EXHIBIT 10.4
SILICON VALLEY BANK
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Borrower: WatchGuard Technologies, Inc.
Address: 000 Xxxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Date: March 20, 1998
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into on
the above date between SILICON VALLEY BANK ("Silicon"), whose address is 0000
Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000, and the borrower named above (the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). This Agreement amends and restates the QuickStart Loan
and Security Agreement between Silicon and Borrower (then known as Seattle
Software Labs, Inc.), dated August 5, 1997, and the Schedules thereto.
1. LOANS
1.1. Loans
Silicon will make one or more loans to the Borrower (the "Loans") up to the
amounts (the "Credit Limits") shown on the Schedule to this Agreement (the
"Schedule") as the Credit Limit for such loans. The terms of the Loans are
stated in this Agreement and in the Schedule. The terms of the Schedule are
incorporated into this Agreement. The Borrower is responsible for monitoring
the total amount of Loans and other Obligations outstanding from time to time,
and the Borrower shall not permit the amount of any Loan to exceed at any time
the applicable Credit Limit for such Loan. The Borrower shall not permit the
total amount of Loans and all other obligations to exceed at any time the
aggregate Credit Limit for the Loans. If at any time the total of all
outstanding Loans and all other Obligations exceeds the aggregate Credit Limit,
the Borrower shall immediately pay the amount of the excess to Silicon, without
notice or demand.
1.2. Interest; Debit to Deposit Accounts
All Loans and all other monetary Obligations shall bear interest at the
applicable rates shown on the Schedule. Interest shall be payable monthly, on
the due date shown on the monthly billing from Silicon to the Borrower. The
Borrower shall
regularly deposit all funds received from its business activities in accounts
maintained by the Borrower at Silicon. The Borrower hereby requests and
authorizes Silicon to debit any of the Borrower's accounts with Silicon,
including without limitation account no. 3300074939, for payments of interest
and principal due on the Loans and all other obligations owing by the Borrower
to Silicon. Silicon shall promptly notify the Borrower of all debits which
Silicon makes against the Borrower's accounts. Any such debit against the
Borrower's accounts shall in no way be deemed a setoff by Silicon.
1.3. Fees
The Borrower shall pay to Silicon at closing a commitment fee and other
fees in the amounts shown on the Schedule. These fees are in addition to all
interest and other sums payable to Silicon and are not refundable.
1.4. Additional Costs
In case of any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or any governmental authority
charged with the administration thereof or the compliance with any guideline or
request of any central bank or other governmental authority (whether or not
having the force of law) which:
(a) subjects Silicon to any tax with respect to payments of principal
or interest or any other amounts payable hereunder by the Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on the
overall net income of Silicon imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Silicon; or
(c) imposes upon Silicon any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Silicon,
reduce the income receivable by Silicon or impose any expense upon Silicon with
respect to any loans, Silicon shall notify the Borrower thereof. Borrower
agrees to pay to Silicon the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Silicon of a statement of the
amount and setting forth Silicon's calculation thereof, all
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in reasonable detail, which statement shall be deemed true and correct absent
manifest error.
2. GRANT OF SECURITY INTEREST
2.1. Obligations
The term "Obligations" as used in this Agreement means the following: the
obligation to pay all Loans and all interest on the Loans when due, and to pay
and perform when due all other present and future indebtedness, liabilities,
obligations, guarantees, covenants, agreements, warranties and representations
of the Borrower to Silicon, whether joint or several, monetary or non-monetary,
and whether created pursuant to this Agreement or any other present or future
agreement (such as future agreements relating to letters of credit issued by
Silicon) or otherwise. Silicon may, in its discretion, require that the
Borrower pay monetary Obligations in cash to Silicon, or charge them to the
Borrower's Loan account, in which event they shall bear interest at the rates
applicable to the Loan to which such amounts are charged.
