EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") dated as of the
Effective Date between SILICON VALLEY BANK, a California corporation ("BANK"),
and I/OMAGIC CORPORATION, a Nevada corporation, and IOM HOLDINGS, INC., a Nevada
corporation (jointly and severally, the "BORROWER"), provides the terms on which
Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as
follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed
following GAAP. Calculations and determinations must be made following GAAP.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings set forth in Section 13. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meaning provided by the Code to the
extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY. Borrower hereby unconditionally promises to pay
Bank the outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1 REVOLVING ADVANCES.
(a) AVAILABILITY. Subject to the terms and conditions of this
Agreement and to deduction of Reserves, Bank will make Advances to Borrower,
provided that, after giving effect to such Advances, the total of the amount of
all outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), plus an amount equal to the Letter of Credit Reserves, plus the FX
Reserve, plus amounts used for Cash Management Services, and plus the
outstanding principal balance of all Advances (including any amounts used for
Cash Management Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base.
(b) STREAMLINE PERIOD. [omitted]
(c) TERMINATION; REPAYMENT. The Revolving Line terminates on
the Revolving Line Maturity Date, when the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving
Line shall be immediately due and payable.
2.1.2 LETTERS OF CREDIT SUBLIMIT.
(a) Subject to the Overall Sublimit in Section 2.1.5 below, as
part of the Revolving Line, Bank shall issue or have issued Letters of Credit
for Borrower's account, provided that, after giving effect to such Letters of
Credit, the total of the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserves, plus the FX Reserve, plus amounts used for Cash Management
Services, and plus the outstanding principal balance of any Advances (including
any amounts used for Cash Management Services) shall not exceed the lesser of
(i) the Maximum Dollar Amount, or (ii) the Borrowing Base. The aggregate amounts
utilized hereunder shall at all times reduce the amount otherwise available for
Advances under the Revolving Line. If, on the Revolving Maturity Date, there are
any outstanding Letters of Credit, then on such date Borrower shall provide to
Bank cash collateral in an amount equal to 105% of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business judgment),
to secure all of the Obligations relating to said Letters of Credit. All Letters
of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's standard
Application and Letter of Credit Agreement (the "LETTER OF CREDIT APPLICATION").
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request. Borrower further agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guaranteed by Bank and opened for Borrower's account or by Bank's
interpretations of any Letter of Credit issued by Bank for Borrower's account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, such Letters of Credit, and the Letter of Credit Application.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a Foreign Currency. If a demand for payment is made under any such
Letter of Credit, Bank shall treat such demand as an Advance to Borrower of the
equivalent of the amount thereof (plus fees and charges in connection therewith
such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing
rate of exchange in San Francisco, California, for sales of the Foreign Currency
for transfer to the country issuing such Foreign Currency.
(d) To guard against fluctuations in currency exchange rates,
upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank
shall create a reserve (the "LETTER OF CREDIT RESERVE") under the Revolving Line
in an amount equal to ten percent (10%) of the face amount of such Letter of
Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Revolving Line shall be reduced by the amount of such Letter
of Credit Reserve for as long as such Letter of Credit remains outstanding.
2.1.3 FOREIGN EXCHANGE SUBLIMIT. Subject to the Overall Sublimit in
Section 2.1.5 below, as part of the Revolving Line, Borrower may enter into
foreign exchange contracts with Bank under which Borrower commits to purchase
from or sell to Bank a specific amount of Foreign Currency (each, a "FX FORWARD
CONTRACT") on a specified date (the "SETTLEMENT DATE"); provided that, after
giving effect to such FX Forward Contracts and the FX Reserve applicable
thereto, the total of the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to the Letter of
Credit Reserves, plus the FX Reserve, plus amounts used for Cash Management
Services, and plus the outstanding principal balance of any Advances (including
any amounts used for Cash Management Services) shall not exceed the lesser of
(i) the Maximum Dollar Amount, or (ii) the Borrowing Base. FX Forward Contracts
shall have a Settlement Date of at least one (1) FX Business Day after the
contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract in a maximum aggregate amount equal to
$2,500,000 (the "FX RESERVE"). The aggregate amount of FX Forward Contracts at
any one time may not exceed ten (10) times the amount of the FX Reserve.
2.1.4 CASH MANAGEMENT SERVICES SUBLIMIT. Subject to the Overall
Sublimit in Section 2.1.5 below, Borrower may use up to $2,500,000 (the "CASH
MANAGEMENT SERVICES SUBLIMIT") of the Revolving Line for Bank's cash management
services which may include merchant services, direct deposit of payroll,
business credit card, and check cashing services identified in Bank's various
cash management services agreements (collectively, the "CASH MANAGEMENT
SERVICES"), provided that, after giving effect to such utilization, the total of
the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), plus an amount equal to the Letter of Credit
Reserves, plus the FX Reserve, plus amounts utilized for Cash Management
Services, and plus the outstanding principal balance of any Advances (including
any amounts used for Cash Management Services) shall not exceed the lesser of
(i) the Maximum Dollar Amount, or (ii) the Borrowing Base. Any amounts Bank pays
on behalf of Borrower or any amounts that are not paid by Borrower for any Cash
Management Services will be treated as Advances under the Revolving Line and
will accrue interest at the interest rate applicable to Advances.
2.1.5 OVERALL AGGREGATE SUBLIMIT. In no event shall the total amount of
(i) outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve), and (ii) the FX Reserve, and (iii) the
amount of the Revolving Line utilized for Cash Management Services, at any time
exceed $2,500,000 in the aggregate (the "Overall Sublimit").
2.2 OVERADVANCES. If at any time or for any reason the total of all
outstanding Advances and all other monetary Obligations exceeds the limitation
set forth in Section 2.1.1(a) (an "OVERADVANCE"), Borrower shall immediately pay
the amount of the excess to Bank, without notice or demand. Without limiting
Borrower's obligation to repay to Bank the amount of any Overadvance, Borrower
agrees to pay Bank interest on the outstanding amount of any Overadvance, on
demand, at the Default Rate.
2.3 PAYMENT OF INTEREST ON THE CREDIT EXTENSIONS.
(a) INTEREST RATE; ADVANCES. Subject to Section 2.3(b), the
amounts outstanding under the Revolving Line shall accrue interest at a per
annum rate equal to 1.0 percentage points above the Prime Rate, which interest
shall be payable monthly in arrears.
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(b) DEFAULT RATE. Immediately upon the occurrence and during
the continuance of an Event of Default, Obligations shall bear interest at a
rate per annum which is five percentage points above the rate which is otherwise
applicable to the Obligations (the "DEFAULT RATE"). Payment or acceptance of the
increased interest rate provided in this Section 2.3(b) is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of Bank.
(c) ADJUSTMENT TO INTEREST RATE. Changes to the interest rate
of any Credit Extension based on changes to the Prime Rate shall be effective on
the effective date of any change to the Prime Rate and to the extent of any such
change.
(d) 360-DAY YEAR. Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.
(e) DEBIT OF ACCOUNTS. Bank may debit any of Borrower's
deposit accounts, including the Designated Deposit Account, for principal and
interest payments or any other amounts Borrower owes Bank when due. These debits
shall not constitute a set-off.
(f) MINIMUM MONTHLY INTEREST. [Omitted].
(g) PAYMENT; INTEREST COMPUTATION; FLOAT CHARGE. Interest is
payable monthly on the last calendar day of each month. In computing interest on
the Obligations, all Payments received after 12:00 p.m. Pacific time on any day
shall be deemed received on the next Business Day. When a payment is due on a
day that is not a Business Day, the payment is due the next Business Day and
additional fees or interest, as applicable, shall continue to accrue. In
addition, so long as any principal or interest with respect to any Credit
Extension remains outstanding, Bank shall be entitled to charge Borrower a
"float" charge in an amount equal to two (2) Business Days interest, at the
interest rate applicable to the Advances, on all Payments received by Bank. Said
float charge is not included in interest for purposes of computing Minimum
Monthly Interest (if any) under this Agreement. The float charge for each month
shall be payable on the last day of the month. Bank shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Bank in its good faith business judgment, and Bank
may charge Borrower's Designated Deposit Account for the amount of any item of
payment which is returned to Bank unpaid.
2.4 FEES. Borrower shall pay to Bank:
(a) COMMITMENT FEE. A fully earned, non-refundable commitment
fee of $50,000, on the Effective Date; and
(b) LETTER OF CREDIT FEE. Bank's customary fees and expenses
for the issuance or renewal of Letters of Credit upon the issuance or renewal of
such Letter of Credit by Bank; and
(c) TERMINATION FEE. Subject to the terms of Section 4.1, a
termination fee; and
(d) UNUSED REVOLVING LINE FACILITY FEE. A fee (the "UNUSED
REVOLVING LINE FACILITY FEE"), which fee shall be paid monthly, in arrears, on a
calendar year basis, in an amount equal to 0.25% per annum of the average unused
portion of the Revolving Line, as determined by Bank. Borrower shall not be
entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the within Agreement, or suspension or termination of Bank's
obligation to make loans and advances hereunder, including during any Streamline
Period; and
(e) COLLATERAL MONITORING FEE. A monthly collateral monitoring
fee of $1,250, payable in arrears on the last day of each month (prorated for
any partial month at the beginning and upon termination of this Agreement); and
(f) BANK EXPENSES. All Bank Expenses (including reasonable
attorneys' fees and expenses, and expenses for documentation and negotiation of
this Agreement) incurred through and after the Effective Date, when due.
