Exhibit 10.15
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SERVICEWARE TECHNOLOGIES, INC.
LOAN AND SECURITY AGREEMENT
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This LOAN AND SECURITY AGREEMENT is entered into as of October 16, 2002, by and
between COMERICA BANK - CALIFORNIA ("Bank") and SERVICEWARE TECHNOLOGIES, INC.
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, all capitalized terms
shall have the definitions set forth on Exhibit A. Any term used in the Code and
not defined herein shall have the meaning given to the term in the Code.
1.2 Accounting Terms. Any accounting term not specifically defined on
Exhibit A shall be construed in accordance with GAAP and all calculations shall
be made in accordance with GAAP. The term "financial statements" shall include
the accompanying notes and schedules.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
(a) Promise to Pay. Borrower promises to pay to Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Credit Extensions made by Bank to Borrower, together with interest on the
unpaid principal amount of such Credit Extensions at rates in accordance with
the terms hereof.
(b) Revolving Advances.
(i) Amount. Subject to and upon the terms and
conditions of this Agreement, Borrower may request Advances in an aggregate
outstanding amount not to exceed the lesser of (A) the Committed Revolving Line
or (B) the Borrowing Base.
(ii) Interest; Repayment. Interest shall accrue on
each Advance at a rate determined in accordance with Section 2.3(a)(i) and shall
be payable in accordance with Section 2.3(c). Amounts borrowed pursuant to this
Section 2.1(b) may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances under this Section 2.1(b) shall be
immediately due and payable. Borrower may prepay any Advances without penalty or
premium.
(iii) Form of Request. Whenever Borrower desires
an Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit C. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, 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 who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1(b) to
Borrower's deposit account.
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Comerica Bank - California - Loan and Security Agreement Page 1
(c) Term Advance.
(i) Amount. Subject to and upon the terms and
conditions of this Agreement, Borrower may request the Term Advance on or before
October 16, 2003 in an amount not to exceed the Committed Term Loan Amount.
(ii) Interest; Repayment. Interest shall accrue on the
Term Advance at a rate determined in accordance with Section 2.3(a)(ii), and
shall be payable in accordance with Section 2.3(c). The Term Advance shall be
repaid in twelve (12) consecutive, equal monthly principal payments each equal
to one-twelfth (1/12) of the actual amount of the Term Advance plus all accrued
interest, beginning on the first day of the month following the date of the Term
Advance and continuing on the first day of each month thereafter through the
Term Maturity Date, at which time a final principal payment of all remaining
unpaid principal and all accrued interest plus all other amounts due in
connection with the Term Advance made under this Section 2.1(c) shall be
immediately due and payable. No more than one Term Advance will be made and the
Term Advance, once repaid, may not be reborrowed. Borrower may prepay the Term
Advance prior to the Term Maturity Date without penalty or premium.
(iii) Form of Request. Whenever Borrower desires the
Term Advance, Borrower will notify Bank by facsimile transmission or telephone
no later than 3:00 p.m. Pacific time, on the Business Day that the Term Advance
is to be made. Such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit C.
2.2 Overadvances. If the aggregate amount of the outstanding Advances
exceeds the lesser of the Committed Revolving Line or the Borrowing Base at any
time, Borrower shall immediately pay to Bank, in cash, the amount of such
excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b),
the Advances shall bear interest, on the outstanding daily balance thereof, at a
variable rate equal to 1.50% above the Prime Rate.
(ii) Term Advance. Except as set forth in Section
2.3(b), the Term Advance shall bear interest, on the outstanding daily balance
thereof, at a rate equal to the Prime Rate.
(b) Late Fee; Default Rate. If any payment is not made within ten
days after the date such payment is due, Borrower shall pay Bank a late fee
equal to the lesser of (i) 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 occurrence and during the continuance of
an Event of Default, at a rate equal to five percentage points above the
interest rate applicable immediately prior to the occurrence of the Event of
Default.
(c) Payments. Interest hereunder shall be due and payable on the
first 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 Revolving
Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. 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) Computtion. 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 the day the Prime Rate is changed, by an amount
equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed.
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Comerica Bank - California - Loan and Security Agreement Page 2
2.4 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, except that
to the extent Borrower uses the Advances to purchase Collateral, Borrower's
repayment of the Advances shall apply on a "first-in-first-out" basis so that
the portion of the Advances used to purchase a particular item of Collateral
shall be paid in the chronological order the Borrower purchased the Collateral.
After the occurrence 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 Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a Facility Fee equal to
$18,750, which shall be nonrefundable;
(b) Bank Expenses. On the Closing Date, all Bank Expenses
incurred through the Closing Date, and, after the Closing Date, all Bank
Expenses, as and when they become due.
2.6 Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.8, shall continue in full force and effect for so
long as any Obligations remain outstanding or Bank has any obligation to make
Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default and Borrower shall have the right to
terminate this Agreement at any time when no Obligations remain outstanding,
following written notice to Bank.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) an officer's certificate of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
(e) a deposit account control agreement;
(f) a securities account control agreement;
(g) agreement to provide insurance;
(h) payment of the fees and Bank Expenses then due specified in
Section 2.5;
(i) current SOS Reports indicating that except for Permitted
Liens, there are no other security interests or Liens of record in the
Collateral;
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Comerica Bank - California - Loan and Security Agreement Page 3
(j) an audit of the Collateral, the results of which shall be
satisfactory to Bank;
(k) current financial statements in accordance with Section 6.2;
(l) a Warrant to purchase 50,000 shares of Borrower's Common
Stock at an exercise price of $0.46 per share on Bank's form, with a 10-year
maturity, inclusive of certain provisions to include but not be limited to
assignability to Bank's affiliates, antidilution protection and a net exercise
provision; and
(m) such other documents or certificates, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (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). The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2;
(c) the Bank must be satisfied with its review of any written
contracts with EPAM and with the Company's ownership rights in Intellectual
Property developed by EPAM for the benefit of Borrower;
(d) the Bank must be satisfied that its priority security
interest in Borrower's Intellectual Property is not adversely affected by source
code escrow agreements to which Borrower is a party; and
(e) the Bank must be satisfied with the subordination language
contained in the convertible subordinated notes issued by Borrower.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
a continuing security interest in the Collateral to secure prompt repayment of
any and all Obligations and 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 later-acquired Collateral. Notwithstanding
any termination, Bank's Lien on the Collateral shall remain in effect for so
long as any Obligations are outstanding.
