LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY
AGREEMENT (this “Agreement”) dated as of October 5, 2007, between SILICON VALLEY BANK, a
California chartered bank, with its principal place of business at 0000 Xxxxxx
Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 (“Bank”) and GigOptix, LLC, an Idaho
limited liability company, with offices at 0000 Xxxx Xxxx #00, Xxxx Xxxx, XX
00000 (“Borrower”), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. The parties agree as follows:
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ACCOUNTING AND OTHER
TERMS
Accounting
terms not defined in this Agreement shall 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. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
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LOAN AND TERMS OF
PAYMENT
2.1 Promise
to Pay. Borrower hereby unconditionally promises to pay Bank
the unpaid principal amount of all Advances hereunder with all interest, fees
and finance charges due thereon as and when due in accordance with this
Agreement.
2.1.1 Financing
of Accounts.
(a) Availability. Subject
to the terms of this Agreement, Borrower may request that Bank finance specific
Eligible Accounts. Bank may, in its sole discretion in each instance,
finance such Eligible Accounts by extending credit to Borrower in an amount
equal to the result of the Advance Rate multiplied by the face amount of the
Eligible Account (the “Advance”). Bank may, in its sole discretion,
change the percentage of the Advance Rate for a particular Eligible Account on a
case-by-case basis. When Bank makes an Advance, the Eligible Account
becomes a “Financed Receivable.”
(b) Maximum
Advances. The aggregate face amount of all Financed
Receivables outstanding at any time may not exceed the Facility Amount, and the
aggregate amount of all outstanding Advances at any time may not exceed Two
Million Dollars ($2,000,000).
(c) Borrowing
Procedure. Borrower will deliver an Invoice Transmittal for
each Eligible Account it offers. Bank may rely on information set
forth in or provided with the Invoice Transmittal.
(d) Credit Quality;
Confirmations. Bank may, at its option, conduct a credit check
of the Account Debtor for each Account requested by Borrower for financing
hereunder in order to approve any such Account Debtor’s credit before agreeing
to finance such Account. Bank may also verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts (including confirmations of Borrower’s representations in Section
5.3) by means of mail, telephone or otherwise, either in the name of Borrower or
Bank from time to time in its sole discretion.
(e) Accounts
Notification/Collection. Bank may notify any Person owing
Borrower money of Bank’s security interest in the funds and verify and/or
collect the amount of the Account.
(f) Maturity. Unless
otherwise terminated pursuant to subsection 2.1(g) or (h) below, this Agreement
shall terminate and all Obligations outstanding hereunder shall be immediately
due and payable on the Maturity Date.
(g) Early
Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Bank; or (ii) by Bank at any time
after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated (A) by Bank in
accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for
any reason, Borrower shall pay to Bank a termination fee in an amount equal to
one percent (1%) of the total commitment amount or $20,000 (the “Early
Termination Fee”). The Early Termination Fee shall be due and payable
on the effective date of such termination and thereafter shall bear interest at
a rate equal to the highest rate applicable to any of the
Obligations. Notwithstanding the foregoing, Bank agrees to waive the
Early Termination Fee if Bank agrees to refinance and re-document this Agreement
under another division of Bank (in its sole and exclusive discretion) prior to
the Maturity Date.
(h) Bank’s
Discretion. Notwithstanding anything to the contrary contained
herein, Bank is not obligated to finance any Eligible Accounts. Bank
and Borrower hereby acknowledge and agree that Bank’s agreement to finance
Eligible Accounts hereunder is discretionary in each
instance. Accordingly, there shall not be any recourse to Bank, nor
liability of Bank, on account of any delay in Bank’s making of, and/or any
decline by Bank to make, any loan or advance requested hereunder. In
addition, this Agreement may be terminated by Borrower or Bank at any
time.
2.2 Collections,
Finance Charges, Remittances and Fees. The Obligations shall
be subject to the following fees and Finance Charges. Unpaid fees and
Finance Charges may, in Bank’s discretion, accrue interest and fees as described
in Section 9.2 hereof.
2.2.1 Collections. Collections
will be credited to the Financed Receivable Balance for such Financed
Receivable, but if there is an Event of Default, Bank may apply Collections to
the Obligations in any order it chooses. If Bank receives a payment
for both a Financed Receivable and a non-Financed Receivable, the funds will
first be applied to the Financed Receivable and, if there is no Event of Default
then existing, the excess will be remitted to Borrower, subject to Section
2.2.7.
2.2.2 Facility
Fee. A fully earned, non-refundable facility fee of Ten
Thousand Dollars ($10,000) is due upon execution of this Agreement.
2.2.3 Finance
Charges. In computing Finance Charges on the Obligations under
this Agreement, all Collections received by Bank shall be deemed applied by Bank
on account of the Obligations three (3) Business Days after receipt of the
Collections. Borrower will pay a finance charge (the “Finance
Charge”) on each Financed Receivable which is equal to the Applicable Rate divided by 360 multiplied by the
number of days each such Financed Receivable is outstanding multiplied by the
outstanding Financed Receivable Balance. The Finance Charge is
payable on the date when the Advance made based on such Financed Receivable is
payable in accordance with Section 2.3 hereof. After an Event of Default, the
Applicable Rate will increase an additional five percent (5.0%) per annum
effective immediately upon the occurrence of such Event of Default.
