EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of April
18, 2008, between SILICON VALLEY BANK, a California chartered bank, with its
principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000
(FAX 000-000-0000) ("Bank") and I/O Magic Corporation, a Nevada corporation and
IOM Holdings, Inc., a Nevada corporation, with offices at 4 Marconi, Xxxxxx,
Xxxxxxxxxx 00000 (FAX 000-000-0000) ("Borrower"), provides the terms on which
Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as
follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13. All other terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided by
the Code, to the extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY. Borrower hereby unconditionally promises to pay
Bank the unpaid principal amount of all Advances hereunder with all interest,
fees and finance charges due thereon as and when due in accordance with this
Agreement.
2.1.1 FINANCING OF ACCOUNTS.
(a) AVAILABILITY. Subject to the terms of this Agreement,
Borrower may request that Bank finance specific Eligible Accounts. Bank may, in
its sole discretion in each instance, finance such Eligible Accounts by
extending credit to Borrower in an amount equal to the result of the Advance
Rate multiplied by the face amount of the Eligible Account (the "Advance"). Bank
may, in its sole discretion, change the percentage of the Advance Rate for a
particular Eligible Account on a case by case basis. When Bank makes an Advance,
the Eligible Account becomes a "Financed Receivable."
(b) MAXIMUM ADVANCES. The aggregate face amount of all
Financed Receivables outstanding at any time may not exceed the Facility Amount
, and Bank shall have no obligation to make Advances in excess of Seven Million
Dollars ($7,000,000) in the aggregate at anytime outstanding.
(c) BORROWING PROCEDURE. Borrower will deliver an Invoice
Transmittal for each Eligible Account it offers. Bank may rely on information
set forth in or provided with the Invoice Transmittal.
(d) CREDIT QUALITY; CONFIRMATIONS. Bank may, at its option,
conduct a credit check of the Account Debtor for each Account requested by
Borrower for financing hereunder in order to approve any such Account Debtor's
credit before agreeing to finance such Account. Bank may also verify directly
with the respective Account Debtors the validity, amount and other matters
relating to the Accounts (including confirmations of Borrower's representations
in Section 5.3) by means of mail, telephone or otherwise, either in the name of
Borrower or Bank from time to time in its sole discretion.
(e) ACCOUNTS NOTIFICATION/COLLECTION. Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
and/or collect the amount of the Account.
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(f) MATURITY. This Agreement shall terminate and all
Obligations outstanding hereunder shall be immediately due and payable on the
Maturity Date.
2.2 COLLECTIONS, FINANCE CHARGES, REMITTANCES AND FEES. The
Obligations shall be subject to the following fees and Finance Charges. Unpaid
fees and Finance Charges may, in Bank's discretion, accrue interest and fees as
described in Section 9.2 hereof.
2.2.1 COLLECTIONS. Collections will be credited to the Financed
Receivable Balance for such Financed Receivable, but if there is an Event of
Default, Bank may apply Collections to the Obligations in any order it chooses.
If Bank receives a payment for both a Financed Receivable and a non-Financed
Receivable, the funds will first be applied to the Financed Receivable and, if
there is no Event of Default then existing, the excess will be remitted to
Borrower, subject to Section 2.2.7.
2.2.2 FACILITY FEE. [Omitted].
2.2.3 FINANCE CHARGES. In computing Finance Charges on the Obligations
under this Agreement, all Collections received by Bank shall be deemed applied
by Bank on account of the Obligations two (2) Business Days after receipt of the
Collections. Borrower will pay a finance charge (the "Finance Charge") on each
Financed Receivable which is equal to the Applicable Rate DIVIDED BY 360
MULTIPLIED BY the number of days each such Financed Receivable is outstanding
MULTIPLIED BY the outstanding Financed Receivable Balance. The Finance Charge is
payable when the Advance made based on such Financed Receivable is payable in
accordance with Section 2.3 hereof. After an Event of Default, the Applicable
Rate will increase an additional five percent (5.0%) per annum effective
immediately upon the occurrence of such Event of Default.
2.2.4 COLLATERAL HANDLING FEE. Borrower will pay to Bank a collateral
handling fee equal to $2,000 per month, payable in arrears on the last day of
each month (prorated for any partial month at the beginning and upon termination
of this Agreement) (the "Collateral Handling Fee").
2.2.5 ACCOUNTING. After each Reconciliation Period, Bank will provide
an accounting of the transactions for that Reconciliation Period, including the
amount of all Financed Receivables, all Collections, Adjustments, Finance
Charges, Collateral Handling Fee and the Facility Fee. If Borrower does not
object to the accounting in writing within thirty (30) days it shall be
considered accurate. All Finance Charges and other interest and fees are
calculated on the basis of a 360 day year and actual days elapsed.
2.2.6 DEDUCTIONS. Bank may deduct fees, Finance Charges, Advances
which become due pursuant to Section 2.3, and other amounts due pursuant to this
Agreement from any Advances made or Collections received by Bank.
2.2.7 LOCKBOX; ACCOUNT COLLECTION SERVICES.
(a) As and when directed by Bank from time to time, at Bank's option
and at the sole and exclusive discretion of Bank (regardless of whether an Event
of Default has occurred), Borrower shall direct each Account Debtor (and each
depository institution where proceeds of Accounts are on deposit) to remit
payments with respect to the Accounts to a lockbox account established with Bank
or to wire transfer payments to a cash collateral account that Bank controls
(collectively, the "Lockbox"). It will be considered an immediate Event of
Default if the Lockbox is not set-up and operational within forty-five (45) days
from the date of such direction by Bank.