4.2 Perfection of Security Interest. Borrower authorizes Bank to
file at any time financing statements, continuation statements, and amendments
thereto that describe the Collateral and to describe the Collateral as all
assets of Borrower of the kind pledged hereunder and which contain any other
information required by the Code for the sufficiency of filing office acceptance
of any financing statement, continuation statement, or amendment, including
whether Borrower is an organization, the type of organization and any
organizational identification number issued to Borrower, if applicable. Any such
financing statements may be signed by Bank on behalf of Borrower, as provided in
the Code, and may be filed at any time in any jurisdiction whether or not
Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral 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. Borrower shall have
possession of the Collateral, except where expressly otherwise provided in this
Agreement or where Bank chooses to perfect its security interest by possession
in addition to the filing of a financing statement. Where Collateral is in
possession of
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Comerica Bank - California - Loan and Security Agreement Page 4
a third party bailee, Borrower shall take such steps as Bank reasonably requests
for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to
Bank, of the bailee that the bailee holds such Collateral for the benefit of
Bank, (ii) obtain "control" of any Collateral consisting of investment property,
deposit accounts, letter-of-credit rights or electronic chattel paper (as such
items and the term "control" are defined in Revised Article 9 of the Code), with
any agreements establishing control to be in form and substance satisfactory to
Bank. Borrower will not create any chattel paper without placing a legend on the
chattel paper acceptable to Bank indicating that Bank has a security interest in
the chattel paper.
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 but no more than twice a year (unless an
Event of Default has occurred and is continuing), 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.
4.4 Pledge of Deposit Account. Borrower's prompt repayment of the
Obligations and prompt performance of Borrower's covenants and duties under the
Loan Documents shall also be secured in accordance with a pledge of one or more
certificates of deposit initially in the aggregate face amount of $500,000 to be
held by Bank. The aggregate face amount of such certificates of deposit required
to be pledged to Bank shall be adjusted on a monthly basis to reflect reductions
in the outstanding principal balance of the Term Advance.
4.5 Account Control Agreements. Upon the termination of this
Agreement, at such time as no Obligations remain outstanding, Bank shall
promptly deliver (i) to the depositee under any deposit account control
agreement entered into by Bank and Borrower pursuant to this Agreement and (ii)
to the securities intermediary under any securities account control agreement
entered into by Bank and Borrower pursuant to this Agreement, a notice
terminating Bank's rights under such control agreements.
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 under the laws of the state of its incorporation
and qualified and licensed to do business in any state in which the conduct of
its business or its ownership of property requires that it be so qualified,
except where the failure to do so would not reasonably be expected to cause 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 Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement by which it is
bound, except to the extent such default would not reasonably be expected to
cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer the
Collateral, and its title to the Collateral is free and clear of Liens, adverse
claims, and restrictions on transfer or pledge except for Permitted Liens. All
Collateral is located solely in the Collateral States. The Eligible Accounts are
bona fide existing obligations. The property or services giving rise to such
Eligible Accounts has been delivered or rendered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor whose accounts are included in any Borrowing
Base Certificate as an Eligible Account. All Inventory is in all material
respects of good and merchantable quality, free from all material defects,
except for Inventory for which adequate reserves have been made. Except as set
forth in the Schedule, none of the Collateral is maintained or invested with a
Person other than Bank or Bank's affiliates.
5.4 Intellectual Property Collateral. Borrower is the sole owner of
the Intellectual Property Collateral, except for licenses granted by Borrower to
its customers in the ordinary course of business. To the best
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Comerica Bank - California - Loan and Security Agreement Page 5
of Borrower's knowledge, each of the Copyrights, Trademarks and Patents is valid
and enforceable, and no part of the Intellectual Property Collateral has been
judged invalid or unenforceable, in whole or in part, and no claim has been made
to Borrower that any part of the Intellectual Property Collateral violates the
rights of any third party except to the extent such claim would not reasonably
be expected to cause a Material Adverse Effect. Except as set forth in the
Schedule, Borrower's rights as a licensee of intellectual property other than
licenses of software embedded within Borrower's products do not give rise to
more than 5% of its gross revenue in any given month, including without
limitation revenue derived from the sale, licensing, rendering or disposition of
any product or service.
5.5 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, and its exact legal name is as set forth
in the first paragraph of this Agreement. The chief executive office of Borrower
is located in the Chief Executive Office State at the address indicated in
Section 10 hereof.
5.6 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 a likely adverse decision would
reasonably be expected to have a Material Adverse Effect, or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.7 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
are 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.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts
(including trade debts) as they mature; the fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; and Borrower is not left with unreasonably small capital after
the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each
Subsidiary have 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 in all material
respects with all the provisions of the Federal Fair Labor Standards Act.
Borrower is in compliance with all environmental laws, regulations and
ordinances except where the failure to comply is not reasonably likely to have a
Material Adverse Effect. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed
all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein except those being
contested in good faith with adequate reserves under GAAP or where the failure
to file such returns or pay such taxes would not reasonably be expected to have
a Material Adverse Effect.
5.10 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.11 Government Consents. Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except where the failure to do so would not reasonably be expected to cause a
Material Adverse Effect.
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Comerica Bank - California - Loan and Security Agreement Page 6
5.12 Inbound Licenses. Except as disclosed on the Schedule, Borrower
is not a party to, nor is it bound by, any license or other agreement that
prohibits or otherwise restricts Borrower from granting a security interest in
Borrower's interest in such license or agreement or any other property.
5.13 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank taken
together with all such certificates and written statements furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading, it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not to be viewed as facts and that actual results during the
period or periods covered by any such projections and forecasts may differ from
the projected or forecasted results.