2.2.4 Collateral
Handling Fee. Borrower will pay to Bank
a collateral handling fee (the “Collateral Handling Fee.”) So long as
Borrower maintains an Adjusted Quick Ratio, tested monthly, greater than or
equal to 1.50:1.00, the Collateral Handling Fee shall be equal to 0.10% per
month of the Financed Receivable Balance for each Financed Receivable
outstanding, based upon a 360 day year. So long as Borrower maintains
an Adjusted Quick Ratio, tested monthly, less than 1.50:1.00, the Collateral
Handling Fee shall be equal to 0.30% per month of the Financed Receivable
Balance for each Financed Receivable outstanding, based upon a 360 day
year. This fee is charged on a daily basis and is equal to the
Collateral Handling Fee divided by 30, multiplied by the number of days each
such Financed Receivable is outstanding, multiplied by the outstanding Financed
Receivable Balance. The Collateral Handling Fee is payable on the
date when the Advance made based on such Financed Receivable is payable in
accordance with Section 2.3 hereof. In computing Collateral Handling
Fees under this Agreement, all Collections received by Bank shall be deemed
applied by Bank on account of Obligations three (3) Business Days after receipt
of the Collections. The Collateral Handling Fee will increase by an
additional 0.50% effective immediately upon an Event of
Default.
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2.2.5 Accounting. After
each Reconciliation Period, Bank will provide an accounting of the transactions
for that Reconciliation Period, including the amount of all Financed
Receivables, all Collections, Adjustments, Finance Charges, Collateral Handling
Fee, and the Facility Fee. If Borrower does not object to the
accounting in writing within thirty (30) days it shall be considered
accurate. All Finance Charges and other interest and fees are
calculated on the basis of a 360 day year and actual days elapsed.
2.2.6 Deductions. Bank
may deduct fees, Finance Charges, Advances which become due pursuant to Section
2.3, and other amounts due pursuant to this Agreement from any Advances made or
Collections received by Bank.
2.2.7 Lockbox;
Account Collection Services.
(a)
Borrower shall direct each Account Debtor (and each depository
institution where proceeds of Accounts are on deposit) to remit payments with
respect to the Accounts to a lockbox account established with Bank or to wire
transfer payments to a cash collateral account that Bank controls (collectively,
the “Lockbox”). It will be considered an immediate Event of Default
if the Lockbox is not set-up and operational within forty-five (45) days from
the date of such direction by Bank.
(b)
Until such Lockbox is established, the proceeds of the
Accounts shall be paid by the Account Debtors to an address consented to by
Bank. Upon receipt by Borrower of such proceeds, the Borrower shall
immediately transfer and deliver the same to Bank, along with a detailed cash
receipts journal. Provided no Event of Default exists or an event
that with notice or lapse of time will be an Event of Default, within three (3)
days of receipt of such amounts by Bank, Bank will turn over to Borrower the
proceeds of the Accounts other than Collections with respect to Financed
Receivables and the amount of Collections in excess of the amounts for which
Bank has made an Advance to Borrower, less any amounts due to Bank, such as the
Finance Charge, the Facility Fee, payments due to Bank, other fees and expenses,
or otherwise; provided, however, Bank may hold such excess amount with respect
to Financed Receivables as a reserve until the end of the applicable
Reconciliation Period if Bank, in its discretion, determines that other Financed
Receivable(s) may no longer qualify as an Eligible Account at any time prior to
the end of the subject Reconciliation Period. This Section does not
impose any affirmative duty on Bank to perform any act other than as
specifically set forth herein. All Accounts and the proceeds thereof
are Collateral and if an Event of Default occurs, Bank may apply the proceeds of
such Accounts to the Obligations.
2.2.8 Good
Faith Deposit. Borrower has paid to Bank a deposit of Ten
Thousand Dollars ($10,000) (the “Good Faith Deposit”) to initiate Bank’s due
diligence review process and to pay Bank Expenses. Any portion of the
Good Faith Deposit not utilized to pay Bank Expenses will be applied to the
Facility Fee.
2.3 Repayment of Obligations;
Adjustments.
2.3.1 Repayment. Borrower
will repay each Advance on the earliest of: (a) the date on which payment is
received of the Financed Receivable with respect to which the Advance was made,
(b) the date on which the Financed Receivable is no longer an Eligible Account,
(c) the date on which any Adjustment is asserted to the Financed Receivable (but
only to the extent of the Adjustment if the Financed Receivable remains
otherwise an Eligible Account), (d) the date on which there is a breach of any
warranty or representation set forth in Section 5.3, or (e) the Maturity Date
(or any earlier termination). Each payment will also include all accrued Finance
Charges and Collateral Handling Fees with respect to such Advance and all other
amounts then due and payable hereunder.
2.3.2 Repayment
on Event of Default. When there is an
Event of Default, Borrower will, if Bank demands (or, upon the occurrence of an
Event of Default under Section 8.5, immediately without notice or demand from
Bank) repay all of the Advances. The demand may, at Bank’s option,
include the Advance for each Financed Receivable then outstanding and all
accrued Finance Charges, the Early Termination Fee, the Collateral Handling Fee,
attorneys’ and professional fees, court costs and expenses, and any other
Obligations.
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2.3.3 Debit of
Accounts. Bank may debit any of Borrower’s deposit accounts
for payments or any amounts Borrower owes Bank hereunder. Bank shall
promptly notify Borrower when it debits Borrower’s accounts. These
debits shall not constitute a set-off.
2.3.4 Adjustments. If
at any time during the term of this Agreement any Account Debtor asserts an
Adjustment or if Borrower issues a credit memorandum or if any of the
representations, warranties or covenants set forth in Section 5.3 are no longer
true in all material respects, Borrower will promptly advise Bank.