(b) Until such Lockbox is established, the proceeds of the Accounts
shall be paid by the Account Debtors to an address consented to by Bank. Upon
receipt by Borrower of such proceeds, the Borrower shall immediately transfer
and deliver same to Bank, along with a detailed cash receipts journal. Provided
no Event of Default exists or an event that with notice or lapse of time will be
an Event of Default, within three (3) days of receipt of such amounts by Bank,
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Bank will turn over to Borrower the proceeds of the Accounts other than
Collections with respect to Financed Receivables and the amount of Collections
in excess of the amounts for which Bank has made an Advance to Borrower, less
any amounts due to Bank, such as the Finance Charge, the Facility Fee, payments
due to Bank, other fees and expenses, or otherwise; provided, however, Bank may
hold such excess amount with respect to Financed Receivables as a reserve until
the end of the applicable Reconciliation Period if Bank, in its discretion,
determines that other Financed Receivable(s) may no longer qualify as an
Eligible Account at any time prior to the end of the subject Reconciliation
Period. This Section does not impose any affirmative duty on Bank to perform any
act other than as specifically set forth herein. All Accounts and the proceeds
thereof are Collateral and if an Event of Default occurs, Bank may apply the
proceeds of such Accounts to the Obligations.
2.2.8 GOOD FAITH DEPOSIT. [Omitted].
2.3 REPAYMENT OF OBLIGATIONS; ADJUSTMENTS.
2.3.1 REPAYMENT. Borrower will repay each Advance on the earliest of:
(a) the date on which payment is received of the Financed Receivable with
respect to which the Advance was made, (b) the date on which the Financed
Receivable is no longer an Eligible Account, (c) the date on which any
Adjustment is asserted to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable remains otherwise an Eligible Account),
(d) the date on which there is a breach of any warranty or representation set
forth in Section 5.3, or (e) the Maturity Date (including any early
termination). Each payment will also include all accrued Finance Charges and
Collateral Handling Fees with respect to such Advance and all other amounts then
due and payable hereunder.
2.3.2 REPAYMENT ON EVENT OF DEFAULT. When there is an Event of
Default, Borrower will, if Bank demands (or, upon the occurrence of an Event of
Default under Section 8.5, immediately without notice or demand from Bank) repay
all of the Advances. The demand may, at Bank's option, include the Advance for
each Financed Receivable then outstanding and all accrued Finance Charges,
Collateral Handling Fee, attorneys' and professional fees, court costs and
expenses, and any other Obligations.
2.3.3 DEBIT OF ACCOUNTS. Bank may debit any of Borrower's deposit
accounts for payments or any amounts Borrower owes Bank hereunder. Bank shall
promptly notify Borrower when it debits Borrower's accounts. These debits shall
not constitute a set-off.
2.3.4 ADJUSTMENTS. If at any time during the term of this Agreement
any Account Debtor asserts an Adjustment or if Borrower issues a credit
memorandum or if any of the representations, warranties or covenants set forth
in Section 5.3 are no longer true in all material respects, Borrower will
promptly advise Bank.
2.4 POWER OF ATTORNEY. Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank, to: (a)
following the occurrence of an Event of Default, (i) sell, assign, transfer,
pledge, compromise, or discharge all or any part of the Financed Receivables;
(ii) demand, collect, xxx, and give releases to any Account Debtor for monies
due and compromise, prosecute, or defend any action, claim, case or proceeding
about the Financed Receivables, including filing a claim or voting a claim in
any bankruptcy case in Bank's or Borrower's name, as Bank chooses; and (iii)
prepare, file and sign Borrower's name on any notice, claim, assignment, demand,
draft, or notice of or satisfaction of lien or mechanics' lien or similar
document; and (b) regardless of whether there has been an Event of Default, (i)
notify all Account Debtors to pay Bank directly; (ii) receive, open, and dispose
of mail addressed to Borrower; (iii) endorse Borrower's name on checks or other
instruments (to the extent necessary to pay amounts owed pursuant to this
Agreement); and (iv) execute on Borrower's behalf any instruments, documents,
financing statements to perfect Bank's interests in the Financed Receivables and
Collateral and do all acts and things necessary or expedient, as determined
solely and exclusively by Bank, to protect or preserve, Bank's rights and
remedies under this Agreement, as directed by Bank.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. Bank's agreement to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, such documents, and
completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:
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(a) a certificate of the Secretary of Borrower with respect
to articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(b) payment of the fees and Bank Expenses then due and
payable;
(c) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. Bank's agreement to make
each Advance, including the initial Advance, is subject to the following:
(a) receipt of the Invoice Transmittal;
(b) Bank shall have (at its option) conducted the
confirmations and verifications as described in Section 2.1.1 (d); and
(c) each of the representations and warranties in Section 5
shall be true on the date of the Invoice Transmittal and on the effective date
of each Advance and no Event of Default shall have occurred and be continuing,
or result from the Advance. Each Advance is Borrower's representation and
warranty on that date that the representations and warranties in Section 5
remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants Bank, to
secure the payment and performance in full of all of the Obligations and the
performance of each of Borrower's duties under the Loan Documents, a continuing
security interest in, and pledges and assigns to Bank, the Collateral, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof. Borrower warrants and represents that the security
interest granted herein shall be a first priority security interest in the
Collateral.