6. AFFIRMATIVE COVENANTS.
Borrower covenants that, until payment in full of all outstanding
Obligations, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall maintain
its and each of its Subsidiaries' corporate existence and good standing in the
Borrower State, shall maintain qualification and good standing in each
jurisdiction in which the failure to so qualify could have a Material Adverse
Effect, and shall furnish to Bank the organizational identification number
issued to Borrower by the authorities of the state in which Borrower is
organized, if applicable. 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, except where the failure to meet such
requirements would not reasonably be expected to have a Material Adverse Effect.
Borrower shall comply in all material respects with all applicable Environmental
Laws, and maintain all material permits, licenses and approvals required
thereunder where the failure to do so could have a Material Adverse Effect.
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, and shall maintain, and shall cause each of its Subsidiaries to
maintain, in force all licenses, approvals and agreements, the loss of which or
failure to comply with which would reasonably be expected to have a Material
Adverse Effect, or a material adverse effect on the Collateral or the priority
of Bank's Lien on the Collateral.
6.2 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within 25 days after
the end of each calendar month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period and year to date, in a form reasonably acceptable to Bank and certified
by a Responsible Officer; (b) within five (5) days after their being filed with
the SEC, but in any event within 95 days after the end of Borrower's fiscal
year, Borrower's Form 10-K which shall include audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an opinion which is unqualified or otherwise consented to in
writing by Bank on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (c) within five (5) days after
their being filed with the SEC, but in any event within fifty (50) days after
the end of each fiscal quarter of Borrower, Borrower's Form 10(Q); (d) within
fifteen (15) days after their being filed with the SEC or any other regulatory
agency, a copy of all documents filed with the SEC or such other regulatory
agency; (e) if applicable, 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; (f) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $50,000 or
more; (g) such budgets, sales projections, operating plans and other financial
information generally prepared by Borrower in the ordinary course of business as
Bank may reasonably request from time to time; and (h) within 30 days of the
last day of each fiscal quarter, a report signed by Borrower, in form reasonably
acceptable to Bank, listing any applications or registrations that Borrower has
made or filed in respect of any Patents, Copyrights or Trademarks and the status
of any outstanding applications or registrations, as well as any material change
in Borrower's Intellectual Property Collateral, including but not limited to any
subsequent ownership right of Borrower in or to any Trademark, Patent or
Copyright not specified in Exhibits A, B, and C of the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement.
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(a) On a bi-weekly basis and with each request for an Advance,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit D hereto, together with
aged listings of accounts receivable and accounts payable.
(b) Within 25 days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
E hereto.
(c) As soon as possible and in any event within three calendar
days after becoming aware of the occurrence or existence of an Event of Default
hereunder, a written statement of a Responsible Officer setting forth details of
the Event of Default, and the action which Borrower has taken or proposes to
take with respect thereto.
(d) Bank shall have a right from time to time hereafter to audit
Borrower's Accounts and appraise Collateral at Borrower's expense, provided that
such audits will be conducted no more often than every 6 months unless an Event
of Default has occurred and is continuing.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
merchantable condition, free from all material defects except for Inventory for
which adequate reserves have been made. 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 on the
Closing Date. Borrower shall promptly notify Bank of all returns and recoveries
and of all disputes and claims involving more than $100,000.
6.4 Taxes. Borrower shall make, and 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, including, but not
limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state
disability, and will execute and deliver to Bank, on demand, proof satisfactory
to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits and any appropriate certificates attesting to the payment or deposit
thereof; 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.
6.5 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 liability
and other insurance 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 are reasonably satisfactory to Bank. All
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, and all liability insurance policies shall show Bank as an additional
insured and specify that the insurer must give at least 20 days notice to Bank
before canceling its policy for any reason. Upon Bank's request, Borrower shall
deliver to Bank certified copies of the policies of insurance and evidence of
all premium payments. If no Event of Default has occurred and is continuing,
proceeds payable under any casualty policy will, at Borrower's option, be
payable to Borrower to replace the property subject to the claim, provided that
any such replacement property shall be deemed Collateral in which Bank has been
granted a first priority security interest. If an Event of Default has occurred
and is continuing, all proceeds payable under any such policy shall, at Bank's
option, be payable to Bank to be applied on account of the Obligations.
6.6 Primary Depository. Borrower shall maintain its primary cash
management, investment and transaction accounts with Bank or Bank's affiliates.
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Comerica Bank - California - Loan and Security Agreement Page 8
6.7 Financial Covenants. Borrower shall at all times maintain the
following financial ratios and covenants, measured as of the last day of each
calendar month unless stated otherwise:
(a) Quick Ratio. A ratio of (Quick Assets) to (Current
Liabilities (including undrawn letters of credit and credit card sublimits, if
any) plus all non-cash collateralized indebtedness to Bank minus deferred
maintenance contract revenue) of at least 1.50 to 1.00.
(b) Minimum EBITDA. Minimum EBITDA calculated on a trailing
three-month basis in the following amounts determined as of the date indicated,
10/31/02 ($1,000,000)
11/30/02 ($1,000,000)
12/31/02 ($475,000)
01/31/03 ($475,000)
02/28/03 ($475,000)
03/31/03 $250,000
04/30/03 $250,000
05/31/03 $250,000
06/30/03 and thereafter $750,000
(c) Total Liabilities Minus Convertible Subordinated Debt to
Tangible Net Worth plus Convertible Subordinated Debt. A ratio of (Total
Liabilities (including but not limited to undrawn letters of credit and credit
card sublimits, if any) minus Convertible Subordinated Debt (defined as
Subordinated Debt which by its terms is convertible into equity of Borrower)) to
(Tangible Net Worth plus Convertible Subordinated Debt) of not more than 2.25 to
1.00.
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable: (i) those intellectual property rights listed on Exhibits A, B and C
to the Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement, within 30 days of the date of this Agreement,
(ii) all other registrable intellectual property rights Borrower has developed
as of the date of this Agreement but heretofore failed to register, within 30
days of the date of this Agreement, and (iii) those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product or service, promptly following development or
acquisition or initial provision of the related service, but in any event prior
to the sale or licensing of such product or rendering of such service to any
third party, and prior to Borrower's use of such product (including without
limitation major revisions or additions which significantly improve the
functionality of the intellectual property rights listed on such Exhibits A, B
and C). Borrower shall give Bank notice of all such applications or
registrations.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use
commercially reasonable efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Bank in writing of material
infringements detected and (iii) not allow any material 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.