2.4 Power of
Attorney. Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank, regardless of
whether there has been an Event of Default, to: (a) sell, assign, transfer,
pledge, compromise, or discharge all or any part of the Financed Receivables;
(b) demand, collect, xxx, and give releases to any Account Debtor for monies due
and compromise, prosecute, or defend any action, claim, case or proceeding about
the Financed Receivables, including filing a claim or voting a claim in any
bankruptcy case in Bank’s or Borrower’s name, as Bank chooses; (c) prepare, file
and sign Borrower’s name on any notice, claim, assignment, demand, draft, or
notice of or satisfaction of lien or mechanics’ lien or similar document; (d)
notify all Account Debtors to pay Bank directly; (e) receive, open, and dispose
of mail addressed to Borrower; (f) endorse Borrower’s name on checks or other
instruments (to the extent necessary to pay amounts owed pursuant to this
Agreement); and (g) execute on Borrower’s behalf any instruments, documents,
financing statements to perfect Bank’s interests in the Financed Receivables and
Collateral and do all acts and things necessary or expedient, as determined
solely and exclusively by Bank, to protect, preserve, and otherwise enforce
Bank’s rights and remedies under this Agreement, as directed by
Bank.
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CONDITIONS OF
LOANS
3.1 Conditions
Precedent to Initial Advance. Bank’s agreement to make the
initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, such documents, and
completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:
(a) a
certificate of the Secretary of Borrower
with respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(b) a
Perfection Certificate by Borrower;
(c) the
IP Agreement;
(d) the
Subordination Agreement signed by Stellar Technologies, LLC;
(e) a
confirmation of consent signed by Stellar Technologies, LLC;
(f) the
original Warrant;
(g) the
other Loan Documents to which Borrower is a party;
(f) evidence
satisfactory to Bank that the insurance policies required by Section 6.4 hereof
are in full force and effect, together with appropriate evidence showing lender
loss payable and/or additional insured clauses or endorsements in favor of
Bank;
(f) payment
of the fees and Bank Expenses then due and payable;
(g) Certificate
of Good Standing/Legal Existence (California and Idaho); and
(h) such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.
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3.2 Conditions
Precedent to all Advances. Bank’s agreement to make each
Advance, including the initial Advance, is subject to the
following:
(a) receipt
of the Invoice Transmittal;
(b) Bank
shall have (at its option) conducted the confirmations and verifications as
described in Section 2.1.1 (d); and
(c) each
of the representations and warranties in Section 5 shall be true on the date of
the Invoice Transmittal and on the effective date of each Advance and no Event
of Default shall have occurred and be continuing, or result from the
Advance. Each Advance is Borrower’s representation and warranty on
that date that the representations and warranties in Section 5 remain
true.
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CREATION
OF SECURITY INTEREST
4.1 Grant of
Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations and the performance of
each of Borrower’s duties under the Loan Documents, a continuing security
interest in, and pledges and assigns to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Borrower warrants and represents that the security
interest granted herein shall be a first priority security interest in the
Collateral.
If the
Agreement is terminated, Bank’s lien and security interest in the Collateral
shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 Authorization
to File Financing Statements. Borrower hereby authorizes Bank
to file financing statements, without notice to Borrower, with all appropriate
jurisdictions in order to perfect or protect Bank’s interest or rights
hereunder, which financing statements may indicate the Collateral as “all assets
of the Debtor” or words of similar effect, or as being of an equal or lesser
scope, or with greater detail, all in Bank’s discretion.
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REPRESENTATIONS
AND WARRANTIES
Borrower
represents and warrants as follows:
5.1 Due
Organization and Authorization. Borrower and each of its
Subsidiaries are duly existing and in good standing as a Registered Organization
in their respective jurisdictions of formation and are qualified and licensed to
do business and are in good standing in any jurisdiction in which the conduct of
their respective business or ownership of property requires that they be
qualified except where the failure to do so could not reasonably be expected to
have a material adverse effect on Borrower’s business. In connection
with this Agreement, Borrower has delivered to Bank a completed Perfection
Certificate signed by Borrower. Borrower represents and
warrants to Bank that (a) Borrower’s exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof; (b) Borrower is an
organization of the type and is organized in the jurisdiction set forth in the
Perfection Certificate; (c) the Perfection Certificate accurately sets forth
Borrower’s organizational identification number or accurately states that
Borrower has none; (d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief executive office
as well as Borrower’s mailing address (if different than its chief executive
office); (e) Borrower (and each of its predecessors) has not, in the past
five (5) years, changed its jurisdiction of formation, organizational structure
or type, or any organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate pertaining to Borrower
and each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement).
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The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized, and do not (i) conflict with any of
Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing with or Governmental
Approval from any Governmental Authority (except such Governmental Approvals
which have already been obtained and are in full force and effect) or
(v) constitute an event of default under any material agreement 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 in which the default could have a
material adverse effect on Borrower’s business.
5.2 Collateral. Borrower
has good title, has rights in, and the power to transfer each item of the
Collateral upon which it purports to xxxxx x Xxxx hereunder, free and clear of
any and all Liens except Permitted Liens. Borrower has no
deposit accounts in the United States other than the deposit accounts with Bank,
the deposit accounts, if any, described in the Perfection Certificate delivered
to Bank in connection herewith, or of which Borrower has given Bank notice and
taken such actions as are necessary to give Bank a perfected security interest
therein. The accounts are bona fide, existing obligations of the Account
Debtors.
The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2. In the event that Borrower, after the date
hereof, intends to store or otherwise deliver any portion of the Collateral to a
bailee, then Borrower will first receive the written consent of Bank and such
bailee must execute and deliver a bailee agreement in form and substance
satisfactory to Bank in its sole discretion.