2.2. Collateral
As security for all Obligations, the Borrower hereby grants Silicon a
continuing security interest in all of the Borrower's assets, including but not
limited to all of the Borrower's interest in the types of property described
below, whether now owned or hereafter acquired, and wherever located
(collectively, the "Collateral"): (a) all accounts, contract rights, chattel
paper, letters of credit, documents, securities, money, and instruments, and all
other obligations now or in the future owing to the Borrower; (b) all inventory,
goods, merchandise, materials, raw materials, work in process, finished goods,
farm products, advertising, packaging and shipping materials, supplies, and all
other tangible personal property which is held for sale or lease or furnished
under contracts of service or consumed in the Borrower's business, and all
warehouse receipts and other documents; (c) all equipment, including without
limitation all machinery, fixtures, trade fixtures, vehicles, furnishings,
furniture, materials, tools, machine tools, office equipment, computers and
peripheral devices, appliances, apparatus, parts, dies, and jigs; (d) all
general intangibles including, but not limited to, deposit accounts, goodwill,
drawings, blueprints, customer lists, security deposits, loan commitment fees,
federal, state and local tax refunds and claims, all rights in all litigation
presently or hereafter pending for any cause or claim (whether in contract, tort
or otherwise), and all judgments now or hereafter arising therefrom, all rights
to purchase or sell real or personal property, all rights as a licensor or
licensee of any kind, all royalties, licenses, processes, telephone numbers,
purchase orders, and all insurance policies and claims (including without
limitation credit, liability, property and other insurance), and all other
rights, privileges and
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franchises of every kind; (e) all books and records, whether stored on computers
or otherwise maintained; (f) all of the Borrower's cash; and (g) all
substitutions, additions and accessions to any of the foregoing, and all
products, proceeds and insurance proceeds of the foregoing, and all guaranties
of and security for the foregoing; and all books and records relating to any of
the foregoing. Borrower does not grant Silicon a security interest in, or lien
on, patent applications, trademarks, trademark applications or copyrights or
copyright applications and shall not grant a security interest in, or lien on,
such assets of Borrower to any third party without Silicon's prior written
approval.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER
The Borrower represents and warrants to Silicon as follows, and the
Borrower covenants that the following representations shall continue to be true,
and that the Borrower shall comply with all of the following covenants:
3.1. Corporate Existence and Authority
The Borrower is and shall continue to be duly authorized, validly existing
and in good standing under the laws of the state of its incorporation, as
identified on the copy of the Borrower's Certificate of Incorporation delivered
to Silicon. The Borrower is and shall continue to be qualified and licensed to
do business in all jurisdictions in which any failure to do so would have a
material adverse effect on the Borrower. The execution, delivery and
performance by the Borrower of this Agreement, and all other documents executed
by the Borrower in connection with the Loans have been duly and validly
authorized, are enforceable against the Borrower in accordance with their terms,
and do not violate any law or any provision of, and are not grounds for
acceleration under, any agreement or instrument that is binding upon the
Borrower.
3.2. Name, Trade Names and Styles
The name of the Borrower set forth in the heading to this Agreement is its
correct name. Listed on an Exhibit to the Schedule are all prior names of the
Borrower and all of the Borrower's present and prior trade names. The Borrower
shall give Silicon 15 days' prior written notice before changing its name or
doing business under any other name. The Borrower has complied, and shall in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
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3.3. Place of Business; Location of Collateral
The address set forth in the heading to this Agreement is the chief
executive office for the Borrower. In addition, the Borrower has places of
business only at, and Collateral of the Borrower is located only at, the
locations set forth on the Schedule. The Borrower shall give Silicon at least
15 days' prior written notice before changing its chief executive office or
moving Collateral (other than inventory sold in the ordinary course of business)
to any location other than a location listed on the Schedule.
3.4. Title to Collateral; Permitted Liens
The Borrower is now, and shall at all times in the future be, the sole
owner of all the Collateral, except for items of equipment that are leased by
the Borrower and general intangibles subject to nonexclusive licenses granted by
Borrower to its customers in the ordinary course of business. The Collateral
now is and shall remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for the following ("Permitted
Liens"): (a) purchase money security interests in specific items of equipment,
other than equipment financed by the Loans; (b) leases of specific items of
equipment; (c) liens in favor of First Portland Corporation, provided that the
obligations secured by such liens shall not exceed the amount outstanding on the
date of this Amended and Restated Loan and Security Agreement; (d) liens for
taxes not yet payable; (e) additional security interests and liens consented to
in writing by Silicon in its sole discretion; and (f) security interests being
terminated substantially concurrently with this Agreement. Silicon shall have
the right to require, as a condition to its consent under subparagraph (e)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on terms satisfactory to Silicon in its sole discretion,
acknowledge that the holder's security interest is subordinate to Silicon's
security interest. Silicon now has, and shall continue to have, a first
priority, perfected and enforceable security interest in all of the Collateral.
The Collateral shall not be subject to any other liens or security interests of
any type except for the Permitted Liens. The Borrower shall at all times defend
Silicon and the Collateral against all claims of others. None of the Collateral
now is or shall be affixed to any real property in such a manner, or with such
intent, as to become a fixture.
3.5. Maintenance of Collateral
The Borrower shall maintain the Collateral in good working condition. The
Borrower shall not use the Collateral for any unlawful purpose.
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3.6. Books and Records
The Borrower has maintained and shall maintain at the Borrower's Address
complete and accurate books and records, comprising an accounting system in
accordance with generally accepted accounting principles.
3.7. Financial Condition and Statements
All financial statements now or in the future delivered to Silicon have
been, and shall be, prepared in conformity with generally accepted accounting
principles and now and in the future shall completely and accurately reflect the
financial condition of the Borrower, at the times and for the periods therein
stated. Since the last date covered by any such statement, there has been no
material adverse change in the financial condition or business of the Borrower.
