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EXHIBIT 10.24
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VERITY, INC.
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION......................................... 1
1.1 Definitions..................................................... 1
1.2 Accounting Terms................................................ 6
2. LOAN AND TERMS OF PAYMENT............................................ 6
2.1 Advances........................................................ 6
2.2 Interest Rates, Payments, and Calculations...................... 8
2.3 Crediting Payments.............................................. 9
2.4 Fees............................................................ 9
2.5 Additional Costs................................................ 9
2.6 Term............................................................10
3. CONDITIONS OF LOANS..................................................10
3.1 Conditions Precedent to Initial Advance.........................10
3.2 Conditions Precedent to all Advances............................10
4. CREATION OF SECURITY INTEREST........................................11
4.1 Grant of Security Interest......................................11
4.2 Delivery of Additional Documentation Required...................11
4.3 Right to Inspect................................................11
5. REPRESENTATIONS AND WARRANTIES.......................................11
5.1 Due Organizational and Qualification............................11
5.2 Due Authorization; No Conflict..................................11
5.3 No Prior Encumbrances...........................................11
5.4 Bona Fide Accounts..............................................11
5.5 Merchantable Inventory..........................................12
5.6 Intellectual Property...........................................12
5.7 Name: Location of Chief Executive Office........................12
5.8 Litigation......................................................12
5.9 No Material Adverse Change in Financial Statements..............12
5.10 Solvency........................................................12
5.11 Regulatory Compliance...........................................12
5.12 Environmental Condition.........................................12
5.13 Taxes...........................................................13
5.14 Subsidiaries....................................................13
5.15 Government Consents.............................................13
5.16 Year 2000.......................................................13
5.17 Full Disclosure.................................................13
6. AFFIRMATIVE COVENANTS................................................13
6.1 Good Standing...................................................13
6.2 Government Compliance...........................................13
6.3 Financial Statements, Reports, Certificates.....................13
6.4 Inventory; Returns..............................................14
6.5 Taxes...........................................................14
6.6 Insurance.......................................................14
6.7 Principal Depository............................................15
6.8 Quick Ratio.....................................................15
6.9 Debt-Tangible Net Worth.........................................15
6.10 Profitability...................................................15
6.11 Registration of Intellectual Property Rights....................15
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TABLE OF CONTENTS
(continued)
6.12 Year 2000 Compliance.............................................15
6.13 Further Assurances...............................................15
7. NEGATIVE COVENANTS....................................................16
7.1 Dispositions.....................................................16
7.2 Change in Business...............................................16
7.3 Mergers or Acquisitions..........................................16
7.4 Indebtedness.....................................................16
7.5 Encumbrances.....................................................16
7.6 Distributions....................................................16
7.7 Investments......................................................16
7.8 Transactions with Affiliates.....................................16
7.9 Intellectual Property Agreements.................................16
7.10 Subordinated Debt................................................17
7.11 Inventory........................................................17
7.12 Compliance.......................................................17
8. EVENTS OF DEFAULT.....................................................17
8.1 Payment Default..................................................17
8.2 Covenant Default.................................................17
8.3 Material Adverse Effect..........................................17
8.4 Attachment.......................................................17
8.5 Insolvency.......................................................18
8.6 Other Agreements.................................................18
8.7 Subordinated Debt................................................18
8.8 Judgments........................................................18
8.9 Misrepresentations...............................................18
9. BANK'S RIGHTS AND REMEDIES............................................18
9.1 Rights and Remedies..............................................18
9.2 Power of Attorney................................................19
9.3 Accounts Collection..............................................19
9.4 Bank Expenses....................................................20
9.5 Bank's Liability for Collateral..................................20
9.6 Remedies Cumulative..............................................20
9.7 Demand; Protest..................................................20
10. NOTICES...............................................................20
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................21
12. GENERAL PROVISIONS....................................................21
12.1 Successors and Assigns...........................................21
12.2 Indemnification..................................................21
12.3 Time of Essence..................................................21
12.4 Severability in Writing, Integration.............................21
12.5 Amendments in Writing, Integration...............................21
12.6 Counterparts.....................................................21
12.7 Survival.........................................................21
12.8 Confidentiality..................................................22
13. JUDICIAL REFERENCE....................................................22
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This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the "Agreement") is
entered into as of November 15, 1998, by and between IMPERIAL BANK ("Bank") and
VERITY, INC. ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of November 30, 1997 (the "Original Agreement"). Borrower and Bank
desire to enter into this Agreement to set forth their agreement with respect
to a working capital loan and to amend and restate in its entirety without
novation the Original Agreement in accordance with the provisions herein.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions.