(d) Bank may audit Borrower's Intellectual Property Collateral to
confirm compliance with this Section 6.8, provided such audit may not occur more
often than twice per year, unless an Event of Default has occurred and is
continuing. Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section 6.8 to take but which Borrower fails to take, after 15 days'
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Comerica Bank - California - Loan and Security Agreement Page 9
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.8.
6.9 Consent of Inbound Licensors. Prior to entering into or becoming
bound by any license or agreement, Borrower shall: (i) provide written notice to
Bank of the material terms of such license or agreement with a description of
its likely impact on Borrower's business or financial condition; and (ii) in
good faith use commercially reasonable efforts to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for Borrower's
interest in such licenses or contract rights to be deemed Collateral and for
Bank to have a security interest in it that might otherwise be restricted by the
terms of the applicable license or agreement, whether now existing or entered
into in the future, provided, however, that the failure to obtain any such
consent or waiver shall not constitute a default under this Agreement.
6.10 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, 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 Credit Extensions, Borrower
will not do any of the following without Bank's prior written consent, which
shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise
dispose of (collectively, to "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than Permitted
Transfers.
7.2 Change in Name, Location or Principle Place of Business; Change
in Business; Change in Fiscal Year; Change in Control. Change its name, the
Borrower State or Borrower's principle place of business without 30 days prior
written notification to Bank; engage in any business, or permit any of its
Subsidiaries to engage in any business, other than or reasonably related or
incidental to the businesses currently engaged in by Borrower; change its fiscal
year end; have a Change in Control.
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 (other than mergers or consolidations of a Subsidiary into another
Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person except where (i) such transactions do not in the aggregate exceed
$100,000 and (ii) no Event of Default has occurred, is continuing or would exist
after giving effect to the transactions.
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness, or prepay any Indebtedness or take any
actions which impose on Borrower an obligation to prepay any Indebtedness,
except Indebtedness to Bank.
7.5 Encumbrances. Create, incur, assume or allow any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens, or covenant to any other
Person that Borrower in the future will refrain from creating, incurring,
assuming or allowing any Lien with respect to any of Borrower's property.
7.6 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, or maintain or invest any of its property with
a Person other than Bank or Bank's affiliates unless such Person has entered
into a control agreement with Bank, in form and substance satisfactory to Bank,
or suffer or permit any Subsidiary to be a party to, or be
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Comerica Bank - California - Loan and Security Agreement Page 10
bound by, an agreement that restricts such Subsidiary from paying dividends or
otherwise distributing property to Borrower.
7.7 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.8 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision affecting Bank's rights contained in any documentation relating to the
Subordinated Debt without Bank's prior written consent.
7.9 Inventory and Equipment. Store the Inventory or the Equipment with
a bailee, warehouseman, or similar third party unless the third party has been
notified of Bank's security interest and Bank (a) has received an acknowledgment
from the third party that it is holding or will hold the Inventory or Equipment
for Bank's benefit or (b) is in possession of the warehouse receipt, where
negotiable, covering such Inventory or Equipment. Except for Inventory sold in
the ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory and Equipment only at the
location set forth in Section 10 and such other locations of which Borrower
gives Bank prior written notice and as to which Bank files a financing statement
where needed to perfect its security interest.
7.10 No Investment Company. Become or be 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 Credit Extension for such purpose.
7.11 Use of Proceeds. Use the proceeds of any Advance for purposes
other than general working capital.
7.12 Leases. Enter into Leases other than those in effect on the
Closing Date if the aggregate annual payments under all such Leases taken
together exceeds $250,000.
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.
(a) If Borrower fails to pay any principal of or interest on any
Credit Extension when due; or
(b) If Borrower fails to pay any other Obligation (other than
principal of or interest on any Credit Extension) when due and such failure
continues for at least fifteen (15) days after receipt of written notice thereof
from Bank.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Article 6
(other than any obligation under Sections 6.2, 6.6 or 6.7 as to which the cure
period shall be fifteen (15) days) or violates any of the covenants contained in
Article 7 of this Agreement and such failure or violation shall continue for a
period of at least thirty (30) days after written notice thereof from Bank; or
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Comerica Bank - California - Loan and Security Agreement Page 11
(b) If Borrower fails or neglects to perform or observe any other
material term, provision, condition, covenant 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 or covenant that can be cured, has failed to cure such default within
thirty (30) days after Borrower receives notice thereof from Bank; provided,
however, that if the default cannot by its nature be cured within the thirty
(30) day period or cannot after diligent attempts by Borrower be cured within
such thirty (30) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed 30 days) to attempt to cure such default, and
within such reasonable time period the failure to have cured such default shall
not be deemed an Event of Default but no Credit Extensions will be made;
8.3 Defective Perfection. If Bank shall receive at any time following
the Closing Date an SOS Report indicating that except for Permitted Liens,
Bank's security interest in the Collateral is not prior to all other security
interests or Liens of record reflected in the report;
8.4 Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.5 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 ten 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 of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.6 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 45 days (provided that no
Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding);
8.7 Other Agreements. If there is a default or other failure to
perform 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 $100,000 or that could have a Material Adverse Effect;
8.8 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent the payment is allowed under any
subordination agreement entered into with Bank;
8.9 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least $100,000 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of 10 days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of the judgment); or
8.10 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.
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Comerica Bank - California - Loan and Security Agreement Page 12
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
8.6, 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) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter 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;
(e) Set off and apply to the Obligations any and all (i) balances
and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to
or for the credit or the account of Borrower held by Bank;
(f) 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 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) 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. Bank may sell the Collateral
without giving any warranties as to the Collateral. Bank may specifically
disclaim any warranties of title or the like. This procedure will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral. If Bank sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser. If the purchaser fails to pay
for the Collateral, Bank may resell the Collateral and Borrower shall be
credited with the proceeds of the sale;
(h) Bank may credit bid and purchase at any public sale;
(i) Apply for the appointment of a receiver, trustee, liquidator
or conservator of the Collateral, without notice and without regard to the
adequacy of the security for the Obligations and without regard to the solvency
of Borrower, any guarantor or any other Person liable for any of the
Obligations; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
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Comerica Bank - California - Loan and Security Agreement Page 13
Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.