The Borrower is now and shall continue to be solvent.
3.8. Tax Returns and Payments; Pension Contributions
The Borrower has timely filed, and shall timely file, all tax returns and
reports required by foreign, federal, state and local law. The Borrower has
timely paid, and shall timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions now or in the future owed by the
Borrower. The Borrower may, however, defer payment of any contested taxes,
provided that the Borrower (a) in good faith contests the Borrower's obligation
to pay the taxes by appropriate proceedings promptly and diligently instituted
and conducted, (b) notifies Silicon in writing of the commencement of, and any
material development in, the proceedings, and (c) posts bonds or takes any other
steps required to keep the contested taxes from becoming a lien upon any of the
Collateral. The Borrower is unaware of any claims or adjustments proposed for
any of the Borrower's prior tax years which could result in additional taxes
becoming due and payable by the Borrower. The Borrower has paid and shall
continue to pay all amounts necessary to fund all present and future pension,
profit sharing and deferred compensation plans in accordance with their terms.
The Borrower has not and shall not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any such plan which could result in any liability of the
Borrower, including, without limitation, any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
3.9. Compliance with Law
The Borrower has complied, and shall comply, in all material respects, with
all provisions of all foreign, federal, state and local laws and regulations
relating to the
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Borrower, including, but not limited to, those relating to ownership of real or
personal property, conduct and licensing of the Borrower's business, and
environmental matters.
3.10. Litigation
Except as disclosed in the Schedule, there is no claim, suit, litigation,
proceeding or investigation pending or (to best of the Borrower's knowledge)
threatened by or against or affecting the Borrower in any court or before any
governmental agency (or any basis therefor known to the Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of the Borrower, or in any material
impairment in the ability of the Borrower to carry on its business in
substantially the same manner as it is now being conducted. The Borrower shall
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against the Borrower
involving amounts in excess of $100,000.
3.11. Use of Proceeds
All proceeds of all Loans shall be used solely for lawful business
purposes.
3.12. Hazardous Substances
The terms "hazardous waste," "hazardous substance," "disposal," "release,"
and "threatened release," as used in this Agreement, shall have the same
meanings as set forth in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601, et seq. ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("XXXX"), the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C. (S) 6901, et seq.,
or other applicable state or federal laws, rules, or regulations adopted
pursuant to any of the foregoing. The Borrower represents and warrants that:
(a) the Borrower has no knowledge of (i) any use, generation, manufacture,
storage, treatment, disposal, release, or threatened release of any hazardous
waste or substance by any prior owners or occupants of any of the real
properties owned or operated by the Borrower, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters; (b)
neither the Borrower nor any subtenant, contractor, agent or other user
authorized by Borrower of any of the real properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste or
substance on, under, or about any of the real properties owned or operated by
the Borrower except in compliance with all applicable federal, state, and local
laws, regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. The
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Borrower authorizes Silicon and its agents, upon 24 hours' prior notice (which
need not be in writing), to enter upon the real properties to make such
inspections and tests as Silicon may deem appropriate to determine compliance of
the real properties owned or operated by the Borrower with this Section of the
Agreement. Any inspections or tests made by Silicon shall be for Silicon's
purposes only and shall not be construed to create any responsibility or
liability on the part of Silicon to the Borrower or to any other person. The
Borrower hereby (a) releases and waives any future claims against Silicon for
indemnity or contribution in the event the Borrower becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Silicon against any and all claims, losses, liabilities, damages,
penalties, and expenses which Silicon may directly or indirectly sustain or
suffer resulting from a breach of this Section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release or
threatened release occurring prior to the Borrower's ownership or interest in
the real properties, whether or not the same was or should have been known to
the Borrower. The provisions of this Section of the Agreement, including the
obligation to indemnify, shall survive the payment of the obligations and the
termination or expiration of this Agreement and shall not be affected by
Silicon's acquisition of any interest in any of the real properties, whether by
foreclosure or otherwise.
3.13. No Conflicts
Performance of this Agreement does not conflict with or result in a breach
of any agreement to which Borrower is a party or by which Borrower is bound.
3.14. No Transfers or Encumbrances
During the term of this Agreement, Borrower will not transfer or otherwise
encumber any interest in the Collateral, except for nonexclusive licenses
granted by Borrower in the ordinary course of business or as set forth in this
Agreement and the Permitted Liens.
3.15. Validity of Patents
To its knowledge, each of Borrower's patents, patent applications and like
provisions are valid and enforceable, and none of Borrower's patents have been
judged invalid or unenforceable, in whole or in part, and no claim has been made
that any part of the Collateral violates the rights of any third party except as
previously disclosed to Silicon.
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3.16. Notice of Change in Composition
Borrower shall promptly advise Silicon of any material change in the
composition of the Collateral, including but not limited to any subsequent
ownership right of the Borrower in or to any Trademark, Patent or Copyright not
specified in this Agreement.
