EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
INSIGHTFUL CORPORATION
AND
SILICON VALLEY BANK
MARCH 29, 2002
TABLE OF CONTENTS
PAGE
1. ACCOUNTING AND OTHER TERMS . . . . . . . . . . . . . . . . 1
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . 1
2.1 Promise to Pay.. . . . . . . . . . . . . . . . . . 1
2.2 Overadvances . . . . . . . . . . . . . . . . . . . 3
2.3 Interest Rate, Payments. . . . . . . . . . . . . . 4
2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . 4
3. CONDITIONS OF LOANS. . . . . . . . . . . . . . . . . . . . 5
3.1 Conditions Precedent to Initial Credit Extension.. 5
3.2 Conditions Precedent to all Credit Extensions. . . 5
4. CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . 5
4.1 Grant of Security Interest . . . . . . . . . . . . 5
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 6
5.1 Due Organization and Authorization . . . . . . . . 6
5.2 Collateral . . . . . . . . . . . . . . . . . . . . 6
5.3 Litigation . . . . . . . . . . . . . . . . . . . . 6
5.4 No Material Adverse Change in Financial Statements 7
5.5 Solvency . . . . . . . . . . . . . . . . . . . . . 7
5.6 Regulatory Compliance. . . . . . . . . . . . . . . 7
5.7 Subsidiaries . . . . . . . . . . . . . . . . . . . 7
5.8 Full Disclosure. . . . . . . . . . . . . . . . . . 7
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 8
6.1 Government Compliance. . . . . . . . . . . . . . . 8
6.2 Financial Statements, Reports, Certificates. . . . 8
6.3 Inventory; Returns . . . . . . . . . . . . . . . . 9
6.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . 9
6.5 Insurance. . . . . . . . . . . . . . . . . . . . . 9
6.6 Primary Accounts . . . . . . . . . . . . . . . . . 9
6.7 Financial Covenants. . . . . . . . . . . . . . . . 9
6.8 Registration of Intellectual Property Rights . . . 10
6.9 Further Assurances . . . . . . . . . . . . . . . . 10
TABLE OF CONTENTS
PAGE
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 10
7.1 Dispositions . . . . . . . . . . . . . . . . . . . 10
7.2 Changes in Business, Control or Business Locations 10
7.3 Mergers, Acquisitions, or Reincorporations . . . . 10
7.4 Indebtedness . . . . . . . . . . . . . . . . . . . 11
7.5 Encumbrance. . . . . . . . . . . . . . . . . . . . 11
7.6 Distributions; Investments . . . . . . . . . . . . 11
7.7 Transactions with Affiliates . . . . . . . . . . . 11
7.8 Subordinated Debt. . . . . . . . . . . . . . . . . 11
7.9 Compliance . . . . . . . . . . . . . . . . . . . . 11
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . 12
8.1 Payment Default. . . . . . . . . . . . . . . . . . 12
8.2 Covenant Default . . . . . . . . . . . . . . . . . 12
8.3 Material Adverse Change. . . . . . . . . . . . . . 12
8.4 Attachment . . . . . . . . . . . . . . . . . . . . 12
8.5 Insolvency . . . . . . . . . . . . . . . . . . . . 12
8.6 Other Agreements . . . . . . . . . . . . . . . . . 13
8.7 Judgments. . . . . . . . . . . . . . . . . . . . . 13
8.8 Misrepresentations . . . . . . . . . . . . . . . . 13
8.9 Guaranty . . . . . . . . . . . . . . . . . . . . . 13
9. BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . 13
9.1 Rights and Remedies. . . . . . . . . . . . . . . . 13
9.2 Power of Attorney. . . . . . . . . . . . . . . . . 14
9.3 Accounts Collection. . . . . . . . . . . . . . . . 14
9.4 Bank Expenses. . . . . . . . . . . . . . . . . . . 14
9.5 Bank's Liability for Collateral. . . . . . . . . . 15
9.6 Remedies Cumulative. . . . . . . . . . . . . . . . 15
9.7 Demand Waiver. . . . . . . . . . . . . . . . . . . 15
10. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER . . . . . . . . 15
TABLE OF CONTENTS
PAGE
12. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 16
12.1 Successors and Assigns. . . . . . . . . . . . . . 16
12.2 Indemnification . . . . . . . . . . . . . . . . . 16
12.3 Time of Essence . . . . . . . . . . . . . . . . . 16
12.4 Severability of Provision . . . . . . . . . . . . 16
12.5 Amendments in Writing, Integration. . . . . . . . 16
12.6 Counterparts. . . . . . . . . . . . . . . . . . . 16
12.7 Survival. . . . . . . . . . . . . . . . . . . . . 17
12.8 Confidentiality . . . . . . . . . . . . . . . . . 17
12.9 Attorneys' Fees, Costs and Expenses . . . . . . . 17
12.10 ORAL AGREEMENTS UNENFORCABLE . . . . . . . . . . 17
13. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 17
13.1 Definitions . . . . . . . . . . . . . . . . . . . 17
THIS LOAN AND SECURITY AGREEMENT, dated March 29, 2002, between SILICON
VALLEY BANK ("BANK"), whose address is 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx,
Xxxxxxxxxx, 00000 and INSIGHTFUL CORPORATION ("BORROWER"), whose address is 0000
Xxxxxxxx Xxxxxx X., Xxxxx 000, Xxxxxxx, Xxxxxxxxxx, 00000, provides the terms on
which Bank will lend to Borrower and Borrower will repay Bank. The parties
agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY.
Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the lesser of (A)
the Committed Revolving Line or (B) the Borrowing Base minus (ii) the
outstanding principal balance of the Advances minus (iii) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) and minus (iv) all amounts for services utilized for Cash Management
Services. Amounts borrowed under this Section may be repaid and reborrowed until
the Business Day immediately preceding the Revolving Maturity Date.
(b) To obtain an Advance, Borrower must notify Bank by facsimile
or telephone by 12:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's 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. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances are immediately due and payable.
(d) Bank's obligation to lend the undisbursed portion of the
Obligations will terminate if, in Bank's reasonable discretion, there has been a
material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) or the prospect of repayment of
the Obligations, or there has been any material adverse deviation by Borrower
from the most recent business plan of Borrower presented to and accepted by Bank
prior to the execution of this Agreement.
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(e) Subject to Sections 2.1.2 and 2.1.3, Borrower shall use the
proceeds of the Committed Revolving Line to finance its working capital
requirements.
2.1.2 LETTERS OF CREDIT SUBLIMIT.
(a) Bank will issue or have issued Letters of Credit for
Borrower's account not exceeding (i) the lesser of (A) the Committed Revolving
Line or (B) the Borrowing Base minus (ii) the outstanding principal balance of
the Advances minus (iii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) and minus (iv) all amounts
for services utilized for Cash Management Services; however, the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), together with all amounts for services utilized for Cash Management
Services, may not exceed $500,000. Each Letter of Credit will have an expiry
date of no later than 180 days after the Revolving Maturity Date, but Borrower's
reimbursement obligation will be secured by cash on terms acceptable to Bank at
any time after the Revolving Maturity Date if such Revolving Maturity Date is
not extended by Bank or if an Event of Default occurs and continues. Borrower
agrees to execute any further documentation in connection with the Letters of
Credit as Bank may reasonably request.
(b) Prior to or simultaneously with the opening of each Letter of
Credit, Borrower shall pay to Bank Bank's customary fees in connection with the
opening of a letter of credit (the "LETTER OF CREDIT FEES"). The Letter of
Credit Fees shall be paid upon the opening of each Letter of Credit and upon
each anniversary thereof, if required. In addition, Borrower shall pay to Bank,
for its own account, any and all additional issuance, negotiation, processing,
transfer or other fees to the extent and as and when required by the provisions
of any application for Letters of Credit. All Letter of Credit Fees shall be
part of the Obligations.
2.1.3 CASH MANAGEMENT SERVICES SUBLIMIT.
Borrower may use up to $500,000, minus the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit), for
Bank's Cash Management Services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in various cash management services agreements related to such services (the
"CASH MANAGEMENT SERVICES"). Such aggregate amounts utilized for Cash
Management Services will at all times reduce the amount otherwise available to
be borrowed under the Committed Revolving Line. 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 Committed Revolving Line and will
accrue interest at the rate for Advances.
2.1.4 EQUIPMENT ADVANCES.
(a) At any time from the date hereof through the Tranche A
Availability End Date or Tranche B Availability End Date, as applicable, Bank
agrees to make advances to Borrower in two tranches, Tranche A Equipment
Advances and Tranche B Equipment Advances (each an "EQUIPMENT ADVANCE" and
collectively, the "EQUIPMENT ADVANCES"). Borrower may request a Tranche A
Equipment Advance at any time from the date hereof through and until the earlier
to occur of (a) the Tranche A Availability End Date and
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(b) the termination of Bank's obligation to advance money pursuant to Section
9.1(b). Borrower may request a Tranche B Equipment Advance at any time from the
Tranche A Availability End Date through and until the earlier to occur of (a)
the Tranche B Availability End Date and (b) the termination of Bank's obligation
to advance money pursuant to Section 9.1(b). The aggregate outstanding amount of
Tranche A Equipment Advances and Tranche B Equipment Advances shall not at any
time exceed the Committed Equipment Line. The Equipment Advances may only be
used to finance or refinance Eligible Equipment purchased on or after 90 days
before the date of each Equipment Advance and may not exceed 100% of the
corresponding invoice. Notwithstanding the foregoing, Borrower may use up to 25%
of each Equipment Advance to finance transferable software licenses, leasehold
improvements and soft costs relating to Eligible Equipment (including sales tax,
shipping, warranty charges, freight and installation expenses).
