1
EXHIBIT 10.10
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as
of April 5, 1996, by and between SILICON VALLEY BANK, a California-chartered
bank ("Bank") with its principal place of business at 0000 Xxxxxx Xxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan production office located at
One Central Plaza, 00000 Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxxx
00000, doing business under the name "Silicon Valley East" and VISUAL
NETWORKS, INC., a Delaware corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing
to Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing.
"Advance" or "Advances" means an advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection
with the preparation, negotiation, administration, and enforcement of the
Loan Documents; and Bank's reasonable attorneys' fees
2
and expenses incurred in amending, enforcing or defending the Loan Documents,
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" has the meaning set forth in Section 2.1
hereof
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California or Maryland
are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Uniform Commercial Code, as the same may,
from time to time, be in effect in the State of Maryland.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Revolving Line" means One Million Five Hundred
Thousand Dollars ($1,500,000).
"Committed Equipment Line" means the maximum aggregate
amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000).
"Contingent Obligation" means, as applied to any Person,
any direct or indirect liability, contingent or otherwise, of that Person
with respect to (i) any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii)
all obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount equal
to the stated or determined amount of the primary obligation in respect of
which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith; provided, however, that such amount shall not
in any event exceed the maximum amount of obligations under the guarantee or
other support arrangement.
-2-
3
"Daily Balance" means the amount of the Obligations owed at
the end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided,
that standards of eligibility may be fixed and revised from time to time by
Bank in Bank's reasonable judgment and upon prior notification thereof to
Borrower in accordance with the provisions hereof. Unless otherwise agreed
to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor is
an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, xxxx and
hold, or other terms by reason of which the payment by the account debtor may
be conditional;
(e) Accounts with respect to which the account debtor is
an Affiliate (other than by virtue of being directly or indirectly under
common ownership or control with Borrower) of Borrower;
(f) Accounts with respect to which the account debtor
does not have its principal place of business in the United States and
Accounts arising from products shipped to or services provided to branches or
offices located in the United States of any account debtor that does not have
its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is
a federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(h) Accounts with respect to which Borrower is liable to
the account debtor for goods sold or services rendered by the account debtor
to Borrower, but only to the extent of any amounts owing to the account
debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such obligations
exceed the aforementioned percentage, except as approved in writing by Bank;
-3-
4
(j) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Equipment Term Note" means one of the two equipment term
notes now or hereafter delivered by Borrower to Bank in connection with the
Committed Equipment Line in substantially the form of Exhibits F and G and
"Equipment Term Notes" means collectively, the two equipment term notes which
may now or hereafter be delivered by Borrower to Bank in connection with the
Committed Equipment Line, together with all renewals, amendments,
modifications and substitutions therefore.
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated
thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed
money or the deferred purchase price of property or services, including
without limitation reimbursement and other obligations with respect to surety
bonds and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments (excluding stock which in accordance with
GAAP should be classified as "preferred stock" of Borrower), (c) all capital
lease obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by
or against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria; compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition
-4-
5
of any of the foregoing and any documents of title representing any of the
above, and Borrower's Books relating to any of the foregoing.
"Investment means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, the
Revolving Promissory Note, the Equipment Term Notes, and any other agreement
entered into between Borrower and Bank in connection with this Agreement, all
as amended or extended from time to time.
"Material Adverse Effect" means a material adverse effect
(i) on the value of the Collateral (taken as a whole) or the perfection or
priority of Bank's security interest on the Collateral (taken as a whole),
(ii) on the ability of Borrower to repay the Obligations or otherwise perform
its obligations under the Loan Documents, (iii) resulting from any
circumstance or event of whatever nature (including any adverse determination
in any litigation) which does, or could reasonably be expected to cause an
Event of Default.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and
Borrower's Books relating to any of the foregoing.
"Note" means the Revolving Promissory Note or an Equipment
Term Note, and "Notes" mean collectively the Revolving Promissory Note and
the Equipment Term Notes.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to the Notes,
this Agreement or any other agreement with Bank, whether absolute or
contingent, due or to become due, now existing or hereafter arising,
including any interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing from
Borrower to others that Bank may have obtained by assignment or otherwise.
"Payment Date" means the fifth calendar day of each month.