3.17. Duty to Protect and Defend
Borrower shall (i) protect and defend its trademarks, patents and
copyrights, (ii) use commercially reasonable efforts to detect infringements of
its trademarks, patents and copyrights and promptly advise Silicon in writing of
material infringements detected, and (iii) not allow any of its trademarks,
patents or copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Silicon, which shall not be unreasonably
withheld, unless Borrower determines that reasonable business practices suggest
that abandonment appropriate.
3.18. After-Acquired Collateral
This Agreement creates, and in the case of after-acquired Collateral, this
Agreement will create at the time Borrower first has rights in such after-
acquired Collateral, in favor of Silicon a valid and perfected first priority
security interest in the Collateral in the United States securing the payment
and performance of the obligations evidenced by the Loan Agreement.
3.19. No Authorization Necessary to Pledge
To its knowledge, except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing with, any
U.S. governmental authority or U.S. regulatory body is required either (i) for
the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by Borrower in the U.S., or
(ii) for the perfection in the United States or the exercise by Silicon of its
rights and remedies hereunder.
3.20. Accurate Information
All information heretofore, herein or hereafter supplied to Silicon by or
on behalf of Borrower with respect to the Collateral is accurate and complete in
all material respects.
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3.21. No Conflicting Agreement
Borrower shall not enter into any agreement that would materially impair or
conflict with Borrower's obligations hereunder without Silicon's prior written
consent, which consent shall not be unreasonably withheld. Borrower shall not
permit the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Collateral acquired under such contracts, except that certain
contracts may contain antiassignment provisions that could in effect prohibit
the creation of a security interest in such contracts.
3.22. Notice of Impairment of Value
Upon any executive officer of Borrower obtaining actual knowledge thereof,
Borrower will promptly notify Silicon in writing of any event that materially
adversely affects the value of any Collateral, the ability of Borrower to
dispose of any Collateral or the rights and remedies of Silicon in relation
thereto, including the levy of any legal process against any of the Collateral.
4. ADDITIONAL DUTIES OF THE BORROWER
4.1. Financial and Other Covenants
The Borrower shall at all times comply with the financial and other
covenants set forth in the Schedule.
4.2. Overadvance; Proceeds of Accounts
If for any reason the total of all outstanding Loans and all other
Obligations exceeds the total Credit Limit, as stated in the Schedule, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, the Borrower shall remit to Silicon all checks and other proceeds of
the Borrower's accounts and general intangibles, in the same form as received by
the Borrower, within one day after the Borrower's receipt of the same, to be
applied to the Obligations in such order as Silicon shall determine in its
discretion.
4.3. Insurance
The Borrower shall at all times insure all of the tangible personal
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to Silicon, in such form and amounts as Silicon may
reasonably require. All such insurance policies shall name Silicon as an
additional loss payee, and shall
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contain a lenders loss payee endorsement in form reasonably acceptable to
Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply
such proceeds in reduction of the Obligations as Silicon shall determine in its
sole and absolute discretion, except that, provided no Event of Default has
occurred, Silicon shall release to the Borrower insurance proceeds with respect
to equipment totaling less than $100,000, which shall be utilized by the
Borrower for the replacement of the equipment with respect to which the
insurance proceeds were paid. Silicon may require reasonable assurance that the
insurance proceeds so released shall be so used. If the Borrower fails to
provide or pay for any insurance, Silicon may, but is not obligated to, obtain
the same at the Borrower's expense. The Borrower shall promptly deliver to
Silicon copies of all reports made to insurance companies. Statutory notice
regarding insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as required
by our contract or loan agreement, we may purchase insurance at your expense to
protect our interest. This insurance may, but need not, also protect your
interest. If the collateral becomes damaged, the coverage we purchase may not
pay any claim you make or any claim made against you. You may later cancel this
coverage by providing evidence that you have obtained property coverage
elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.
This coverage we purchase may be considerably more expensive than insurance
you can obtain on your own and may not satisfy any need for property damage
coverage or any mandatory liability insurance requirements imposed by applicable
law.
4.4. Report
The Borrower shall provide Silicon with such written reports with respect
to the Borrower as Silicon shall from time to time reasonably specify, including
but not limited to the financial reports required as stated in the Schedule.
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4.5. Access to Collateral Books and Records
At all reasonable times after the conversion of the Bridge Loan (as
described on the Schedule) to the Secured Accounts Receivable Line of Credit (as
described on the Schedule), and upon one business day's notice, Silicon, or its
agents, shall have the right to inspect the Collateral, and the right to audit
and copy the Borrower's accounting books, records, ledgers, journals, or
registers and the Borrower's books and records relating to the Collateral,
provided that no prior notice is required upon the occurrence and continuation
of an Event of Default. Silicon shall take reasonable steps to keep
confidential all information obtained in any such inspection or audit, but
Silicon shall have the right to disclose any such information to its auditors,
regulatory agencies and attorneys, and pursuant to any subpoena or other legal
process. The Borrower shall reimburse Silicon for Silicon's actual costs for
conducting two such audits per year, and such costs shall not exceed $1,200 per
audit. Silicon may debit the Borrower's deposit accounts with Silicon for the
cost of such audits, in which event Silicon shall send notification thereof to
the Borrower.