(b) Interest accrues from the date of each Equipment Advance at
the rate specified in Section 2.3(a) and is payable monthly through the
Equipment Maturity Date.
(i) TRANCHE A EQUIPMENT ADVANCES. Any Tranche A Equipment
Advances that are outstanding on the Tranche A Availability End Date shall be
due and payable in 42 equal monthly installments of principal plus interest,
beginning on the first day of the month immediately following the Tranche A
Availability End Date, and continuing on the first day of each month thereafter
through the Equipment Maturity Date, at which time all amounts due in connection
with Tranche A Equipment Advances shall be immediately due and payable.
(ii) TRANCHE B EQUIPMENT ADVANCES. Any Tranche B Equipment
Advances that are outstanding on the Tranche B Availability End Date shall be
due and payable in 36 equal monthly installments of principal plus interest,
beginning on the first day of the month immediately following the Tranche B
Availability End Date, and continuing on the first day of each month thereafter
through the Equipment Maturity Date, at which time all amounts due in connection
with Tranche B Equipment Advances shall be immediately due and payable.
(c) Equipment Advances when repaid may not be reborrowed.
(d) To obtain an Equipment Advance, Borrower must notify Bank
(the notice is irrevocable) by facsimile no later than 12:00 p.m. Pacific time 1
Business Day before the day on which the Equipment Advance is to be made, unless
otherwise agreed to by Bank. The notice in the form of Exhibit B
(Payment/Advance Form) must be signed by a Responsible Officer or designee and
include a copy of the invoice for the Equipment being financed.
2.2 OVERADVANCES.
If at any time Borrower's Obligations under Section 2.1.1, 2.1.2 and 2.1.3
exceed the lesser of either (a) the Committed Revolving Line or (b) the
Borrowing Base, Borrower must immediately pay Bank the excess.
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2.3 INTEREST RATE, PAYMENTS.
(a) INTEREST RATE. Credit Extensions accrue interest on the
outstanding principal balance at a per annum rate of 1 percentage point above
the Prime Rate. After an Event of Default, Obligations accrue interest at 5
percent above the rate effective immediately before the Event of Default. The
interest rate increases or decreases when the Prime Rate changes. Interest is
computed on a 360 day year for the actual number of days elapsed.
(b) PAYMENTS. Interest due on the Advances and the Equipment
Advances is payable on the 1st of each month. Bank may debit any of Borrower's
deposit accounts including Account Number 330 028 9204 for principal and
interest payments owing or any amounts Borrower owes Bank. Bank will promptly
notify Borrower when it debits Borrower's accounts. These debits are not a
set-off. Payments received after 12:00 noon Pacific time are considered received
at the opening of business 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 accrue.
2.4 FEES.
Borrower will pay:
(a) COMMITTED REVOLVING LINE COMMITMENT FEES.
(i) A fully-earned, non-refundable fee in the amount of
$8,750 on or before the Closing Date, and a fully-earned, non-refundable fee in
the amount of $8,750 on or before each yearly anniversary of the Closing Date,
if extended.
(ii) A fee equal to the product of the average daily undrawn
portion of the Committed Revolving Line multiplied by 0.25% per annum (a)
quarterly, in arrears, on the first day of every January, April, July and
October, beginning with July 1, 2002, until the termination of the Committed
Revolving Line, and (b) on the day on which the Committed Revolving Line is paid
in full and Bank's commitment to make further Advances has expired or
terminated. Computations of such fee shall be based on a 360-day year for the
actual number of days elapsed.
(b) COMMITTED EQUIPMENT LINE COMMITMENT FEES. A fully-earned,
non-refundable fee in the amount of $3,750 on or before the Closing Date.
(c) BANK EXPENSES. All Bank Expenses (including reasonable
attorneys' fees and reasonable expenses) incurred through and after the date of
this Agreement, are payable when due.