Borrower
is the sole owner of its 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 to the best of
Borrower’s knowledge, 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 have a material adverse effect on Borrower’s
business. Except as noted on the Perfection Certificate, Borrower is
not a party to, nor is bound by, any material license or other agreement with
respect to which Borrower is licensee that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property. Borrower shall provide
written notice to Bank within 30 days of entering or becoming bound by any such
license or agreement which is reasonably likely to have a material impact on
Borrower’s business or financial condition (other than over-the-counter software
that is commercially available to the public). Borrower shall take
such steps as Bank requests to obtain the consent of, or wavier by, any person
whose consent or waiver is necessary for all such licenses or contract rights to
be deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement (such consent or authorization may include a licensor’s agreement
to a contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.
Without
prior consent from Bank, Borrower shall not enter into, or become bound by, any
such license or agreement which is reasonably likely to have a material impact
on Borrower’s business or financial condition. Borrower shall take
such steps as Bank requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for all such licenses or contract rights to
be deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future.
5.3 Financed
Receivables. Borrower represents and warrants for each
Financed Receivable:
(a) Each
Financed Receivable is an Eligible Account;
(b) Borrower
has the right to sell, transfer, assign and encumber such Financed
Receivable;
(c) The
correct amount is on the Invoice Transmittal and is not disputed;
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(d) Payment
is not contingent on any obligation or contract and Borrower has fulfilled all
its obligations as of the Invoice Transmittal date;
(e) Each
Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted
Liens;
(f) There
are no defenses, offsets, counterclaims or agreements for which the Account
Debtor may claim any deduction or discount;
(g) Borrower
reasonably believes no Account Debtor is insolvent or subject to any Insolvency
Proceedings;
(h) Borrower
has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;
(i) Bank
has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral;
and
(j) No
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.
5.4 Litigation. There
are no actions or proceedings pending or, to the knowledge of Borrower’s
Responsible Officers or 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.
5.5 No
Material Deviation in Financial Statements. All consolidated
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.
5.6 Solvency. The
fair salable value of Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.7 Regulatory
Compliance. Borrower is not an “investment company” or a
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 X, 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 reasonably
be expected to 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 have 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 have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to obtain
or make such consents, declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change. Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all Government
Authorities that are necessary to continue their respective businesses as
currently conducted.
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No
certificate, authorization, permit, consent, approval, order, license, exemption
from, or filing or registration or qualification with, any Governmental
Authority or any Requirement of Law is or will be required to authorize, or is
otherwise required in connection with Borrower’s performance of its obligations
under the Loan Documents and the creation of the Liens described in and granted
by Borrower pursuant to the Loan Documents.
5.8 Subsidiaries. Borrower
does not own any stock, partnership interest or other equity securities except
for Permitted Investments.
5.9 Full
Disclosure. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representations, warranties, or other statements were made,
taken together with all such written certificates and written statements give 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 projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).
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AFFIRMATIVE
COVENANTS
Borrower
shall do all of the following:
6.1 Government
Compliance. Maintain its and all its Subsidiaries’ legal
existence and good standing in its jurisdiction of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a material adverse effect on Borrower’s business
or operations. Borrower shall 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.
6.2 Financial
Statements, Reports, Certificates.
(a) Deliver
to Bank: (i) as soon as available, but no later than thirty (30)
days after the last
day of each month, a company prepared, consolidated balance sheet and income
statement covering Borrower’s consolidated operations during the month,
certified by a Responsible Officer and in a form acceptable to Bank; (ii) as
soon as available, but no later than one hundred eighty (180) days after the last day
of Borrower’s fiscal year, commencing with the fiscal year ending December 31,
2007, consolidated financial statements prepared under GAAP, consistently
applied, audited by an independent certified public accounting firm reasonably
acceptable to Bank; (iii) in the event that Borrower’s stock becomes publicly
held, within five (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 on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) 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 One Hundred Thousand Dollars
($100,000.00) or more; (v) prompt notice of any material change in the
composition of any copyright, patent, mask work, trademark, or other
intellectual property Collateral, or the registration of any copyright,
including any subsequent ownership right of Borrower in or to any copyright,
patent or trademark not shown in the IP Agreement, or knowledge of an event that
materially adversely affects the value of the intellectual property Collateral;
and (vi)budgets, sales projections, operating plans or other financial
information reasonably requested by Bank.
(b) Within
thirty (30) days after the last day of each month, deliver to Bank with the
monthly financial statements a Compliance Certificate signed by a Responsible
Officer in the form of Exhibit
B.
(c) Allow
Bank to audit Borrower’s Collateral, including, but not limited to, Borrower’s
Accounts at Borrower’s expense, upon reasonable notice to Borrower; provided,
however, prior to the occurrence of an Event of Default, Borrower shall be
obligated to pay for not more than one (1) audit per year. After the occurrence
of an Event of Default, Bank may audit Borrower’s Collateral, including, but not
limited to, Borrower’s Accounts at Borrower’s expense and at Bank’s sole and
exclusive discretion and without notification and authorization from
Borrower.
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(d) Upon
Bank’s request, provide a written report respecting any Financed Receivable, if
payment of any Financed Receivable does not occur by its due date and include
the reasons for the delay.
(e) Provide
Bank with, as soon as available, but no later than thirty (30) days following
each Reconciliation Period, an aged listing of accounts receivable (domestic
accounts) and accounts payable by invoice date, in form acceptable to
Bank.
(f) Provide
Bank with, as soon as available, but no later than thirty (30) days following
each Reconciliation Period, a Deferred Revenue report, in form acceptable to
Bank.