4.6. Negative Covenants
Except as may be expressly permitted in the Schedule, the Borrower shall
not, without Silicon's prior written consent, do any of the following: (a) merge
or consolidate with another corporation, except that the Borrower may merge or
consolidate with another corporation if the Borrower is the surviving
corporation in the merger and the aggregate value of the assets acquired in the
merger does not exceed 25% of the Borrower's Tangible Net Worth (as defined in
the Schedule) as of the end of the month prior to the effective date of the
merger, and the assets of the corporation acquired in the merger are not subject
to any liens or encumbrances, except Permitted Liens; (b) acquire any assets,
including stock of any other entity, outside the ordinary course of business for
an aggregate purchase price (whether paid in cash, in stock of the Borrower or
other consideration) exceeding 25% of the Borrower's Tangible Net Worth (as
defined in the Schedule) as of the end of the month prior to the effective date
of the acquisition; (c) enter into any other transaction outside the ordinary
course of business (except as permitted by the other provisions of this
Section); (d) sell or transfer any Collateral, except for the sale of finished
inventory in the ordinary course of the Borrower's business; (e) make any loans
of any money or any other assets to shareholders, employees or any other person
except in the ordinary course of business; (f) incur any debts that are outside
the ordinary course of business or that would have a material, adverse effect on
the Borrower or on the prospect of repayment of the Obligations; (g) guarantee
or otherwise become liable with respect to the obligations of another party or
entity; (h) pay or declare any dividends on the stock of the Borrower (except
for dividends payable solely in stock
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of the Borrower); (i) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of the stock of the Borrower; (j) make any change in the
Borrower's capital structure which has a material adverse effect on that
Borrower or on the prospect of repayment of the Obligations; or (k) dissolve or
elect to dissolve. Transactions permitted by the foregoing provisions of this
Section are only permitted if no Event of Default and no event which (with
notice or passage of time or both) would constitute an Event of Default would
occur as a result of such transaction.
4.7. Litigation Cooperation
Should any third-party suit or proceeding be instituted by or against
Silicon with respect to any Collateral or in any manner relating to the
Borrower, the Borrower shall, without expense to Silicon, make available the
Borrower and its officers, employees and agents and the Borrower's books and
records to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
4.8. Verification
Silicon may, from time to time, following prior notification to the
Borrower, verify directly with the respective account debtors the validity,
amount and other matters relating to the Borrower's accounts, by means of mail,
telephone or otherwise, either in the name of the Borrower or Silicon or such
other name as Silicon may reasonably choose, provided that no prior notification
shall be required following an Event of Default. Silicon shall not be required
to obtain the Borrower's consent prior to any such verification of accounts,
whether or not an Event of Default has occurred.
4.9. Execute Additional Documentation
The Borrower agrees, at its expense, on request by Silicon, to execute from
time to time all documents in form satisfactory to Silicon, as Silicon may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
all of the transactions contemplated by this Agreement.
4.10. Registration of Intellectual Property Rights
Borrower shall register or cause to be registered with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to any third party.
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Borrower may elect not to register such additional intellectual property
rights if it reasonably determines, in accordance with industry practices, that
such registration is not required.
5. TERM
5.1. Maturity Date
This Agreement shall continue in effect until the payment in full of the
Obligations, provided, however, that the Borrower shall repay in full each Loan
described on the Schedule, with all accrued but unpaid interest on that Loan, on
or before the Maturity Date stated on the Schedule for such Loan.
5.2. Early Termination
Subject to Section 5.3, this Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (a) by the Borrower, effective three
business days after written notice of termination is given to Silicon; or (b) by
Silicon at any time after the occurrence of an Event of Default, without notice,
effective immediately.
5.3. Payment of Obligations
On the due dates stated in the Schedule, or on any earlier effective date
of termination, the Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Notwithstanding
any termination of this Agreement, all of Silicon's security interests in all of
the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations have been paid and
performed in full; provided that, without limiting the fact that Loans are
discretionary on the part of Silicon, Silicon may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Silicon, nor shall any such
termination relieve the Borrower of any Obligation to Silicon, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations, Silicon shall promptly deliver to the Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate any of Silicon's security interests.
