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EXHIBIT 10.8
This LOAN AND SECURITY AGREEMENT is entered into as of June 28, 1999,
by and between SILICON VALLEY BANK ("Bank") and ILX LIGHTWAVE CORPORATION
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records concerning Borrower's assets or liabilities,
the Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower, provided that,
notwithstanding the foregoing, until such time as an initial audit is completed
by Bank, the results of which are satisfactory to Bank, pursuant to Section 6.3,
"Borrowing Base" shall mean an amount equal to fifty percent (50%) of Eligible
Accounts, as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California or the State of
Colorado are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
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"Committed Revolving Line" means a credit extension of up to One
Million Five Hundred Thousand Dollars ($1,500,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or any other extension of
credit by Bank for the benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank as a
consequence of any Collateral audits done pursuant to Section 6.3 in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, xxxx and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
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(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such obligations exceed
the aforementioned percentage (the "Concentration Limit"), except as approved in
writing by Bank, provided that the Concentration Limit for each of Lucent
Technologies or Corning shall be thirty-five percent (35%) of all Accounts;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit in an amount
and of a tenor, and issued by a financial institution, acceptable to Bank, (ii)
that Bank approves on a case-by-case basis, or (iii) Accounts with respect to
which Corning, Marconi Communications, or Siemens are the account debtors
provided that the aggregate value of such accounts shall not exceed Two Hundred
Thousand Dollars ($200,000) at any given time.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means:
(l) Copyrights, Trademarks and Patents;
(m) 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;
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(n) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(o) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to xxx for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(p) 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;
(q) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(r) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder. "Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
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"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness secured by a lien described in clause (c) of
the defined term "Permitted Liens," provided such Indebtedness does not exceed
the lesser of the cost or fair market value of the equipment financed with such
Indebtedness; and
(d) Subordinated Debt.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Xxxxx'x Investors Service, Inc., (iii) certificates of
deposit maturing no more than one (1) year from the date of investment therein
issued by Bank, (iv) Bank's money market accounts, and (v) any Investments
permitted by Borrower's investment policy, provided that such investment policy
has been approved by Borrower's board of directors and by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment, acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment in the ordinary course of business, or (ii)
existing on such equipment at the time of its acquisition in the ordinary course
of business, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
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"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the unrestricted cash and cash-equivalents, accounts
receivable and investments with maturities not to exceed twelve months, of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue Advances, as specified in Section 2.1 hereof.
"Revolving Maturity Date" means June 27, 2000.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the sum of the capital stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of Borrower and
its Subsidiaries minus intangible assets, plus Subordinated Debt, on a
consolidated basis determined in accordance with GAAP.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Borrower may request Advances in an aggregate outstanding amount not
to exceed the lesser of (i) the Committed Revolving Line or (ii) the Borrowing
Base. Subject to the terms and conditions of this Agreement, amounts borrowed
pursuant to this Section 2.1.1 may be repaid and reborrowed at any time prior to
the Revolving Maturity Date, at which time all Advances under this Section 2.1.1
shall be immediately due and payable. Borrower may prepay any Advances without
penalty or premium.
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(b) Procedures. Whenever Borrower desires an Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than 4:00 p.m.
Colorado time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1.1 to
Borrower's deposit account.
2.2 Overadvances. If at any time the aggregate amount of all
outstanding Advances exceeds the lesser of (i) the Borrowing Base or (ii) the
Committed Revolving Line, Borrower shall immediately pay to Bank, in cash, the
amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3((b)), the
Advances shall bear interest, on the outstanding daily balance thereof, at a
rate equal to the Prime Rate plus one percent (1.0%).
(b) Late Fee; Default Rate. If any payment is not made within
ten (10) days after the date such payment is due, Borrower shall pay Bank a late
fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid
amount or (ii) the maximum amount permitted to be charged under applicable law.
All Obligations shall bear interest, from and after the occurrence and during
the continuance of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
eighteenth (18th) calendar day of each month during the term hereof. Borrower
hereby authorizes Bank to debit any accounts with Bank, including, without
limitation, Account Number 3300128757 for payments of principal and interest due
on the Obligations and any other amounts owing by Borrower to Bank. Bank will
notify Borrower of all debits which Bank has made against Borrower's accounts.
Bank shall, at its option, charge such interest, all Bank Expenses, and all
Periodic Payments against any of Borrower's deposit accounts or against the
Committed Revolving Line, in which case those amounts shall thereafter accrue
interest at the rate then applicable hereunder. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder. Bank
shall deliver to Borrower statements of account in the ordinary course of
business reflecting charges made hereunder.