If the Agreement is terminated, Bank's lien and security interest in the
Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 AUTHORIZATION TO FILE FINANCING STATEMENTS. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions in order to perfect or protect Bank's interest or
rights hereunder, which financing statements may indicate the Collateral as "all
assets of the Debtor" or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank's discretion.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each of its
Subsidiaries are duly existing and in good standing as a Registered Organization
in their respective jurisdictions of formation and are qualified and licensed to
do business and are in good standing in any jurisdiction in which the conduct of
their respective business or ownership of property requires that they be
qualified except where the failure to do so could not reasonably be expected to
have a material adverse effect on Borrower's business. In connection with this
Agreement, Borrower has previously delivered to Bank a completed certificate
signed by Borrower, entitled "Perfection Certificate". Borrower represents and
warrants to Bank that (a) Borrower's exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof; (b) Borrower is an
organization of the type and is organized in the jurisdiction set forth in the
Perfection Certificate; (c) the Perfection Certificate accurately sets forth
Borrower's organizational identification number or accurately states that
Borrower has none; (d) the Perfection Certificate accurately sets forth
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Xxxxxxxx'x xxxxx xx xxxxxxxx, xx, if more than one, its chief executive office
as well as Borrower's mailing address (if different than its chief executive
office); (e) Borrower (and each of its predecessors) has not, in the past five
(5) years, changed its jurisdiction of formation, organizational structure or
type, or any organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate pertaining to Borrower
and each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement). If Borrower is not now a
Registered Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with Borrower's organizational
identification number.
The execution, delivery and performance by Borrower of the Loan
Documents to which it is a party have been duly authorized, and do not (i)
conflict with any of Borrower's organizational documents, (ii) contravene,
conflict with, constitute a default under or violate any material Requirement of
Law, (iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing with or Governmental
Approval from any Governmental Authority (except such Governmental Approvals
which have already been obtained and are in full force and effect) or (v)
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which it is a party or
by which it is bound in which the default could have a material adverse effect
on Borrower's business.
5.2 COLLATERAL. Borrower has good title, has rights in, and the
power to transfer each item of the Collateral upon which it purports to xxxxx x
Xxxx hereunder, free and clear of any and all Liens except Permitted Liens.
Borrower has no deposit accounts other than the deposit accounts with Bank, the
deposit accounts, if any, described in the Perfection Certificate delivered to
Bank in connection herewith, or of which Borrower has given Bank notice and
taken such actions as are necessary to give Bank a perfected security interest
therein. The accounts are bona fide, existing obligations of the Account
Debtors.
The Collateral is not in the possession of any third party bailee (such
as a warehouse) except as otherwise provided in the Perfection Certificate. None
of the components of the Collateral shall be maintained at locations other than
as provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a bailee,
then Borrower will first receive the written consent of Bank and such bailee
must execute and deliver a bailee agreement in form and substance satisfactory
to Bank in its sole discretion.
Borrower is the sole owner of its intellectual property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each patent is valid and enforceable, and no part of the intellectual
property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower's knowledge, no claim has been made that any part of the
intellectual property violates the rights of any third party except to the
extent such claim could not reasonably be expected to have a material adverse
effect on Borrower's business. Except as noted on the Perfection Certificate,
Borrower is not a party to, nor is bound by, and license or other agreement with
respect to which Borrower is licensee that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower's interest in such
license or agreement or any other property. Borrower shall provide written
notice to Bank within ten (10) days of entering or becoming bound by any such
license or agreement which is reasonably likely to have a material impact on
Borrower's business or financial condition (other than over-the-counter software
that is commercially available to the public). Borrower shall take such steps as
Bank requests to obtain the consent of, or wavier by, any person whose consent
or waiver is necessary for all such licenses or contract rights to be deemed
"Collateral" and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such license or
agreement (such consent or authorization may include a licensor's agreement to a
contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.
Without prior consent from Bank, Borrower shall not enter into, or
become bound by, any such license or agreement which is reasonably likely to
have a material impact on Borrower's business or financial condition. Borrower
shall take such steps as Bank requests to obtain the consent of, or waiver by,
any person whose consent or waiver is necessary for all such licenses or
contract rights to be deemed "Collateral" and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such license or agreement, whether now existing or entered into in
the future.
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5.3 FINANCED RECEIVABLES. Borrower represents and warrants for each
Financed Receivable:
(a) Each Financed Receivable is an Eligible Account;
(b) Borrower has the right to sell, transfer, assign and
encumber such Financed Receivable;
(c) The correct amount is on the Invoice Transmittal and is
not disputed;
(d) Payment is not contingent on any obligation or contract
and Borrower has fulfilled all its obligations as of the Invoice Transmittal
date;
(e) Each Financed Receivable is based on an actual sale and
delivery of goods and/or services rendered, is due to Borrower, is not past due
or in default, has not been previously sold, assigned, transferred, or pledged
and is free of any liens, security interests and encumbrances other than
Permitted Liens;
(f) There are no defenses, offsets, counterclaims or
agreements for which the Account Debtor may claim any deduction or discount;
(g) Borrower reasonably believes no Account Debtor is
insolvent or subject to any Insolvency Proceedings;
(h) Borrower has not filed or had filed against it
Insolvency Proceedings and does not anticipate any filing;
(i) Bank has the right to endorse and/ or require Borrower
to endorse all payments received on Financed Receivables and all proceeds of
Collateral; and
(j) No representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statement contained in the certificates or statement not misleading.
5.4 LITIGATION. There are no actions or proceedings pending or, to
the knowledge of Borrower's Responsible Officers or legal counsel, threatened by
or against Borrower or any Subsidiary in which an adverse decision could
reasonably be expected to cause a Material Adverse Change.
