FORBEARANCE AGREEMENT
This Forbearance Agreement (this "Agreement") is entered into as of the
October 25, 1999, by and between Silicon Valley Bank ("Bank") and Microfield
Graphics, Inc. ("Borrower").
RECITALS
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A. Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of September 9, 1996, together with any and all Schedules
and modifications (the "Loan Agreement"). The Loan Agreement provided for,
among other things, a Secured Accounts Receivable Line of Credit in the
original principal amount of Two Million Dollars ($2,000,000)(the "Line of
Credit") and a Secured Equipment Term Loan in the original principal amount
of Two Hundred Fifty Thousand Dollars ($250,000)(the "Equipment Term Loan").
The Loan Agreement, together with any and all other documents evidencing or
securing the obligations owed by Borrower to Bank are referred to in this
Agreement as a "Loan Document" or the "Loan Documents."
B. Borrower acknowledges that as of October 15, 1999, there was due,
owing and payable to Bank the principal amount of Five Hundred Twenty Four
Thousand Dollars ($524,000) under the Line of Credit and the principal amount
of Twenty Seven Thousand Seven Hundred Seventy Seven and 92/100 Dollars
($27,777.92) under the Equipment Term Loan, together with accrued but unpaid
interest, attorneys' fees and costs. Such amounts are hereinafter sometimes
referred to herein as the "Existing Debt."
C. One or more Events of Default have occurred under the Loan Documents
by virtue of, among other things, Borrower's failure to meet certain
financial covenants under the Loan Documents, more particularly, (1)
Borrower's minimum Tangible Net Worth as of March 31, 1999 and June 30, 1999.
Borrower's subsequent financial statements indicate that Borrower continues
not to comply with the Tangible Net Worth covenant. Borrower's Borrower has
asked Bank to forbear from exercising any remedies available under the Loan
Documents as a result of such Events of Default and Bank has agreed, provided
Borrower enters into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows:
D. REPAYMENT OF OBLIGATIONS. As of the date of this Agreement,
interest payable by Borrower on all amounts outstanding on the Line of Credit
and the Equipment Term Loan, including accrued but unpaid interest,
reasonable attorneys' fees and necessary attorneys' fees and costs shall be
increased to a per annum rate equal to the Prime Rate plus two and one half
percentage points (2.50)(subject to increase pursuant to Section 6(d) and
Section 8 of this Agreement). Borrower shall pay all fees and expenses
(including reasonable and necessary attorneys' fees) incurred in connection
with the preparation of this Agreement and the protection of the Bank's
interests under the Loan Documents.
E. DECREASE OF SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT. The
principal amount of the Line of Credit is hereby decreased to Six Hundred
Fifty Thousand Dollars ($650,000).
F. FORBEARANCE ON EXISTING LOANS. Subject to the execution, delivery
and performance by Borrower of all the terms of this Agreement, Bank shall
forbear until April 30, 2000 (the "Forbearance Period") from exercising any
remedies that it may have against Borrower as a result of the occurrence of
the Events of Default described in Recital C of this Agreement. Such
forbearance does not apply to any other Event of Default or other failure by
Borrower to perform in accordance with the Loan Documents. this forbearance
shall not be deemed a continuing waiver or forbearance with respect to any
Event of Default that may occur after the date of this Agreement.
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Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense.
J. DEFAULT. A failure to perform any covenant or other agreement
contained in this Agreement or any of the Loan Documents, or any agreement
for borrowed money or factored receivables, or leased equipment under capital
leases with any third party shall constitute an Event of Default hereunder
and under all of the Loan Documents and shall result in immediate termination
of the Forbearance Period. Whereas, upon such Event of Default all amounts
outstanding under any Loan Documents shall become immediately due and
payable. Bank shall immediately and without notice apply all amounts in any
collateral account against any amounts due under any of the Loan Documents.
In addition, Bank shall have the right immediately and without notice to
Borrower to exercise any remedies available under the Loan Documents and
applicable law. All amounts then owing to Bank shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to the 5
percentage points per annum above the interest rate applicable immediately
prior to the occurrence of an Event of Default.