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(g) ANNIVERSARY FEE. A fully earned, non-refundable commitment
fee of $50,000, on the first anniversary of the Effective Date.
(h) GOOD FAITH DEPOSIT. Borrower has paid to Bank a deposit of
$15,000 (the "Good Faith Deposit") to initiate Bank's due diligence review
process. Any portion of the Good Faith Deposit not utilized to pay Bank Expenses
will be applied to the Commitment Fee.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. Bank's obligation
to make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:
(a) Borrower shall have delivered duly executed original
signatures to the Loan Documents to which it is a party;
(b) Borrower shall have delivered duly executed original
signatures to the Control Agreements;
(c) Borrower shall have delivered its Operating Documents and
a good standing certificate of Borrower certified by the Secretary of State of
the State of Nevada as of a date no earlier than thirty (30) days prior to the
Effective Date;
(d) Borrower shall have delivered duly executed original
signatures to the completed Borrowing Resolutions for Borrower;
(e) Borrower shall have delivered a Payment Agreement from
GMAC Commercial Finance LLC;
(f) Borrower shall have delivered evidence that (i) the Liens
securing Indebtedness owed by Borrower to GMAC Commercial Finance LLC will be
terminated and (ii) the documents and/or filings evidencing the perfection of
such Liens, including without limitation any financing statements and/or control
agreements, have or will, concurrently with the initial Credit Extension, be
terminated.
(g) Bank shall have received certified copies, dated as of a
recent date, of financing statement searches, as Bank shall request, accompanied
by written evidence (including any UCC termination statements) that the Liens
indicated in any such financing statements either constitute Permitted Liens or
have been or, in connection with the initial Credit Extension, will be
terminated or released;
(h) Borrower shall have delivered the Perfection
Certificate(s) executed by Borrower;
(i) Borrower shall have delivered the insurance policies
and/or endorsements required pursuant to Section 6.5 hereof; and
(j) Borrower shall have paid the fees and Bank Expenses then
due as specified in Section 2.4 hereof.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's obligations
to make each Credit Extension, including the initial Credit Extension, is
subject to the following:
(a) except as otherwise provided in Section 3.4, timely
receipt of an executed Payment/Advance Form;
(b) the representations and warranties in Section 5 shall be
true in all material respects on the date of the Payment/Advance Form and on the
Funding Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
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as of such date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and
(c) in Bank's sole discretion, there has not been a Material
Adverse Change.
3.3 COVENANT TO DELIVER.
Borrower agrees to deliver to Bank each item required to be delivered
to Bank under this Agreement as a condition to any Credit Extension. Borrower
expressly agrees that the extension of a Credit Extension prior to the receipt
by Bank of any such item shall not constitute a waiver by Bank of Borrower's
obligation to deliver such item, and any such extension in the absence of a
required item shall be in Bank's sole discretion.
3.4 PROCEDURES FOR BORROWING. Subject to the prior satisfaction of all
other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall
be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m.
Pacific time on the Funding Date of the Advance. Together with such
notification, Borrower must promptly deliver to Bank by electronic mail or
facsimile a completed Transaction Report executed by a Responsible Officer or
his or her designee. Bank shall credit Advances to the Designated Deposit
Account. Bank may make Advances under this Agreement based on instructions from
a Responsible Officer or his or her designee or without instructions if the
Advances are necessary to meet Obligations which have become due. Bank may rely
on any telephone notice given by a person whom Bank believes is a Responsible
Officer or designee.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants Bank, to secure
the payment and performance in full of all of the Obligations, a continuing
security interest in, and pledges to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a first
priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank's Lien under this
Agreement). If Borrower shall acquire a commercial tort claim or claims which in
the aggregate exceed $25,000, Borrower shall promptly notify Bank in a writing
signed by Borrower of the general details thereof and grant to Bank in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to Bank.
This Agreement may be terminated prior to the Revolving Maturity Date
by Borrower, effective three (3) Business Days after written notice of
termination is given to Bank or if Bank's obligation to fund Credit Extensions
terminates pursuant to the terms of Section 2.1.1(c). Notwithstanding any such
termination, Bank's lien and security interest in the Collateral shall continue
until Borrower fully satisfies its Obligations. If such termination is at
Borrower's election, Borrower shall pay to Bank, in addition to the payment of
any other expenses or fees then-owing, a termination fee in an amount equal to
1.50% of the Maximum Dollar Amount if termination occurs on or before the first
anniversary of the Effective Date, and 0.50% of the Maximum Dollar Amount if
termination occurs after the first anniversary of the Effective Date and on or
before the second anniversary of the Effective Date; provided that no
termination fee shall be charged if the credit facility hereunder is replaced
with a new facility from another division of Silicon Valley Bank. Upon payment
in full of the Obligations and at such time as Bank's obligation to make Credit
Extensions has terminated, Bank shall release its liens and security interests
in the Collateral and all rights therein shall revert to Borrower.
4.2 AUTHORIZATION TO FILE FINANCING STATEMENTS. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank's interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
5 REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each of its
Subsidiaries are duly existing and in good standing in their respective
jurisdictions of formation and are qualified and licensed to do business and are
in good standing in any jurisdiction in which the conduct of their business or
their ownership of property requires that they be qualified except where the
failure to do so could not reasonably be expected to have a Material Adverse
Change. In connection with this Agreement, Borrower has delivered to Bank a
completed certificate signed by Borrower and Guarantor, respectively, entitled
"Perfection Certificate". Borrower represents and warrants to Bank that (a)
Borrower's exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower's organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower's place of business, or,
if more than one, its chief executive office as well as Borrower's mailing
address (if different than its chief executive office); (e) Borrower (and each
of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete. If Borrower is not now a
Registered Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with Borrower's organizational
identification number.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound in which the default could reasonably be
expected to cause a Material Adverse Change.
5.2 COLLATERAL. Borrower has good title to the Collateral, free of
Liens except Permitted Liens. Borrower has no deposit account other than the
deposit accounts with Bank and deposit accounts described in the Perfection
Certificate delivered to Bank in connection herewith.
The Collateral is not in the possession of any third party bailee (such
as a warehouse). Except as hereafter disclosed to Bank in writing by Borrower,
none of the components of the Collateral shall be maintained at locations other
than as provided in the Perfection Certificate. In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any portion of the
Collateral to a bailee, then Borrower will first receive the written consent of
Bank and such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank.
All Inventory is in all material respects of good and marketable
quality (exclusive of Inventory that is obsolete or slow moving and for which
the Borrower has established sufficient reserves in accordance with GAAP), free
from material defects.
Borrower is the sole owner of its Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each Patent is valid and enforceable and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower's knowledge, no claim has been made that any part of the
Intellectual Property violates the rights of any third party except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.
Except as noted on the Perfection Certificate, Borrower is not a party
to, nor is bound by, any material license or other agreement with respect to
which Borrower is the licensee that prohibits or otherwise restricts Borrower
from granting a security interest in Borrower's interest in such license or
agreement or any other property. Borrower shall provide written notice to Bank
within thirty days of entering or becoming bound by any such license or
agreement which is reasonably likely to have a material impact on Borrower's
business or financial condition (other than over-the-counter software that is
commercially available to the public). Borrower shall take such steps as Bank
requests to obtain the consent of, or waiver by, any person whose consent or
waiver is necessary for all such licenses or contract rights to be deemed
"Collateral" and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such license or
agreement (such consent or authorization may include a licensor's agreement to a
contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.
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5.3 ACCOUNTS RECEIVABLE.
(a) For each Account with respect to which Advances are
requested, on the date each Advance is requested and made, such Account shall be
an Eligible Account, set forth in Section 13 below.
(b) All statements made and all unpaid balances appearing in
all invoices, instruments and other documents evidencing the Accounts are and
shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower's Books are genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Account shall comply in all material respects with all applicable laws and
governmental rules and regulations. Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any Account Debtor whose accounts are shown as
Eligible Accounts in any Transaction Report. To the best of Borrower's
knowledge, all signatures and endorsements on all documents, instruments, and
agreements relating to all Accounts are and will be genuine, and all such
documents, instruments and agreements are and will be legally enforceable in
accordance with their terms.
5.4 LITIGATION. There are no actions or proceedings pending or, to the
knowledge of the Responsible Officers, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than $50,000.
5.5 NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS. All consolidated
financial statements for Borrower and any of its Subsidiaries delivered to Bank
fairly present in all material respects Borrower's consolidated financial
condition and Borrower's consolidated results of operations. There has not been
any material deterioration in Borrower's consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.6 SOLVENCY. Borrower is able to pay its debts (including trade debts)
as they mature.
5.7 REGULATORY COMPLIANCE. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has complied in all material respects with the Federal
Fair Labor Standards Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could reasonably be expected to cause a Material
Adverse Change. None of Borrower's or any of its Subsidiaries' properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each of
its Subsidiaries have obtained all consents, approvals and authorizations of,
made all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted.