5.5 NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS. All consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.6 SOLVENCY. Borrower is able to pay its debts (including trade
debts) as they mature.
5.7 REGULATORY COMPLIANCE. Borrower is not an "investment company"
or a company "controlled" by an "investment company" under the Investment
Company Act. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change. None of Borrower's or any Subsidiary's
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower's knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each Subsidiary have timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
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good faith with adequate reserves under GAAP. Borrower and each Subsidiary have
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted except where the
failure to obtain or make such consents, declarations, notices or filings would
not reasonably be expected to cause a Material Adverse Change. Borrower and each
of its Subsidiaries have obtained all consents, approvals and authorizations of,
made all declarations or filings with, and given all notices to, all Government
Authorities that are necessary to continue their respective businesses as
currently conducted.
No certificate, authorization, permit, consent, approval, order,
license, exemption from, or filing or registration or qualification with, any
Governmental Authority or any Requirement of Law is or will be required to
authorize, or is otherwise required in connection with Borrower's performance of
its obligations under the Loan Documents and the creation of the Liens described
in and granted by Borrower pursuant to the Loan Documents.
5.8 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.
5.9 FULL DISCLOSURE. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representations, warranties, or other statements were made,
taken together with all such written certificates and written statements give to
Bank, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 GOVERNMENT COMPLIANCE. Maintain its and all its Subsidiaries'
legal existence and good standing in its jurisdiction of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a material adverse effect on Borrower's business
or operations. Borrower shall comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on Borrower's business.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Deliver to Bank: (i) as soon as available, but no later
than THIRTY (30) DAYS after the last day of each month, a company prepared
consolidating balance sheet and income statement covering Borrower and each of
its Subsidiary's operations during the period certified by a Responsible Officer
and in a form acceptable to Bank; (ii) as soon as available, but no later than
ONE HUNDRED TWENTY (120) days after the last day of Borrower's fiscal year,
audited consolidated financial statements prepared under GAAP, consistently
applied, together with an unqualified opinion on the financial statements from
an independent certified public accounting firm reasonably acceptable to Bank;
(iii) within five (5) days of filing, copies of all statements, reports and
notices made available to Borrower's security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) a prompt report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000.00) or more; (v) prompt notice of any material change in the
composition of the Intellectual Property Collateral, or the registration of any
copyright, including any subsequent ownership right of Borrower in or to any
Copyright, Patent or Trademark not shown in the IP Agreement or knowledge of an
event that materially adversely affects the value of the Intellectual Property
Collateral; and (vi) budgets, sales projections, operating plans or other
financial information reasonably requested by Bank.
(b) Within THIRTY (30) DAYS after the last day of each
month, deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of EXHIBIT B.
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(c) Allow Bank to audit Borrower's Collateral, including,
but not limited to, Borrower's Accounts at Borrower's expense, upon reasonable
notice to Borrower; provided, however, prior to the occurrence of an Event of
Default, Borrower shall be obligated to pay for not more than three (3) audits
per year. After the occurrence of an Event of Default, Bank may audit Borrower's
Collateral, including, but not limited to, Borrower's Accounts at Borrower's
expense and at Bank's sole and exclusive discretion and without notification and
authorization from Borrower.
(d) Upon Bank's request, provide a written report respecting
any Financed Receivable, if payment of any Financed Receivable does not occur by
its due date and include the reasons for the delay.
(e) Provide Bank with, as soon as available, but no later
than THIRTY (30) DAYS following each Reconciliation Period, an aged listing of
accounts receivable and accounts payable by invoice date, in form acceptable to
Bank.
(f) Provide Bank with, as soon as available, but no later
than THIRTY (30) DAYS following each Reconciliation Period, an Inventory report,
in form acceptable to Bank.
6.3 TAXES. Borrower shall make, and cause each Subsidiary to make,
timely payment of all material federal, state, and local taxes or assessments
(other than taxes and assessments which Borrower is contesting in good faith,
with adequate reserves maintained in accordance with GAAP) and will deliver to
Bank, on demand, appropriate certificates attesting to such payments.
6.4 INSURANCE. Borrower shall keep its business and the Collateral
insured for risks and in amounts, and as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are
satisfactory to Bank. All property policies shall have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
shall show Bank as an additional insured and all policies shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank's option, be payable to Bank on account of the Obligations. If Borrower
fails to obtain insurance as required under this Section or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section and take any action under the policies Bank deems prudent.
6.5 ACCOUNTS.
(a) In order to permit Bank to monitor Borrower's financial
performance and condition, Borrower, and all Borrower's Subsidiaries, shall
maintain Borrower's, and such Subsidiaries, primary depository and operating
accounts with Bank, which accounts shall represent at least 85% of the dollar
value of Borrower's and such Subsidiaries accounts at all financial
institutions. Any Guarantor shall maintain ALL depository, operating and
securities accounts with Bank.
(b) Borrower shall identify to Bank, in writing, any deposit
or securities account opened by Borrower with any institution other than Bank.
In addition, for each such account that Borrower or Guarantor at any time opens
or maintains, Borrower shall, at Bank's request and option, pursuant to an
agreement in form and substance acceptable to Bank, cause the depository bank or
securities intermediary to agree that such account is the collateral of Bank
pursuant to the terms hereunder. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower's
employees.
6.6 FINANCIAL COVENANTS.
[Omitted].
8
6.7 FURTHER ASSURANCES. Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank's security interest in the Collateral or to effect the purposes of
this Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank's prior written
consent.