14
6. EVENTS OF DEFAULT AND REMEDIES
6.1. Events of Default
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement, and the Borrower shall give Silicon immediate
written notice thereof:
(a) any warranty, representation, statement, report or certificate made or
delivered to Silicon by the Borrower or any of the Borrower's officers or
employees, now or in the future, shall be untrue or misleading in any material
respect; or (b) the Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or (c) the total outstanding balance
of any Loan exceeds the applicable Credit Limit, or the total Loans and other
Obligations outstanding at any time exceed the aggregate Credit Limit for all
Loans; or (d) the Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
nonmonetary Obligation which by its nature cannot be cured; or (e) the Borrower
shall fail to pay or perform any other nonmonetary Obligation, under this
Agreement or any other agreement or document relating to the Loans; or (f) any
levy, assessment, attachment, seizure, lien or encumbrance is made on all or any
part of the Collateral; or (g) dissolution, termination of existence, insolvency
or business failure of the Borrower, or appointment of a receiver, trustee or
custodian for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by the Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (h) the commencement of any proceeding against the Borrower
or any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (i)
revocation or termination of, or limitation of liability upon, any guaranty of
the Obligations; or (j) commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (k) the Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations, unless such payment is permitted in the
applicable subordination agreement, or if any person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (l) the Borrower shall generally not pay its debts as they become
due; or the Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or
15
similar law; or (m) either the Borrower or any other party thereto shall breach
any subordination agreement executed in connection with the Loans; or (n) the
current shareholders of the Borrower shall cease to own more than 50% of the
outstanding common stock of the Borrower. If any of the foregoing defaults,
other than a failure to pay money and breach of a financial covenant set forth
in the Schedule, is curable, it may be cured (and no Event of Default shall have
occurred) if the Borrower cures the default within fifteen days (or within
thirty days in the case of clause (h) of this Section 6.1). Silicon may cease
making any Loans hereunder during the above cure periods, and thereafter if an
Event of Default has occurred.
6.2. Remedies
Upon the occurrence of any Event of Default and the expiration of any
applicable cure period under Section 6.1, and at any time thereafter, Silicon,
at its option, and without notice or demand of any kind (all of which are hereby
expressly waived by the Borrower), may do any one or more of the following: (a)
cease making Loans or otherwise extending credit to the Borrower under this
Agreement or any other document or agreement; (b) accelerate and declare all or
any part of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any Obligation; (c) take possession of any or all of
the Collateral wherever it may be found, and for that purpose the Borrower
hereby authorizes Silicon without judicial process to enter onto any of the
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof without
charge for so long as Silicon deems it reasonably necessary in order to complete
the enforcement of its rights under this Agreement or any other agreement;
provided, however, that should Silicon seek to take possession of any or all of
the Collateral by Court process, the Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of and not
dispose of any such Collateral until after trial or final judgment; (d) require
the Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and the Borrower, and to remove the Collateral to such locations as
Silicon may deem advisable; (e) require the Borrower to deliver to Silicon, in
kind, all checks and other payments received with respect to all accounts and
general intangibles, together with any necessary endorsements, within one day
after the date received by the Borrower; (f) complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the
16
purpose of removal, Silicon shall have the right to use the Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (g) sell, lease or otherwise dispose of any of the Collateral in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at any one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on credit,
and to adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale; Silicon shall have the right to
conduct such disposition on the Borrower's premises without charge, for such
time or times as Silicon deems reasonable, or on Silicon's premises, or
elsewhere and the Collateral need not be located at the place of disposition;
Silicon may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition; any sale or other disposition of Collateral
shall not relieve the Borrower of any liability the Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) demand payment of, and collect any accounts and general
intangibles comprising, Collateral and, in connection therewith, the Borrower
irrevocably authorizes Silicon to endorse or sign the Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to the Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Silicon's
sole discretion, to grant extensions of time to pay, compromise claims and
settle accounts and the like for less than face value; (i) offset against any
sums in any general, special or other deposit accounts maintained by the
Borrower with Silicon; and (j) demand and receive possession of any of the
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. All reasonable fees of
professionals (including attorneys' fees), expenses, costs, liabilities and
obligations incurred by Silicon with respect to the foregoing shall be added to
and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional two percent per annum above
the rate otherwise applicable.
6.3. Standards for Determining Commercial Reasonableness
The Borrower and Silicon agree that a sale or other disposition
(collectively, "Sale") of any Collateral which complies with the following
standards shall conclusively be deemed to be commercially reasonable: (a) notice
of the Sale is given to the Borrower at least seven days prior to the Sale, and,
in the case of a public Sale, notice of the Sale is published at least seven
days before the Sale in a newspaper of general circulation in the county where
the Sale is to be conducted; (b) notice of the
17
Sale describes the Collateral in general, nonspecific terms; (c) the Sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (d) the Sale commences at any time between 8:00 a.m. and 6:00 p.m.; (e)
payment of the purchase price in cash or by cashier's check or wire transfer is
required; (f) with respect to any Sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from the Borrower any and all information concerning the same. Silicon may
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
6.4. Power of Attorney
Effective only upon the occurrence and during the continuance of an Event
of Default, the Borrower hereby irrevocably appoints Silicon (and any of
Silicon's designated officers, or employees) as the Borrower's true and lawful
attorney to: (a) send requests for verification of accounts or notify account
debtors of Silicon's security interest in the accounts; (b) endorse the
Borrower's name on any checks or other forms of payment or security that may
come into Silicon's possession; (c) sign the Borrower's name on any invoice or
xxxx of lading relating to any account, drafts against account debtors,
schedules and assignments of accounts, verifications of accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to the Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Silicon determines to be reasonable; provided
Silicon may exercise such power of attorney to sign the name of the Borrower on
Uniform Commercial Code filings in accordance with Section 4.9 regardless of
whether an Event of Default has occurred. The appointment of Silicon as the
Borrower's attorney in fact, and each and every one of Silicon's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Silicon's obligation to
provide advances hereunder is terminated.