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) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (g)
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 by amending Exhibits A, B, and C,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Borrower no longer has or claims to
have any right, title or interest; (h) 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 (i) to transfer the Intellectual Property Collateral into the name of Bank
or a third party to the extent permitted under the Code; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in clauses (g), (h) and (i) above 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. At any time after the occurrence and during
the continuation 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
after reasonable notice to Borrower: (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 6.5 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.
9.5 Bank's Liability for Collateral. Bank has no obligation to clean
up or otherwise prepare the Collateral for sale. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.
9.6 No Obligation to Pursue Others. Bank has no obligation to attempt
to satisfy the Obligations by collecting them from any other person liable for
them and Bank may release, modify or waive any collateral provided by any other
Person to secure any of the Obligations, all without affecting Bank's rights
against Borrower. Borrower waives any right it may have to require Bank to
pursue any other Person for any of the Obligations.
9.7 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
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Comerica Bank - California - Loan and Security Agreement Page 14
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. Borrower expressly agrees that this Section 9.7 may not
be waived or modified by Bank by course of performance, conduct, estoppel or
otherwise.
9.8 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: ServiceWare Technologies, Inc.
000 Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx
FAX: (000) 000-0000
With a copy to: Xxxxxx X. Xxxxxxxx, Esquire
Ellis, Funk, Xxxxxxxx, Xxxxxxxx & Dokson, P.C.
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
FAX: (000) 000-0000
If to Bank: Comerica Bank-California
0000 X. Xx Xxxxxxx Xxxx., 00xx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Manager
FAX: (000) 000-0000
With a copy to: Comerica Bank - California
Technology and Life Sciences Division
0000 Xxxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxx xx Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
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.
This Agreement 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 City of
Philadelphia, Commonwealth of Pennsylvania. BANK AND BORROWER EACH ACKNOWLEDGE
THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE
WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT,
WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL
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Comerica Bank - California - Loan and Security Agreement Page 15
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE
BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
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 and shall bind all persons who become bound as a debtor to this
Agreement; 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 Increased Costs; Increased Capital.
(a) If, due to either (i) the introduction after the date hereof
of, or any change after the date hereof in or in the interpretation of, any law
or regulation or (ii) the compliance with any guideline or request received from
any central bank or other governmental authority after the date hereof (whether
or not having the force of law), there shall be any increase in the cost to Bank
of agreeing to make or making, funding or maintaining Credit Extensions (other
than as a result of an increased capital requirement), then Borrower shall from
time to time, upon demand by Bank, pay to Bank additional amounts sufficient to
compensate Bank for such increased cost. Increased costs shall not include
income, stamp or other taxes, imposts, duties, charges, fees, deductions or
withholdings imposed, levied, collected, withheld or assessed by the United
States of America or any political subdivision or taxing authority thereof or
therein (including Puerto Rico). Bank agrees that, upon the occurrence of any
event giving rise to a demand under this Section 12.2(a), it will, to the extent
permitted by law or the relevant governmental authority, endeavor in good faith
and consistent with its internal policies to avoid or minimize the increase in
costs resulting from such event. A certificate as to the amount of and
specifying in reasonable detail the basis for such increased cost, submitted to
Borrower by Bank, shall constitute such demand.
(b) If either (i) the introduction after the date hereof of, or
any change after the date hereof in or in the interpretation of, any law or
regulation or (ii) the compliance by Bank with any guideline or request received
from any central bank or other governmental authority after the date hereof
(whether or not having the force of law), affects or would affect the amount of
capital required or expected to be maintained by Bank and Bank determines that
the amount of such capital is increased by or based upon the existence of the
Credit Extensions or its commitment hereunder, then Borrower shall, from time to
time, upon demand by Bank, pay to Bank additional amounts sufficient to
compensate Bank for increased costs associated with such capital requirement to
the extent that Bank determines such capital requirement to be allocable to the
existence of the Credit Extensions or Bank's commitment hereunder. A certificate
as to the amount of such increased cost and capital requirement and specifying
in reasonable detail the basis therefor, submitted to Borrower, shall constitute
such demand. Bank shall use all reasonable efforts to mitigate the effect upon
Borrower of any such increased capital requirement and shall assess any cost
related to such increased capital on a nondiscriminatory basis among Borrower
and other borrowers of Bank to which it applies, and Bank shall not be entitled
to demand or be compensated for any increased capital requirement unless it is,
as a result of such law, regulation, guideline or request, Bank's policy
generally to seek to exercise such rights, where available, against other
borrowers of Bank.
(c) Notwithstanding the foregoing provisions of this Section
12.2, (i) Borrower shall not be required to reimburse Bank for any increased
costs incurred more than three months prior to the date that Bank notifies
Borrower in writing thereof and (ii) in the event Bank makes an assignment of,
or grants a participation in, Bank's obligations, rights or benefits hereunder
pursuant to Section 12.1, Borrower shall not be obligated to reimburse for
increased costs to the extent that the aggregate amount thereof exceeds the
aggregate amount for which Borrower would have been obligated if Bank had not
made such assignment or granted such participation. Bank shall notify Borrower
of any increased cost or capital requirement that would entitle Bank to
compensation hereunder promptly after Bank obtains knowledge hereof.
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Comerica Bank - California - Loan and Security Agreement Page 16
(d) Borrower shall not be responsible for the payment of
increased costs under Section 12.2(a) or 12.2(b) if within thirty (30) days
after receiving Bank's demand for payment of such costs Borrower repays the
Obligations in full.
12.3 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 this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank,
its officers, employees and agents as a result of or in any way arising out of,
following, or consequential to transactions between Bank and Borrower whether
under this Agreement, or otherwise (including without limitation reasonable
attorneys fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.4 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.5 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.
12.6 Amendments in Writing, Integration. All amendments to or
terminations of this Agreement must be in writing. 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.