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, "TRANSFER"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, except for (a) Transfers of
Inventory in the ordinary course of business; (b) Transfers of worn-out or
obsolete Equipment; and (c) Transfers consisting of Permitted Liens and
Permitted Investments.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS
LOCATIONS. Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto, or have a material change in its ownership (other than by the sale of
Borrower's equity securities in a public offering or to venture capital
investors so long as Borrower identifies to Bank the venture capital investors
prior to the closing of the investment), or management. Borrower shall not,
without at least thirty (30) days prior written notice to Bank: (a) relocate its
chief executive office, or add any new offices or business locations, including
warehouses (unless such new offices or business locations contain less than Five
Thousand Dollars ($5,000.00) in Borrower's assets or property), or (b) change
its jurisdiction of organization, or (c) change its organizational structure or
type, or (d) change its legal name, or (e) change any organizational number (if
any) assigned by its jurisdiction of organization.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 ENCUMBRANCE. Create, incur, or allow any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein. The Collateral may also be subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS. (a) Directly or indirectly acquire
or own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (b) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock.
7.7 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower,
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b)
amend any provision in any document relating to the Subordinated Debt which
would increase the amount thereof or adversely affect the subordination thereof
to Obligations owed to Bank.
7.9 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company", under the Investment Company Act of 1940
or undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Advance for that purpose;
fail to meet the minimum funding requirements of ERISA, permit a Reportable
9
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower's business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an "Event
of Default") under this Agreement:
8.1 PAYMENT DEFAULT. Borrower fails to pay any of the Obligations
when due;
8.2 COVENANT DEFAULT. Borrower fails or neglects to perform any
obligation in Section 6 or violates any covenant in Section 7 or fails or
neglects to perform, keep, or observe any other material term, provision,
condition, covenant or agreement contained in this Agreement, any Loan
Documents, or in any present or future agreement between Borrower and Bank;
8.3 MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;
8.4 ATTACHMENT. (a) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or receiver;
(b) the service of process seeking to attach, by trustee or similar process, any
funds of Borrower or of any entity under control of Borrower (including a
Subsidiary) on deposit with Bank or any Bank Affiliate; (c) Borrower is
enjoined, restrained, or prevented by court order from conducting any part of
its business; or (d) a notice of lien, levy, or assessment is filed against any
of Borrower's assets by any government agency, and the same under clauses (a)
through (d) hereof are not, within ten (10) days after the occurrence thereof,
discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, no Advances shall be made during any ten (10) day cure
period;
8.5 INSOLVENCY. (a) Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within thirty (30) days (but no
Advances shall be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS. 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 Fifty Thousand Dollars
($50,000) or that could result in a Material Adverse Change;
8.7 JUDGMENTS. A judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Seventy-Five Thousand
Dollars ($75,000) (not covered by independent third-party insurance as to which
liability has been accepted by the insurance carrier) shall be rendered against
Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days
(provided that no Advances will be made prior to the satisfaction or stay of
such judgment);
8.8 MISREPRESENTATIONS. Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in writing delivered to Bank or to induce Bank
to enter this Agreement or any Loan Document, and such representation, warranty,
or other statement is incorrect in any material respect when made;
8.9 SUBORDINATED DEBT. A default or breach occurs under any
agreement between Borrower and any creditor of Borrower that signed a
subordination agreement, intercreditor, or other similar agreement with Bank, or
any creditor that has signed subordination agreement with Bank breaches any
terms of the subordination agreement;
10
8.10 GUARANTY. (a) Any guaranty of any Obligations terminates or
ceases for any reason to be in full force and effect; or (b) any Guarantor does
not perform any obligation or covenant under any guaranty of the Obligations; or
(c) any material misrepresentation or material misstatement exists now or later
in any warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty; or (iv) any
circumstance described in Section 7, or Sections 8.4, 8.5 or 8.7 occurs with
respect to any Guarantor or in the value of such collateral, or (v) the death,
liquidation, winding up, termination of existence, or insolvency of any
Guarantor.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. When an Event of Default occurs and
continues Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but
if an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's
benefit under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with
Account Debtors for amounts, on terms and in any order that Bank considers
advisable and notify any Person owing Borrower money of Bank's security interest
in such funds and verify the amount of such account. Borrower shall collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the Account Debtor, with proper
endorsements for deposit;
(d) Make any payments and do any acts it considers necessary
or reasonable to protect its security interest in the Collateral. Borrower shall
assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits
of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit
or the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby
granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower's labels, patents, copyrights, mask works, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
(g) Place a "hold" on any account maintained with Bank
and/or deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any control agreement or similar
agreements providing control of any Collateral; and
(h) Exercise all rights and remedies and dispose of the
Collateral according to the Code.
9.2 BANK EXPENSES; UNPAID FEES. If Borrower fails to obtain
insurance called for by Section 6.4 or fails to pay any premium thereon or fails
to pay any other amount which Borrower is obligated to pay under this Agreement
or by any other Loan Document, Bank may obtain such insurance or make such
payment, and all amounts so paid by Bank are Bank Expenses and immediately due
and payable, bearing interest at the then highest applicable rate, and secured
by the Collateral. Bank will make reasonable effort to provide Borrower with
notice of Bank obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
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9.3 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices regarding the safekeeping of Collateral in
possession or under the control of Bank, Bank shall not be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other Person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.4 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Bank has
all rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver hereunder shall be effective unless signed
by Bank and then is only effective for the specific instance and purpose for
which it was given.