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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
following conditions precedent:
(a) it receive the agreements, documents and fees it requires;
and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on the date of such Credit Extension that
the representations and warranties of Section 5 remain true.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligation to make each subsequent Credit Extension is subject to
the following:
(a) timely receipt of any Payment/Advance Form;
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on the date of such Credit Extension that
the representations and warranties of Section 5 remain true;
(c) receipt by Bank of proof, in form and substance satisfactory
to Bank, that all UCC-1 financing statements naming MathSoft, Inc. as the debtor
have been terminated;
(d) receipt by Bank of proof, in form and substance satisfactory
to Bank, that all Liens against Borrower's Intellectual Property have been
reconveyed or terminated; and
(e) receipt by Bank of fully-executed landlord waivers, in form
and substance satisfactory to Bank, with respect to each existing lease,
warehouse agreement or similar agreement between Borrower and any lessor of the
same.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
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Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change. Borrower has not
changed its state of formation or its organizational structure or type or any
organizational number assigned by its jurisdiction of formation.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation 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 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 and its Intellectual Property,
free of Liens except Permitted Liens. Borrower has no other deposit accounts,
other than the deposit accounts described on the Schedule. The Accounts are
bona fide, existing obligations, and the service or property has been performed
or delivered to the account debtor or its agent for immediate shipment to and
unconditional acceptance by the account debtor. The Collateral is not in the
possession of any third party bailee (such as at a warehouse). In the event
that Borrower, after the date hereof, intends to store or otherwise deliver the
Collateral to such a bailee, then Borrower will receive the prior written
consent of Bank and such bailee must acknowledge in writing that the bailee is
holding such collateral for the benefit of Bank. Borrower has no notice of any
actual or imminent Insolvency Proceeding of any account debtor whose accounts
are an Eligible Account in any Borrowing Base Certificate. All Inventory is in
all material respects of good and marketable quality, free from material
defects. Borrower is the sole owner of the Intellectual Property, except for
non-exclusive and exclusive licenses granted to its customers in the ordinary
course of business. Each issued Patent owned by Borrower is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and 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. Borrower shall not change the location of any Collateral.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any
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Subsidiary in which a likely adverse decision could reasonably be expected to
cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 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 Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material
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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
and forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an obligation
to lend, or there are outstanding Obligations:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower's business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or would reasonably
be expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but
no later than 20 days after the last day of each month, a company prepared
consolidated balance sheet and income statement (with projections to the current
quarter's end) covering Borrower's consolidated operations during the period
certified by a Responsible Officer and in a form acceptable to Bank; (ii) as
soon as available, but no later than 90 days after the last day of Borrower's
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) as soon as available, but in any event within 10 days
after filing, all reports on Forms 10-K and 10-Q filed with the Securities and
Exchange Commission, and copies of all statements, reports and notices sent or
made available generally by Borrower to its shareholders, together with a
Compliance Certificate; (iv) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; (v) budgets, sales
projections, operating plans or other financial information Bank reasonably
requests; and (vi) prompt notice of any material change in the composition of
the Intellectual Property, including any subsequent ownership right of Borrower
in or to any Copyright, Patent or Trademark, or knowledge of an event that
materially adversely affects the value of the Intellectual Property.
(b) Within 20 days after the last day of each month, Borrower
will deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in the form of Exhibit C, with aged listings (by invoice date) of
accounts receivable and accounts payable.
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(c) 20 days after the last day of each month, Borrower will
deliver to Bank a Compliance Certificate with the monthly financial statements.
(d) Borrower will allow Bank to audit Borrower's Collateral at
Borrower's expense. Such audits will be conducted no more often than every 6
months unless an Event of Default has occurred and is continuing.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $100,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and in
amounts standard for Borrower's industry, and as Bank may reasonably request.
Insurance policies will be in a form, with companies, and in amounts that are
satisfactory to Bank in Bank's reasonable discretion. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository, operating and investment
accounts with Bank.
6.7 FINANCIAL COVENANTS.
(a) NET LOSS. Borrower's Net Loss shall not exceed $1,000,000 measured
as of the last day of each quarter.
(b) MAXIMUM UNFUNDED CAPITAL EXPENDITURES. Borrower's Unfunded Capital
Expenditures shall not exceed $3,000,000 in any calendar year.
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6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will, in the exercise of its best business judgment, register with
the United States Patent and Trademark Office or the United States Copyright
Office its Intellectual Property and additional Intellectual Property rights
developed or acquired including revisions or additions with any product before
the sale or licensing of the product to any third party.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property material
to Borrower's business to be abandoned, forfeited or dedicated to the public
without Bank's written consent.
6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank reasonably requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement, including fully-executed
landlord waivers with respect to any new lease, warehouse agreement or similar
agreement between Borrower and any lessor of the same.
7. NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend or there are any outstanding Obligations:
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 Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, CONTROL OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or its Subsidiaries or
reasonably related thereto. Borrower will not have a Change in Control unless
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide Credit Extensions hereunder is terminated prior to, or
simultaneously with, such Change in Control. Borrower will not, without at
least 30 days prior written notice to Bank, change its state of formation,
relocate its chief executive office or add any new offices or business
locations.
7.3 MERGERS, ACQUISITIONS, OR REINCORPORATIONS.
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 where (i) no Event of Default has occurred
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and is continuing or would result from such action during the term of this
Agreement and (ii) such transaction would not result in a decrease of more than
25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, 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 have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
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8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after their
due date. During this additional 3-day period the failure to cure the default
is not an Event of Default (but no Credit Extension will be made during this
3-day cure period);
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7; or
If Borrower does not perform or observe any other material term, condition
or covenant in this Agreement, any Loan Documents, or in any agreement between
Borrower and Bank and as to any default under a term, condition or covenant that
can be cured, has not cured the default within 10 days after it occurs, or if
the default cannot be cured within 10 days or cannot be cured after Borrower's
attempts within 10 day period, and the default may be cured within a reasonable
time, then Borrower has an additional period (of not more than 30 days) to
attempt to cure the default. During the additional time, the failure to cure the
default is not an Event of Default (but no Credit Extensions will be made during
the cure period);
8.3 MATERIAL ADVERSE CHANGE.
If there (i) occurs a material adverse change in the business, operations,
or condition (financial or otherwise) of the Borrower, or (ii) is a material
impairment of the prospect of repayment of any portion of the Obligations or
(iii) is a material impairment of the value or priority of Bank's security
interests in the Collateral;
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
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8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied) ;
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or
8.9 GUARANTY.
Any guaranty of any Obligations ceases for any reason to be in full force
or any Guarantor does not perform any obligation under any guaranty of the
Obligations, or any material misrepresentation or material misstatement exists
now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to
any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but
if an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's
benefit under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, on terms and in any order that Bank considers
advisable;
(d) Make any payments and do any acts it considers necessary
or reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires 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,
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purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any
of Bank's rights or remedies;
(e) Apply to the Obligations 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;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is 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;
and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's
name on any checks or other forms of payment or security; (ii) sign Borrower's
name on any invoice or xxxx of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney 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. Bank's
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 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then
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applicable rate and secured by the Collateral. No payments by Bank are deemed an
agreement to make similar payments in the future or Bank's waiver of any Event
of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices and the Code, it is not
liable 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 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
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 or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by facsimile to the addresses set forth at the beginning of this
Agreement. A party may change its notice address by giving the other party
written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Washington 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 King County, Washington; provided, however,
that if for any reason Bank cannot avail itself of the courts in the State of
Washington, Borrower and Bank each submit to the jurisdiction of the State and
Federal courts in Santa Xxxxx County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF 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
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AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
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
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.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities 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 consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
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12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that either: (a) 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 (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.
12.10 ORAL AGREEMENTS UNENFORCABLE. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
13. DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the Committed
Revolving Line.
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"AFFILIATE" of a 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.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs and
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BORROWING BASE" is 75% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate; provided, however, that Bank
may lower the percentage of the Borrowing Base after performing an audit of
Borrower's Collateral.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CASH MANAGEMENT SERVICES" are defined in Section 2.1.3.
"CHANGE IN CONTROL" shall mean a transaction in which any "PERSON" or
"GROUP" (within the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the "BENEFICIAL OWNER" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a
sufficient number of shares of all classes of stock then outstanding of Borrower
ordinarily entitled to vote in the election of directors, empowering such
"PERSON" or "GROUP" to elect a majority of the board of directors of Borrower,
who did not have such power before such transaction.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Uniform Commercial Code, as applicable.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $1,500,000.
"COMMITTED REVOLVING LINE" is an Advance of up to $3,500,000.