5.8 SUBSIDIARIES; INVESTMENTS. Borrower does not have any Subsidiaries
(other than IOM Holdings, Inc. being a Subsidiary of I/OMagic Corporation) , and
does not own any stock, partnership interest or other equity securities in any
other Person, except for Permitted Investments.
5.9 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed all required tax returns and reports, and Borrower has timely paid
all foreign, federal, state and local taxes, assessments, deposits and
contributions owed by Borrower. Borrower may defer payment of any contested
taxes, provided that Borrower (a) in good faith contests its obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies Bank in writing of the commencement of, and any material
development in, the proceedings, (c) posts bonds or takes any other steps
required to prevent the governmental authority levying such contested taxes from
obtaining a Lien upon any of the Collateral that is other than a "Permitted
Lien". Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not withdrawn from participation in, and has
not permitted partial or complete termination of, or permitted the occurrence of
any other event with respect to, any such plan which could reasonably be
expected to result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other governmental
agency.
5.10 USE OF PROCEEDS. Borrower shall use the proceeds of the Credit
Extensions solely as working capital, and to fund its general business
requirements and not for personal, family, household or agricultural purposes.
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5.11 FULL DISCLOSURE. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representations, warranties, or other statements were made,
taken together with all such written certificates and written statements given
to Bank, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 GOVERNMENT COMPLIANCE. Maintain its and all its Subsidiaries' legal
existence and good standing in their respective jurisdictions of formation and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to cause a Material Adverse Change. Borrower shall
comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could reasonably be
expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower shall provide Bank with the following:
(i) a Transaction Report weekly and at the time
of each request for an Advance;
(ii) within fifteen (15) days after the end of
each month,
(A) monthly accounts receivable agings,
aged by invoice date,
(B) monthly accounts payable agings,
aged by invoice date, and
outstanding or held check registers,
if any,
(C) monthly reconciliations of accounts
receivable agings (aged by invoice
date), transaction reports, and
general ledger,
(D) monthly perpetual inventory reports
for Inventory valued on a first-in,
first-out basis at the lower of cost
or market (in accordance with GAAP)
or such other inventory reports as
are requested by Bank in its good
faith business judgment;
(E) monthly distributor sell-thru
reports showing sales by
distributors to end users of goods
acquired by distributors from
Borrower;
(iii) as soon as available, and in any event
within thirty (30) days after the end of
each month, monthly unaudited financial
statements;
(iv) within thirty (30) days after the end of
each month a monthly Compliance Certificate
signed by a Responsible Officer, certifying
that as of the end of such month, Borrower
was in full compliance with all of the terms
and conditions of this Agreement, and
setting forth calculations showing
compliance with the financial covenants set
forth in this Agreement and such other
information as Bank shall reasonably
request, including, without limitation, a
statement that at the end of such month
there were no held checks;
(v) [omitted];
(vi) within thirty (30) days after the beginning
of each fiscal year of Borrower, (A) annual
operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming
fiscal year of Borrower, and (B) annual
financial projections for the following
fiscal year (on a quarterly basis) as
approved by Borrower's board of directors,
together with any related business forecasts
used in the preparation of such annual
financial projections; and
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(vii) as soon as available, and in any event
within 120 days following the end of
Borrower's fiscal year, annual financial
statements certified by, and with an
unqualified opinion of, independent
certified public accountants acceptable to
Bank in its good faith business judgment.
(b) At all times that Borrower is subject to the reporting
requirements under the Securities Exchange Act of 1934, as amended, within five
(5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission or a link thereto on Borrower's or another
website on the Internet.
(c) Prompt written notice of (i) any material change in the
composition of the Intellectual Property, (ii) the registration of any
Copyright, including any subsequent ownership right of Borrower in or to any
Copyright, Patent or Trademark not shown in the IP Security Agreement, or (iii)
Borrower's knowledge of an event that materially adversely affects the value of
the Intellectual Property.
6.3 ACCOUNTS RECEIVABLE.
(a) SCHEDULES AND DOCUMENTS RELATING TO ACCOUNTS. Borrower
shall deliver to Bank transaction reports and schedules of collections, as
provided in Section 6.2, on Bank's standard forms; provided, however, that
Borrower's failure to execute and deliver the same shall not affect or limit
Bank's Lien and other rights in all of Borrower's Accounts, nor shall Bank's
failure to advance or lend against a specific Account affect or limit Bank's
Lien and other rights therein. If requested by Bank, Borrower shall furnish Bank
with copies (or, at Bank's request, originals) of all contracts, orders,
invoices, and other similar documents, and all shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Accounts. In addition, Borrower
shall deliver to Bank, on its request, the originals of all instruments, chattel
paper, security agreements, guarantees and other documents and property
evidencing or securing any Accounts, in the same form as received, with all
necessary endorsements, and copies of all credit memos.
(b) DISPUTES. Borrower shall promptly notify Bank of all
disputes or claims relating to Accounts. Borrower may forgive (completely or
partially), compromise, or settle any Account for less than payment in full, or
agree to do any of the foregoing so long as (i) Borrower does so in good faith,
in a commercially reasonable manner, in the ordinary course of business, in
arm's-length transactions, and reports the same to Bank in the regular reports
provided to Bank; and (ii) no Default or Event of Default has occurred and is
continuing; and (iii) after taking into account all such discounts, settlements
and forgiveness, the total outstanding Advances will not exceed the lesser of
the Revolving Line or the Borrowing Base.
(c) COLLECTION OF ACCOUNTS. Borrower shall have the right to
collect all Accounts, unless and until a Default or an Event of Default has
occurred and is continuing. Whether or not an Event of Default has occurred and
is continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Bank, and Borrower shall immediately deliver all such payments and
proceeds to Bank in their original form, duly endorsed, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof. Bank may, in its good
faith business judgment, require that all proceeds of Accounts be deposited by
Borrower into a lockbox account, or such other "blocked account" as Bank may
specify, pursuant to a blocked account agreement in such form as Bank may
specify in its good faith business judgment.
(d) RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly (i) determine the reason for such return, (ii) issue a credit
memorandum to the Account Debtor in the appropriate amount, and (iii) provide a
copy of such credit memorandum to Bank, upon request from Bank. In the event any
attempted return occurs after the occurrence and during the continuance of any
Event of Default, Borrower shall hold the returned Inventory in trust for Bank,
and immediately notify Bank of the return of the Inventory.
(e) VERIFICATION. Bank may, from time to time, verify directly
with the respective Account Debtors the validity, amount and other matters
relating to the Accounts, either in the name of Borrower or Bank or such other
name as Bank may choose.
(f) NO LIABILITY. Bank shall not be responsible or liable for
any shortage or discrepancy in, damage to, or loss or destruction of, any goods,
the sale or other disposition of which gives rise to an Account, or for any
error, act, omission, or delay of any kind occurring in the settlement, failure
to settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Bank be
deemed to be responsible for any of Borrower's obligations under any contract or
agreement giving rise to an Account. Nothing herein shall, however, relieve Bank
from liability for its own gross negligence or willful misconduct.
-9-
6.4 REMITTANCE OF PROCEEDS. Except as otherwise provided in Section
6.3(c), Borrower shall deliver, in kind, all proceeds arising from the
disposition of any Collateral to Bank in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower, to
be applied to the Obligations pursuant to the terms of Section 9.4 hereof;
provided that, if no Default or Event of Default has occurred and is continuing,
Borrower shall not be obligated to remit to Bank the proceeds of the sale of
worn out or obsolete Equipment disposed of by Borrower in good faith in an arm's
length transaction for an aggregate purchase price of $25,000 or less (for all
such transactions in any fiscal year). Borrower agrees that it will not
commingle proceeds of Collateral with any of Borrower's other funds or property,
but will hold such proceeds separate and apart from such other funds and
property and in an express trust for Bank. Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this Agreement.
6.5 TAXES; PENSIONS. Timely file all required tax returns and reports
and timely pay all foreign, federal, state and local taxes, assessments,
deposits and contributions owed by Borrower except for deferred payment of any
taxes contested pursuant to the terms of Section 5.9 hereof, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.
6.6 ACCESS TO COLLATERAL; BOOKS AND RECORDS. At reasonable times, on
one (1) Business Day's notice (provided no notice is required if an Event of
Default has occurred and is continuing), Bank, or its agents, shall have the
right to inspect the Collateral and the right to audit and copy Borrower's
Books. The parties contemplate that such audits will be performed no more
frequently than three (3) times per year, but nothing herein restricts Bank's
right to conduct such audits more frequently if (i) Bank believes that it is
advisable to do so in Bank's good faith business judgment, or (ii) Bank believes
in good faith that a Default or Event of Default has occurred. The foregoing
inspections and audits shall be at Borrower's expense, and the charge therefor
shall be $750 per person per day (or such higher amount as shall represent
Bank's then-current standard charge for the same), plus reasonable out-of-pocket
expenses. In the event Borrower and Bank schedule an audit more than ten (10)
days in advance, and Borrower cancels or seeks to reschedules the audit with
less than ten (10) days written notice to Bank, then (without limiting any of
Bank's rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any
out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated
costs and expenses of the cancellation or rescheduling. Moreover, Bank will
conduct appraisals of Inventory by an appraiser acceptable to Bank in its
discretion, and the parties contemplate that such appraisals will be performed
no more frequently than two (2) times per year, but nothing herein restricts
Bank's right to conduct such appraisals more frequently if (i) Bank believes
that it is advisable to do so in Bank's good faith business judgment, or (ii)
Bank believes in good faith that a Default or Event of Default has occurred. The
foregoing appraisals shall be at Borrower's expense.