6.5. Application of Proceeds
All proceeds realized as the result of any Sale of the Collateral shall be
applied by Silicon first to the costs, expenses, liabilities, obligations and
attorneys' fees incurred by Silicon in the exercise of its rights under this
Agreement, second to the interest due upon any of the Obligations, and third to
the principal of the Obligations, in such order as Silicon shall determine in
its sole discretion. Any surplus shall be paid to the Borrower or other persons
legally entitled thereto; the Borrower shall remain liable to Silicon for any
deficiency. If Silicon, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
Sale or other disposition of Collateral, Silicon shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the
18
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Silicon of the cash therefor.
6.6. Remedies Cumulative
In addition to the rights and remedies set forth in this Agreement, Silicon
shall have all the other rights and remedies accorded a secured party under the
Uniform Commercial Code of Washington and each state in which any Collateral is
located, and under all other applicable laws, and under any other instrument or
agreement now or in the future entered into between Silicon and the Borrower,
and all of such rights and remedies are cumulative and none is exclusive.
Exercise or partial exercise by Silicon of one or more of its rights or remedies
shall not be deemed an election, nor bar Silicon from subsequent exercise or
partial exercise of any other rights or remedies. The failure or delay of
Silicon to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed.
7. GENERAL PROVISIONS
7.1. Notices
All notices to be given under this Agreement shall be in writing and shall
be given either personally or by regular first-class mail, or certified mail
return receipt requested, addressed to Silicon or the Borrower at the addresses
shown in the heading to this Agreement, or at any other address designated in
writing by one party to the other party. In addition, Borrower shall send a
copy of any notice to Silicon to the following address: 000 - 000xx Xxxxxx X.X.,
Xxxxx 000, Xxxxxxxx, XX 00000, Attn: Xx Xxxxxxxx. All notices shall be deemed
to have been given upon delivery in the case of notices personally delivered to
the Borrower or to Silicon, or at the expiration of two business days following
the deposit thereof in the United States mail, with postage prepaid.
7.2. Severability
Should any provision of this Agreement be held by any court of competent
jurisdiction to be void or unenforceable, such defect shall not affect the
remainder of this Agreement, which shall continue in full force and effect.
7.3. Integration
This Agreement and such other written agreements, documents and instruments
as may be executed in connection herewith are the final, entire and complete
agreement between the Borrower and Silicon and supersede all prior and
19
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF
A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. UNDER OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY SILICON AFTER OCTOBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY SILICON TO BE ENFORCEABLE.
7.4. Waivers
The failure of Silicon at any time or times to require the Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between the Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent thereto. None of the provisions of this
Agreement or any other agreement now or in the future executed by the Borrower
and delivered to Silicon shall be deemed to have been waived by any act or
knowledge of Silicon or its agents or employees, but only by a specific written
waiver signed by an officer of Silicon and delivered to the Borrower. The
Borrower waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, general
intangible, document or guaranty at any time held by Silicon on which the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.5. No Liability for Ordinary Negligence
Neither Silicon, nor any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Silicon shall be
liable for any claims, demands, losses or damages, of any kind whatsoever, made,
claimed, incurred or suffered by the Borrower or any other party through the
ordinary negligence of Silicon, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Silicon.
20
7.6. Amendment
The terms and provisions of this Agreement may not be waived or amended,
except in a writing executed by the Borrower and a duly authorized officer of
Silicon.
7.7. Time of Essence
Time is of the essence in the performance by the Borrower of each and every
obligation under this Agreement.
7.8. Attorneys' Fees and Costs
The Borrower shall reimburse Silicon for all reasonable attorneys' fees and
fees of other professionals, and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, account debtors; commence,
intervene in, or defend any action or proceeding (including any appeal or
review); initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of the Borrower's books and records; or protect, obtain possession of,
lease, dispose of, or otherwise enforce Silicon's security interest in, the
Collateral and otherwise represent Silicon in any litigation relating to the
Borrower. If either Silicon or the Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and professionals' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon, or defense of, any order, decree, award or
judgment, and in any appeal or review by an appellate court. All fees and costs
to which Silicon may be entitled pursuant to this Section shall immediately
become part of the Borrower's Obligations, shall be due on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations.