"COMPLIANCE CERTIFICATE" is a Compliance Certificate signed by a
Responsible Officer in substantially the same form of Exhibit D attached hereto.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations
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from any interest rate, currency or commodity swap agreement, interest rate cap
or collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices; but "CONTINGENT OBLIGATION" does not include endorsements in
the ordinary course of business. The amount of a Contingent Obligation is the
stated or determined amount of the primary obligation for which the Contingent
Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not
exceed the maximum of the obligations under the guarantee or other support
arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Advance, Equipment Advance, Letter of Credit or
any other extension of credit by Bank for Borrower's benefit.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90
days of invoice date;
(b) Accounts for an account debtor, 50% or more of whose
Accounts have not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates,
whose total obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which (i) the account debtor does not have
its principal place of business in the United States, (ii) the account debtor is
not located in the United States or (iii) collections are made outside of the
United States;
(f) Accounts for which the account debtor is a federal
government entity or any department, agency, or instrumentality thereof;
provided, that Borrower may include such federal Accounts in an amount not to
exceed 20% of the amount outstanding under the Committed Revolving Line;
(g) Accounts for which Borrower owes the account debtor, but
only up to the amount owed (sometimes called "contra" accounts, accounts
payable, customer deposits or credit accounts);
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(h) Accounts for demonstration or promotional equipment, or
in which goods are consigned, sales guaranteed, sale or return, sale on
approval, xxxx and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's
Affiliate, officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability
or makes any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts for which Bank reasonably determines collection
to be doubtful.
"ELIGIBLE EQUIPMENT" is new and used furniture and equipment, including
computer, office, lab and test equipment, in which Bank has a first priority
perfected security interest (subject only to Permitted Liens).
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUIPMENT MATURITY DATE" is March 28, 2006.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"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 PROCEEDINGS" are proceedings 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.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
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(b) Any trade secrets and any intellectual property rights in
computer software and computer software products now or later existing, created,
acquired or held;
(c) All design rights which may be available to Borrower now
or later created, acquired or held;
(d) Any claims for damages (past, present or future) for
infringement of any of the rights above, with the right, but not the obligation,
to xxx and collect damages for use or infringement of the intellectual property
rights above.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LETTER OF CREDIT" is defined in Section 2.1.2.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, the Negative Pledge
Agreement, any note, or notes or guaranties executed by Borrower or Guarantor,
and any other present or future agreement between Borrower and/or for the
benefit of Bank in connection with this Agreement, all as amended, extended or
restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is described in Section 8.3.
"NET LOSS" shall have the same definition as used under GAAP.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"PATENTS" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
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(e) Borrower's indebtedness to Bank under this Agreement or
any other Loan Document;
(f) Indebtedness existing on the Closing Date and shown on
the Schedule;
(g) Subordinated Debt;
(h) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(i) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(j) Investments shown on the Schedule and existing on the
Closing Date; and
(k) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or its agency or any State
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from either
Standard & Poor's Corporation or Xxxxx'x Investors Service, Inc., and (iii)
Bank's certificates of deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(l) Liens existing on the Closing Date and shown on the
Schedule or arising under this Agreement or other Loan Documents;
(m) Liens for taxes, fees, assessments or other government
charges or levies, either not delinquent or being contested in good faith and
for which Borrower maintains adequate reserves on its Books, if they have no
priority over any of Bank's security interests;
(n) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements and the proceeds of the equipment;
(o) Licenses or sublicenses granted in the ordinary course of
Borrower's business and any interest or title of a licensor or under any license
or sublicense, if the licenses and sublicenses permit granting Bank a security
interest;
(p) Leases or subleases granted in the ordinary course of
Borrower's business, including in connection with Borrower's leased premises or
leased property;
(q) Liens incurred in the extension, renewal or refinancing
of the indebtedness secured by Liens described in (a) through (c), but any
extension, renewal or
22
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is March 28, 2003.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
indebtedness owed to Bank and which is reflected in a written agreement in a
manner and form acceptable to Bank and approved by Bank in writing.
"SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
"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 Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
"TRANCHE A EQUIPMENT ADVANCE" or "TRANCHE A EQUIPMENT ADVANCES" is a loan
advance (or advances) under the Committed Equipment Line in an amount not to
exceed the Committed Equipment Line.
"TRANCHE B EQUIPMENT ADVANCE" or "TRANCHE B EQUIPMENT ADVANCES" is a loan
advance (or advances) under the Committed Equipment Line in an amount not to
exceed the lesser of (a) the amount available under the Committed Equipment Line
and (b) $750,000.
23
"TRANCHE A AVAILABILITY END DATE" means September 28, 2002.
"TRANCHE B AVAILABILITY END DATE" means March 28, 2003.
"UNFUNDED CAPITAL EXPENDITURES" are purchases of fixed assets, long-term
investments, intangibles and acquisitions not funded by long-term debt.