12.7 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.
12.8 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.3 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.9 Confidentiality. In handling any confidential information Bank
and all employees and agents of Bank shall exercise the same degree of care that
Bank 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 Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
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Comerica Bank - California - Loan and Security Agreement Page 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
SERVICEWARE TECHNOLOGIES, INC.
By:
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Title:
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COMERICA BANK - CALIFORNIA
By:
----------------------------------------------
Title:
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Comerica Bank - California - Loan and Security Agreement Page 18
EXHIBIT A
DEFINITIONS
"Accounts" means all presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to Borrower arising out of the
sale or lease of goods (including, without limitation, the licensing of software
and other technology) or the rendering of services by Borrower, whether or not
earned by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a cash advance or cash advances 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; reasonable
Collateral audit fees; and Bank's reasonable attorneys' fees and expenses
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.
"Borrower State" means Delaware, the state under whose laws Borrower is
organized.
"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.
"Borrowing Base" means an amount equal to 75% of Eligible Accounts, as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.
"Change in Control" shall mean a transaction in which any "person" or "group"
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) other than Xxxxxx Xxxxxxxxx and entities which he controls becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of a sufficient number of shares of all
classes of stock then outstanding of Borrower ordinarily entitled to vote in the
election of directors, empowering such "person" or "group" to elect a majority
of the Board of Directors of Borrower, who did not have such power before such
transaction.
"Chief Executive Office State" means Pennsylvania, where Borrower's chief
executive office is located.
"Closing Date" means the date of this Agreement.
"Code" means the Pennsylvania Uniform Commercial Code as amended or supplemented
from time to time.
"Collateral" means the property described on Exhibit B attached hereto and all
Negotiable Collateral and Intellectual Property Collateral to the extent not
described on Exhibit B, except to the extent any such property (i) is
nonassignable by its terms without the consent of the licensor thereof or
another party (but only to the extent such prohibition on transfer is
enforceable under applicable law, or (ii) the granting of a security interest
therein is contrary to applicable law, provided that upon the cessation of any
such restriction or prohibition, such property shall automatically become part
of the Collateral.
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Comerica Bank - California - Loan and Security Agreement Page 1
"Collateral State" means the state or states where the Collateral is located,
which is Pennsylvania, New Jersey and New York.
"Committed Revolving Line" means a Credit Extension of up to $2,000,000.
"Committed Term Loan Amount" means a Credit Extension of up to $500,000.
"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.
"Credit Extension" means each Advance, Term Advance, or any other extension of
credit by Bank to or for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that should, in
accordance with GAAP, be included as current assets on the consolidated balance
sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts that should,
in accordance with GAAP, be included as current liabilities on the consolidated
balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the
extent not already included therein, all outstanding Credit Extensions made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendible at the option of Borrower or any Subsidiary to a date
more than one year from the date of determination.
"EBITDA" means earnings before interest, taxes, depreciation and amortization as
determined in accordance with GAAP.
"Eligible Accounts" means those Accounts that arise in the ordinary course of
Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.3; provided, that Bank may change the
standards of eligibility by giving Borrower 30 days prior written notice. Unless
otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay in full within 90 days
of invoice date;
(b) Accounts with respect to an account debtor, 25% of whose Accounts the
account debtor has failed to pay within 90 days of invoice date;
(c) Accounts with respect to which the account debtor is an officer, employee,
or agent of Borrower;
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Comerica Bank - California - Loan and Security Agreement Page 2
(d) Accounts with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, xxxx and hold, or other terms by
reason of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an Affiliate of
Borrower;
(f) Accounts with respect to which the account debtor does not have its
principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the United States or
any department, agency, or instrumentality of the United States, except for
Accounts of the United States if the payee has assigned its payment rights
to Bank and the assignment has been acknowledged under the Assignment of
Claims Act of 1940 (31 U.S.C. 3727);
(h) Accounts with respect to which Borrower is liable to the account debtor for
goods sold or services rendered by the account debtor to Borrower, but only
to the extent of any amounts owing to the account debtor against amounts
owed to Borrower;
(i) Accounts with respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower exceed 25% of all Accounts,
to the extent such obligations exceed the aforementioned percentage, except
as approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent
of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines after inquiry
and consultation with Borrower to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the account
debtor does not have its principal place of business in the United States and
that (i) are supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank, or (ii) that
Bank approves on a case-by-case basis.
"Environmental Laws" means all laws, rules, regulations, orders and the like
issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.
"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.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles, consistently applied, 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.
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Comerica Bank - California - Loan and Security Agreement Page 3
"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 proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's right, title, and
interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property rights in
computer software and computer software products now or hereafter existing,
created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not
the obligation, to xxx for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;
(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 or
limited liability company interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes executed
by Borrower, and any other document, instrument or 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.
"Negotiable Collateral" means all of Borrower's present and future letters of
credit of which it is a beneficiary, drafts, instruments (including promissory
notes), securities, documents of title, and chattel paper, and Borrower's Books
relating to any of the foregoing.