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 1:00 p.m. Colorado time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
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that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A facility fee equal to Seven Thousand Five
Hundred Dollars ($7,500), which fee shall be due on the Closing Date and shall
be fully earned and non-refundable.
(b) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents, provided that the
initial audit shall not exceed One Thousand Five Hundred Dollars ($1,500) and
each additional audit shall not exceed Two Thousand Dollars ($2,000);
(c) Bank Expenses. On the Closing Date, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (such attorneys fees and expenses not to exceed $5,000), and, after the
Closing Date, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to
Bank the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or determined,
upon presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Revolving Maturity Date. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding. Upon request by Borrower, Bank and Borrower shall terminate this
Agreement and Bank shall have no further obligation to make Credit Extensions to
Borrower, provided that (i) Bank receives three (3) days prior written notice
thereof, and (ii) all Obligations have been repaid in full.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
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(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) financing statements (Form UCC-1) to be filed in Colorado
and Montana;
(d) an intellectual property security agreement;
(e) agreement to provide insurance;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) timely receipt by Bank of the invoices or other documents as
provided in Section 4.2; and
(c) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension
(provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date). The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2(c).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours but no more than once a year (unless an
Event of Default has occurred and is continuing) to inspect Borrower's Books and
to make copies thereof and to check, test, and appraise the Collateral in order
to verify Borrower's financial condition or the amount, condition of, or any
other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or 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, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The property giving rise to such Eligible Accounts
has been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all reasonable material
defects.
5.6 Intellectual Property Collateral. Borrower is the sole owner of
the Intellectual Property Collateral, except for non-exclusive licenses granted
by Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party.
5.7 Name; Location of Chief Executive Office. Except as disclosed
in the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower or such
Subsidiary or Borrower's interest or Bank's security interest in the Collateral.
Borrower does not have knowledge of any such pending or threatened actions or
proceedings.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower or any Subsidiary that are
delivered by Borrower to Bank fairly present in all material respects Borrower's
or such Subsidiary's consolidated financial condition as of the date thereof and
Borrower's or such Subsidiary's consolidated results of operations for the
period then ended. There has not been a material adverse change in the
consolidated financial condition of Borrower or Subsidiary since the date of the
most recent of such financial statements submitted to Bank.
5.10 Solvency, Payment of Debts. Borrower is solvent and able to pay
its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary have met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company
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"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940. Borrower is not engaged principally, or as one of the
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations T and U
of the Board of Governors of the Federal Reserve System). Borrower has complied
with all the provisions of the Federal Fair Labor Standards Act. Borrower has
not violated any statutes, laws, ordinances or rules applicable to it, violation
of which could have a Material Adverse Effect.
5.12 Environmental Condition. Except as disclosed in the Schedule,
none of Borrower's or any Subsidiary's properties or assets has ever been used
by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law; to the best of Borrower's knowledge,
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's or such Subsidiary's business as
currently conducted, the failure to obtain which could have a Material Adverse
Effect.
5.16 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each calendar month, a company prepared
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consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, in a form acceptable to Bank and certified by a
Responsible Officer; (b) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) if applicable, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of Fifty Thousand Dollars ($50,000) or more; and (e) such budgets,
sales projections, operating plans or other financial information as Bank may
reasonably request from time to time generally prepared by Borrower in the
ordinary course of business.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable, provided that, for any month during
which no Obligations were outstanding at any time under Section 2.1 of this
Agreement, Borrower shall deliver the foregoing within thirty (30) days after
the last day of such month.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
Bank shall have a right initially (the "Initial Audit") and from time to
time thereafter to audit Borrower's Accounts and appraise Collateral at
Borrower's expense, provided that such audits will be conducted no more often
than every twelve (12) months unless an Event of Default has occurred and is
continuing. The results of the Initial Audit shall be satisfactory to Bank by
May 30, 1999.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all
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liability insurance policies shall show the Bank as an additional insured, and
shall specify that the insurer must give at least twenty (20) days notice to
Bank before canceling its policy for any reason. Upon Bank's request, Borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of
each calendar month, a ratio of Quick Assets to Current Liabilities of at least
1.50 to 1.00.
6.9 Tangible Net Worth. Borrower shall maintain, as of the last day
of each calendar month, a Tangible Net Worth of not less than Four Million
Dollars ($4,000,000) plus thirty-five percent (35%) of Borrower's quarterly net
income.