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other securities therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance under the Revolving
Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection
with the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including; ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Line" means Two Million Five Hundred Thousand Dollars
($2,500,000); provided that, (i) after and for so long as Borrower maintains
profitability of at least Eight Hundred Thousand.
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Dollars ($800,000) for each fiscal quarter, or (ii) after Borrower has taken the
actions specified in Section 6.12 to Bank's reasonable satisfaction that would
otherwise be required only upon the occurrence of an Event of Default, the
Committed Line shall be Five Million Dollars ($5,000,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year form the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Borrower or any Subsidiary to a date
more than one year from the date of determination, but excluding Subordinated
Debt.
"Daily Balance" means the amount of the Obligations owed at the end of a
given day.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"Foreign Exchange Reserve" has the meaning set forth in Section 0
herein.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceeding seeking reorganization,
arrangement, or other relief.
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"Intellectual Property" means
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to xxx for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Letter of Credit" or "Letters of Credit" has the meaning set forth in
Section 2.1.1 herein.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other agreement entered into between Borrower and
Bank in connection with this Agreement, all as amended or extended from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means September 30, 1999.
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"Negotiable Collateral" means all of Borrower's present and future letters
of credit of which it is a beneficiary, notes, drafts, instruments, securities,
documents of title, and chattel paper, and Borrower's Books relating to any of
the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing
or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring payments
that Borrower may now or hereafter become obligated to pay to Bank pursuant to
the terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Indebtedness secured by a Lien described in clause (c) of Permitted
Liens, provided the principal amount of such Indebtedness does not exceed the
lesser of the cost or fair market value of the Equipment financed with the
proceeds of such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary course of
business;
(f) Other Indebtedness in an aggregate outstanding amount not exceeding
$100,000;
(g) Contingent obligations of Borrower consisting of guaranties (and
other credit support) of the obligations of vendors and suppliers of Borrower
in respect of transactions entered into in the ordinary course of Borrower's
business; and
(h) Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness (a)
through (g) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than two (2) years from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Xxxxx'x Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank and other investments in the aggregate amount not
exceeding $100,000;
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(c) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with customers or
suppliers arising in the ordinary course of Borrower's business;
(d) Investments consisting of (i) compensation of employees,
officers and directors of Borrower so long as the Board of Directors of
Borrower determines that such compensation is in the best interests of
Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of Borrower's business, (iii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower, and (iv) other loans to officers and employees approved
by the Board of Directors, not to exceed $150,000 in the aggregate; and
(e) other Investments aggregating not in excess of $100,000 at any
time.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests, unless required by law;
(c) Liens (i) upon or in any equipment acquired, leased or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, or (ii) existing on such equipment at
the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder;
(e) Liens arising from judgments, decrees or attachments to the
extent and only so long as such judgment, decree or attachment has not caused
or resulted in an Event of Default under Section 0;
(f) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(g) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution;
(h) Liens, not otherwise permitted, which Liens secure obligations
of Borrower which do not in the aggregate exceed $100,000 at any time; and
(i) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (h) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
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"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed one year, of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 0 hereof.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through
an Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, Borrower's net worth calculated in accordance with
GAAP minus intangible assets plus Subordinated Debt.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
12. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not
to exceed the Committed Line minus the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) and the Foreign
Exchange Reserve. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 0 may be repaid and reborrowed at any
time without penalty, in whole or in part, prior to the Maturity Date.
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(b) Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. California time,
on the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or such other
individuals who shall have expressly been authorized by Borrower, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person whom Bank reasonably believes to
be a Responsible Officer or such other individuals who shall have expressly been
authorized by Borrower, and Borrower shall indemnify and hold Bank harmless for
any damages or loss suffered by Bank as a result of such reliance. Bank will
credit the amount of Advances made under this Section 0 to Borrower's deposit
account designated for receipt of funds in respect of such Advance.