6.7 INSURANCE. Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower's industry and location and as
Bank may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
shall have a lender's loss payable endorsement showing Bank as an additional
lender loss payee and waive subrogation against Bank, and all liability policies
shall show, or have endorsements showing, Bank as an additional insured. All
policies (or the loss payable and additional insured endorsements) shall provide
that the insurer must give Bank at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At Bank's request,
Borrower shall deliver certified copies of policies and evidence of all premium
payments. Proceeds payable under any policy shall, at Bank's option, be payable
to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so
long as no Event of Default has occurred and is continuing, Borrower shall have
the option of applying the proceeds of any casualty policy up to $50,000, in the
aggregate, toward the replacement or repair of destroyed or damaged property;
provided that any such replaced or repaired property (i) shall be of equal or
like value as the replaced or repaired Collateral and (ii) shall be deemed
Collateral in which Bank has been granted a first priority security interest,
and (b) after the occurrence and during the continuance of an Event of Default,
all proceeds payable under such casualty policy shall, at the option of Bank, be
payable to Bank on account of the Obligations. If Borrower fails to obtain
insurance as required under this Section 6.7 or to pay any amount or furnish any
required proof of payment to third persons and Bank, Bank may make all or part
of such payment or obtain such insurance policies required in this Section 6.7,
and take any action under the policies Bank deems prudent.
-10-
6.8 OPERATING ACCOUNTS.
(a) Within forty-five (45) days of the Effective Date and at
all times thereafter, maintain its and its Subsidiaries' depository and
operating accounts and securities accounts with Bank and Bank's affiliates which
accounts shall represent at least 85% of the dollar value of Borrower's and such
Subsidiaries accounts at all financial institutions.
(b) Provide Bank five (5) days prior written notice before
establishing any Collateral Account at or with any bank or financial institution
other than Bank or its Affiliates. In addition, for each Collateral Account that
Borrower at any time maintains, Borrower shall cause the applicable bank or
financial institution (other than Bank) at or with which any Collateral Account
is maintained to execute and deliver a Control Agreement or other appropriate
instrument with respect to such Collateral Account to perfect Bank's Lien in
such Collateral Account in accordance with the terms hereunder. The provisions
of the previous sentence shall not apply to deposit accounts exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of Borrower's employees and identified to Bank by Borrower as
such.
6.9 FINANCIAL COVENANTS.
Borrower shall, on a consolidated basis, maintain at all
times, to be tested as of the last day of each CALENDAR MONTH, unless otherwise
noted, on a consolidated basis:
(a) TANGIBLE NET WORTH. A Tangible Net Worth of at least the
following:
For the month ending February 28, 2007 and each month
ending thereafter: $4,750,000 ("MINIMUM TANGIBLE NET WORTH") plus (i) 50% of all
consideration received after the date hereof for equity securities and
subordinated debt of the Borrower, plus (ii) 50% of the Borrower's net income in
each fiscal quarter ending after the date hereof. Increases in the Minimum
Tangible Net Worth based on consideration received for equity securities and
subordinated debt of the Borrower shall be effective as of the end of the month
in which such consideration is received, and shall continue effective
thereafter. Increases in the Minimum Tangible Net Worth based on net income
shall be effective on the last day of the fiscal quarter in which said net
income is realized, and shall continue effective thereafter. In no event shall
the Minimum Tangible Net Worth be decreased.
6.10 INTELLECTUAL PROPERTY RIGHTS. Borrower shall: (a) protect, defend
and maintain the validity and enforceability of its intellectual property; (b)
promptly advise Bank in writing of material infringements of its intellectual
property; and (c) not allow any intellectual property material to Borrower's
business to be abandoned, forfeited or dedicated to the public without Bank's
written consent. If Borrower decides to register any copyrights or mask works in
the United States Copyright Office, Borrower shall: (x) provide Bank with at
least fifteen (15) days prior written notice of its intent to register such
copyrights or mask works together with a copy of the application it intends to
file with the United States Copyright Office (excluding exhibits thereto); (y)
execute an intellectual property security agreement or such other documents as
Bank may reasonably request to maintain the perfection and priority of Bank's
security interest in the copyrights or mask works intended to be registered with
the United States Copyright Office; and (z) record such intellectual property
security agreement with the United States Copyright Office contemporaneously
with filing the copyright or mask work application(s) with the United States
Copyright Office. Borrower shall promptly provide to Bank a copy of the
application(s) filed with the United States Copyright Office together with
evidence of the recording of the intellectual property security agreement
necessary for Bank to maintain the perfection and priority of its security
interest in such copyrights or mask works. Borrower shall provide written notice
to Bank of any application filed by Borrower in the United States Patent and
Trademark Office for a patent or to register a trademark or service xxxx within
30 days after any such filing.
6.11 LITIGATION COOPERATION. From the date hereof and continuing
through the termination of this Agreement, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower's
books and records, to the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted by or against
Bank with respect to any Collateral or relating to Borrower.
6.12 [OMITTED].
6.13 FURTHER ASSURANCES. Borrower shall execute any further instruments
and take further action as Bank reasonably requests to perfect or continue
Bank's Lien in the Collateral or to effect the purposes of this Agreement.
-11-
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank's prior written
consent:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively, "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, except for (a) Transfers of Inventory
in the ordinary course of business; (b) Transfers of worn-out or obsolete
Equipment; and (c) Transfers consisting of Permitted Liens and Permitted
Investments.
7.2 CHANGES IN BUSINESS, MANAGEMENT, OWNERSHIP, OR BUSINESS LOCATIONS.
(a) Engage in or permit any of its Subsidiaries to engage in
any business other than the businesses currently engaged in by Borrower and such
Subsidiary, as applicable, or reasonably related thereto;
(b) liquidate or dissolve; or
(c) permit or suffer any Change in Control; or
(d) without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain assets and property of
Borrower with an aggregate value of less than $10,000), (2) change its
jurisdiction of organization, (3) change its organizational structure or type,
(4) change its legal name, or (5) change its organizational number (if any)
assigned by its jurisdiction of organization.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, except that a Subsidiary of
Borrower may merge or consolidate into another Subsidiary of Borrower or into
Borrower.
7.4 INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 ENCUMBRANCE. Create, incur, or allow any Lien on any of its
property or assets, or assign or convey any right to receive income, including
the sale of any Accounts, or permit any of its Subsidiaries to do so, except for
Permitted Liens, or permit any Collateral not to be subject to the first
priority security interest granted herein, or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Bank) with
any Person which directly or indirectly prohibits or has the effect of
prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging,
granting a security interest in or upon, or encumbering any of Borrower's or any
Subsidiary's intellectual property, except as is otherwise permitted in Section
7.1 hereof and the definition of "Permitted Lien" herein.
7.6 MAINTENANCE OF COLLATERAL ACCOUNTS. Maintain any Collateral Account
except pursuant to the terms of Section 6.8.(b) hereof.
7.7 INVESTMENTS; DISTRIBUTIONS. (a) Directly or indirectly make any
Investment other than Permitted Investments, or permit any of its Subsidiaries
to do so; or (b) pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock, provided that (i) Borrower may
convert any of its convertible securities into other securities pursuant to the
terms of such convertible securities or otherwise in exchange thereof, (ii)
Borrower may pay dividends solely in common stock; and (iii) Borrower may
repurchase the stock of former employees or consultants pursuant to stock
repurchase agreements so long as no Default or Event of Default has occurred at
the time of such repurchase and would not exist after giving effect to such
repurchase, provided such repurchase does not exceed in the aggregate of $50,000
per fiscal year.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
-12-
7.9 SUBORDINATED DEBT. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b)
amend any provision in any document relating to the Subordinated Debt which
would increase the amount thereof or the amount of any permitted payments
thereunder or adversely affect the subordination thereof to Obligations owed to
Bank.