6.3 Taxes. Borrower
shall make, and cause each Subsidiary to make, timely payment of all material
federal, state, and local taxes or assessments (other than taxes and assessments
which Borrower is contesting in good faith, with adequate reserves maintained in
accordance with GAAP) and will deliver to Bank, on demand, appropriate
certificates attesting to such payments.
6.4 Insurance. Keep
its business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location, and as Bank may reasonably
request. All property policies shall have a lender’s loss payable endorsement
showing Bank as lender loss payee and waive subrogation against Bank, and all
liability policies shall show, or have endorsements showing, Bank as an
additional insured. All policies (or the loss payable and additional
insured endorsements) shall provide that the insurer must give Bank at least
thirty (30) days notice before canceling, amending, or declining to renew its
policy. At Bank’s request, Borrower shall deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
shall, at Bank’s option, be payable to Bank on account of the
Obligations. If Borrower fails to obtain insurance as required under
this Section 6.4 or to pay any amount or furnish any required proof of payment
to third persons and Bank, Bank may make all or part of such payment or obtain
such insurance policies required in this Section 6.4, and take any action under
the policies Bank deems prudent.
6.5 Accounts.
(a) To
permit Bank to monitor Borrower’s financial performance and condition,
Borrower and all of Borrower’s United States Subsidiaries shall
maintain their primary operating deposit accounts and securities accounts with
Bank and Bank’s affiliates. Any Guarantor shall maintain all depository,
operating and securities accounts with Bank.
(b) Borrower
shall maintain all of its bank deposit accounts with Bank. Borrower
shall further identify to Bank, in writing, any securities account or other
account holding cash, securities or similar instruments opened in the United
States by Borrower or its Subsidiaries with any institution other than
Bank. In addition, for each such account, Borrower or its Subsidiary
shall, at Bank’s request and option, pursuant to an agreement in form and
substance acceptable to Bank, cause the depository bank or securities
intermediary to agree that such account is the collateral of Bank pursuant to
the terms hereunder. The provisions of the previous sentence shall
not apply to deposit or securities accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of Borrower’s employees.
6.6 Financial
Covenants.
(a) On
or before the Liquidity Date, Borrower shall have accepted and signed a term
sheet for a new round of equity financing of at least $5,000,000. As
used herein, the term “Liquidity Date” is the first date when the available
credit remaining under the credit facility evidenced by the promissory note
dated July 1, 2007, made by Borrower to the order of Stellar Technologies LLC in
the principal sum of $7,000,000, is less than or equal to
$1,000,000.
(b) On
or before August 31, 2008, Borrower shall have closed, and received the proceeds
of, a new round of equity financing of at least $5,000,000, provided that the
failure to do so shall not be an Event of Default so long as no Advances are
outstanding and there are no Financed Receivables. Borrower may not
draw any Advances after August 31, 2008 until it has closed the new round of
equity financing and received the proceeds thereof.
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(c) Beginning
March 31, 2008 and at all times thereafter, measured on the last day of each
month or as needed at Bank’s discretion, Borrower shall have on deposit with
Bank or Bank’s affiliates unrestricted cash or cash equivalents in an amount not
less than the sum of the net losses incurred by Borrower in the preceding two
months; provided that this financial covenant set forth in this Section 6.6(c)
shall terminate at such time as Borrower closes and receives the proceeds of a
new round of equity financing of at least $5,000,000.
6.7
Further
Assurances. Borrower shall execute any further instruments and
take further action as Bank reasonably requests to perfect or continue Bank’s
security interest in the Collateral or to effect the purposes of this
Agreement.
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NEGATIVE
COVENANTS
Borrower
shall not do any of the following without Bank’s prior written
consent.
7.1 Dispositions. Convey,
sell, lease, transfer or otherwise dispose of (collectively a “Transfer”), or
permit any of its Subsidiaries to Transfer, all or any part of its business or
property, except for Transfers (a) of Inventory in the ordinary course of
business; (b) of worn-out or obsolete Equipment; (c) in connection with
Permitted Liens and Permitted Investments; and (d) of non-exclusive licenses for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business.
7.2 Changes
in Business, Ownership, Management or Business
Locations. Engage in 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 by the sale of Borrower’s equity securities in a public
offering or to venture capital investors so long as Borrower identifies to Bank
the venture capital investors prior to the closing of the investment), or
management. Borrower shall not, without at least thirty (30) days
prior written notice to Bank: (a) relocate its chief executive office, or add
any new offices or business locations, including warehouses (unless
such new offices or business locations contain less than Five Thousand Dollars
($5,000) in Borrower’s assets or property), or (b) change its jurisdiction of
organization, or (c) change its organizational structure or type, or (d) change
its legal name, or (e) change any organizational number (if any) assigned by its
jurisdiction of organization.
7.3 Mergers
or Acquisitions. Merge or consolidate, or permit any of its
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. A Subsidiary may merge
or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create,
incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do
so, other than Permitted Indebtedness.
7.5 Encumbrance. Create,
incur, or allow any Lien on any of its property, or 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 the first priority security interest granted
herein. The Collateral may also be subject to Permitted
Liens.
7.6 Distributions;
Investments. (a) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any
distribution or payment on, or redeem, retire or purchase, any capital stock or
other ownership interest in Borrower.
7.7 Transactions
with Affiliates. Directly or indirectly enter into or permit
to exist any material transaction with any Affiliate of Borrower, except for
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated
Person.
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7.8 Subordinated
Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank.
7.9 Compliance. Become
an “investment company” or a company controlled by an “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 (as defined in
Regulation U of the Board of Governors of the Federal Reserve System), 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, 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 permit any
of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental
agency.