(c) The Revolving Facility terminate on the Maturity Date, at which
time all Advances under this Section 0 shall be immediately due and payable.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued letters of credit (each a "Letter of
Credit," collectively, the "Letters of Credit") for the account of Borrower in
an aggregate face amount not to exceed the Committed Line minus the sum of the
then outstanding principal balance of the Advances, the face amount outstanding
Letters of Credit and the Foreign Exchange Reserve; provided that the face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) shall not in any case exceed One Million Dollars
($1,000,000). Each such Letter of Credit shall have an expiry date no later than
the Maturity Date. All such Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of application and letter of credit agreement. All
amounts actually paid by Bank in respect of a Letter of Credit shall, when paid,
constitute an Advance under this Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit payable
in a currency other than United States Dollars. If a demand for payment is made
under any such Letter of Credit, Bank shall treat such demand as an advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a currency
other than United States Dollars, Bank shall create a reserve under the
Committed Line for Letters of Credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face amount of such Letter
of Credit. The amount of such reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Committed Line shall be reduced by the amount of such reserve for so
long as such Letter of Credit remains outstanding.
2.1.2 Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may enter into
foreign exchange contracts (the "Exchange Contracts") not to exceed an aggregate
amount of One Million Dollars ($1,000,000) (the "Contract Limit"), pursuant to
which Bank shall sell to or purchase from Borrower foreign currency on a spot or
forward basis. Bank shall not be obligated to enter into any Exchange Contracts
with Borrower at any time Borrower is out of compliance with any of the
provisions of this Agreement. All Exchange
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Contracts must provide for delivery of settlement on or before the Maturity
Date. The amount available under the Committed Line at any time shall be
reduced by the following amounts (the "Foreign Exchange Reserve") on any given
day (the "Determination Date"): (i) on all outstanding Exchange Contracts on
which delivery is to be effected or settlement allowed more than two business
days after the Determination Date, ten percent (10%) of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed within two business days after
the Determination Date, one hundred percent (100%) of the gross amount of the
Exchange Contracts.
(b) Bank may, in its discretion, terminate the Exchange Contracts at
any time when (a) an Event of Default has occurred and is continuing or (b)
that there is no sufficient availability under the Committed Line and Borrower
does not have available funds in its bank account to satisfy the Foreign
Exchange Reserve. If Bank terminates the Exchange Contracts in accordance with
this Agreement, and without limitation of any applicable indemnities, Borrower
agrees to reimburse Bank for any and all fees, costs and expenses relating
thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all Exchange
Contracts on which delivery is to be effected and settlement allowed in any two
business day period to be more than One Million Dollars ($1,000,000) (the
"Settlement Limit"), nor shall Borrower permit the total gross amount of all
Exchange Contracts to which Borrower is a party, outstanding at any one time,
to exceed the Contract Limit. Notwithstanding the above, however, the amount
which may be settled in any two (2) business day period may be increased above
the Settlement Limit up to, but in no event to exceed, the amount of the
Contract Limit under either of the following circumstances:
(i) if there is sufficient availability under the Committed
Line in the amount of the Foreign Exchange Reserve as of each Determination
Date, provided that Bank in advance shall reserve the full amount of the
Foreign Exchange Reserve against the Committed Line; or
(ii) if there is insufficient availability under the Committed
Line, as to settlements within any two (2) business day period, provided that
Bank, in its sole discretion, may: (A) verify good funds overseas prior to
crediting Borrower's deposit account with Bank (in the case of Borrower's sale
of foreign currency); or (B) debit Borrower's deposit account with Bank prior
to delivering foreign currency overseas (in the case of Borrower's purchase of
foreign currency).
(d) In the case of Borrower's purchase of foreign currency, Borrower
in advance shall instruct Bank upon settlement either to treat the settlement
amount as an advance under the Committed Line, or to debit Borrower's account
for the amount settled.
(e) Borrower shall execute all standard form applications and
agreements of Bank in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will
pay all standard fees and charges of Bank in connection with the Exchange
Contracts.
(f) Without limiting any of the other terms of this Agreement or any
such standard form applications and agreements of Bank, Borrower agrees to
indemnify Bank and hold it harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs and expenses (including,
without limitation, reasonable attorney's fees of counsel of Bank's choice), of
every nature and description which it may sustain or incur, based upon, arising
out of, or in any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby.
2.2 Interest Rates, Payments and Calculations.
(a) Interest Rate. Except as set forth in Section 0(0), any Advances
shall bear interest, on the average Daily Balance, at a rate equal to the
Prime Rate.