7.10 COMPLIANCE. Become an "investment company" or a company controlled
by an "investment company", under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so; withdraw or permit
any Subsidiary to withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
present pension, profit sharing and deferred compensation plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an
"EVENT OF DEFAULT") under this Agreement:
8.1 PAYMENT DEFAULT. Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay any
other Obligations within three (3) Business Days after such Obligations are due
and payable. During the cure period, the failure to cure the payment default is
not an Event of Default (but no Credit Extension will be made during the cure
period);
8.2 COVENANT DEFAULT.
(a) Borrower fails or neglects to perform any obligation in
Sections 6.2, 6.3, 6.4, 6.6, 6.8, or 6.9, or violates any covenant in Section 7;
or
(b) Borrower fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant or agreement contained in this
Agreement or any Loan Documents, and as to any default (other than those
specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to cure the default shall not be deemed an Event of Default (but no
Credit Extensions shall be made during such cure period). Grace periods provided
under this section shall not apply, among other things, to financial covenants
or any other covenants set forth in subsection (a) above;
8.3 MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;
8.4 ATTACHMENT. (a) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in ten (10) days; (b) the
service of process upon Bank seeking to attach, by trustee or similar process,
any funds of Borrower, or any entity under control of Borrower (including a
subsidiary) on deposit with Bank; (c) Borrower is enjoined, restrained, or
prevented by court order from conducting a material part of its business; (d) a
judgment or other claim in excess of $25,000 becomes a Lien on any of Borrower's
assets; or (e) a notice of lien, levy, or assessment is filed against any of
Borrower's assets by any government agency and not paid within ten (10) days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower within ten days after the date such
events occur (but no Credit Extensions shall be made during the cure period);
-13-
8.5 INSOLVENCY. (a) Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within thirty (30) days (but no
Credit Extensions shall be made while of any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS. There is a default in any agreement to which
Borrower or any Guarantor 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 $50,000 or that could
result in a Material Adverse Change with respect to Borrower's or any Guarantor;
provided, however, that the Event of Default under this Section 8.6 caused by
the occurrence of a default under such other agreement shall be cured or waived
for purposes of this Agreement upon Bank receiving written notice from the party
asserting such default of such cure or waiver of the default under such other
agreement, if at the time of such cure or waiver under such other agreement (a)
Bank has not declared an Event of Default under this Agreement and/or exercised
any rights with respect thereto; (b) any such cure or waiver does not result in
an Event of Default under any other provision of this Agreement or any Loan
Document; and (c) in connection with any such cure or waiver under such other
agreement, the terms of any agreement with such third party are not modified or
amended in any manner which could in the good faith judgment of Bank be
materially less advantageous to Borrower or any Guarantor;
8.7 JUDGMENTS. A judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of $75,000 or more (not covered by
independent third-party insurance) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of ten (10) days after the entry
thereof (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment);
8.8 MISREPRESENTATIONS. Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Bank or to induce
Bank to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;
8.9 SUBORDINATED DEBT. A default or breach occurs under any agreement
between Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed such an agreement with Bank breaches any terms of such agreement; or
8.10 GUARANTY. (a) Any guaranty of any Obligations terminates or ceases
for any reason to be in full force and effect; (b) any Guarantor does not
perform any obligation or covenant under any guaranty of the Obligations; (c)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8. occurs with
respect to any Guarantor, or (d) the death, liquidation, winding up, or
termination of existence of any Guarantor; or (e) (i) a material impairment in
the perfection or priority of Bank's Lien in the collateral provided by
Guarantor or in the value of such collateral or (ii) a material adverse change
in the general affairs, management, results of operation, condition (financial
or otherwise) or the prospect of repayment of the Obligations occurs with
respect to any Guarantor.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. If an Event of Default has occurred and is
continuing, Bank may, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but
if an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) stop advancing money or extending credit for Borrower's
benefit under this Agreement or under any other agreement between Borrower and
Bank;
(c) demand that Borrower (i) deposit cash with Bank in an
amount equal to the aggregate amount of any Letters of Credit remaining undrawn,
as collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such amounts,
and (ii) pay in advance all Letter of Credit fees scheduled to be paid or
payable over the remaining term of any Letters of Credit;
(d) terminate any FX Forward Contracts;
-14-
(e) demand payment of, and collect any Accounts and General
Intangibles comprising Collateral, settle or adjust disputes and claims directly
with Account Debtors for amounts, on terms, and in any order that Bank considers
advisable, notify any Account Debtor or other Person owing Borrower money of
Bank's security interest in such funds, verify the amount of the same and
collect the same;
(f) make any payments and do any acts it considers necessary
or reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrower shall assemble the Collateral if Bank requests and make it
available as Bank designates. Bank may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any
of Bank's rights or remedies;
(g) apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
(h) ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby
granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower's labels, patents, copyrights, mask works, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
(i) place a "hold" on any account maintained with Bank and/or
deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;
(j) demand and receive possession of Borrower's Books; and
(k) exercise all rights and remedies available to Bank under
the Loan Documents or at law or equity, including all remedies provided under
the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 POWER OF ATTORNEY. Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower's name on any
checks or other forms of payment or security; (b) sign Borrower's name on any
invoice or xxxx of lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle,
and adjust all claims under Borrower's insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, and adverse claim in or
to the Collateral, or any judgment based thereon, or otherwise take any action
to terminate or discharge the same; and (f) transfer the Collateral into the
name of Bank or a third party as the Code permits. Borrower hereby appoints Bank
as its lawful attorney-in-fact to sign Borrower's name on any documents
necessary to perfect or continue the perfection of any security interest
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder. Bank's foregoing appointment as Borrower's attorney
in fact, and all of Bank's rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
9.3 PROTECTIVE PAYMENTS. If Borrower fails to obtain the insurance
called for by Section 6.7 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or any
other Loan Document, Bank may obtain such insurance or make such payment, and
all amounts so paid by Bank are Bank Expenses and immediately due and payable,
bearing interest at the then highest applicable rate, and secured by the
Collateral. Bank will make reasonable efforts to provide Borrower with notice of
Bank obtaining such insurance at the time it is obtained or within a reasonable
time thereafter. No payments by Bank are deemed an agreement to make similar
payments in the future or Bank's waiver of any Event of Default.
9.4 APPLICATION OF PAYMENTS AND PROCEEDS. Unless an Event of Default
has occurred and is continuing, Bank shall apply any funds in its possession,
whether from Borrower account balances, payments, or proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral,
first, to Bank Expenses, including without limitation, the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Bank in the
exercise of its rights under this Agreement; second, to the interest due upon
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any of the Obligations; and third, to the principal of the Obligations and any
applicable fees and other charges, in such order as Bank shall determine in its
sole discretion. Any surplus shall be paid to Borrower or other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any deficiency. If an
Event of Default has occurred and is continuing, Bank may apply any funds in its
possession, whether from Borrower account balances, payments, proceeds realized
as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion. Any surplus shall be paid to Borrower or other
Persons legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency. If Bank, in its good faith business judgment, directly or indirectly
enters into a deferred payment or other credit transaction with any purchaser at
any sale of Collateral, Bank shall have the option, exercisable at any time, of
either reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Bank, Bank shall not be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other Person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 NO WAIVER; REMEDIES CUMULATIVE. Bank's failure, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Bank thereafter to demand strict performance and compliance herewith or
therewith. No waiver hereunder shall be effective unless signed by Bank and then
is only effective for the specific instance and purpose for which it is given.
Bank's rights and remedies under this Agreement and the other Loan Documents are
cumulative. Bank has all rights and remedies provided under the Code, by law, or
in equity. Bank's exercise of one right or remedy is not an election, and Bank's
waiver of any Event of Default is not a continuing waiver. Bank's delay in
exercising any remedy is not a waiver, election, or acquiescence.
9.7 DEMAND WAIVER. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.
10 NOTICES
All notices, consents, requests, approvals, demands, or other
communication (collectively, "Communication"), other than Advance requests made
pursuant to Section 3.4, by any party to this Agreement or any other Loan
Document must be in writing and be delivered or sent by facsimile at the
addresses or facsimile numbers listed below. Bank or Borrower may change its
notice address by giving the other party written notice thereof. Each such
Communication shall be deemed to have been validly served, given, or delivered:
(a) upon the earlier of actual receipt and three (3) Business Days after deposit
in the U.S. mail, registered or certified mail, return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by facsimile
transmission (with such facsimile promptly confirmed by delivery of a copy by
personal delivery or United States mail as otherwise provided in this Section
10); (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid; or (d) when delivered, if hand-delivered by messenger,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated below. Advance requests made pursuant to
Section 3.4 must be in writing and may be in the form of electronic mail,
delivered to Bank by Borrower at the e-mail address of Bank provided below and
shall be deemed to have been validly served, given, or delivered when sent (with
such electronic mail promptly confirmed by delivery of a copy by personal
delivery or United States mail as otherwise provided in this Section 10). Bank
or Borrower may change its address, facsimile number, or electronic mail address
by giving the other party written notice thereof in accordance with the terms of
this Section 10.
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If to Borrower: I/OMagic Corporation and IOM Holdings, Inc.
0 Xxxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Fax: (000) 000-0000
Email: xxxxxxx@xxxxxxx.xxx
If to Bank: Silicon Valley Bank
00 Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Relationship Manager
Fax: 000-000-0000
Email: xxxxxxxxx@xxx.xxx
11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE.