9.5 DEMAND WAIVER. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.
10 NOTICES.
Notices or demands by either party about this Agreement must be in
writing and personally delivered or sent by an overnight delivery service, by
certified mail postage prepaid return receipt requested, or by fax to the
addresses listed at the beginning of this Agreement. A party may change notice
address by written notice to the other party.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Xxxxx County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower's actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE
THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Xxxxx County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
12
a jury, in Santa Xxxxx County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure xx.xx. 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Xxxxx
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure ss. 644(a). Nothing
in this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement binds and is for the
benefit of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.
12.2 INDEMNIFICATION. Borrower agrees to indemnify, defend, and hold
Bank and its officers, directors, employees, agents, attorneys or any other
Person affiliated with or representing Bank harmless against: (a) all
obligations, demands, claims, and liabilities (collectively, "Claims") asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from,
following, or arising from transactions between Bank and Borrower (including
reasonable attorneys' fees and expenses), except for Claims and/or losses caused
by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all Obligations in this Agreement.
12.4 SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.5 AMENDMENTS IN WRITING; INTEGRATION. All amendments to this
Agreement must be in writing signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject matter,
and supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, constitute
one Agreement.
12.7 BORROWER LIABILITY. Either Borrower may, acting singly, request
Advances hereunder. Each Borrower hereby appoints the other as agent for the
other for all purposes hereunder, including with respect to requesting Advances
hereunder. Each Borrower hereunder shall be obligated to repay all Advances made
hereunder, regardless of which Borrower actually receives said Advance, as if
each Borrower hereunder directly received ALL Advances. Notwithstanding any
other provision of this Agreement or other related document, each Borrower
13
irrevocably waives all rights that it may have at law or in equity (including,
without limitation, any law subrogating Borrower to the rights of Bank under
this Agreement) to seek contribution, indemnification or any other form of
reimbursement from any other Borrower, or any other Person now or hereafter
primarily or secondarily liable for any of the Obligations, for any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise and all rights that it might have to benefit from, or to participate
in, any security for the Obligations as a result of any payment made by Borrower
with respect to the Obligations in connection with this Agreement or otherwise.
Any agreement providing for indemnification, reimbursement or any other
arrangement prohibited under this Section shall be null and void. If any payment
is made to a Borrower in contravention of this Section, such Borrower shall hold
such payment in trust for Bank and such payment shall be promptly delivered to
Bank for application to the Obligations, whether matured or unmatured.
12.8 SURVIVAL. All covenants, representations and warranties made in
this Agreement continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement) have been satisfied. The obligation of Borrower
in Section 12.2 to indemnify Bank shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.
12.9 CONFIDENTIALITY. In handling any confidential information, Bank
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank's
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Advances (provided, however, Bank shall use commercially
reasonable efforts to obtain such prospective transferee's or purchaser's
agreement to the terms of this provision); (c) as required by law, regulation,
subpoena, or other order, (d) to Bank's regulators or as otherwise in connection
with Bank's examination or audit; and (e) as Bank considers appropriate in
exercising remedies under this Agreement. Confidential information does not
include information that either: (i) is in the public domain or in Bank's
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (ii) is disclosed to Bank by a third party, if Bank does
not know that the third party is prohibited from disclosing the information.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES. In any action or proceeding
between Borrower and Bank arising out of or related to the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys' fees and
other reasonable costs and expenses incurred, in addition to any other relief to
which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS. In this Agreement:
"ACCOUNT" is any "account" as defined in the Code with such additions to
such term as may hereafter be made, and includes, without limitation, all
accounts receivable and other sums owing to Borrower.
"ACCOUNT DEBTOR" is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker's
acceptance.
"ADJUSTED QUICK RATIO" is the ratio of Quick Assets to Current
Liabilities minus Deferred Revenue.
"ADJUSTMENTS" are all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor for any Financed Receivable.
"ADVANCE" is defined in Section 2.1.1.
"ADVANCE RATE" SIXTY PERCENT (60.0%), NET OF ANY OFFSETS RELATED TO EACH
SPECIFIC ACCOUNT DEBTOR, OR SUCH OTHER PERCENTAGE AS BANK ESTABLISHES UNDER
SECTION 2.1.1.
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"AFFILIATE" is a Person that owns or controls directly or indirectly the
Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person's senior executive officers, directors,
partners and, for any Person that is a limited liability company, that Person's
managers and members.
"APPLICABLE RATE" is a per annum rate equal to the Prime Rate plus two
and one-half percent (2.50%).
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Uniform Commercial Code as adopted in California, as
amended and as may be amended and in effect from time to time.
"COLLATERAL" is any and all properties, rights and assets of Borrower
granted by Borrower to Bank or arising under the Code, now, or in the future, in
which Borrower obtains an interest, or the power to transfer rights, as
described on EXHIBIT A.
"COLLATERAL HANDLING FEE" is defined in Section 2.2.4.
"COLLECTIONS" are all funds received by Bank from or on behalf of an
Account Debtor for Financed Receivables.
"COMPLIANCE CERTIFICATE" is attached as EXHIBIT B.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT PARTY" means Borrower, and each of Borrower's Subsidiaries.
"CURRENT LIABILITIES" is all obligations and liabilities of Borrower to
Bank, plus, without duplication, the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEFERRED REVENUE" is all amounts received or invoiced, as appropriate,
in advance of performance under contracts and not yet recognized as revenue.