6.10 Profitability. Borrower shall show a profit of at least One
Dollar ($1.00) for each fiscal quarter, except that in one and only one fiscal
quarter during the term of this Agreement, Borrower shall be permitted to fail
to show a profit of at least One Dollar ($1.00), provided that Borrower shall
not lose more than Three Hundred Thousand Dollars ($300,000) for such quarter.
In addition to the foregoing, Borrower shall show a profit of at least One
Dollar ($1.00) for each fiscal year during the term of this Agreement.
6.11 Registration of Intellectual Property Rights. If an Event of
Default has occurred, upon Bank's reasonable request, Borrower shall do all of
the following:
(a) Register or cause to be registered on an expedited basis
(to the extent not already registered and to the extent commercially viable)
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, those intellectual property rights listed on
Exhibits A, B and C to the Intellectual Property Security Agreement delivered to
Bank by Borrower in connection with this Agreement within thirty (30) days of
the date of this Agreement. Borrower shall, on an expedited basis, register or
cause to be registered with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, and notify Bank of, all
registerable intellectual property rights Borrower has developed as of the date
of this Agreement but heretofore failed to register and give Bank notice
thereof. Borrower shall register or cause to be registered with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, and notify Bank of those additional intellectual property rights
developed or acquired by Borrower from time to time in connection with any
product prior to the sale or licensing of such product to any third party and
prior to Borrower's use of such product (including without limitation major
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C) and shall give Bank notice thereof;
(b) Execute and deliver such additional instruments and
documents from time to time as Bank shall reasonably request to perfect Bank's
security interest in the Intellectual Property Collateral;
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use
its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any material Trademarks, Patents or Copyrights to
be abandoned, forfeited or dedicated to the public without the written consent
of Bank, which shall not be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual Property Collateral
to confirm compliance with this Section 6.11, provided such audit may not occur
more often than once per year, unless an Event of Default has occurred and is
continuing. Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section 6.11 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.11.
(e) Borrower shall within twenty-five (25) days of the last day
of each fiscal quarter, deliver to Bank in form and substance satisfactory to
Bank a report signed by Borrower, in form reasonably
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acceptable to Bank, listing any applications or registrations that Borrower has
made or filed in respect of any Patents, Copyrights or Trademarks and the status
of any outstanding applications or registrations, as well as any material change
in Borrower's intellectual property, including but not limited to any subsequent
ownership right of Borrower in or to any Trademark, Patent or Copyright not
specified in Exhibits A, B, and C of the Intellectual Property Security
Agreement delivered to Bank by each Borrower in connection with this Agreement
6.12 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, including intellectual property,
other than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; or (iii) Transfers of surplus,
worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto). Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock. Notwithstanding the foregoing, Borrower may acquire capital stock or
property of another Person and/or repurchase its own capital stock in an
aggregate amount not to exceed twenty-five percent (25%) of Borrower's Tangible
Net Worth, as long as an Event of Default does not exist prior to such
repurchase or acquisition or would not exist after giving effect to such
repurchase or acquisition.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
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7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or be controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. 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 law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
7.12 Intellectual Property Agreements. Borrower shall not permit
the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware 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 reasonable 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 have cured such default shall not be deemed an Event
of Default (provided that no Credit Extensions will be required to be made
during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
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8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time
owing to or for the credit or the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right,
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solely pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
xxxx of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all
claims under and decisions with respect to Borrower's policies of insurance; (f)
settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; (g) to modify, in its sole discretion, any intellectual property
security agreement entered into between Borrower and Bank without first
obtaining Borrower's approval of or signature to such modification by amending
Exhibits A, B, and C, thereof, as appropriate, to include reference to any
right, title or interest in any Copyrights, Patents or Trademarks acquired by
Borrower after the execution hereof or to delete any reference to any right,
title or interest in any Copyrights, Patents or Trademarks in which Borrower no
longer has or claims to have any right, title or interest; (h) to file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (i) to transfer the Intellectual Property Collateral
into the name of Bank or a third party to the extent permitted under the
California Uniform Commercial Code; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Subject to Section 6.3, upon the
occurrence and during the continuation of an Event of Default, Bank may notify
any Person owing funds to Borrower of Bank's security interest in such funds and
verify the amount of such Account. Upon the occurrence and during the
continuation of an Event of Default, Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. Effective only upon the occurrence and during
the continuance of an Event of Default, if Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by Bank shall constitute Bank Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.