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Xxxxx County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower's actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, IF THE ABOVE WAIVER OF THE RIGHT TO A TRIAL
BY JURY IS NOT ENFORCEABLE, THE PARTIES HERETO AGREE THAT ANY AND ALL DISPUTES
OR CONTROVERSIES OF ANY NATURE BETWEEN THEM ARISING AT ANY TIME SHALL BE DECIDED
BY A REFERENCE TO A PRIVATE JUDGE, MUTUALLY SELECTED BY THE PARTIES (OR, IF THEY
CANNOT AGREE, BY THE PRESIDING JUDGE OF THE SANTA XXXXX COUNTY, CALIFORNIA
SUPERIOR COURT) APPOINTED IN ACCORDANCE WITH CALIFORNIA CODE OF CIVIL PROCEDURE
SECTION 638 (OR PURSUANT TO COMPARABLE PROVISIONS OF FEDERAL LAW IF THE DISPUTE
FALLS WITHIN THE EXCLUSIVE JURISDICTION OF THE FEDERAL COURTS), SITTING WITHOUT
A JURY, IN SANTA XXXXX COUNTY, CALIFORNIA; AND THE PARTIES HEREBY SUBMIT TO THE
JURISDICTION OF SUCH COURT. THE REFERENCE PROCEEDINGS SHALL BE CONDUCTED
PURSUANT TO AND IN ACCORDANCE WITH THE PROVISIONS OF CALIFORNIA CODE OF CIVIL
PROCEDURE XX.XX. 638 THROUGH 645.1, INCLUSIVE. THE PRIVATE JUDGE SHALL HAVE THE
POWER, AMONG OTHERS, TO GRANT PROVISIONAL RELIEF, INCLUDING WITHOUT LIMITATION,
ENTERING TEMPORARY RESTRAINING ORDERS, ISSUING PRELIMINARY AND PERMANENT
INJUNCTIONS AND APPOINTING RECEIVERS. ALL SUCH PROCEEDINGS SHALL BE CLOSED TO
THE PUBLIC AND CONFIDENTIAL AND ALL RECORDS RELATING THERETO SHALL BE
PERMANENTLY SEALED. IF DURING THE COURSE OF ANY DISPUTE, A PARTY DESIRES TO SEEK
PROVISIONAL RELIEF, BUT A JUDGE HAS NOT BEEN APPOINTED AT THAT POINT PURSUANT TO
THE JUDICIAL REFERENCE PROCEDURES, THEN SUCH PARTY MAY APPLY TO THE SANTA XXXXX
COUNTY, CALIFORNIA SUPERIOR COURT FOR SUCH RELIEF. THE PROCEEDING BEFORE THE
PRIVATE JUDGE SHALL BE CONDUCTED IN THE SAME MANNER AS IT WOULD BE BEFORE A
COURT UNDER THE RULES OF EVIDENCE APPLICABLE TO JUDICIAL PROCEEDINGS. THE
PARTIES SHALL BE ENTITLED TO DISCOVERY WHICH SHALL BE CONDUCTED IN THE SAME
MANNER AS IT WOULD BE BEFORE A COURT UNDER THE RULES OF DISCOVERY APPLICABLE TO
JUDICIAL PROCEEDINGS. THE PRIVATE JUDGE SHALL OVERSEE DISCOVERY AND MAY ENFORCE
ALL DISCOVERY RULES AND ORDER APPLICABLE TO JUDICIAL PROCEEDINGS IN THE SAME
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MANNER AS A TRIAL COURT JUDGE. THE PARTIES AGREE THAT THE SELECTED OR APPOINTED
PRIVATE JUDGE SHALL HAVE THE POWER TO DECIDE ALL ISSUES IN THE ACTION OR
PROCEEDING, WHETHER OF FACT OR OF LAW, AND SHALL REPORT A STATEMENT OF DECISION
THEREON PURSUANT TO THE CALIFORNIA CODE OF CIVIL PROCEDURE SS. 644(A). NOTHING
IN THIS PARAGRAPH SHALL LIMIT THE RIGHT OF ANY PARTY AT ANY TIME TO EXERCISE
SELF-HELP REMEDIES, FORECLOSE AGAINST COLLATERAL, OR OBTAIN PROVISIONAL
REMEDIES. THE PRIVATE JUDGE SHALL ALSO DETERMINE ALL ISSUES RELATING TO THE
APPLICABILITY, INTERPRETATION, AND ENFORCEABILITY OF THIS PARAGRAPH.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement binds and is for the
benefit of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or obligations under it without Bank's prior
written consent (which may be granted or withheld in Bank's discretion). Bank
has the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights, and benefits under this Agreement and the other Loan
Documents.
12.2 INDEMNIFICATION. Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank harmless against: (a) all
obligations, demands, claims, and liabilities (collectively, "Claims") asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from,
following, or arising from transactions between Bank and Borrower (including
reasonable attorneys' fees and expenses), except for Claims and/or losses
directly caused by Bank's gross negligence or willful misconduct.
12.3 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Bank, its directors, officers, employees, agents, accountants,
attorneys, or any other Person affiliated with or representing Bank based upon,
arising from, or relating to this Loan Agreement or any other Loan Document, or
any other transaction contemplated hereby or thereby or relating hereto or
thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted
or suffered to be done by Bank, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower by the
commencement of an action or proceeding in a court of competent jurisdiction by
(a) the filing of a complaint within one year from the earlier of (i) the date
any of Borrower's officers or directors had knowledge of the first act, the
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, or (ii) the date this Agreement is terminated, and (b) the
service of a summons and complaint on an officer of Bank, or on any other person
authorized to accept service on behalf of Bank, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Bank in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other Loan
Document.
12.4 TIME OF ESSENCE. Time is of the essence for the performance of all
Obligations in this Agreement.
12.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.6 AMENDMENTS IN WRITING; INTEGRATION. All amendments to this
Agreement must be in writing signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject matter
and supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.7 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, are an original, and all taken together, constitute
one Agreement.
12.8 SURVIVAL. All covenants, representations and warranties made in
this Agreement continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement) have been satisfied. The obligation of Borrower
in Section 12.2 to indemnify Bank shall survive until the statute of limitations
with respect to all claims and causes of action with respect to which indemnity
is given to Bank shall have run.
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12.9 CONFIDENTIALITY. In handling any confidential information, Bank
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank's
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee's or
purchaser's agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank's regulators or as otherwise
required in connection with Bank's examination or audit; and (e) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES. In any action or proceeding
between Borrower and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS. As used in this Agreement, the following terms have
the following meanings:
"ACCOUNT" is any "account" as defined in the Code with such additions
to such term as may hereafter be made, and includes, without limitation, all
accounts receivable and other sums owing to Borrower.
"ACCOUNT DEBTOR" is any "account debtor" as defined in the Code with
such additions to such term as may hereafter be made.
"ADVANCE" or "ADVANCES" means an advance (or advances) under the
Revolving Line.
"AFFILIATE" of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"AGREEMENT" is defined in the preamble hereof.
"BANK" is defined in the preamble hereof.
"BANK EXPENSES" are all audit fees and expenses, costs, and expenses
(including reasonable attorneys' fees and expenses) for preparing, negotiating,
amending, administering, defending and enforcing the Loan Documents (including,
without limitation, those incurred in connection with appeals or Insolvency
Proceedings) or otherwise incurred with respect to Borrower.
"BORROWER" is defined in the preamble hereof.
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, federal and state tax returns, records regarding Borrower's assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.
"BORROWING BASE" is (a) 60% of Eligible Accounts, plus (b) the lesser
of: (I) 25% of the value of Borrower's Eligible Inventory (valued at the lower
of cost or wholesale fair market value) or (II) $3,000,000 or (III) 33% of the
Eligible Accounts, as determined by Bank from Borrower's most recent Transaction
Report; provided, however, that Bank may decrease the foregoing percentages in
its good faith business judgment based on events, conditions, contingencies, or
risks which, as determined by Bank, may adversely affect Collateral.
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"BORROWING RESOLUTIONS" are, with respect to any Person, those
resolutions adopted by such Person's Board of Directors and delivered by such
Person to Bank approving the Loan Documents to which such Person is a party and
the transactions contemplated thereby, together with a certificate executed by
its secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) sets forth the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
names of the Persons authorized to execute the Loan Documents on behalf of such
Person, together with a sample of the true signatures of such Persons, and (d)
that Bank may conclusively rely on such certificate unless and until such Person
shall have delivered to Bank a further certificate canceling or amending such
prior certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which Bank is closed.
"CASH EQUIVALENTS" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor's Ratings
Group or Xxxxx'x Investors Service, Inc., (c) Bank's certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.
"CASH MANAGEMENT SERVICES" is defined in Section 2.1.4.
"CASH MANAGEMENT SERVICES SUBLIMIT" is defined in Section 2.1.4.
"CHANGE IN CONTROL" means any event, transaction, or occurrence as a
result of which (a) any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as an amended (the
"EXCHANGE ACT")), other than a trustee or other fiduciary holding securities
under an employee benefit plan of Borrower, is or becomes a beneficial owner
(within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Borrower, representing twenty-five percent (25%) or
more of the combined voting power of Borrower's then outstanding securities
(provided, however, such percentage shall be 34% with respect to Xxxx Xxxxxxx
and 29% with respect to Steel Su); or (b) during any period of twelve
consecutive calendar months, individuals who at the beginning of such period
constituted the Board of Directors of Borrower (together with any new directors
whose election by the Board of Directors of Borrower was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office.