BORROWER:
INSIGHTFUL CORPORATION
By: /S/ Xxxxxx X. Xxxxxxx
-----------------------------
Title: Vice President and CFO
-------------------------
BANK:
SILICON VALLEY BANK
By: /S/ Xxxx X. Xxxxxx
-----------------------------
Title Senior Vice President
-------------------------
24
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following, whether now owned or hereafter existing:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, payment intangibles, goodwill,
trademarks, service marks, trade styles, trade names, patents, patent
applications, leases, contracts, licenses, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, software, computer discs, computer
tapes, literature, reports, catalogs, design rights, tax and other types of
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising rights to payment of any kind,
including accounts, contract rights, royalties, license rights and all other
forms of obligations owing to Borrower arising out of the sale or lease of
goods, the licensing of technology or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
insurance (including refund) claims and proceeds, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower;
All documents (including warehouse receipts), cash, cash equivalents,
deposit accounts, securities, securities entitlements, securities accounts
(including health care insurance receivables and credit card receivables),
investment property, financial assets, letters of credit, letter of credit
rights (whether or not evidenced by a writing), certificates of deposit,
instruments, chattel paper and electronic chattel paper rights now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing;
1
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
and accessions to and proceeds thereof; and
All investment property, whether held directly or as a security
entitlement, securities account, commodity contract or a commodity account,
maintained with any securities intermediary or commodity intermediary.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyrights, copyright applications, copyright registration and like
protection in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, trademarks, service marks and applications
therefor, whether registered or not, and the goodwill of the business of
Borrower connected with and symbolized by such trademarks and service marks, any
trade secret rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; or any claims for damage by way of any past,
present and future infringement of any of the foregoing (collectively, the
"Intellectual Property"), except that the Collateral shall include the proceeds
of all the Intellectual Property, including proceeds from the sale, licensing or
other disposition of the Intellectual Property, and proceeds that are accounts,
(i.e. accounts receivable) of Borrower, or general intangibles consisting of
rights to payment, if a judicial authority (including a U.S. Bankruptcy Court)
holds that a security interest in the underlying Intellectual Property is
necessary to have a security interest in such proceeds, including accounts and
general intangibles of Borrower that are proceeds of the Intellectual Property,
then the Collateral shall automatically, and effective as of the Closing Date,
include the Intellectual Property to the extent necessary to permit perfection
of Bank's security interest in such accounts and general intangibles of Borrower
that are proceeds of the Intellectual Property.
Borrower and Bank are parties to that certain Negative Pledge Agreement,
whereby Borrower, in connection with Bank's loan or loans to Borrower, has
agreed, among other things, not to sell, transfer, assign, mortgage, pledge,
lease, grant a security interest in, or otherwise encumber (except for licenses
granted in Borrower's ordinary course of business) any of its Intellectual
Property without Bank's prior written consent.
2
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 PACIFIC TIME.
FAX TO: Date:_____________
[ ] Loan Payment:
INSIGHTFUL CORPORATION (Borrower)
From Account # _________________________ To Account # ____________________
(Deposit Account #) Loan Account #)
Principal $ ______________________________ and/or Interest $ _________________
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:
AUTHORIZED SIGNATURE: ____________________ Phone Number: _______________
[ ] LOAN ADVANCE:
COMPLETE OUTGOING WIRE REQUEST SECTION BELOW IF ALL OR A PORTION OF THE FUNDS
FROM THIS LOAN ADVANCE ARE FOR AN OUTGOING WIRE.
From Account # _________________________ To Account # ____________________
(Loan Account #) (Deposit Account #)
Amount of Advance $ _____________________
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:
AUTHORIZED SIGNATURE: ____________________ Phone Number: _______________
OUTGOING WIRE REQUEST
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE ARE TO BE
WIRED.
Deadline for same day processing is 12:00pm, PACIFIC TIME.
Beneficiary Name: _____________________ Amount of Wire: $ ________________
Beneficiary Bank: ____________________ Account Number: _________________
City and State: _____________________
Beneficiary Bank Transit (ABA) #: __ __ __ __ __ __ __ ---__ Beneficiary Bank
Code (Swift, Sort, Chip, etc.):_____
1
(FOR INTERNATIONAL WIRE ONLY)
Intermediary Bank: _______________________ Transit (ABA) #: ___________________
For Further Credit to: ___________________
Special Instruction: ____________________
By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).