-5-
6
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay
to Bank pursuant to the terms and provisions of any instrument, or agreement
now or hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the
ordinary course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Warranty and product support obligations which arise
in the ordinary course and conduct of Borrower's business;
(g) Indebtedness in respect of taxes permitted under
Section 6.5; and
(h) Other Indebtedness, not otherwise permitted by
Section 7.4 not exceeding Fifty Thousand Dollars ($50,000) in the aggregate
outstanding at any time.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in
the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the
date of creation thereof and currently having the highest rating obtainable
from either Standard & Poor's Corporation or Xxxxx'x Investors Service, Inc.,
and (iii) certificates of deposit maturing no more than one (1) year from the
date of investment therein issued by Bank;
-6-
7
(c) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary course of
business; and
(d) Loans or advances to officers and employees approved
by the Board of Directors in an aggregate amount not in excess of Twenty
Thousand Dollars ($20,000) outstanding at any time.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any equipment acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by
the existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase; and
(e) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
-7-
8
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Treasurer, the Chief Financial Officer, the Vice
President of Finance and the Controller of Borrower.
"Revolving Maturity Date" means April 4, 1997.
"Revolving Promissory Note" means that certain Revolving
Promissory Note of even date herewith in substantially the form of Exhibit E
hereto in the maximum principal amount of $1,500,000 from Borrower in favor
of Bank, together with all renewals, amendments, modifications and
substitutions therefore.
"Schedule" means the schedule of exceptions attached hereto.
"Solvent" with respect to any Person, means that (i) the
fair value of all of such Person's properties and assets exceed the total
amount of its Indebtedness; (ii) it is able to pay its debts as they mature;
(iii) it does not have unreasonably small capital for the business in which
it is engaged or for any business or transaction in which it is about to
engage; and (iv) it is not "insolvent" as such term is defined in Section
101(31) of Title 11 of the United States Code, 11. U.S.C. Section 101, et
seq.
"Subordinated Debt" means any debt incurred by Borrower
that is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which
(i) any general partnership interest or (ii) more than fifty percent (50%) of
the stock of which by the terms thereof ordinary voting power to elect the
Board of Directors, managers or trustees of the entity shall, at the time as
of which any determination is being made, be owned by Borrower, either
directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the
amount thereof shall be determined, the consolidated total assets of Borrower
and its Subsidiaries minus, without duplication, (i) the sum of any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights
and research and development expenses except prepaid expenses, and (c) all
reserves not already deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made
-8-
9
in accordance with GAAP. When used herein, the terms "financial statements"
shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower in an aggregate
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the outstanding amount of all Equipment
Advances. For purposes of this Agreement, "Borrowing Base" shall mean an
amount equal to seventy percent (70%) of Eligible Accounts. Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time during the term of this
Agreement.
On the Closing Date, Borrower shall execute and deliver to Bank the
Revolving Promissory Note.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Washington, D.C.
time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto sent to Bank by confirmed
facsimile transmission. Bank is authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer, or
without instructions if in Bank's discretion such Advances are necessary to
meet Obligations which have become due and remain unpaid. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result
of such reliance. Bank will credit the amount of Advances made under this
Section 2.1 to Borrower's deposit account.
The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall
be immediately due and payable.
2.2 Equipment Advances.
(a) At any time from the date hereof through December 31,
1996 (the "Equipment Availability End Date"), Borrower may from time to time
request advances (each an "Equipment Advance" and collectively, the
"Equipment Advances") from Bank in an aggregate amount not to exceed the
Committed Equipment Line. Amounts borrowed pursuant to this Section 2.2 may
not be readvanced.
(b) Equipment Advances shall be made in one of two
tranches. All Equipment Advances made prior to June 30, 1996 (the "Tranche
One End Date") shall be evidenced by an Equipment Term Note ("Equipment Term
Note No. 1") to be executed and delivered by Borrower to Bank at the time of
the first Equipment Advance prior to the Tranche One End Date. All Equipment
Advances made prior to the Tranche
-9-
10
One End Date shall be governed by and repaid in accordance with the terms of
Equipment Term Note No. 1. All Equipment Advances made after the Tranche One End
Date, but prior to the Equipment Availability End Date shall be evidenced by an
Equipment Term Note ("Equipment Term Note No. 2") to be executed by Borrower and
delivered to Bank at the time of the first Equipment Advance after the Tranche
One End Date. All Equipment Advances made after the Tranche One End Date shall
be governed by and repaid in accordance with the terms of the Equipment Term
Note No. 2.
(c) Borrower shall deliver to Bank at the time of each
Equipment Advance an invoice for the equipment to be purchased or for any
equipment previously purchased by Borrower for which a borrowing under this
Agreement is permitted and has not been made. With respect to advances on
Equipment Term Note No. 1, Bank will only finance equipment purchased prior
to the Tranche One End Date, but on or after November 30, 1995. With respect
to advances on Equipment Term Note No. 2, Bank will only finance equipment
purchased after the Tranche One End Date and on or before the Equipment
Availability End Date. The Equipment Advances shall be used by Borrower only
to purchase equipment and shall not exceed ninety percent (90%) of the
invoice amount of such equipment approved from time to time by Bank,
excluding taxes, shipping, warranty charges, freight discounts and
installation expense. At no time shall Bank make any Equipment Advances if
after giving effect to such request the aggregate account then outstanding
would exceed the Committed Revolving Line or the Borrowing Base, whichever is
less.