7.9. Benefit of Agreement
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors, assigns, heirs, beneficiaries and
representatives of the parties hereto; provided, however, that the Borrower may
not assign or transfer any of its rights under this Agreement without the prior
written consent of Silicon, and any
21
prohibited assignment shall be void. No consent by Silicon to any assignment
shall release the Borrower from its liability for the Obligations. The Borrower
agrees and consents to Silicon's sale or transfer, whether now or later, of one
or more participation interests in the Loans to one or more purchasers, whether
related or unrelated to Silicon. Silicon may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Silicon may have about the Borrower or about any other
matter relating to the Loans and the Borrower hereby waives any rights to
privacy it may have with respect to such matters. The Borrower additionally
waives any and all notices of sale of participation interests, as well as all
notices of any repurchase of such participation interests. The Borrower also
agrees that the purchasers of any such participation interests shall be
considered as the absolute owners of such interests in the Loans and shall have
all the rights granted under the participation agreement or agreements governing
the sale of such participation interests.
7.10. Section Headings; Construction
Section headings are only used in this Agreement for convenience. The
Borrower acknowledges that the headings may not describe completely the subject
matter of the applicable section, and the headings shall not be used in any
manner to construe, limit, define or interpret any term or provision of this
Agreement. This Agreement has been fully reviewed and negotiated between the
parties, and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or the Borrower under any
rule of construction or otherwise.
7.11. Mutual Waiver of Jury Trial
The Borrower and Silicon each hereby waive the right to trial by jury in
any action or proceeding based upon, arising out of, or in any way relating to,
this Agreement or any other present or future instrument or agreement between
Silicon and the Borrower, or any conduct, acts or omissions of Silicon or the
Borrower or any of their directors, officers, employees, agents, attorneys or
any other persons affiliated with Silicon or the Borrower, in all of the
foregoing cases, whether sounding in contract or tort or otherwise.
7.12. Governing Law; Jurisdiction; Venue
This Agreement and all acts and transactions hereunder and all rights and
obligations of Silicon and the Borrower shall be governed by, and construed in
accordance with, the laws of the State of Washington. Any undefined term used
in this Agreement that is defined in the Washington Uniform Commercial Code
shall
22
have the meaning assigned to that term in the Washington Uniform Commercial
Code. As a material part of the consideration to Silicon to enter into this
Agreement, the Borrower (i) agrees that all actions and proceedings relating
directly or indirectly hereto shall, at Silicon's option, be litigated in courts
located within Washington, and that the exclusive venue therefor shall be, at
Silicon's option, King County, Washington; (ii) consents to the jurisdiction and
venue of any such court and consents to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (iii)
waives any and all rights the Borrower may have to object to the jurisdiction of
any such court, or to transfer or change the venue of any such action or
proceeding.
Borrower:
WATCHGUARD TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxx
-------------------------
Title: Chief Financial Officer
--------------------------
Silicon:
SILICON VALLEY BANK
By: [signature illegible]
---------------------------
Title: Silicon Valley Bank
----------------------
23
[Amended and Restated Schedule to Loan and Security
Agreement was superceded by Schedule to
9/18/98 Loan Modification Agreement]
EXHIBIT A
BORROWING BASE CERTIFICATE
Borrower: Lender: Silicon Valley Bank
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Commitment Amount: $___________
--------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _______ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
a. Amounts over 90 days due $__________
b. Balance of 50% over 90 day accounts $__________
c. Excess 25% Concentration Limit $__________
d. Foreign Accounts $__________
e. Governmental Accounts $__________
f. Contra Accounts, Credit Balances $__________
g. Promotion or Demo Accounts $__________
h. Intercompany/Employee Accounts $__________
i. Other (please explain on reverse) $__________
4. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
5. Eligible Accounts (#3 minus #4) $__________
6. LOAN VALUE OF ACCOUNTS (__% of #5) $________
BALANCES
7. Maximum Loan Amount $__________
8. Total Funds Available Lesser of #6 or #7 $__________
9. Present balance owing on Line of Credit $__________
10. Outstanding under Sublimits ( ) $__________
RESERVE POSITION (#8 minus #9 and #10) $__________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information in this Borrowing Base Certificate complies
with the representations and warranties set forth in the Loan and Security
Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
BORROWER
By:_______________________
Authorized Signer
Exhibit B
---------
Tradenames
----------
WatchGuard Technologies (registered, waiting for final notification)
WatchGuard Firebox (accepted and reviewed, waiting for final notification)
Prior Names
-----------
Seattle Software Labs
Trademarks
----------
[WatchGuard Logo]
Other Locations and Addresses
-----------------------------
None
Material Adverse Litigation
---------------------------
None
-2-