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(b) Late Payment Fee; Default Rate. If any payment is not
made within ten (10) days of the date such payment is due, borrower shall pay
Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of
such unpaid amount or (ii) the maximum amount permitted to be charged under
applicable law. All Obligations shall bear interest, from and after the date
Borrower receives written notice of the occurrence of an Event of Default and
during the continuance thereof, at a rate equal to five (5) percentage points
above the interest rate applicable immediately prior to the occurrence of the
Event of Default.
(c) Payments. Except as specified in Section 0(0), interest
hereunder shall be due and payable on the tenth (10th) calendar day of each
month during the term hereof. Bank shall, at its option, charge such interest,
all Bank Expenses, and all Periodic Payments against any of Borrower's deposit
accounts or against the Committed Line, in which case those amounts shall
thereafter accrue interest at the rate then applicable hereunder. Bank will
notify borrower of all debits and charges that Bank makes against Borrower's
accounts in the ordinary course of Bank's operations. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. Bank shall notify
Borrower of the change in the ordinary course of Borrower's business. All
interest chargeable under the Loan Documents shall be computed on the basis of
a three hundred sixty (360) day year for the actual number of days elapsed.
2.3 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence and during the continuance of an Event of Default, the receipt by
Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is
honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00
noon California time shall be deemed to have been received by Bank as of the
opening of business on the immediately following Business Day. Whenever any
payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment
shall instead be due on the next Business Day, and additional fees or interest,
as the case may be, shall accrue and be payable for the period of such
extension, provided however, that no late fee shall accrue because the
relevant date is not a Business Day.
2.4 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Twenty Thousand
Dollars ($20,000), which fee has been paid to Bank and is fully earned and
nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents
provided, however, that Borrower shall be required to reimburse Bank once per
year for such audits, appraisals and examinations unless an Event of Default
has occurred; and
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses not to exceed $7,500, and, after the date hereof, all Bank Expenses,
including reasonable attorneys' fees and expenses, as and when they become due.
2.5 Additional Costs. In case any change after the date hereof in
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), in each case after the date of this Agreement:
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(a) subjects Banks to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement.
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expenses
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error. Bank agrees that it will allocate all
such increased costs among its customers similarly affected in good faith and
in a manner consistent with Bank's customary practice.
2.6 Term. This Agreement shall become effective on the Closing Date, and
subject to Section 0, shall continue in full force and effect for a term ending
on the Maturity Date. Notwithstanding the foregoing, Bank shall have the right
to terminate its obligation to make Advances under this Agreement during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding. Provided no Obligations are outstanding, Borrower shall have the
right to terminate this Agreement upon written notice to Bank. Upon any
termination, Bank's Lien on the Collateral shall terminate provided no
Obligations are outstanding and Bank shall cooperate with Borrower promptly to
make such filings (e.g., financing statements and termination of the
Intellectual Property Security Agreement) as Borrower may reasonably request to
evidence such termination.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of Bank
to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) financing statement (Form UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 0 hereof;
(f) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to
make each Advance, including the initial Advance, is further subject to the
following conditions:
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(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 0;
(b) the representations and warranties contained in Section 0
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 0(0).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof assuming Bank has timely and properly filed and taken all other actions
necessary or desirable to perfect and protect such security interest.
4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank,
all Negotiable Collateral, all financing statements and other documents that
Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's
Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified and where the failure to
so qualify could result in a Material Adverse Effect.
5.2 Due Authorization: No Conflict. The execution, delivery,
and performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent.
Borrower is not in default under any agreement to which it is a party or by
which it is bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Accounts. The Accounts are bona fide existing
obligations. The property giving rise to such Accounts has been delivered to
the account debtor or to the account debtor's agent for immediate shipment to
and unconditional acceptance by the account debtor.
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5.5 Merchantable Inventory. All Inventory is in all material respects
of good and marketable quality, free from all material defects, normal wear and
tear excepted; provided, however, that the Inventory is the product of rapidly
changing technology and therefore is subject to technological obsolescence.
5.6 Intellectual Property. Borrower is the sole owner of the
Intellectual Property, except for non-exclusive licenses granted by Borrower to
its customers in the ordinary course of business or except as permitted under
this Agreement. To Borrower's best knowledge, each of the Patents is valid and
enforceable, and no part of the Intellectual Property has been judged invalid
or unenforceable, in whole or in part, and as of the date hereof, Borrower has
no knowledge that nor has it received any communication that a claim has been
made that any part of the Intellectual Property violates the rights of any
third party.