K. WAIVER OF NOTICE AND CURE. With respect to the Events of Default as
described in Recital C, Borrower acknowledges that an Event of Default
occurred under the Loan Documents that, but for this Agreement, would have
entitled Bank to exercise all the remedies available to Bank under the Loan
Documents and applicable law. Borrower waives all notices of default and
rights to cure that are otherwise provided in the Loan Documents or
applicable law, including rights to notice and redemption under the Oregon
Uniform Commercial Code, including, without limitation, SS9-503(3), 9-504 and
9-505 of the Uniform Commercial Code.
L. FEES AND EXPENSES. Borrower shall also pay Bank on the date of this
Agreement all out-of-pocket costs, including reasonable and necessary
attorneys' fees and legal costs, that Bank has incurred in connection with
this Agreement.
M. RELEASE. Borrower acknowledges that it has no defenses against its
obligation to pay any reasonable amounts or perform any obligations under the
Loan Documents and releases Bank and any of Bank's officers, directors and
employees from any known or unknown claims now existing or hereafter arising
out of the Loan Documents or the transactions contemplated thereby.
N. FURTHER ASSURANCES. Borrower will cooperate with Bank in connection
with Bank's verification of all eligible accounts receivable. Borrower shall
use its best efforts to assist Bank in obtaining subordination agreements
from such persons and on such terms as Bank may request from time to time.
Borrower will take such actions as Bank may reasonably request from time to
time to perfect or continue Bank's security interests in Borrower's property,
including without limitation vehicles, and to accomplish the objective of
this Agreement.
O. MISCELLANEOUS.
1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of Borrower and Bank and their respective
successors and assigns; provided, however, that the foregoing shall not
authorize any assignment by Borrower of its rights or duties hereunder.
2. ENTIRE AGREEMENT. This Agreement and the Loan Documents
contain the entire agreement of the parties hereto and supersede any other
oral or written agreements or understandings.
3. COURSE OF DEALING; WAIVERS. No course of dealing on the part of
Bank or its officers, nor any failure or delay in the exercise of any right
by Bank, shall operate as a waiver thereof, and any single or partial
exercise of any such right shall not preclude any later exercise of any such
right. Bank's failure at any time to require strict performance by Borrower
of any provision shall not affect any right of Bank thereafter to demand
strict compliance and performance. Any suspension or waiver of a right must
be in writing signed by an officer of Bank.
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4. TIME IS OF THE ESSENCE. Time is of the essence as to each and
every term and provision of this Agreement and the other Loan Documents.
5. COUNTERPARTS. This Agreement may be signed in counterparts and
all of such counterparts when properly executed by the appropriate parties
thereto together shall serve as a fully executed document, binding upon the
parties.
6. APPOINTMENT OF BANK AS BORROWER'S ATTORNEY-IN-FACT. Borrower
hereby irrevocably designates, makes, constitutes and appoints Bank, and all
individuals, persons and entities designated by Bank, as Borrower's true and
lawful agent and attorney-in-fact (which appointment shall for all purposes
be deemed to be coupled with an interest and shall be irrevocable) and
authorizes Bank, in Bank's and/or Borrower's name, to take any and all
actions Bank deems appropriate in connection with Bank's administration of
this Agreement or any other Loan Documents.
7. LEGAL EFFECT. Except as amended by this Agreement, the Loan
Documents remain in full force and effect. If any provision of this Agreement
conflicts with applicable law, such provision shall be deemed severed from
this Agreement, and the balance of this Agreement shall remain in full force
and effect.
8. WAIVER OF JURY. Bank and Borrower acknowledge and agree that
the time and expense required for trial by jury exceed the time and expense
required for a bench trial and hereby waive, to the extent permitted by law,
trial by jury.
9. CONDITIONS. The effectiveness of this Forbearance Agreement is
conditioned upon Bank's receipt of a loan fee in the amount of $1,250 and
Bank's receipt of an executed Warrant Agreement.
IN WITNESS WHEREOF the undersigned have executed this Agreement as of
the first date above written.
MICROFIELD GRAPHICS, INC.
By: /s/ [ILLEGIBLE]
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Title: Chief Financial Officer
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11/3/99
SILICON VALLEY BANK
By: /s/ [ILLEGIBLE]
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Title: SVP
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