8
EVENTS OF
DEFAULT
Any one
of the following shall constitute an event of default (an “Event of Default”)
under this Agreement:
8.1 Payment
Default. Borrower fails to pay any of the Obligations when
due;
8.2 Covenant
Default. Borrower fails or neglects to perform any obligation
in Section 6 or violates any covenant in Section 7 or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant or agreement contained in this Agreement, any Loan Documents, or in any
other present or future agreement between Borrower and Bank;
8.3 Material
Adverse Change. A Material Adverse Change occurs;
8.4 Attachment. (a)
Any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver; (b) the service of process
seeking to attach, by trustee or similar process, any funds of Borrower or of
any entity under control of Borrower (including a Subsidiary) on deposit with
Bank or any Bank Affiliate; (c) Borrower is enjoined, restrained, or
prevented by court order from conducting any part of its business; or (d) a
notice of lien, levy, or assessment is filed against any of Borrower’s assets by
any government agency, and the same under clauses (a) through (d) hereof are
not, within ten (10) days after the occurrence thereof, discharged or stayed
(whether through the posting of a bond or otherwise); provided, however, no
Advances shall be made during any ten (10) day cure period;
8.5 Insolvency. (a)
Borrower is unable to pay its debts (including trade debts) as they become due
or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or
(c) an Insolvency Proceeding is begun against Borrower and not dismissed or
stayed within thirty (30) days (but no Advances shall be made while of any of
the conditions described in clause (a) exist and/or until any Insolvency
Proceeding is dismissed);
8.6 Other
Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could result in a Material Adverse Change;
8.7 Judgments. A
judgment or judgments for the payment of money in an amount, individually or in
the aggregate, of at least Fifty Thousand Dollars ($50,000) (not covered by
independent third-party insurance as to which liability has been accepted by the
insurance carrier) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such
judgment);
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8.8 Misrepresentations. Borrower
or any Person acting for Borrower makes any representation, warranty, or other
statement now or later in this Agreement, any Loan Document or in writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document, and such representation, warranty, or other statement is incorrect in
any material respect when made; or
8.9 Subordinated
Debt. A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination agreement,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed subordination agreement with Bank breaches any terms of the subordination
agreement.
9
BANK’S RIGHTS AND
REMEDIES
9.1 Rights
and Remedies. When an Event of Default occurs and continues
Bank 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 and notify any Person owing
Borrower money of Bank’s security interest in such funds and verify the amount
of such account. Borrower shall 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;
(d) Make
any payments and do any acts it considers necessary or reasonable to protect its
security interest in the Collateral. Borrower shall 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 (i) any 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 hereby 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;
(g) Place
a “hold” on any account maintained with Bank and/or deliver a notice of
exclusive control, any entitlement order, or other directions or instructions
pursuant to any control agreement or similar agreements providing control of any
Collateral; and
(h) Exercise
all rights and remedies and dispose of the Collateral according to the
Code.
9.2 Bank
Expenses; Unpaid Fees. If Borrower fails to obtain insurance
called for by Section 6.4 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or by
any other Loan Document, Bank may obtain such insurance or make such payment,
and all amounts so paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then highest applicable rate, and secured by
the Collateral. Bank will make reasonable effort to provide Borrower
with notice of Bank obtaining such insurance at the time it is obtained or
within a reasonable time thereafter. No payments by Bank are deemed an agreement
to make similar payments in the future or Bank’s waiver of any Event of
Default.
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9.3 Bank’s
Liability for Collateral. So long as Bank complies with
reasonable banking practices regarding the safekeeping of Collateral in
possession or under the control of Bank, Bank shall not be 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.
9.4 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 hereunder shall be effective unless signed
by Bank and then is only effective for the specific instance and purpose for
which it was given.
9.5 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 guarantees held by Bank on which Borrower is
liable.
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NOTICES.
Notices
or demands by either party under or about this Agreement must be in writing and
personally delivered or sent by an overnight delivery service, by certified mail
postage prepaid return receipt requested, or by fax to the addresses listed at
the beginning of this Agreement. A party may change notice address by
written notice to the other party.
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 Santa Xxxxx County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower
expressly submits and consents in advance to such jurisdiction in any action or
suit commenced in any such court, and Borrower hereby waives any objection that
it may have based upon lack of personal jurisdiction, improper venue, or forum
non conveniens and hereby consents to the granting of such legal or equitable
relief as is deemed appropriate by such court. Borrower hereby waives
personal service of the summons, complaints, and other process issued in such
action or suit and agrees that service of such summons, complaints, and other
process may be made by registered or certified mail addressed to Borrower at the
address set forth in Section 10 of this Agreement and that service so made shall
be deemed completed upon the earlier to occur of Borrower’s actual receipt
thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.
TO THE EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER AND BANK EACH WAIVES ITS 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.
13
WITHOUT
INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is
not enforceable, the parties hereto agree that any and all disputes or
controversies of any nature between them arising at any time shall be decided by
a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Xxxxx County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Xxxxx County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be
conducted pursuant to and in accordance with the provisions of California Code
of Civil Procedure §§ 638 through 645.1, inclusive. The private judge
shall have the power, among others, to grant provisional relief, including
without limitation, entering temporary restraining orders, issuing preliminary
and permanent injunctions and appointing receivers. All such
proceedings shall be closed to the public and confidential and all records
relating thereto shall be permanently sealed. If during the course of
any dispute, a party desires to seek provisional relief, but a judge has not
been appointed at that point pursuant to the judicial reference procedures, then
such party may apply to the Santa Xxxxx County, California Superior Court for
such relief. The proceeding before the private judge shall be
conducted in the same manner as it would be before a court under the rules of
evidence applicable to judicial proceedings. The parties shall be
entitled to discovery which shall be conducted in the same manner as it would be
before a court under the rules of discovery applicable to judicial
proceedings. The private judge shall oversee discovery and may
enforce all discovery rules and order applicable to judicial proceedings in the
same manner as a trial court judge. The parties agree that the
selected or appointed private judge shall have the power to decide all issues in
the action or proceeding, whether of fact or of law, and shall report a
statement of decision thereon pursuant to the California Code of Civil Procedure
§ 644(a). Nothing in this paragraph shall limit the right of any
party at any time to exercise self-help remedies, foreclose against collateral,
or obtain provisional remedies. The private judge shall also
determine all issues relating to the applicability, interpretation, and
enforceability of this paragraph.
