateral. Bank may place a "hold" on any
deposit account pledged as Collateral. If the Agreement is terminated, Bank's
lien and security interest in the Collateral will continue until Borrower fully
satisfies its Obligations.
5. REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 Due Organization and Authorization. Borrower and each Subsidiary is
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duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change.
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The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formations documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.
5.2 Collateral. Borrower has good title to the Collateral, free of Liens
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except Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower is the sole owner of
the Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.
5.3 Litigation. Except as shown in the Schedule, there are no actions or
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proceedings pending or, to Borrower's knowledge, to the knowledge of Borrower's
Responsible Officers and legal counsel, threatened by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be expected to cause a
Material Adverse Change.
5.4 No Material Adverse Change in Financial Statements. All consolidated
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financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.5 Solvency. The fair salable value of Borrower's assets (including
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goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions in
this Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.
5.6 Regulatory Compliance. Borrower is not an "investment company" or a
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company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has complied in all material respects with the Federal
Fair Labor Standards Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that
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are necessary to continue its business as currently conducted except where the
failure to do so could not reasonably be expected to cause a Material Adverse
Change.
5.7 Subsidiaries. Borrower does not own any stock, partnership interest or
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other equity securities except for Permitted Investments.
5.8 Full Disclosure. No written representation, warranty or other written
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statement of Borrower in any certificate or written statement given to Bank
taken together with all such certificates and written statements given to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions 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
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Borrower will do all of the following:
6.1 Government Compliance. Borrower will maintain its and all Subsidiaries'
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corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a material adverse effect on Borrower's business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change.
6.2 Financial Statements, Reports, Certificates.
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(a) Borrower will deliver to Bank: (i) within 5 days of filing, copies of
all statements, reports and notices made available to Borrower's security
holders or to any holders of Subordinated Debt and all reports and all related
financial statements on each of Forms 10-K and 10-Q filed with the Securities
and Exchange Commission regarding Lantronix, Inc. together with, if not already
included in the foregoing, consolidating and consolidated financial statements;
(ii) a prompt report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of $100,000 or more; (iii) prompt notice of any material change in
the composition of the Intellectual Property, including any subsequent ownership
right of Borrower in or to any Copyright, Patent or Trademark not shown in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely affects the value of the Intellectual
Property; and (iv) budgets, sales projections, operating plans or other
financial information Bank requests.
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(b) At all times that any Advances are outstanding, Lantronix, Inc. will
deliver to Bank a monthly Compliance Certificate signed by a Responsible
Officer, within 30 days of each month end, and such Certificate shall also be
delivered to the Bank immediately prior to the time that any new Advances are
being requested when none are then outstanding.
(c) Bank has the right to audit Borrower's Accounts at Borrower's expense,
but such audits at Borrower's expense will be conducted no more often than once
every 12 months, unless an Event of Default has occurred and is continuing.
Audits may otherwise be conducted at the Bank's expense at reasonable intervals.
6.3 Inventory; Returns. Borrower will keep all Inventory in good and marketable
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condition, free from material defects. Returns and allowances between Borrower
and its account debtors will follow Borrower's customary practices as they exist
at the Closing Date. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than $100,000. Stock rotations
that are in the ordinary course of business and are in accordance with a
contractual obligation shall be excluded from this requirement.
6.4 Taxes. Borrower will make, and cause each Subsidiary to make, timely
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payment of all material federal, state, and local taxes or assessments and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.
6.5 Insurance. Borrower will keep its business and the Collateral insured for
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risks and in amounts, as Bank requests. Insurance policies will be in a form,
with companies, and in amounts that are satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as a loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 Minimum Bank Deposits. Borrower will maintain in its bank or investment
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accounts at Bank or held through Bank minimum unrestricted cash deposits equal
to the lesser of: (A) $7,000,000 or (B) 30% of the aggregate amount of all of
its cash and cash equivalents, on a consolidated basis for all Borrowers.