(d) Interest shall accrue from the date of each Equipment
Advance at the rate specified in each of the Equipment Term Notes and shall
be payable monthly as provided therein. Any Equipment Advances that are
outstanding under the Equipment Term Note No. 1 on the Tranche One End Date
will be payable in thirty-six (36) equal consecutive monthly installments of
principal, plus all accrued interest, beginning on the Payment Date of each
month following the Tranche One End Date and thereafter on each subsequent
Payment Date. Any Equipment Advances that are outstanding under the
Equipment Term Note No. 2 on the Equipment Availability End Date will be
payable in thirty-six (36) equal consecutive monthly installments of
principal, plus all accrued interest, beginning on the Payment Date of each
month following the Equipment Availability End Date and continuing on each
subsequent Payment Date.
(e) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 1:00 p.m. Washington, D.C. time one
(1) Business Day before the day on which the Equipment Advance is to be
made. Such notice shall be substantially in the form of Exhibit B. The
notice shall be signed by a Responsible Officer and include a copy of the
invoice for the Equipment to be financed.
-10-
11
2.3 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Section 2.1 of
this Agreement is greater than the lesser of (i) the Committed Revolving Line
or (ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash,
the amount of such excess.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rate. All Advances shall bear interest, on
the average Daily Balance, at the rate or rates set forth in the Notes.
(b) Default Rate. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) Payments. Interest under each Note shall be due and
payable on the Payment Date of each month during the term thereof. Borrower
hereby authorizes Bank to debit, and Bank hereby agrees to debit, Account
Number 3300020208 maintained at Bank without notice for payments of principal
and interest due on the Obligations, but with prior notice for any other
amounts owing by Borrower to Bank, provided, however that after the
occurrence of any Event of Default, Borrower authorizes Bank to debit any
accounts of Borrower maintained with Bank. Bank will notify Borrower of all
debits which Bank makes against Borrower's accounts. Any such debits against
Borrower's accounts m no way shall be deemed a set-off. Any interest not
paid when due shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then applicable
hereunder.
(d) Computation. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest under the Notes
shall be increased or decreased effective as of 12:01 a.m. on the day the
Prime Rate is changed, by an amount equal to such change in the Prime Rate.
All interest chargeable under the Loan Documents shall be computed on the
basis of a three hundred sixty (360) day year for the actual number of days
elapsed.
2.5 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After
the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment on account unless such payment is of immediately available federal
funds or unless and until such check or other item of payment is honored when
presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 10:00 a.m.
Washington, D.C. time shall be deemed to have been received by Bank as of the
opening of business on the immediately following Business Day. Whenever any
payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not
-11-
12
a Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.6 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Seven Thousand
Five Hundred Dollars ($7,500), half of which fee has already been paid and
the balance of which fee ($3,750) shall be due on the Closing Date and once
paid shall be fully earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents,
provided that prior to the occurrence of a Default, Borrower shall only be
obligated to pay the expenses associated with two (2) such appraisal or
examinations, during any twelve (12) month period. Bank will keep the
results of any such appraisal or examination confidential in accordance with
the provisions of Section 12.8 hereof.
(c) Bank Expenses. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred through
the date hereof, including reasonable attorneys' fees and expenses, and,
after the date hereof, all Bank Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
2.7 Additional Costs. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of
America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets
held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement; and
the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to
Bank the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and
setting forth Bank's
-12-
13
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.8 Term. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 12.7,
shall continue in full force and effect for a term ending on the Revolving
Maturity Date. Notwithstanding the foregoing, Bank shall have the right to
terminate its obligation to make Advances under this Agreement immediately
and without notice upon the occurrence and during the continuance of an Event
of Default. Notwithstanding termination, Bank's Lien on the Collateral shall
remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of
Bank to make the initial Advance is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) the Revolving Promissory Note;
(c) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery
of this Agreement;
(d) an opinion of Borrower's counsel;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due
specified in Section 2.6 hereof; and
(h) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of
Bank to make each Advance, including the initial Advance, is further subject
to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and
-13-
14
on the effective date of each Advance as though made at and as of each such
date, and no Event of Default shall have occurred and be continuing, or would
result from such Advance. The making of each Advance shall be deemed to be a
representation and warranty by Borrower on the date of such Advance as to the
accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof. Borrower acknowledges that Bank may place a "hold" on any Deposit
Account pledged as Collateral to secure the Obligations.