"CODE" is the Uniform Commercial Code, as the same may, from time to
time, be enacted and in effect in the State of California; provided, that, to
the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or Divisions
of the Code, the definition of such term contained in Article or Division 9
shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, Bank's Lien on any Collateral is governed by the
Uniform Commercial Code in effect in a jurisdiction other than the State of
California, the term "CODE" shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes on the provisions
thereof relating to such attachment, perfection, priority, or remedies and for
purposes of definitions relating to such provisions.
"COLLATERAL" is any and all properties, rights and assets of Borrower
described on EXHIBIT A.
"COLLATERAL ACCOUNT" is any Deposit Account, Securities Account, or
Commodity Account.
"COMMODITY ACCOUNT" is any "commodity account" as defined in the Code
with such additions to such term as may hereafter be made.
"COMMUNICATION" is defined in Section 10.
"COMPLIANCE CERTIFICATE" is that certain certificate in the form
attached hereto as EXHIBIT E.
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"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (a) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
"CONTROL AGREEMENT" is any control agreement entered into among the
depository institution at which Borrower maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower maintains a
Securities Account or a Commodity account, Borrower, and Bank pursuant to which
Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
"CREDIT EXTENSION" is any Advance, Letter of Credit, FX Forward
Contract, amount utilized for Cash Management Services, or any other extension
of credit by Bank for Borrower's benefit.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.3(b).
"DEFERRED REVENUE" is all amounts received or invoiced in advance of
performance under contracts and not yet recognized as revenue.
"DEPOSIT ACCOUNT" is any "deposit account" as defined in the Code with
such additions to such term as may hereafter be made.
"DESIGNATED DEPOSIT ACCOUNT" is Borrower's deposit account, account
number 3300551019, maintained with Bank.
"DOLLARS," "DOLLARS" and "$" each mean lawful money of the United
States.
"EFFECTIVE DATE" is the date Bank executes this Agreement and as
indicated on the signature page hereof.
"ELIGIBLE ACCOUNTS" are Accounts which arise in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.3. Bank reserves the right at any time and from time to time after the
Effective Date, to adjust any of the criteria set forth below and to establish
new criteria in its good faith business judgment. Unless Bank agrees otherwise
in writing, Eligible Accounts shall not include:
(a) Accounts for which the Account Debtor has not been invoiced;
(b) Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;
(c) Accounts owing from an Account Debtor, fifty percent (50%) or more
of whose Accounts have not been paid within ninety (90) days of invoice date;
(d) Credit balances over ninety (90) days from invoice date;
(e) Accounts owing from an Account Debtor, including Affiliates, whose
total obligations to Borrower exceed twenty-five (25%) of all Accounts, for the
amounts that exceed that percentage, unless Bank approves in writing;
(f) Accounts owing from an Account Debtor which does not have its
principal place of business in the United States except for Eligible Foreign
Accounts;
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(g) Accounts owing from an Account Debtor which is a federal, state or
local government entity or any department, agency, or instrumentality thereof
except for Accounts of the United States if Borrower has assigned its payment
rights to Bank and the assignment has been acknowledged under the Federal
Assignment of Claims Act of 1940, as amended;
(h) Accounts owing from an Account Debtor to the extent that Borrower
is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called "contra" accounts, accounts
payable, customer deposits or credit accounts), with the exception of customary
credits, adjustments and/or discounts given to an Account Debtor by Borrower in
the ordinary course of its business;
(i) Accounts for demonstration or promotional equipment, or in which
goods are consigned, or sold on a "sale guaranteed", "sale or return", "sale on
approval", "xxxx and hold", or other terms if Account Debtor's payment may be
conditional;
(j) Accounts for which the Account Debtor is Borrower's Affiliate,
officer, employee, or agent;
(k) Accounts in which the Account Debtor disputes liability or makes
any claim (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
(l) Accounts owing from an Account Debtor with respect to which
Borrower has received deferred revenue (but only to the extent of such deferred
revenue);
(m) Accounts for which Bank in its good faith business judgment
determines collection to be doubtful; and
(n) other Accounts Bank deems ineligible in the exercise of its good
faith business judgment.
"ELIGIBLE FOREIGN ACCOUNTS" means Accounts arising in the ordinary
course of Borrower's business from an Account Debtor that does not have its
principal place of business in the United States but are otherwise Eligible
Accounts that are (a) supported by letter(s) of credit acceptable to Bank in its
discretion; or (b) that Bank approves in writing (including Best Buy Canada and
Future Shops Canada).
"ELIGIBLE INVENTORY" means, at any time, the aggregate of Borrower's
Inventory that (a) consists of finished goods, in good, new, and salable
condition, which is not perishable, returned, consigned, obsolete, not sellable,
damaged, or defective, and is not comprised of demonstrative or custom
inventory, works in progress, packaging or shipping materials, or supplies or
goods in transit; (b) meets all applicable governmental standards; (c) has been
manufactured in compliance with the Fair Labor Standards Act; (d) is not subject
to any Liens, except the first priority Liens granted or in favor of Bank under
this Agreement or any of the other Loan Documents; (e) is located at Borrower's
principal place of business (or any location permitted under Section 7.2); and
(f) is otherwise acceptable to Bank in its good faith business judgment.
"EQUIPMENT" is all "equipment" as defined in the Code with such
additions to such term as may hereafter be made, and includes without limitation
all machinery, fixtures, goods, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EVENT OF DEFAULT" is defined in Section 8.
"FOREIGN CURRENCY" means lawful money of a country other than the
United States.
"FUNDING DATE" is any date on which a Credit Extension is made to or on
account of Borrower which shall be a Business Day.
"FX BUSINESS DAY" is any day when (a) Bank's Foreign Exchange
Department is conducting its normal business and (b) the Foreign Currency being
purchased or sold by Borrower is available to Bank from the entity from which
Bank shall buy or sell such Foreign Currency.
-22-
"FX FORWARD CONTRACT" is defined in Section 2.1.3.
"FX RESERVE" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"GENERAL INTANGIBLES" is all "general intangibles" as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation, all copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, any trade secret
rights, including any rights to unpatented inventions, payment intangibles,
royalties, contract rights, goodwill, franchise agreements, purchase orders,
customer lists, route lists, telephone numbers, domain names, claims, income and
other tax refunds, security and other deposits, options to purchase or sell real
or personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.
"GUARANTOR" is any present or future guarantor of the Obligations.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is all "inventory" as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and
includes without limitation all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products, including
without limitation such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.
"INVESTMENT" is any beneficial ownership interest in any Person
(including stock, partnership interest or other securities), and any loan,
advance or capital contribution to any Person.
"IP AGREEMENT" is that certain Intellectual Property Security Agreement
executed and delivered by Borrower to Bank dated as of the Effective Date.
"LETTER OF CREDIT" means a standby letter of credit issued by Bank or
another institution based upon an application, guarantee, indemnity or similar
agreement on the part of Bank as set forth in Section 2.1.2.
"LETTER OF CREDIT APPLICATION" is defined in Section 2.1.2(a).
"LETTER OF CREDIT RESERVE" has the meaning set forth in Section
2.1.2(d).
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, the Perfection
Certificate, the IP Agreement, the Subordination Agreement, any note, or notes
or guaranties executed by Borrower or any Guarantor, and any other present or
future agreement between Borrower or any Guarantor and/or for the benefit of
Bank in connection with this Agreement, all as amended, restated, or otherwise
modified.
-23-
"MATERIAL ADVERSE CHANGE" is (a) a material impairment in the
perfection or priority of Bank's Lien in the Collateral or in the value of such
Collateral; (b) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; or (c) a material impairment of
the prospect of repayment of any portion of the Obligations or (d) Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
"MAXIMUM DOLLAR AMOUNT" is $10,000,000.
"OBLIGATIONS" are Borrower's obligation to pay when due any debts,
principal, interest, Bank Expenses and other amounts Borrower owes Bank now or
later, whether under this Agreement, the Loan Documents, or otherwise,
including, without limitation, all obligations relating to letters of credit,
cash management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and the performance of Borrower's
duties under the Loan Documents.
"OPERATING DOCUMENTS" are, for any Person, such Person's formation
documents, as certified with the Secretary of State of such Person's state of
formation on a date that is no earlier than 30 days prior to the Effective Date,
and, (a) if such Person is a corporation, its bylaws in current form, (b) if
such Person is a limited liability company, its limited liability company
agreement (or similar agreement), and (c) if such Person is a partnership, its
partnership agreement (or similar agreement), each of the foregoing with all
current amendments or modifications thereto.
"PERFECTION CERTIFICATE" is defined in Section 5.1.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's Indebtedness to Bank under this Agreement and the other
Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the
Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;
-24-
(f) Indebtedness secured by Permitted Liens;
(g) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Perfection Certificate and existing on the
Effective Date;
(b) Cash Equivalents;
(c) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
Borrower;
(d) Investments consisting of deposit accounts in which Bank has a
perfected security interest;
(e) Investments accepted in connection with Transfers permitted by
Section 7.1;
(f) Investments of Subsidiaries in or to other Subsidiaries or Borrower
and Investments by Borrower in Subsidiaries not to exceed $50,000 in the
aggregate in any fiscal year;
(g) 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 plans or agreements approved by Borrower's Board of
Directors;
(h) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business; and
(i) 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 paragraph shall not apply
to Investments of Borrower in any Subsidiary.