5.7 Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section O hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.9 No Material Adverse Change in Financial Statements. All
consolidated historical financial statements related to Borrower and any
Subsidiary that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank.
5.10 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
the 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.
5.11 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of the important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any
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other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste substances into the environment.
5.13 Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provisions for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Except as set forth in Schedule O, Borrower does
not own any stock, partnership interest or other equity securities of any
Person, except for Permitted Investments and has no Subsidiaries.
5.15 Government Consents. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except to the extent that any failure to do so would not have a Material
Adverse Effect.
5.16 Year 2000. Borrower and its Subsidiaries (as hereinafter
defined) have reviewed the areas within their operations and business which
could be adversely affected by, and have developed or are developing a program
to address on a timely basis, the Year 2000 Problem and have made related
appropriate inquiry of material suppliers and vendors, and based on such review
and program, the Year 2000 Problem will not have a Material Adverse Effect upon
its financial condition, operations or business as now conducted. "Year 2000
Problem" means the possibility that any computer applications or equipment used
by Borrower may be unable to recognize and properly perform date sensitive
functions involving certain dates prior to and any dates on or after December
31, 1999.
5.17 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within ninety (90)
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonable acceptable to Bank; (b)
within forty-five (45) days of the last day of each fiscal quarter, copies of
all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt and all
reports on Form 10-Q filed with the Securities and Exchange Commission for such
period; (c) promptly upon receipt of notice thereof, a report of any legal
actions pending against Borrower or any
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Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more; (d) upon Bank's reasonable
request, but in any event not less than once every calendar quarter, notice of
any material change in the composition of the Intellectual Property, including,
but not limited to, any subsequent ownership right of the Borrower in or to any
Copyright, Patent or Trademark not specified in any intellectual property
security agreement between Borrower and Bank or knowledge of an event that
materially adversely effects the value of the Intellectual Property; and (c)
such budgets, sales projections, operating plans or other financial information
as Bank may reasonably request from time to time.
Borrower shall deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit C hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred
and is continuing.
6.4 Inventory; Returns. Borrower shall keep all inventory in good and
marketable condition, free from all material defects, subject to normal wear
and tear and normal obsolescence due to the technological basis of such
Inventory. Returns and allowances, if any, as between Borrower and its account
debtors shall be on the same basis and in accordance with the usual customary
practices of Borrower, as they exist at the time of the execution and delivery
of this Agreement. Borrower shall promptly notify Bank of all returns and
recoveries and of all disputes and claims, where the return, recovery, dispute
or claim involves more than Two Hundred Thousand Dollars ($200,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute
and deliver to Bank, on demand, appropriate certificates attesting to the
payment or deposit thereof, and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with
proof satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is contested in good
faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least
twenty (20) days notice to Bank before canceling its policy for any reason.
Upon Bank's request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor.
All proceeds payable under any such policy shall, at the option of Bank, be
payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
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6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
fiscal quarter, a ratio of Quick Assets to Current Liabilities of not less than
1.75 to 1.00.
6.9 Debt-Tangible Net Worth. Borrower shall maintain, as of the last
day of each fiscal quarter, a ratio of Total Liabilities to Tangible Net Worth
of not more than 1.00 to 1.00.
6.10 Profitability. Borrower shall be profitable on an after tax basis
for each fiscal quarter.
6.11 Registration of Intellectual Property Rights.
(a) As a condition to an increase in the Committed Line to
$5,000,000 (if Borrower has not already achieved an maintained quarterly
profitability of $800,000), and in any case after the occurrence of an Event of
Default, Borrower shall (i) file or cause to be filed on an expedited basis a
duly completed application to register (to the extent not already registered)
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, and thereafter shall diligently pursue the
registration of those intellectual property rights developed or acquired by
Borrower from time to time in connection with any product and (ii) execute,
deliver, register and/or file such additional instruments and documents from
time to time as Bank shall reasonably request to perfect Bank's security
interest in the Intellectual Property. Bank shall have the right, but not the
obligation, to take, at Borrower's sole expense, any actions that Borrower is
required under this Section O(O) to take but which Borrower fails to take,
after five (5) days' notice to Borrower. Borrower shall reimburse and indemnify
Bank for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section O(O).