6.7 Financial Covenants.
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Lantronix, Inc. will maintain, on consolidated basis, as of the last day of
each quarter:
(A) Quick Ratio Adjusted. A ratio of Quick Assets to Current
Liabilities minus deferred revenue of at least 1.75 to 1.0.
(B) Net Income. Borrower will have a minimum net income (after taxes)
plus non-cash charges of $1.00 for each fiscal quarter.
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6.8 Further Assurances. Borrower will execute any further instruments and take
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further action as Bank requests to perfect or continue Bank's security interest
in the Collateral or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
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Borrower will not do any of the following without the Bank's written
consent, which will not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
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(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than a Transfer (i) of Inventory
in the ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, Management or Business Locations. Engage in
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or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto, or
have a material change in its ownership (other than the sale of Borrower's
equity securities in a public offering or to venture capital investors
identified to Bank) of greater than 25%. Borrower will not, without at least 30
days prior written notice to Bank, relocate its principal executive office or
add any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
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Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person except where (i) such transactions
do not in the aggregate result in a decrease of more than 25% of Tangible Net
Worth and (ii) no Default or Event of Default has occurred and is continuing or
would exist after giving effect to the transactions. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower as long as no Default or
Event of Default has occurred and is continuing or would exist after giving
effect thereto.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
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permit any Subsidiary to do so, other than Permitted Indebtedness; and the
foregoing shall mean and include without limitation, that no Foreign Subsidiary
shall incur additional Indebtedness other than as is now incurred and
outstanding as of the date hereof.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or
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assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to Bank's first priority
security interest in the Collateral granted herein, subject only to Permitted
Liens. Borrower currently has approximately $2,000,000.00 in capital equipment
lease facilities. Borrower shall be permitted to maintain an equivalent amount
of such indebtedness, and shall be
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permitted to increase such indebtedness for capital acquisitions by up to 10%
per annum (compounded annually) without obtaining Bank's consent.
7.6 Investments; Distributions. (i) Directly or indirectly acquire or own any
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Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (ii) pay any dividends or make
any distribution or payment or redeem, retire or purchase any capital stock.
7.7 Transactions with Affiliates. Directly or indirectly enter or permit any
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material transaction with any Affiliate, except transactions that are in the
ordinary course of Borrower's business, on terms less favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person.
7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt,
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except under the terms of the Subordinated Debt, or amend any provision in any
document relating to the Subordinated Debt, without Bank's prior written
consent.
7.9 Compliance. Become an "investment company" or a company controlled by an
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"investment company" under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that purpose; fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, each as defined in ERISA, to occur; fail to comply with the Federal
Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change, or permit
any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
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Any one of the following is an event of default hereunder (referred to as
an "Event of Default"):
8.1 Payment Default. Borrower fails to pay any of the Obligations within 5 days
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after their due date. During the additional period the failure to cure the
default is not an Event of Default (but no Credit Extensions will be made during
the cure period);
8.2 Covenant Default. If Borrower does not perform any obligation in Section 6
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or violates any covenant in Section 7; or
If Borrower does not perform or observe any other material term, condition
or covenant in this Agreement, any Loan Documents, or in any agreement between
Borrower and Bank and as to any default under such other term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default relating thereto cannot be cured within 10 days or
cannot be cured after Borrower's attempts within 10 day period, and the default
may be cured within a reasonable time, then Borrower has an additional period
(of not more than 30
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days) to attempt to cure the default. During the additional time, the failure to
cure the default is not an Event of Default (but no Credit Extensions will be
made during the cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change in
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the business, operations, or condition (financial or otherwise) of the Borrower,
or (ii) is a material impairment of the prospect of repayment of any portion of
the Obligations or (iii) is a material impairment of the value or priority of
Bank's security interests in the Collateral (any of the foregoing events or
occurrences is referred to herein as a "Material Adverse Change");
8.4 Attachment. (i) Any material portion of Borrower's assets is attached,