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9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: ILX Lightwave Corporation
00000 X. Xxxxxxxx Xxxx
Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxx
FAX: (000) 000-0000
If to Bank: Silicon Valley Bank
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx / Xxxxx Xxxxxxxx
Fax: (000) 000-0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Xxxxx, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ILX LIGHTWAVE CORPORATION
By:
---------------------------------
Title:
------------------------------
SILICON VALLEY BANK
By:
---------------------------------
Title:
------------------------------
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EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
The Collateral shall consist of all right, title and interest of Borrower in and
to the following:
(i) 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;
(ii) All inventory, now owned or hereafter acquired,
including, without limitation, all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products including
such inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(iii) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(iv) All now existing and hereafter arising accounts,
contract rights, royalties, license rights and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and
Borrower's Books relating to any of the foregoing;
(v) All documents, cash, deposit accounts, securities,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(vi) 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; and
(vii) Any and all claims, rights and interests in any of the
above and all substitutions for, additions and accessions to and proceeds
thereof.
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FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement is entered into as
of March 23, 2000 (the "Amendment"), by and between SILICON VALLEY BANK ("Bank")
and ILX LIGHTWAVE CORPORATION ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of July 27, 1999, as amended (the "Agreement"). The parties
desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Certain defined terms in Section 1.1 of the Agreement are
hereby added or amended to read as follows:
"Capitalized Product Development Costs" are all costs
associated with the development of Borrower's product, including, but
not limited to software, that are not recorded as an expense and have
been classified as an asset account.
"Committed Revolving Line" means a credit extension of up to
Two Million Dollars ($2,000,000).
"Credit Extension" means each Advance, Term Advance or any
other extension of credit by Bank for the benefit of Borrower
hereunder.
"Debt Service Coverage" means, as of any date of
determination, a ratio of earnings after tax less Capitalized Product
Development Costs plus interest, depreciation and amortization for the
preceding quarter on an annualized basis to current maturities of long
term debt and capitalized leases, plus interest expense annualized.
"Term Line" means a credit extension of up to One Million Four
Hundred Thousand Dollars ($1,400,000).
"Term Maturity Date" means April 30, 2003.
"Revolving Maturity Date" means March 22, 2001.
2. A new Section 2.1.2 is hereby added to the Agreement to read
as follows:
2.1.2 Term Loan.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through April 30,
2000, Bank agrees to make an advance (the "Term Advance") to Borrower
in an amount not in excess of the Term Line.
(b) Interest shall accrue from the date of the Term
Advance at the rate specified in Section 2.3(a). The Term Advance shall
be payable in thirty-six (36) equal monthly installments of principal,
plus all accrued interest, beginning on May 31, 2000, and continuing on
the last day of each month thereafter through the Term Maturity Date,
at which time all amounts due under this Section 2.1.2 shall be
immediately due and payable. Once repaid, neither the Term Advance nor
any portion thereof may be reborrowed. Borrower may prepay the Term
Advance without penalty or premium.
1
23
(c) When Borrower desires to obtain the Term Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 4:00 p.m. Colorado
time one (1) Business Day before the day on which the Term Advance is
to be made. Such notice shall be substantially in the form of Exhibit
B. The notice shall be signed by a Responsible Officer or its designee.
3. Section 2.3(a) is hereby amended in its entirety to read as
follows:
(a) Interest Rates.
(i) Advances. Except as set forth in
Section 2.3(b), the Advances shall bear interest, on the outstanding
daily balance thereof, at a rate equal to three quarters percent
(0.75%) above the Prime Rate.
(ii) Term Advance. Except as set forth
in Section 2.3(b), the Term Advance shall bear interest, on the
outstanding daily balance thereof, at a rate equal to one and one half
percent (1.50%) above the Prime Rate.
4. The first sentence of Section 2.3(c) of the Agreement is
hereby amended in its entirety to read as follows: "Interest hereunder shall be
due and payable on the last calendar day of each month during the term hereof."
5. The first sentence of Section 2.7 is hereby amended in its
entirety to read as follows: "This Agreement shall become effective on the
Closing Date and, subject to Section 12.7, shall continue in full force and
effect for a term ending on the Term Maturity Date."
6. Section 6.8 is hereby amended in its entirety to read as
follows:
6.8 Quick Ratio. Borrower shall maintain, as of the last
day of each calendar month through the month ending on February 28,
2001, a ratio of Quick Assets to Current Liabilities of at least 1.25
to 1.00. Borrower shall maintain, as of the last day of each calendar
month thereafter, a ratio of Quick Assets to Current Liabilities of at
least 1.50 to 1.00.