(b) Borrower shall (i) use commercially reasonable efforts to
protect, defend and maintain the validity and enforceability of the
Trademarks, Patents and Copyrights, (ii) use its best efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise Bank
in writing of material infringements detected and (iii) not allow any
Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the
public without the written consent of Bank, which shall not be unreasonably
withheld, unless Borrower determines that reasonable business practices suggest
that abandonment is appropriate.
(c) Upon Bank's reasonable written request, Borrower shall
deliver to Bank, no more than one (1) time per calendar quarter, a list of its
recently acquired or created Copyrights, Patents and Trademarks.
6.12 Year 2000 Compliance. Borrower shall perform all acts reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds
a substantial interest, and (b) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive review
and assessment of all Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems.
As used in this paragraph, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or financial condition of
such entity, will properly perform date sensitive functions before, during and
after the year 2000. Borrower shall immediately upon request, provide to Bank
such certifications or other evidence of Borrower's compliance with the terms
of this paragraph as Bank may from time to time require.
6.13 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7.0 NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until payment in full of the outstanding Obligations or for so
long as Bank may have any commitment to make any Advances, Borrower will not do
any of the following:
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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, other than: (i)
Transfers of Inventory in the ordinary course of business; (ii) Transfers of
non-exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries; or (iii) Transfers of worn-out or obsolete
Equipment, (iv) the sale of the capital stock of Verity Interactive SARL or (v)
other Transfers not in excess of $250,000 in the aggregate during the term of
this Agreement.
7.2 Change in Business. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person except for
the merger or consolidation of one or more Subsidiaries of Borrower with or
into Borrower or the merger or consolidation of two or more Subsidiaries of
Borrower, unless as a condition to the consummation of such merger or
acquisition, all Obligations are satisfied in full.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property (including without limitation the
Intellectual Property), or assign or otherwise convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries
so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any
capital stock, except Borrower may at any time when an Event of Default is not
continuing, repurchase from an officer, director or employee shares of equity
securities of Borrower held by them upon such person's termination of
employment or rendering of service to Borrower.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
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 nonaffiliated Person.
7.9 Intellectual Property Agreements. 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 Intellectual Property acquired under such contracts, except to the
extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgment.
7.10 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
material provision contained in any documentation relating to the Subordinated
Debt without Bank's prior written consent which shall not be unreasonably
withheld.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall
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keep the Inventory only at the location set forth in Section O hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
7.12 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirement of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply in a
material respect with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by
Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
under Article O or violates any of the covenants contained in Article O of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within thirty (30) days after Borrower receives notice
thereof or any officer of Borrower becomes aware thereof;
8.3 Material Adverse Effect. If there occurs a Material Adverse
Effect or a material impairment of the value or priority of Bank's security
interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any Borrower's assets by the United States Government, or
any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action of event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is
commenced against Borrower and is not dismissed or stayed within sixty (60)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
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 have a Material Adverse Effect;
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8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed under
any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least one Hundred
Thousand Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section O all Obligations shall become immediately due and payable
without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank
in an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make
such payments and do such act as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to made the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(f) Without notice to Borrower set off and apply to
the Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owning to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a license or other right,
solely pursuant to the provisions of this Section O, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and
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selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 0, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever
manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale;
(j) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower; and
(k) Execute, deliver, register and/or file such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or xxxx of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature to
such modification solely by amending Exhibit A, Exhibit B and Exhibit C,
thereof, as appropriate, to (i) include reference to any right, title or
interest in any Copyrights, Patents or Trademarks acquired by Borrower after the
execution hereof or (ii) to delete any reference to any right, title or interest
in any Copyrights, Patents or Trademarks in which Borrower no longer has or
claims any right, title or interest; (g) to file, in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Borrower where permitted by law;
and (h) dispose of the Collateral in accordance with, but only to the extent
permitted under, the Code (and to register such disposition with appropriate
government authorities); provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 0
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following; (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 0 of this Agreement, and take any action with respect
to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank
shall constitute Bank Expenses, shall be immediately due and payable, and shall
bear interest at the then applicable rate hereinabove provided, and shall be
secured by the Collateral. Any payments made by Bank shall not constitute an
agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.
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9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: Verity, Inc.