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seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in 10 days; (ii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iii) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (iv) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within 10 days after Borrower receives notice. These are not Events
of Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period);
8.5 Insolvency. (i) Borrower becomes insolvent; (ii) Borrower begins an
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Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within 30 days (but no Credit Extensions
will be made before any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If there is a default in any agreement between Borrower
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and a third party that gives the third party the right to accelerate any
Indebtedness exceeding $100,000 or that could cause a Material Adverse Change;
8.7 Judgments. If a money judgment or judgments in the aggregate of at least
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$100,000 is rendered against the Borrower and is unsatisfied and unstayed for 10
days (but no Credit Extensions will be made before the judgment is stayed or
satisfied);
8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes any
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material misrepresentation or material misstatement now or later in any warranty
or representation in this Agreement or in any communication delivered to Bank or
to induce Bank to enter this Agreement or any Loan Document; or
8.9 Guaranty. Any guaranty of any Obligations ceases for any reason to be in
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full force or any Guarantor does not perform any obligation under any guaranty
of the Obligations, or any material misrepresentation or material misstatement
exists now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to
any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
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9.1 Rights and Remedies. When an Event of Default occurs and continues Bank
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may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requests and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property 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, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney. When an Event of Default occurs and continues, Borrower
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irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or xxxx of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and
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powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank's obligation to provide Credit
Extensions terminates. `
9.3 Accounts Collection. When an Event of Default occurs and continues, Bank
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may notify any Person owing Borrower money of Bank's security interest in the
funds and verify the amount of the Account. Borrower must collect all payments
in trust for Bank and, if requested by Bank, immediately deliver the payments to
Bank in the form received from the account debtor, with proper endorsements for
deposit.
9.4 Bank Expenses. If Borrower fails to pay any amount or furnish any required
-------------
proof of payment to third persons Bank may make all or part of the payment or
obtain insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral. If Bank complies with reasonable banking
-------------------------------
practices and the applicable provisions of the Code, it is not liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
to the Collateral; (c) any diminution in the value of the Collateral; or (d) any
act or default of any carrier, warehouseman, bailee, or other person. Borrower
bears all risk of loss, damage or destruction of the Collateral.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement, the
-------------------
Loan Documents, and all other agreements are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank's exercise of one
right or remedy is not an election, and Bank's waiver of any Event of Default is
not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
9.7 Demand Waiver. Borrower waives demand, 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 guaranties held by Bank on which Borrower is
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: c/o Lantronix, Inc.
12
00000 Xxxxxxxx Xxxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx XxXxxxxxx
Fax: 000-000-0000
If to Bank: Silicon Valley Bank
00 Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attn: Manager
Fax: 000-000-0000
With a copy to: Silicon Valley Bank
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: General Counsel
Fax: 000-000-0000
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
-------------------------------------------
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Orange County, California. BORROWER AND BANK
EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING
OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
----------------------
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or Obligations under it without Bank's prior written
consent which may be granted or withheld in Bank's discretion. Bank has 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 under this Agreement, the Loan Documents
or any related agreement.
12.2 Indemnification. Borrower will indemnify, defend and hold harmless Bank and
---------------
its officers, employees and agents against: (a) all obligations, demands,
claims, and liabilities asserted by any other party in connection with the
transactions as contemplated by the Loan Documents; and (b) all losses or Bank
Expenses incurred, or paid by Bank from, following, or
13
consequential to transactions as contemplated by the Loan Documents (including
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 in this Agreement.
12.4 Severability of Provision. Each provision of this Agreement is severable
-------------------------
from every other provision in determining the enforceability of any provision.
12.5 Amendments in Writing, Integration. All amendments to this Agreement must
----------------------------------
be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersedes prior or contemporaneous negotiations or agreements. All prior or
contemporaneous agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Agreement and
the Loan Documents merge into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts
------------
and by different parties on separate counterparts, each of which, when executed
and delivered, are an original, and all taken together, are one Agreement.