7. Sections 6.9 and 6.10 are hereby amended in their entirety to
read as follows:
6.9 Tangible Net Worth. As of the Closing Date, Borrower
shall maintain, as of the last day of each calendar month, a Tangible
Net Worth of not less than Four Million Dollars ($4,000,000) plus
thirty-five percent (35%) of Borrower's quarterly net income after
March 23, 2000.
6.10 Profitability. Borrower shall show a profit of at
least One Dollar ($1.00) for each fiscal quarter.
8. A new Section 6.13 is hereby added to the Agreement to read as
follows:
6.13 Debt Service Coverage. Borrower shall maintain a Debt
Service Coverage of at least 2.0 to 1.0 as of the last day of each
quarter.
9. Section 7.6 of the Agreement is hereby amended in its entirety
to read as follows:
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or
purchase of any capital stock. Notwithstanding the foregoing, Borrower
may (i) acquire capital stock or property of another Person in an
aggregate amount not to exceed ten percent (10%) of Borrower's Tangible
Net Worth and (ii) repurchase its own capital stock in an aggregate
amount not to exceed One Million Four Hundred Fifty Thousand Dollars
($1,450,000), as long as an Event
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of Default does not exist prior to any such repurchase or acquisition
and would not exist after giving effect to any such repurchase or
acquisition.
10. The Compliance Certificate to be delivered after the date of this
Amendment shall be in substantially the form of Exhibit D hereto.
11. Borrower hereby acknowledges and agrees that the next audit of
Borrower's Accounts pursuant to Section 6.3 will be due in July of 2000.
12. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
13. Borrower represents and warrants that the representations and
warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
14. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
15. As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower;
(b) a non-refundable loan fee of Twelve Thousand Six Hundred
Twenty-Five Dollars ($12,625), plus all Bank Expenses incurred through the date
of this Amendment including reasonable attorneys' fees and expenses not to
exceed Two Thousand Dollars ($2,000);
(c) Corporate Resolutions to Borrow; and
(d) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
ILX LIGHTWAVE CORPORATION
By:
-------------------------------------
Title:
----------------------------------
SILICON VALLEY BANK
By:
-------------------------------------
Title:
----------------------------------
4
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SECOND AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement is entered into as
of October 23, 2000 (the "Amendment"), by and between SILICON VALLEY BANK
("Bank") and ILX LIGHTWAVE CORPORATION ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of July 27, 1999, as amended including without limitation by
that certain First Amendment to Loan and Security Agreement dated as of March
23, 2000 (collectively, the "Agreement"). The parties desire to amend the
Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Certain defined terms in Section 1.1 of the Agreement are hereby
added or amended to read as follows:
"Borrowing Base" is (i) 80% of Eligible Accounts plus (ii) the
least of (A) 20% of the value of Borrower's Eligible Inventory (valued
at the lower of cost or wholesale fair market value), (B) $500,000, or
(C) 30% of Eligible Accounts, as determined by Bank from Borrower's
most recent Borrowing Base Certificate.
"Committed Revolving Line" means a credit extension of up to
Five Million Dollars ($5,000,000).
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section
5.4; provided, that standards of eligibility may be fixed and revised
from time to time by Bank as a consequence of any Collateral audits
done pursuant to Section 6.3 in Bank's reasonable judgment and upon
notification thereof to Borrower in accordance with the provisions
hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not
include the following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor
is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, xxxx
and hold, or other terms by reason of which the payment by the account
debtor may be conditional;
(e) Accounts with respect to which the account debtor
is an Affiliate of Borrower;
(f) Accounts with respect to which the account debtor
does not have its principal place of business in the United States to
the extent that they exceed $500,000 in the aggregate;
(g) Accounts with respect to which the account debtor
is the United States or any department, agency, or instrumentality of
the United States;
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(h) Accounts with respect to which Borrower is liable
to the account debtor for goods sold or services rendered by the
account debtor to Borrower, but only to the extent of any amounts owing
to the account debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, to the
extent such obligations exceed the aforementioned percentage (the
"Concentration Limit"), except as approved in writing by Bank;
notwithstanding the foregoing, the Concentration Limit for each of
Lucent Technologies, JDS Uniphase, and Corning (collectively, the "High
Concentration Companies") shall be thirty-five percent (35%) of all
Accounts, provided that Accounts on which the Account debtor is a High
Concentration Companies will be excluded to the extent that in the
aggregate High Concentration Companies exceed 75% of all Accounts;
(j) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute
or claim), or is subject to any Insolvency Proceeding, or becomes
insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Inventory" means Borrower's Inventory which is
composed of raw materials, located at its principal place of business
(or any other location of which Borrower has given Bank at least 10
days prior written notice) that complies with representations and
warranties in Section 5.5, but does not include used, returned,
obsolete, consigned, work in progress, demonstrative or custom
inventory, supplies, packing or shipping materials.