000 Xxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Vice President, Administrative and Controller
FAX: (000) 000-0000
If to Bank: Imperial Bank
000 Xxxxxxx Xxxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Corporate Banking Center
FAX: (000) 000-0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Xxxxx, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL
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COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing. Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 0 shall survive until all applicable statute of limitations periods
with respects to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank
and all employees and agents of Bank, including but not limited to accountants,
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to
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Bank by a third party, provided Bank does not have actual knowledge that such
third party is prohibited from disclosing such information.
13. JUDICIAL REFERENCE
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Santa Xxxxx County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be appointed to sit as a temporary judge, with all of the powers
for a temporary judge, as authorized by law, and upon selection should take and
subscribe to the oath of office as provided for in Rule 244 of the California
Rules of the Court (or any subsequently enacted Rule). Each party shall have
one peremptory challenge pursuant to CCP Section 170.6. The referee shall (a)
be requested to set the matter for hearing within sixty (60) days after the
date of selection of the referee and (b) try any and all issues of law or fact
and report a statement of decision upon them, if possible, within ninety (90)
days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP Section
644 in any court in the State of California having jurisdiction. Any party may
apply for a reference proceeding at any time after thirty (30) days following
notice to any other party of the nature of the controversy, dispute or claim,
by filing a petition for a hearing and/or trial. All discovery permitted by
this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production or
inspection of documents which cannot be resolved by the parties shall be
submitted to the referee as provided herein. The Superior Court is empowered to
issue temporary and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter except
that when any party so requests, a court reporter will be used at any hearing
conducted before the referee. The party making such a request shall have the
obligation to arrange for and pay for the court reporter. The costs of the
court reporter at the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the reference proceeding which shall dispose of all of the claims of the
parties that are the subject of the reference. The parties hereto expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different
judgment, which new trial, if granted, is also to be a reference proceeding
under this Section 0.
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(d) In the event that the enabling legislation which provides
for appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the Court,
in accordance with the California Arbitration Act, Section 1280 through Section
1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery as set forth hereinabove shall apply to any such arbitration
proceeding.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VERITY, INC.
By: [SIG]
---------------------------------------
Title: V.P. ADMINISTRATION AND CONTROLLER
------------------------------------
IMPERIAL BANK
By: [SIG]
---------------------------------------
Title: ASSISTANT V.P.
------------------------------------
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EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing, excluding leased equipment;
(c) All contract rights and general intangibles now owned or hereafter
acquired, excluding Intellectual Property, but including all accounts and other
proceeds arising out of the disposition of any interest in Intellectual
Property;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, securities
accounts, securities entitlements, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
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EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: EMERGING GROWTH INDUSTRIES DATE: _________________
FAX#: (000) 000-0000 TIME: _________________
FROM: __________________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY: __________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: __________________________________________________________
PHONE NUMBER: __________________________________________________________________
FROM ACCOUNT # __________________ TO ACCOUNT #_________________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $____________________________________________
PRINCIPAL PAYMENT (ONLY) $____________________________________________
INTEREST PAYMENT (ONLY) $____________________________________________
PRINCIPAL AND INTEREST (PAYMENT) $____________________________________________
OTHER INSTRUCTIONS: ____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
___________________________________ ________________________________________
Authorized Requester Phone #
___________________________________ ________________________________________
Authorized Requester Phone #
____________________________________________________________
Authorized Signature (Bank)
29
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: IMPERIAL BANK
FROM: VERITY, INC.
The undersigned authorized officer of Verity, Inc. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ______________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Quarterly financial statements Quarter within 45 days Yes No
Annual (CPA Audit) FYE within 90 days Yes No
A/R & A/P Agings Quarterly within 45 days Yes No
A/R Audit Initial and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Quarterly Basis:
Minimum Quick Ratio 1.75:1.00 ____:1.00 Yes No
Debt-Tangible Net Worth 1.00:1.00 ____:1.00 Yes No
Profitability/Loss $1.00 $________ Yes No
COMMENTS REGARDING EXCEPTIONS: SEE ATTACHED.
Sincerely, BANK USE ONLY
_________________________________________ Received by:____________________
SIGNATURE AUTHORIZED SIGNER
_________________________________________ Date:___________________________
TITLE
Verified:_______________________
_________________________________________ AUTHORIZED SIGNER
DATE
Date:___________________________
Compliance Status: Yes No