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Comerica Bank - California - Loan and Security Agreement Page 4
"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 or
in the Borrower's financial statements delivered to Bank;
(c) Indebtedness not to exceed $150,000 in the aggregate in any fiscal year of
Borrower secured by a lien described in clause (c) of the defined term
"Permitted Liens," provided such Indebtedness does not exceed the lesser of
the cost or fair market value of the equipment financed with such
Indebtedness;
(d) Unsecured Indebtedness not to exceed $150,000 in the aggregate in any
fiscal year of Borrower;
(e) Subordinated Debt;
(f) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(g) Extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided that the principal amount is not increased or the
terms modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"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 year from the date of acquisition thereof, (ii) commercial paper
maturing no more than one year from the date of creation thereof and
currently having rating of at least A-2 or P-2 from either Standard &
Poor's Corporation or Xxxxx'x Investors Service, (iii) Bank's certificates
of deposit maturing no more than one year from the date of investment
therein, and (iv) Bank's money market accounts;
(c) Repurchases of stock from former employees or directors of Borrower under
the terms of applicable repurchase agreements (i) in an aggregate amount
not to exceed $100,000 in any fiscal year, provided that no Event of
Default has occurred, is continuing or would exist after giving effect to
the repurchases, or (ii) in any amount where the consideration for the
repurchase is the cancellation of indebtedness owed by such former
employees to Borrower regardless of whether an Event of Default exists;
(d) Investments accepted in connection with Permitted Transfers;
(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries not to exceed $100,000 in the
aggregate in any fiscal year;
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Comerica Bank - California - Loan and Security Agreement Page 5
(f) Investments consisting of (i) travel advances and employee relocation loans
and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase
of equity securities of Borrower or its Subsidiaries pursuant to employee
stock purchase plan agreements approved by Borrower's Board of Directors;
(g) 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;
(h) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates,
in the ordinary course of business, provided that this subparagraph (h)
shall not apply to Investments of Borrower in any Subsidiary; and
(i) Joint ventures or strategic alliances in the ordinary course of Borrower's
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided
that any cash Investments by Borrower do not exceed $100,000 in the
aggregate in any fiscal year.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule
(excluding Liens to be satisfied with the proceeds of the Advances) or
arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves, provided
the same have no priority over any of Bank's security interests;
(c) Liens not to exceed $150,000 in the aggregate (i) upon or in any Equipment
acquired or held by Borrower or any of its Subsidiaries to secure the
purchase price of such Equipment or indebtedness incurred solely for the
purpose of financing the acquisition 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) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a)
through (c) 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;
(e) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.5 or 8.9;
(f) Liens in favor of other financial institutions arising in connection with
Borrower's deposit accounts held at such institutions, provided that Bank
has a perfected security interest in the amounts held in such deposit
accounts; and
(g) Other Liens not described above arising in the ordinary course of business
and not having or not reasonably likely to have a Material Adverse Effect
on borrower and its Subsidiaries taken as a whole.
"Permitted Transfer" means the conveyance, sale, lease, transfer or disposition
by Borrower or any Subsidiary of:
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower
or its Subsidiaries in the ordinary course of business;
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Comerica Bank - California - Loan and Security Agreement Page 6
(c) worn-out or obsolete Equipment not financed with the proceeds of Equipment
Advances; or
(d) other assets of Borrower or its Subsidiaries which do not in the aggregate
exceed $100,000 during any fiscal year.
"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 unrestricted cash and cash equivalents plus Eligible Accounts.
"Responsible Officer" means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which Borrower may request Bank to
issue Advances, as specified in Section 2.1(b) hereof.
"Revolving Maturity Date" means October 1, 2003 unless extended in writing by
Bank.
"Schedule" means the schedule of exceptions attached hereto and approved by
Bank, if any.
"SOS Reports" means the official reports from the Secretaries of State of each
Collateral State, Chief Executive Office State and the Borrower State and other
applicable federal, state or local government offices identifying all current
security interests filed in the Collateral and Liens of record as of the date of
such report.
"Subordinated Debt" means any debt incurred by Borrower that is subordinated to
the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and
identified as being such by Borrower and Bank).
"Subsidiary" means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii) more than
50% of the stock, limited liability company interest or joint venture of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is 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, the sum of the capital stock, partnership interest or limited
liability company interest and additional paid-in capital plus retained earnings
(or minus accumulated deficit) of Borrower and its Subsidiaries minus intangible
assets, plus Subordinated Debt, on a consolidated basis determined in accordance
with GAAP.
"Term Advance" means a cash advance or cash advances under Section 2.1(c) in an
aggregate amount not to exceed the Committed Term Loan Amount.
"Term Maturity Date" means that date which is 364 days after the date of the
Term Advance.
"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.
"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 Borrower connected with
and symbolized by such trademarks.
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Comerica Bank - California - Loan and Security Agreement Page 7
DEBTOR SERVICEWARE TECHNOLOGIES, INC.
SECURED PARTY: COMERICA BANK - CALIFORNIA
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or "Debtor")
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:
(a) all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts,
documents (including negotiable documents), equipment (including all
accessions and additions thereto), general intangibles (including payment
intangibles and software), goods (including fixtures), instruments
(including promissory notes), inventory (including all goods held for sale
or lease or to be furnished under a contract of service, and including
returns and repossessions), investment property (including securities and
securities entitlements), letter of credit rights, money, and all of
Debtor's books and records with respect to any of the foregoing, and the
computers and equipment containing said books and records;
(b) all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in the
United States of America or in any foreign jurisdiction, obtained or to be
obtained on or in connection with any of the forgoing, or any parts thereof
or any underlying or component elements of any of the forgoing, together
with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Secured Party to xxx
in its own name and/or in the name of the Debtor for past, present and
future infringements of copyright;
(c) all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and all
rights to renew or extend such trademarks and the right (but not the
obligation) of Secured Party to xxx in its own name and/or in the name of
the Debtor for past, present and future infringements of trademark;
(d) all (i) patents and patent applications filed in the United States Patent
and Trademark Office or any similar office of any foreign jurisdiction, and
interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (ii)
licenses pertaining to any patent whether Debtor is licensor or licensee,
(iii) income, royalties, damages, payments, accounts and accounts
receivable now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for past,
present or future infringements thereof, (iv) right (but not the
obligation) to xxx in the name of Debtor and/or in the name of Secured
Party for past, present and future infringements thereof, (v) rights
corresponding thereto throughout the world in all jurisdictions in which
such patents have been issued or applied for, and (vi) reissues, divisions,
continuations, renewals, extensions and continuations-in-part with respect
to any of the foregoing; and
(e) any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All
terms above have the meanings given to them in the Pennsylvania Uniform
Commercial Code, as amended or supplemented from time to time.
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Comerica Bank - California - Loan and Security Agreement Page 8
EXHIBIT C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: [_____________________] DATE: ___________________________
FAX #: [_____________________] TIME: ___________________________
FROM:
CLIENT NAME ServiceWare Technologies, Inc.