Authorized Signature: _______________ 2nd Signature (If Required): ____________
Print Name/Title: ___________________ Print Name/Title: ______________________
Telephone # __________________________ Telephone # _____________________________
2
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Insightful Corporation Bank: Silicon Valley Bank
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Commitment Amount: $3,500,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _____ $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_____
5. Balance of 50% over 90 day accounts $_____
6. Credit balances over 90 days $_____
7. Concentration Limits $_____
8. Foreign Accounts $_____
9. Governmental Accounts (other than accounts $_____
permitted under the Loan Agreement)
10. Contra Accounts $_____
11. Promotion or Demo Accounts $_____
12. Intercompany/Employee Accounts $_____
13. Other (please explain on reverse) $_____
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
15. Eligible Accounts (#3 minus #14) $_________
16. LOAN VALUE OF ACCOUNTS (75% of #15) $_________
BALANCES
17. Maximum Loan Amount $_____
18. Total Funds Available [Lesser of #17 or #16] $_________
19. Present balance owing on Line of Credit $_____
20. Outstanding under Sublimits (Cash Mgmnt or $_____
LC)
21. RESERVE POSITION (#18 minus #19 and #20) $_________
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
BANK USE ONLY
---- --- ----
COMMENTS: Rec'd By: _______________
Auth. Signer
INSIGHTFUL CORPORATION Date: ___________________
Verified: _______________
By: ____________________________ Auth. Signer
Authorized Signer Date: ___________________
_________________________
1
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
000 XXXX XXXXXX, XXXXX 0000
XXXXXXX, XX 00000
FROM: INSIGHTFUL CORPORATION
The undersigned authorized officer of INSIGHTFUL CORPORATION ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer 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.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
---------------------------------- -------------------------------- --------
Monthly financial statements + CC Monthly within 20 days Yes No
Annual (Audited) FYE within 90 days Yes No
Forms 10-K and 10-Q and 10 days after delivery to SEC or Yes No
shareholder notices shareholders
A/R & A/P Agings Monthly within 20 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------------------ -------------- ------------- --------
MAINTAIN ON A QUARTERLY BASIS:
Net Loss Not to exceed $____________ Yes No
$ 1,000,000
MAINTAIN ON A YEARLY BASIS:
Unfunded Cap Ex Not to exceed $____________ Yes No
$ 3,000,000
Have there been updates to Borrower's intellectual property, if appropriate?
Yes/No
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely, BANK USE ONLY
---- --- ----
------------------------------ Rec'd By: _______________
INSIGHTFUL CORPORATION Auth. Signer
Date: ___________________
------------------------------ Verified: _______________
Signature Auth. Signer
Date: ___________________
------------------------------ Compliance Status Yes No
Title
2.
EXHIBIT 10.3
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is entered into as of March 29, 2002 (this
"Agreement"), by and between Insightful Corporation ("Borrower") and Silicon
Valley Bank ("Bank").
In connection with the Loan and Security Agreement dated as of the date
hereof between Borrower and Bank (the "Loan Agreement") and the documents
related thereto, Borrower hereby agrees as follows (all capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Loan
Agreement):
1. Except as expressly permitted under the Loan Agreement, and except
for the security interests granted under the Loan Agreement in favor of Bank,
Borrower shall not sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber any of Borrower's Intellectual Property,
including, without limitation, the following:
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protection in each work or authorship and derivative work
thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or held
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections, including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including, without limitation,
the patents and patent applications (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the right, but not the
obligation, to xxx for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights, Patents
or Trademarks and all license fees and royalties arising from such use to the
extent permitted by such license or rights;
(h) All amendments, extensions, renewals and extensions of any of the
Copyrights, Patents or Trademarks; and
(i) All proceeds and products of the foregoing, including, without
limitation, all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
Notwithstanding the foregoing, Borrower shall have the right to grant
exclusive and non-exclusive licenses of its Intellectual Property in the
ordinary course of its business.
2. Until payment in full of all outstanding Obligations, and for so
long as Bank may have any commitment to make any Credit Extensions under the
Loan Agreement, Borrower shall not, and shall not permit any Subsidiary to (i)
agree with another Person not to pledge, mortgage or otherwise encumber or
subject, or (ii) agree with another Person not to permit to exist upon or be
subjected to, any lien, security interest or charge upon, Borrower's
Intellectual Property.
3. In the event Borrower creates a Lien in favor of any Person in
violation of Section 1 hereof, then, without further act or instrument, Bank
shall be deemed to have received a security interest in Borrower's Intellectual
Property.
4. It shall be an Event of Default under the Loan Agreement if there is
a breach of any term of this Agreement.
5. Borrower hereby authorizes Bank to file a UCC-1 Financing Statement
for the purpose of reflecting the negative pledge granted hereunder.
SILICON VALLEY BANK INSIGHTFUL CORPORATION
By: /S/ Xxxx X. Xxxxxx By: /S/ Xxxxxx X. Xxxxxxx
----------------------------- ------------------------------
Printed Name: Xxxx X. Xxxxxx Printed Name: Xxxxxx X. Xxxxxxx
------------------ ---------------------
Title: Senior Vice President Title: Vice President and CFO
-------------------------- ---------------------------
2.