12.7 Survival. All covenants, representations and warranties made in this
--------
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information, Bank will
---------------
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of any interest in the Loans; (iii) as required by law, regulation, subpoena, or
other order (with the understanding that Bank will undertake reasonable efforts
to provide notice to Borrower of any such requirement as may be appropriate
under the then existing circumstances, although Bank shall acquire no liability
if it fails to do so or if Borrower otherwise is unable to take actions to
prevent disclosure under such circumstances), (iv) as required in connection
with Bank's examination or audit; Confidential information does not include
information that either: (a) is in the public domain or in Bank's possession
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, if
Bank does not know, or Bank is not in a position reasonably to know, that the
third party is prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding between
-----------------------------------
Borrower and Bank arising out of the Loan Documents, the prevailing party will
be entitled to recover its reasonable attorneys' fees and other costs and
expenses incurred, in addition to any other relief to which it may be entitled,
whether or not a lawsuit is filed.
14
13. DEFINITIONS
-----------
13.1 Definitions.
-----------
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the Committed
Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Cash Management Services" shall have the meaning ascribed to such term in
Section 2.1.4 hereof.
"Closing Date" is the date of this Agreement.
"Code" is the California Uniform Commercial Code, as amended or modified
from time to time.
"Collateral" is the property described on Exhibit A.
"Committed Revolving Line" is a Credit Extension of up to Twenty Million
Dollars ($20,000,000) on a joint, and not several, basis for all Borrowers.
"Compliance Certificate" shall mean that certain compliance certificate in
the form of
15
Exhibit D attached hereto.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Copyrights" are all copyright rights, applications or registrations
and like protections in each work of authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"Credit Extension" is each Advance, Letter of Credit, Exchange Contract
and each other extension of credit by Bank for Borrower's benefit.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year and shall also include all
Obligations outstanding hereunder from time to time.
"Default" means any event which with the passing of time or the giving
of notice or both would become an Event of Default hereunder.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"Foreign Subsidiaries" shall mean all Subsidiaries of Borrower that are
organized under the law of a jurisdiction outside of the United States of
America.
"FX Forward Contract" is defined in Section 2.1.3.
"FX Reserve" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles, consistently
applied.
16
"Guarantor" is any present or future guarantor of the Obligations.
"Guaranty" shall mean the cross corporate continuing guaranty by each
Borrower relating to each other Borrower in form acceptable to the Bank.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any Intellectual Property Rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to xxx and
collect damages for use or infringement of the intellectual property rights
above; and
(e) All proceeds and products of the foregoing, including all
insurance, indemnity or warranty payments.
"Interest Rate Supplement" shall mean that certain LIBOR Supplement to
Loan and Security Agreement dated as of the date hereof as attached hereto as
Exhibit A-1.
"Inventory" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock,
partnership interest or
17
other securities) any Person, or any loan, advance or capital contribution to
any Person.
"Letter of Credit" and "Letters of Credit" shall have the meaning
ascribed to such terms in Section 2.1.2 hereof.
"LIBOR Rate" shall have the meaning ascribed to such term as is set
forth in the Interest Rate Supplement.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, the Interest Rate
Supplement, any note, or notes or guaranties executed by Borrower or Guarantor,
and any other present or future agreement between Borrower and/or for the
benefit of Bank in connection with this Agreement, all as amended, extended or
restated.
"Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"Material Adverse Change" has the meaning set forth in Section 8.3
hereof.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.