REQUESTED BY: _________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: __________________________________________________________
PHONE NUMBER: __________________________________________________________________
FROM ACCOUNT # ______________________ TO ACCOUNT # _________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
$_____________________________________
PRINCIPAL INCREASE (ADVANCE) $_____________________________________
PRINCIPAL PAYMENT (ONLY) $_____________________________________
INTEREST PAYMENT (ONLY) $_____________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_____________________________________
OTHER INSTRUCTIONS: ____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and Security
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for an Advance confirmed by this Loan Payment/Advance
Telephone Request Form; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
------------------------------------------ ---------------------------------
Authorized Requester Phone #
------------------------------------------ ---------------------------------
Received By (Bank) Phone #
------------------------------------------
Authorized Signature (Bank)
9
EXHIBIT D
BORROWING BASE CERTIFICATE
________________________________________________________________________________
Borrower: ServiceWare Technologies, Inc. Lender: Comerica Bank - California
Commitment Amount: $2,000,000
________________________________________________________________________________
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 25% over 90 day accounts $___________
6. Concentration Limits
7. Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (____% of #14) $___________
BALANCES
16. Maximum Loan Amount $___________
17. Total Funds Available [Lesser of #16 or #15] $___________
18. Present balance owing on Line of Credit $___________
19. RESERVE POSITION (#17 minus #18) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set
forth in the Loan and Security Agreement between the undersigned and Comerica
Bank - California.
ServiceWare Technologies, Inc.
By:
--------------------------------------
Authorized Signer
10
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: Comerica Bank - California
FROM: ServiceWare Technologies, Inc.
The undersigned authorized officer of ServiceWare Technologies, 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, including without limitation the ongoing registration of intellectual
property rights in accordance with Section 6.8, 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
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
10K and 10Q (as applicable) Yes No
A/R & A/P Agings, Borrowing Base Cert. Monthly within 20 days Yes No
A/R Audit Initial and Annual Yes No
IP Report Quarterly within 30 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Adjusted Quick Ratio 1.5:1.00 _____:1.00 Yes No
Minimum EBITDA $________ $_________ Yes No
Total Liabilities - Convertible Subordinated 2.25:1 _____:1.00 Yes No
Debt/Tangible Net Worth and Convertible
Subordinated Debt
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by:
-----------------------------------------------------
Sincerely, AUTHORIZED SIGNER
Date:
------------------------------------------------------------
Verified:
----------------------------------------------- --------------------------------------------------------
SIGNATURE AUTHORIZED SIGNER
Date:
----------------------------------------------- ------------------------------------------------------------
TITLE
Compliance Status Yes No
-----------------------------------------------
DATE
11
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Exhibit A)
None.
Permitted Investments (Exhibit A)
Borrower may pay operating expenses (not to exceed $500,000 in any one year) and
salaries of employees of ServiceWare Limited, Borrower's wholly-owned subsidiary
formed and located in the United Kingdom.
Permitted Liens (Exhibit A)
None.
Other Collateral (Section 5.3)
Borrower maintains cash investments in deposit account number _____________ with
X.X. Xxxxxxxxx, Towbin.
Prior Names (Section 5.5)
None.
Litigation (Section 5.6)
None.
Inbound Collateral (Section 5.12)
None.
12
COMERICA BANK - CALIFORNIA
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(REVOLVER)
Name(s): ServiceWare Technologies, Inc. Date:
$ credited to deposit account No. ___________ when Advances are
requested or disbursed to Borrower by cashiers check or wire
transfer
Amounts paid to others on your behalf:
$18,750 to Comerica Bank - California for Loan Fee
$ to Comerica Bank - California for accounts receivable audit
(estimate)
$ to Bank counsel fees and expenses
$ to _______________
$ to _______________
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Comerica Bank - California to disburse the loan proceeds as
stated above.
----------------------------------- ----------------------------------------
Signature Signature
COMERICA BANK - CALIFORNIA
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(TERM LOAN)
Name(s): ServiceWare Technologies, Inc. Date:
$ credited to deposit account No. ___________ when Advances are
requested or disbursed to Borrower by cashiers check or wire
transfer
Amounts paid to others on your behalf:
$ to Comerica Bank - California for Loan Fee
$ to Comerica Bank - California for accounts receivable audit
(estimate)
$ to Bank counsel fees and expenses
$ to _______________
$ to _______________
$ TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Comerica Bank - California to disburse the loan proceeds as
stated above.
----------------------------------- ----------------------------------------
Signature Signature
AGREEMENT TO PROVIDE INSURANCE
TO: COMERICA BANK-CALIFORNIA Date: October 16, 2002
Loan Documentation Services Operations
0000 X. Xx Xxxxxxx Xxxx.
00xx Xxxxx
Xxxxxxxxx, XX 00000 Borrower: ServiceWare Technologies, Inc.
In consideration of a loan in the amount of $2,500,000 secured by all
tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force during
the term of the loan.
I/We also agree to advise the below named agent to add Comerica Bank -
California as lender's loss payable on the new or existing insurance
policy, and to furnish Bank at above address with a copy of said
policy/endorsements and any subsequent renewal policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on the
real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Comerica
Bank - California, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent Telephone No.:
Agent's Address:
Signature of Obligor:
-------------------------------------------
Signature of Obligor:
------------------------------------------
--------------------------------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:
----------------------------------
Person Spoken to:
----------------------------------------------
Policy Number:
-------------------------------------------------
Effective From: To:
------------------- -----------------------
Verified by:
---------------------------------------------------
COMERICA BANK _ CALIFORNIA
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
To: COMERICA BANK - CALIFORNIA
Re: LOAN # ___________________________________
You are hereby authorized and instructed to charge account No.
_________________________ in the name of ServiceWare Technologies, Inc.
for principal, interest and other payments due on above referenced loan as set
forth below and credit the loan referenced above.
_____ Debit each interest payment as it becomes due according to
the terms of the Loan and Security Agreement and any renewals or
amendments thereof.
_____ Debit each principal payment as it becomes due according
to the terms of the Loan and Security Agreement and any renewals or
amendments thereof.
_____ Debit each payment for Bank Expenses as it becomes due
according to the terms of the Loan and Security Agreement and any
renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
Borrower Signature Date
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