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
agrees to indemnify, defend, and hold Bank and its officers, directors,
employees, agents, attorneys or any other Person affiliated with or representing
Bank harmless against: (a) all obligations, demands, claims, and
liabilities (collectively, “Claims”) asserted by any other party in connection
with the transactions contemplated by the Loan Documents; and (b) all losses or
Bank Expenses incurred, or paid by Bank from, following, or arising from
transactions between Bank and Borrower (including reasonable attorneys’ fees and
expenses), except for Claims and/or 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
supersede prior negotiations or agreements. All prior 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, constitute one Agreement.
12.8 Survival. All
covenants, representations and warranties made in this Agreement continue in
full force until this Agreement has terminated pursuant to its terms and all
Obligations (other than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this Agreement) have
been satisfied. The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.
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12.10 Attorneys’
Fees, Costs and Expenses. In any action or proceeding between
Borrower and Bank arising out of or related to the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and
other reasonable costs and expenses incurred, in addition to any other relief to
which it may be entitled.
13
DEFINITIONS
13.1
Definitions. In
this Agreement:
“Account” is any “account” as
defined in the Code with such additions to such term as may hereafter be made,
and includes, without limitation, all accounts receivable and other sums owing
to Borrower.
“Account Debtor” is as defined
in the Code and shall include, without limitation, any person liable on any
Financed Receivable, such as, a guarantor of the Financed Receivable and any
issuer of a letter of credit or banker’s acceptance.
“Adjusted Quick Ratio” is the
ratio of (i) cash and cash equivalents on deposit or held by Bank and Bank’s
Affiliates plus net billed Eligible Accounts, to (ii) to Current
Liabilities.
“Adjustments” are all
discounts, allowances, returns, disputes, counterclaims, offsets, defenses,
rights of recoupment, rights of return, warranty claims, or short payments,
asserted by or on behalf of any Account Debtor for any Financed
Receivable.
“Advance” is defined in
Section 2.1.1.
“Advance Rate” is eighty
percent (80%), net of any Deferred Revenue and other offsets related to each
specific Account Debtor, or such other percentage as Bank establishes under
Section 2.1.1.
“Affiliate” 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.
“Applicable Rate” is a per
annum rate equal to the Prime Rate plus one and 25/100 percent
(1.25%).
“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).
15
“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 Bank is closed.
“Closing Date” is the date of
this Agreement.
“Code” is the Uniform
Commercial Code as adopted in California, as amended and as may be amended and
in effect from time to time.
“Collateral” is any and all
properties, rights and assets of Borrower granted by Borrower to Bank or arising
under the Code, now, or in the future, in which Borrower obtains an interest, or
the power to transfer rights, as described on Exhibit A.
“Collateral Handling Fee” is
defined in Section 2.2.4.
“Collections” are all funds
received by Bank from or on behalf of an Account Debtor for Financed
Receivables.
“Compliance Certificate” is a
certificate by Borrower in the form attached as Exhibit
B.
“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.
“Current Liabilities” is all
obligations and liabilities of Borrower to Bank, plus, without duplication, the
aggregate amount of Borrower’s Total Liabilities which mature within one (1)
year.
“Deferred Revenue” is all
amounts received or invoiced, as appropriate, in advance of performance under
contracts and not yet recognized as revenue.
“Early Termination Fee” is
defined in Section 2.1.1.
“Eligible Accounts” are billed
Accounts in the ordinary course of Borrower’s business that meet all Borrower’s
representations and warranties in Section 5.3, have been, at the option of Bank,
confirmed in accordance with Section 2.1.1(d), and are due and owing from
Account Debtors deemed creditworthy by Bank in its sole
discretion. Without limiting the fact that the determination of
which Accounts are eligible hereunder is a matter of Bank discretion in each
instance, Eligible Accounts shall not include the following Accounts (which
listing may be amended or changed in Bank’s discretion with notice to
Borrower):
(a) Accounts
that the Account Debtor has not paid within ninety (90) days of invoice
date;
(b) Accounts
for which the Account Debtor does not have its principal place of business in
the United States, unless agreed to by Bank in writing, in its sole discretion,
on a case-by-case basis;
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(c) Accounts
for which the Account Debtor is a federal, state or local government entity or
any department, agency, or instrumentality thereof except for Accounts of the
United States if the payee has assigned its payment rights to Bank and the
assignment has been acknowledged under the Assignment of Claims Act of 1940 (31
U.S.C. 3727);
(d) Accounts
for which Borrower owes the Account Debtor, but only up to the amount owed
(sometimes called “contra” accounts, accounts payable, customer deposits or
credit accounts);
(e) Accounts
subject to offset, including offset based on Deferred Revenue;
(f)
Contract receivables or invoices based on milestone xxxxxxxx
under a contract or agreement;
(g) Accounts
for demonstration or promotional equipment, or in which goods are consigned,
sales guaranteed, sale or return, sale on approval, xxxx and hold, or other
terms if the Account Debtor’s payment may be conditional;
(h) Accounts
for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(i)
Accounts in which the Account Debtor disputes liability or makes any claim
and Bank believes there may be a basis for dispute (but only up to the disputed
or claimed amount), or if the Account Debtor is subject to an Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts
for which Bank reasonably determines collection to be doubtful or any Accounts
which are unacceptable to Bank for any reason.