"Patents" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business
(e) Indebtedness consisting of Contingent Obligations in aggregate
amounts not the exceed the dollar amount limitations set forth in clause (g) of
the definition of Permitted Investments, with the understanding that the
aggregate amount of Contingent Indebtedness incurred pursuant hereto shall be
counted in and limited by the aggregate amount of Permitted Investments as set
forth in such clause (g) and thus no additional Contingent Indebtedness may be
incurred unless a new Investment in the same amount would otherwise be permitted
to be
18
made and funded pursuant to the terms and conditions of such clause (g);
provided that no such Indebtedness shall be permitted to be made or otherwise
--------
funded upon the occurrence and during the continuance of a Default or an Event
of Default; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Xxxxx'x Investors Service, Inc., (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue and (iv) any Investments
permitted by Borrower's investment policy, as amended from time to time,
provided that such investment policy has been provided to the Bank and such
Investment does not otherwise result in an Event of Default hereunder;
(c) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
Borrower;
(d) Investments consisting of travel advances and employee relocation
loans made in the ordinary course of business;
19
(e) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business;
(f) Other Investments consisting of the transfer of funds and other
transfers of consideration, whether as a loan, capital contribution or however
else characterized, to Foreign Subsidiaries in an aggregate amount for all of
the such transfers not to exceed the Excess Available Investment Amount (as
defined in clause (g) below) up to $2,500,000, determined and viewed on a joint
basis for all Borrowers with respect to each fiscal year of Lantronix, Inc.,
provided that no such Investment shall be permitted to be made or otherwise
--------
funded upon the occurrence and during the continuance of a Default or an Event
of Default;
(g) Other Investments consisting of loans or other Investments in
entities that are not Affiliates in an amount per transaction not to exceed
$2,500,000, and $10,000,000 in the aggregate in each fiscal year of the
Borrower, with the understanding that the above amounts are to be determined on
a joint basis for all Borrowers (such dollar amounts that are not being used for
such Investments during any fiscal year of Lantronix, Inc. being referred to
herein as the "Excess Available Investment Amount"); provided that the available
--------
amounts for Investments otherwise permitted by the terms and conditions of this
clause (g) shall be reduced during any fiscal year by (i) the aggregate amount
of Investments made in such fiscal year pursuant to clause (f) above and (ii)
the aggregate amount of Indebtedness incurred under clause (e) of the definition
of Permitted Indebtedness and outstanding from time to time; provided, further,
-------- -------
that only $2,500,000 of the above amount may be used for Investments in entities
not organized or located in the United States of America; provided, further,
-------- -------
that the currently contemplated Investment in Xanboo in an aggregate amount of
up to $4,000,000 shall be permitted and shall not be included in the foregoing
dollar amount limitations, provided, further, no such Investment shall be
-------- -------
permitted to be made or otherwise funded upon the occurrence and during the
continuance of a Default or an Event of Default.
(h) Other Investments by one Borrower in another Borrower, as long as
no Default or Event of Default is then existing upon the making of any such
Investment or would arise thereupon.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
--
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on
20
equipment when acquired, if the Lien is confined to the property and
--
improvements and the proceeds of the equipment;
(d) Leases or subleases and non-exclusive licenses or non-exclusive
sublicenses granted in the ordinary course of Borrower's business, if the
--
leases, subleases, licenses and sublicenses permit granting Bank a security
interest; and
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prepayment Fee" is a fee on any portion of the Obligations with a fixed
interest rate (the "Fixed Obligations") paid before the payment due date. "Base
Interest Rate" means Bank's initial cost of funding the Fixed Obligations. The
Prepayment Fee is calculated as follows: First, Bank determines a "Current
Market Rate" based on what the Bank would receive if it loaned the remaining
amount on the prepayment date in a wholesale funding market matching maturity,
remaining principal and interest amounts and principal and interest payment
dates (the aggregate payments received are the "Current Market Rate Amount").
Bank may select any wholesale funding market rate as the Current Market Rate.
Second, Bank will take the prepayment amount and calculate the present value of
each remaining principal and interest payment which, without prepayment, the
Bank would have received during the term of the Fixed Obligations using the Base
Interest Rate. The sum of the present value calculations is the "Xxxx to Market
Amount." Third, the Bank will subtract the Current Market Rate Amount from the
Xxxx to Market Amount. Any amount greater than zero is the Prepayment Fee.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of less than 12 months determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is December ___, 2003.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
21
indebtedness owed to Bank and which is reflected in a written agreement in a
manner and form acceptable to Bank and approved by Bank in writing.