"Revolving Maturity Date" means October 22, 2002, with an
annual renewal on October 22, 2001.
2. Section 2.3(a)(i) is hereby amended in its entirety to read as
follows:
(i) Advances. Except as set forth in
Section 2.3(b), the Advances shall bear interest, on the outstanding
daily balance thereof, at a rate equal to one quarter percent (0.25%)
above the Prime Rate.
3. A new Section 2.5(d) is hereby added to the Agreement to read as
follows:
(d) Commitment Fee. On the last day of each fiscal
quarter, an amount equal to one quarter of one percent (0.25%) per
annum of the average unused portion of the Committed Revolving Line
during that quarter. Unless Borrower chooses to terminate the Committed
Revolving Line on October 22, 2001 and gives Bank at least 30 days
prior written notice of such termination, in the event Borrower chooses
to terminate the Committed Revolving Line prior to October 22, 2002,
all future quarterly commitment fees will be immediately due and
payable upon such termination.
4. The first sentence of Section 2.7 of the Agreement is hereby amended
in its entirety to read as follows: "This Agreement shall become effective on
the Closing Date and, subject to Section 12.7, shall continue in full force and
effect for so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions under this Agreement."
5. The second paragraph of Section 6.3 of the Agreement is hereby
amended in its entirety to read as follows:
Within twenty (20) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto,
together with aged listings of accounts receivable and accounts payable
and an inventory report in form and substance satisfactory to Bank,
provided that, for any month during which no Obligations were
outstanding
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at any time under Section 2.1.1 or Section 2.1.3 of this Agreement,
Borrower shall deliver the foregoing within thirty (30) days after the
last day of such month.
6. Section 6.9 is hereby amended in its entirety to read as follows:
6.9 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not less than
(i) before the effective date of Borrower's initial public offering
(the "IPO Date"), Seven Million Dollars ($7,000,000), increasing each
quarter by 35% of Borrower's quarterly net operating profit after tax,
or (ii) after the IPO Date, 25% of the net equity raised by Borrower in
such initial public offering, increasing each quarter by 35% of
Borrower's quarterly net operating profit after tax.
7. Section 7.3 of the Agreement is hereby amended in its entirety to
read as follows:
7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of
another Person. Notwithstanding the foregoing, acquisitions in which
Borrower is the surviving entity and which meet the following criteria
will be permitted, provided that no Event of Default has occurred which
is continuing at the time of the acquisition or would exist after
giving effect to the acquisition: (i) the sole consideration is
Borrower's stock, and, after giving effect to such acquisition, the
change in Borrower's ownership is not greater than 25%, or (ii) cash
acquisitions in which the aggregate consideration paid by Borrower does
not exceed the Applicable Percentage of Borrower's Tangible Net Worth
both immediately prior to and immediately after such acquisition. As
used herein, "Applicable Percentage" means 25%, provided that if
Borrower completes a public offering with aggregate gross cash proceeds
to Borrower of at least $60,000,000, thereafter, "Applicable
Percentage" shall mean 50%.
8. Section 7.6 of the Agreement is hereby amended in its entirety to
read as follows:
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or
purchase of any capital stock.
9. The Borrowing Base Certificate to be delivered after the date of
this Amendment shall be in substantially the form of Exhibit C hereto.
10. The Compliance Certificate to be delivered after the date of this
Amendment shall be in substantially the form of Exhibit D hereto.
11. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
12. Borrower represents and warrants that the representations and
warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
13. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
14. As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower;
(b) a non-refundable loan fee of Five Thousand Dollars
($5,000), plus all Bank Expenses incurred through the date of this Amendment,
including reasonable attorneys' fees and expenses for preparation and
negotiation of this Amendment (not to exceed Five Hundred Dollars ($500) if
Borrower negotiates in good faith);
29
(c) Corporate Resolutions to Borrow; and
(d) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
ILX LIGHTWAVE CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------
Title: Vice President and CFO
SILICON VALLEY BANK
By: /s/
-------------------------
Title: Senior Vice President