“ERISA” is the Employment
Retirement Income Security Act of 1974, and its regulations.
“Events of Default” are set
forth in Article 8.
“Facility Amount” is Two
Million Five Hundred Thousand Dollars ($2,500,000).
“Facility Fee” is defined in
Section 2.2.2.
“Finance Charges” is defined
in Section 2.2.3.
“Financed Receivables” are all
those Eligible Accounts, including their proceeds which Bank finances and makes
an Advance, as set forth in Section 2.1.1. A Financed Receivable
stops being a Financed Receivable (but remains Collateral) when the Advance made
for the Financed Receivable has been fully paid.
“Financed Receivable Balance”
is the total outstanding gross face amount, at any time, of any Financed
Receivable.
“GAAP” is generally accepted
accounting principles.
“Good Faith Deposit” is defined
in Section 2.2.8.
“Governmental Authority” is any
nation or government, any state or other political subdivision thereof, any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization.
“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.
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“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.
“Investment” is any beneficial
ownership of (including stock, partnership interest or other securities) any
Person, or any loan, advance or capital contribution to any Person.
“Invoice Transmittal” shows
Eligible Accounts which Bank may finance and, for each such Account, includes
the Account Debtor’s, name, address, invoice amount, invoice date and invoice
number.
“IP Agreement” is that certain
Intellectual Property Security Agreement executed and delivered by Borrower to
Bank.
“Lockbox” is defined in
Section 2.2.7.
“Lien” is a mortgage, lien,
deed of trust, charge, pledge, security interest or other
encumbrance.
“Liquidity Date” is defined in
Section 6.6(a).
“Loan Documents” are,
collectively, this Agreement, any note, or notes or guaranties executed by
Borrower, and any other present or future agreement between Borrower and Bank
(or for the benefit of Bank) in connection with this Agreement, all as amended,
extended or restated.
“Material Adverse Change” is:
(i) A material impairment in the perfection or priority of Bank’s security
interest in the Collateral or in the value of such Collateral; (ii) a material
adverse change in the business, operations, or condition (financial or
otherwise) of Borrower; or (iii) a material impairment of
the prospect of repayment of any portion of the Obligations.
“Maturity Date” is 364 days
from the date of this Agreement.
“Obligations” are all advances,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Borrower to Bank now or later under this Agreement or any other document,
instrument or agreement, account (including those acquired by assignment)
primary or secondary, such as all Advances, Finance Charges, Facility Fee,
Collateral Handling Fee, interest, fees, expenses, professional fees and
attorneys’ fees, or other amounts now or hereafter owing by Borrower to
Bank.
“Perfection Certificate” is a
certain representations and warranties letter agreement previously executed and
delivered by Borrower to Bank in connection with this Agreement.
“Permitted Indebtedness”
is:
(a) Borrower’s
indebtedness to Bank under this Agreement or the Loan Documents;
(b) Subordinated
Debt;
(c) Indebtedness
to trade creditors incurred in the ordinary course of business; and
(d) Indebtedness
secured by Permitted Liens.
“Permitted Investments” are:
(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, (iv) any other
investments administered through Bank.
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“Permitted Liens”
are:
(a) Liens
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 securing no more than $50,000 in the aggregate amount
outstanding (i) on equipment acquired or held by Borrower incurred
for financing the acquisition of the equipment, or (ii) existing on
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 sublicenses granted in the ordinary
course of Borrower’s business, if the leases,
subleases, licenses and sublicenses permit granting Bank a security
interest;
(e) Liens
incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (d), 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.
“Prime Rate” is Bank’s most
recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Reconciliation Day” is the
last calendar day of each month.
“Reconciliation Period” is each
calendar month.
“Registered Organization” is
any “registered organization” as defined in the Code with such additions to such
term as may hereafter be made.
“Requirement of Law” is as to
any Person, the organizational or governing documents of such Person, and any
law (statutory or common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
“Responsible Officer” is each of the Chief
Executive Officer, President, Chief Financial Officer and Controller of
Borrower.
“Subordinated Debt” is debt
incurred by Borrower subordinated to Borrower’s debt to Bank (pursuant to a
subordination agreement entered into between Bank, Borrower and the subordinated
creditor), on terms acceptable to Bank.
“Subsidiary” is any Person,
corporation, partnership, limited liability company, 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.
“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 of
Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all
other Subordinated Debt.
“Warrant” is that certain
Warrant to Purchase Membership Units dated October __, 2007 executed by Borrower
in favor of Bank, substantially in the form attached hereto as Exhibit
C.
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the date first above written.
|
BORROWER:
|
: | ||||
| By |
/s/
Xxx Xxxx
|
||||
| Name: Xxx Xxxx | |||||
| Title: Chief Executive Officer | |||||
| SILICON VALLEY BANK | |||||
| By | /s/ Xxxx Tu | ||||
| Name: Xxxx Tu | |||||
| Title: DTL | |||||
20
EXHIBIT
A
The
Collateral consists of all of Borrower’s right, title and interest in and to the
following:
All
goods, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles (including
payment intangibles) accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and
any copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; trade styles, trade names, any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing;
All of
its copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
thereby, know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing; and
All of
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, attachments,
accessories, accessions and improvements to and replacements, products, proceeds
and insurance proceeds of any or all of the foregoing.
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