"Subsidiary" is for any Person, joint venture, or any other business entity
of which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person, and unless otherwise specifically indicated herein, reference to
"Subsidiary" shall mean and refer to a "Subsidiary" of Borrower.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, without duplication, (i) any amounts
-----
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, Patents, trade and service marks and names, Copyrights and
research and development expenses except prepaid expenses, and (c) reserves not
already deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
---
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"Trademarks" are trademark and service xxxx rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER:
LANTRONIX, INC.
By: _______________________________
Title: ____________________________
UNITED STATES SOFTWARE CORPORATION
By: _______________________________
Title: ____________________________
LIGHTWAVE COMMUNICATION, INC.
By: _______________________________
Title: ____________________________
SYNERGETIC MICRO SYSTEMS, INC.
By: _______________________________
Title: ____________________________
BANK:
SILICON VALLEY BANK
23
By: ____________________________
Title: _________________________
24
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to all of Borrower's personal property, including without limitation the
following:
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;
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;
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;
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;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
letter-of-credit rights, commercial tort claims, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
Books relating to the foregoing; and
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
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.
26
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
FAX#: (000) 000-0000 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 Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that 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
[Reserved]
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: LANTRONIX, INC.
The undersigned authorized officer of LANTRONIX, INC. certifies that under
the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the "Agreement"), (i) Borrower is in complete compliance for the period
ending _______________ with all required covenants except as noted below and
(ii) all representations and warranties in the Agreement are true and correct in
all material respects on this date. Attached are the required documents
supporting the certification. The Officer certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) consistently
applied from one period to the next except as explained in an accompanying
letter or footnotes. The Officer acknowledges that no borrowings may be
requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined on an ongoing basis and not just as of the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under
"Complies" column.
Reporting Covenant Required Complies
------------------ -------- --------
Compliance Certificate Monthly within 30 days (when borrowing) Yes No
10-Q, 10-K with
consolidating statements Within 5 days after filing with SEC Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Minimum Quick Ratio 1.75:1.0 _____:1.0 Yes No
Profitability $1.00 $________ Yes No
-------------------------------------------------
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Received by: __________________________________
Sincerely, AUTHORIZED SIGNER
______________________________________________ Date: _________________________________________
SIGNATURE
Verified: _____________________________________
______________________________________________ AUTHORIZED SIGNER
TITLE
Date: _________________________________________
______________________________________________
DATE Compliance Status: Yes No
-------------------------------------------------
Exhibit E- Schedule
5.1 - Litigation
----------------
Lantronix is a defendant in a patent infringement suit filed by Digi,
International, a Lantronix competitor.
Lantronix is also among the list of defendants in a 1996 patent infringement
suit filed by Datapoint, Inc. Other defendants include Intel, Cisco, Xxxxx, Sun
Microsystems, IBM and NBASE. The case was heard in New York, with the court
issuing a verdict of non-infringement (unpublished opinion). The plaintiff
appealed to the Court of Appeals for the Federal Circuit, which heard oral
arguments in the appeal on December 3, 2001.Lantronix has been represented by
counsel for NBASE under an indemnification agreement.
5.7 - Subsidiaries
------------------
Lantronix has the following subsidiaries:
Lantronix International A.G., including its subsidiaries:
- Lantronix Networking Solutions Asia Pacific Pte Ltd (Singapore)
- Lantronix Australia Pty Ltd.
- Lantronix UK Ltd.
- Lantronix France SARL
- Lantronix Iberica S.L. (Spain)
- Lantronix Netherlands B.V.
Lantronix International Inc. (Foreign Sales Corp.)
Lantronix Deutschland GmbH
Lantronix Europe GmbH and its subsidiary, Acola Kommunikation + LAN-Tecknik GmbH
United States Software Corp.
Lightwave Communication, Inc.
Synergetic Micro Systems, Inc.
Premise Systems (acquisition expected to close in January, 2002)