"ELIGIBLE ACCOUNTS" are billed Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.3, have been, at the option of Bank, confirmed in accordance with
Section 2.1.1 (d), and are due and owing from Account Debtors deemed
15
creditworthy by Bank in its sole discretion . Without limiting the fact that the
determination of which Accounts are eligible hereunder is a matter of Bank
discretion in each instance, Eligible Accounts shall not include the following
Accounts (which listing may be amended or changed in Bank's discretion with
notice to Borrower):
(a) Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;
(b) Accounts for which the Account Debtor does not have its
principal place of business in the United States, unless agreed to by Bank in
writing, in its sole discretion, on a case-by-case basis;
(c) Accounts for which the Account Debtor is a federal, state or
local government entity or any department, agency, or instrumentality thereof
except for Accounts of the United States if the payee has assigned its payment
rights to Bank and the assignment has been acknowledged under the Assignment of
Claims Act of 1940 (31 U.S.C. 3727);
(d) Accounts for which Borrower owes the Account Debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(e) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, xxxx
and hold, or other terms if the Account Debtor's payment may be conditional;
(f) Accounts for which the Account Debtor is Borrower's Affiliate,
officer, employee, or agent;
(g) Accounts in which the Account Debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(h) Accounts for which Bank reasonably determines collection to be
doubtful or any Accounts which are unacceptable to Bank for any reason.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EVENTS OF DEFAULT" are set forth in Article 8.
"FACILITY AMOUNT" is Eleven Million Six Hundred Sixty-Six Thousand Six
Hundred Sixty-Seven Dollars ($11,666,667).
"FACILITY FEE" is defined in Section 2.2.2.
"FINANCE CHARGES" is defined in Section 2.2.3.
"FINANCED RECEIVABLES" are all those Eligible Accounts, including their
proceeds which Bank finances and makes an Advance, as set forth in Section
2.1.1. A Financed Receivable stops being a Financed Receivable (but remains
Collateral) when the Advance made for the Financed Receivable has been fully
paid.
"FINANCED RECEIVABLE BALANCE" is the total outstanding gross face
amount, at any time, of any Financed Receivable.
"GAAP" is generally accepted accounting principles.
"GOOD FAITH DEPOSIT" is defined in Section 2.2.8.
"GOVERNMENTAL AUTHORITY" is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.
16
"GUARANTOR" is any present or future guarantor of the Obligations.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"INVOICE TRANSMITTAL" shows Eligible Accounts which Bank may finance
and, for each such Account, includes the Account Debtor's, name, address,
invoice amount, invoice date and invoice number.
"INTELLECTUAL PROPERTY COLLATERAL" is defined in the IP Agreement.
"IP AGREEMENT" is that certain Intellectual Property Security Agreement
previously executed and delivered by Borrower to Bank.
"LOCKBOX" is defined in Section 2.2.7.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is: (i) A material impairment in the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral; (ii) a material adverse change in the business,
operations, or condition (financial or otherwise) of Borrower; or (iii) a
material impairment of the prospect of repayment of any portion of the
Obligations.
"MATURITY DATE" is January 29, 2009.
"OBLIGATIONS" are all advances, liabilities, obligations, covenants and
duties owing, arising, due or payable by Borrower to Bank now or later under
this Agreement or any other document, instrument or agreement, account
(including those acquired by assignment) primary or secondary, such as all
Advances, Finance Charges, Facility Fee, Collateral Handling Fee, interest,
fees, expenses, professional fees and attorneys' fees, or other amounts now or
hereafter owing by Borrower to Bank.
"PERFECTION CERTIFICATE" is a certain Perfection Certificate completed
and delivered by Borrower to Bank in connection with that certain Loan and
Security Agreement between the parties dated January 29, 2007.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's Indebtedness to Bank under this Agreement and the
other Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the
Perfection Certificate;
17
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the
ordinary course of business;
(e) Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;
(f) Indebtedness secured by Permitted Liens;
(g) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Perfection Certificate and existing on
the Effective Date;
(b) Cash Equivalents;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of Borrower;
(d) Investments consisting of deposit accounts in which Bank has a
perfected security interest;
(e) Investments accepted in connection with Transfers permitted by
Section 7.1;
(f) Investments of Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed $50,000 in
the aggregate in any fiscal year;
(g) Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower's Board of
Directors;
(h) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business; and
(i) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph
shall not apply to Investments of Borrower in any Subsidiary.
"PERMITTED LIENS" are:
(a) Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's Liens;
(c) purchase money Liens (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment securing no
more than $100,000 in the aggregate amount outstanding, or (ii) existing on
Equipment when acquired, IF the Lien is confined to the property and
improvements and the proceeds of the Equipment;
18
(d) statutory Liens securing claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other Persons imposed without
action of such parties, provided, they have no priority over any of Bank's Lien
and the aggregate amount of such Liens does not at any time exceed $50,000;
(e) Liens to secure payment of workers' compensation, employment
insurance, old-age pensions, social security and other like obligations incurred
in the ordinary course of business, provided, they have no priority over any of
Bank's Liens and the aggregate amount of the Indebtedness secured by such Liens
does not at any time exceed $50,000;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
(g) leases or subleases of real property granted in the ordinary
course of business, and leases, subleases, non-exclusive licenses or sublicenses
of property (other than real property or intellectual property) granted in the
ordinary course of Borrower's business, IF the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;
(h) non-exclusive license of intellectual property granted to third
parties in the ordinary course of business;
(i) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.4 or 8.7;
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"RECONCILIATION DAY" is the last calendar day of each month.
"RECONCILIATION PERIOD" is each calendar month.