"PERMITTED LIENS" are:
(a) Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's Liens;
(c) purchase money Liens (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment securing no more than
$100,000 in the aggregate amount outstanding, or (ii) existing on Equipment when
acquired, IF the Lien is confined to the property and improvements and the
proceeds of the Equipment;
(d) statutory Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other Persons imposed without
action of such parties, provided, they have no priority over any of Bank's Lien
and the aggregate amount of such Liens does not at any time exceed $100,000;
(e) Liens to secure payment of workers' compensation, employment
insurance, old-age pensions, social security and other like obligations incurred
in the ordinary course of business, provided, they have no priority over any of
Bank's Liens and the aggregate amount of the Indebtedness secured by such Liens
does not at any time exceed $50,000;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary course
of business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or intellectual property) granted in the
ordinary course of Borrower's business, IF the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;
(h) non-exclusive license of intellectual property granted to third
parties in the ordinary course of business;
(i) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.4 or 8.7;
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
-25-
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"REGISTERED ORGANIZATION" is any "registered organization" as defined
in the Code with such additions to such term as may hereafter be made.
"RESERVES" means, as of any date of determination, such amounts as Bank
may from time to time establish and revise in its good faith business judgment,
reducing the amount of Advances, Letters of Credit and other Credit Extensions
which would otherwise be available to Borrower under the lending formula(s)
provided herein: (a) to reflect events, conditions, contingencies or risks
which, as determined by Bank in its good faith business judgment, do or may
adversely affect (i) the Collateral or any other property which is security for
the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower,
or (iii) the security interests and other rights of Bank in the Collateral
(including the enforceability, perfection and priority thereof); or (b) to
reflect Bank's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Guarantor to Bank is or
may have been incomplete, inaccurate or misleading in any material respect; or
(c) in respect of any state of facts which Bank determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.
"RESPONSIBLE OFFICER" is any of the Chief Executive Officer, President,
Chief Financial Officer and Controller of Borrower.
"REVOLVING LINE" is an Advance or Advances in an aggregate amount of up
to the MAXIMUM DOLLAR AMOUNT outstanding at any time.
"REVOLVING LINE MATURITY DATE" is February 2, 2009.
"SECURITIES ACCOUNT" is any "securities account" as defined in the
Code with such additions to such term as may hereafter be made.
"SETTLEMENT DATE" is defined in Section 2.1.3.
"SUBORDINATED DEBT" is indebtedness incurred by Borrower subordinated
to all of Borrower's now or hereafter indebtedness to Bank (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Bank entered into between Bank and the other creditor), on terms
acceptable to Bank.
"SUBSIDIARY" means, with respect to any Person, any Person of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by such Person or one or more Affiliates of
such Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS (a) any amounts attributable to (i)
goodwill, (ii) intangible items including unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, (iii) notes, accounts receivable
and other obligations owing to Borrower from its officers or other Affiliates,
and (iv) reserves not already deducted from assets, MINUS (b) Total Liabilities,
PLUS (c) Subordinated Debt. [check term sheet]
"TOTAL LIABILITIES" is on any day, obligations that should, under
GAAP, be classified as liabilities on Borrower's consolidated balance sheet,
including all Indebtedness, and current portion of Subordinated Debt permitted
by Bank to be paid by Borrower, but excluding all other Subordinated Debt.
"TRANSACTION REPORT" is a report in such form as Bank shall specify.
"TRANSFER" is defined in Section 7.1.
"UNUSED REVOLVING LINE FACILITY FEE" is defined in Section 2.4(d).
[Signature page follows.]
-26-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the Effective Date.
BORROWER:
I/OMAGIC CORPORATION
By: /S/ XXXXXX X. XXXXXX
--------------------------------
Name: XXXXXX X. XXXXXX
------------------------------
Title: CHIEF FINANCIAL OFFICER
-----------------------------
IOM HOLDINGS, INC.
By: /S/ XXXX XXXXXXX
--------------------------------
Name: XXXX XXXXXXX
------------------------------
Title: PRESIDENT/CEO
-----------------------------
BANK:
SILICON VALLEY BANK
By: /S/ XXXXX X. XXXXXXXX
--------------------------------
Name: XXXXX X. XXXXXXXX
------------------------------
Title: VICE PRESIDENT
-----------------------------
Effective Date: JANUARY 29, 2007
--------------------
EXHIBITS
--------
A "Collateral"
B [intentionally omitted]
C [intentionally omitted]
D [intentionally omitted]
E Compliance Certificate
F Transaction Report
[Signature page to Loan and Security Agreement]
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in and to
the following personal property:
All goods, Accounts (including health-care receivables), Equipment,
Inventory, contract rights or rights to payment of money, leases, license
agreements, franchise agreements, General Intangibles, commercial tort claims,
documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing),
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and
all Borrower's Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
1
EXHIBIT E
---------
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:
-------------------
FROM: I/OMAGIC CORPORATION AND IO MHOLDINGS, INC.
-------------------------------------------
The undersigned authorized officer of I/OMagic Corporation and IOM
Holdings, Inc. ("Borrower") certifies that under the terms and conditions of the
Loan and Security Agreement between Borrower and Bank (the "Agreement"), (1)
Borrower is in complete compliance for the period ending _______________ with
all required covenants except as noted below, (2) there are no Events of
Default, (3) all representations and warranties in the Agreement are true and
correct in all material respects on this date except as noted below; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies that
these are prepared in accordance with generally GAAP consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The undersigned acknowledges that no borrowings may be requested at
any time or date of determination that Borrower is not in compliance with any of
the terms of the Agreement, and that compliance is determined not just at the
date this certificate is delivered. Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Agreement.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
-------------------------------------------------------------------------------------------------------------------------
REPORTING COVENANT REQUIRED COMPLIES
------------------------------------------------------------- ---------------------------------------- ------------------
------------------------------------------------------------- ---------------------------------------- ------------------
Monthly financial statements with Monthly within 30 days Yes No
Compliance Certificate
------------------------------------------------------------- ---------------------------------------- ------------------
Annual financial statement (CPA Audited) + XX XXX within 120 days Yes No
------------------------------------------------------------- ---------------------------------------- ------------------
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
------------------------------------------------------------- ---------------------------------------- ------------------
A/R & A/P Agings, Reconciliations, Inventory Reports and Monthly within 15 days Yes No
Inventory Sell-Thru Reports
------------------------------------------------------------- ---------------------------------------- ------------------
Transaction Reports Weekly and with each Advance Yes No
------------------------------------------------------------- ---------------------------------------- ------------------
Budgets, Projections 30 days after beginning of Fiscal Year Yes No
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
The following Intellectual Property was registered after the Effective Date (if no registrations, state "None")
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------- --------------- --------------- -------------------
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
--------------------------------------------------------------------- --------------- --------------- -------------------
--------------------------------------------------------------------- --------------- --------------- -------------------
Maintain on a Monthly Basis:
--------------------------------------------------------------------- --------------- --------------- -------------------
Minimum Tangible Net Worth (Beginning Month Ending 2/28/07) $4.75M +50% of $_______ Yes No
new sub debt
and equity + 50%
of quarterly
net income
--------------------------------------------------------------------- --------------- --------------- -------------------
1
The following financial covenant analysis and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.
The following are the exceptions with respect to the certification
above: (If no exceptions exist, state "No exceptions to note.")
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
I/OMagic Corporation BANK USE ONLY
By: Received by:
-------------------------------- ----------------------
Name: AUTHORIZED SIGNER
------------------------------
Title: Date:
-----------------------------
IOM Holdings, Inc. Verified:
-------------------------
AUTHORIZED SIGNER
By: Date:
-------------------------------- -----------------------------
Name:
Title: Compliance Status: Yes No
-----------------------------
2
SCHEDULE 1 TO COMPLIANCE CERTIFICATE
------------------------------------
FINANCIAL COVENANTS OF BORROWER
-------------------------------
Dated: ____________________
TANGIBLE NET WORTH (Section 6.9)
Required: Beginning the month ending 2/28/07: $4,750,000 plus 50% of new equity and subordinated
debt each month plus 50% of quarterly net income
for each quarter ending after the Effective Date.
Actual:
A. Aggregate value of total assets of Borrower and its Subsidiaries $
--------
B. Aggregate value of goodwill of Borrower and its Subsidiaries $
--------
C. Aggregate value of intangible assets of Borrower and its Subsidiaries $
--------
D. Aggregate value of investments of Borrower and its Subsidiaries consisting of minority $
--------
investments in companies which investments are not publicly-traded
E. Aggregate value of any reserves not already deducted from assets $
--------
F. Aggregate value of liabilities of Borrower and its Subsidiaries
(including all Indebtedness) and current portion of Subordinated Debt
permitted by Bank to be paid by Borrower (but no other Subordinated
Debt) $
--------
G. Aggregate value of Indebtedness of Borrower subordinated to Borrower's
Indebtedness to Bank $
--------
H. Tangible Net Worth (line A minus line B minus line C minus line D minus line E minus line F $
--------
plus line G)
Is line H equal to or greater than $__________?
No, not in compliance Yes, in compliance
--------- --------
3
EXHIBIT F
---------
Transaction Report
[EXCEL spreadsheet to be provided separately]
4