"REGISTERED ORGANIZATION" is any "registered organization" as defined in
the Code with such additions to such term as may hereafter be made.
"REQUIREMENT OF LAW" is as to any Person, the organizational or
governing documents of such Person, and any law (statutory or common), treaty,
rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, President,
Chief Financial Officer and Controller of Borrower.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (pursuant to a subordination agreement entered into
between Bank, Borrower and the subordinated creditor), on terms acceptable to
Bank.
"SUBSIDIARY" is any Person, corporation, partnership, limited liability
company, joint venture, or any other business entity of which more than 50% of
the voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.
19
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.
[Signature pages follows.]
20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER:
I/O MAGIC CORPORATION
By /S/ XXXX XXXXXXX
----------------------------------------
Name: XXXX XXXXXXX
--------------------------------------
Title: CEO
-------------------------------------
IOM HOLDINGS, INC.
By /S/ XXXX XXXXXXX
----------------------------------------
Name: XXXX XXXXXXX
-------------------------------------
Title: CEO
------------------------------------
BANK:
SILICON VALLEY BANK
By /S/ XXX XXXXX
-----------------------------------------
Name: XXX XXXXX
--------------------------------------
Title: RELATIONSHIP MANAGER
-------------------------------------
21
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods, equipment, inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, general intangibles
(including payment intangibles) accounts (including health-care receivables),
documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing),
commercial tort claims, securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and any copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, now owned or later acquired;
any patents, trademarks, service marks and applications therefor; trade styles,
trade names, any trade secret rights, including any rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damages by way of any past, present and future infringement of any of the
foregoing; and all Borrower's books relating to the foregoing and any and all
claims, rights and interests in any of the above and all substitutions for,
additions, attachments, accessories, accessions and improvements to and
replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
A-1
EXHIBIT B
SPECIALTY FINANCE DIVISION
COMPLIANCE CERTIFICATE
I, an authorized officer of I/O Magic Corporation and IOM Holdings, Inc.
(jointly and severally, the "Borrower") certify under the Loan and Security
Agreement (the "Agreement") between Borrower and Silicon Valley Bank ("Bank") as
follows (all capitalized terms used herein shall have the meaning set forth in
the Agreement):
BORROWER REPRESENTS AND WARRANTS FOR EACH FINANCED RECEIVABLE:
Each Financed Receivable is an Eligible Account.
Borrower is the owner with legal right to sell, transfer, assign and encumber
such Financed Receivable;
The correct amount is on the Invoice Transmittal and is not disputed;
Payment is not contingent on any obligation or contract and Borrower has
fulfilled all its obligations as of the Invoice Transmittal date;
Each Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted Liens;
There are no defenses, offsets, counterclaims or agreements for which the
Account Debtor may claim any deduction or discount;
It reasonably believes no Account Debtor is insolvent or subject to any
Insolvency Proceedings;
It has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;
Bank has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral.
No representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.
ADDITIONALLY, BORROWER REPRESENTS AND WARRANTS AS FOLLOWS:
Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do
not conflict with Borrower's organizational documents, nor constitute an event
of default under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.
Borrower has good title to the Collateral, free of Liens except Permitted Liens.
All inventory is in all material respects of good and marketable quality, free
from material defects.
B-1
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted except where the failure to obtain or make such consents,
declarations, notices or filings would not reasonably be expected to cause a
Material Adverse Change.
All representations and warranties in the Agreement are true and correct in all
material respects on this date, and the Borrower represents that there is no
existing Event of Default.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
------------------------------------------------------ ---------------------------------------- ---------------------
REPORTING COVENANT REQUIRED COMPLIES
------------------------------------------------------ ---------------------------------------- ---------------------
------------------------------------------------------ ---------------------------------------- ---------------------
Monthly financial statements with Monthly within 30 days Yes No
Compliance Certificate
------------------------------------------------------ ---------------------------------------- ---------------------
Monthly A/R, A/P agings and Inventory Reports Monthly within 30 days Yes No
------------------------------------------------------ ---------------------------------------- ---------------------
Annual financial statement (CPA Audited) + XX XXX within 120 days Yes No
------------------------------------------------------ ---------------------------------------- ---------------------
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
------------------------------------------------------ ---------------------------------------- ---------------------
Board approved financial projections Within 30 days after beginning of fiscal Yes No
year
------------------------------------------------------ ---------------------------------------- ---------------------
------------------------------------------------------ ---------------------------------------- ---------------------
---------------------------------------------------------------------------------------------------------------------
NET CASH CALCULATION UNDER THE REVOLVING LINE OF CREDIT
------------------------------------------------------ --------------------------------------------------------------
Cash as of period ending ___________ $_______________
------------------------------------------------------ --------------------------------------------------------------
Current SVB Revolving Loan Outstanding Amount (net) $(_______________)
------------------------------------------------------ --------------------------------------------------------------
NET CASH BALANCE $_______________
------------------------------------------------------ --------------------------------------------------------------
[Remainder of Page Left Blank]
B-2
The following are the exceptions with respect to the certification above:
(If no exceptions exist, state "No exceptions to note.")
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
I/O MAGIC CORPORATION AGENT USE ONLY
Received by: _____________________
By:____________________________ AUTHORIZED SIGNER
Name: _________________________ Date: ___________________________
Title: ________________________
Verified: ________________________
IOM HOLDINGS, INC. AUTHORIZED SIGNER
Date: ___________________________
By:____________________________ Compliance Status: Yes No
Name: _________________________
Title: ________________________
B-3