4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank,
all Negotiable Collateral, all financing statements and other documents that
Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order
to fully consummate all of the transactions contemplated under the Loan
Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice,
from time to time during Borrower's usual business hours, to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrower's financial condition or the
amount, condition of, or any other matter relating to, the Collateral,
provided that Bank will use reasonable efforts so as not to interfere with
Borrower's business operations.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in,
and is in good standing in, any state in which the conduct of its business or
its ownership of property requires that it be so qualified., except where a
failure to be so qualified could not have a Material Adverse Effect.
5.2 Due Authorization: No Conflict. The execution, delivery,
and performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor
will they constitute an event of default under any
-14-
15
material agreement to which Borrower is a party or by which Borrower is bound.
Borrower is not in default under any agreement to which it is a party or by
which it is bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are
bona fide existing obligations. The property giving rise to such Eligible
Accounts has been delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor that is included in any Borrowing Base
Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name
other than that specified on the signature page hereof. The chief executive
office of Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are
no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
have a Material Adverse Effect or a material adverse effect on Borrower's
interest or Bank's security interest in the Collateral. Borrower does not
have knowledge of any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof
and Borrower's consolidated results of operations for the period then ended.
There has not been a material adverse change in the consolidated financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank.
5.9 Solvency. Borrower is Solvent.
5.10 Regulatory Compliance. Borrower and each Subsidiary has
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result
in Borrower's incurring any liability that could have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940. Borrower is not engaged principally, or as one of the important
activities, in the business of extending credit
-15-
16
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
To the best of Borrower's knowledge, Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. To the best of Borrower's
knowledge, Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release,
or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower's knowledge, none of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste
or hazardous substance disposal site, or a candidate for closure pursuant to
any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment
5.12 Taxes. Borrower and each Subsidiary has filed or caused to
be filed all tax returns required to be filed, or has applied for and
received extensions of the deadline for filing, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith and by appropriate proceedings.
5.13 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. To the best of its knowledge,
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all
notices to, all governmental authorities that are necessary for the continued
operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished
to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading in any material respect.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
-16-
17
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall
comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect.
6.3 Financial Statements, Reports, Certificates. Borrower
shall deliver to Bank: (a) as soon as available, but in any event within
thirty (30) days after the end of each month, a company prepared balance
sheet and income statement covering Borrower's operations during such period,
certified by an officer of Borrower (without any personal liability therefore
other than liability based on fraud or criminal misconduct) reasonably
acceptable to Bank; (b) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, audited financial
statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of
an independent certified public accounting firm reasonably acceptable to
Bank; (c) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; and (d) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable and accounts payable.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default
has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in
good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on
the same basis and in accordance with the usual customary practices of
Borrower, as they exist at the time of the execution and delivery of this
-17-
18
Agreement. Borrower shall promptly notify Bank of all returns and recoveries
and of all disputes and claims, where the return, recovery, dispute or claim
involves more than Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material
federal, state, and local taxes, assessments, or contributions required of it
by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof; and Borrower will
make, and will cause each Subsidiary to make, timely payment or deposit of
all material tax payments and withholding taxes required of it by applicable
laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating
that Borrower or a Subsidiary has made such payments or deposits; provided
that Borrower or a Subsidiary need not make any payment if the amount or
validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against
by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the Collateral
in amounts and of a type that are customary to businesses similar to
Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional
loss payee thereof as its interest- may appear and all liability insurance
policies shall show Bank as an additional insured, and shall specify that the
insurer must give at least twenty (20) days notice to Bank before canceling
its policy for any reason. Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Debt-Tangible Net Worth Ratio. Borrower shall maintain, as
of the last day of each calendar month, a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than .75 to 1.0. For purposes of this definition, deferred revenues shall
not be included in the calculation of Total Liabilities.
-18-
19
6.9 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar quarter, a Tangible Net Worth of not less than the
following amounts at the following times:
Quarter Ending: Minimum Tangible Net Worth:
--------------- ---------------------------
December 31, 1995 $1,000,000;
March 31, 1996 $2,500,000;
June 30, 1996 $2,000,000;
September 30, 1996
and at all times thereafter $1,800,000.
6.10 Profitability. Borrower shall not suffer a loss for any
fiscal quarter in excess of the following amounts at the following times:
Period Ending: Maximum Loss Permitted:
-------------- -----------------------
December 31,1995 $ 1,000,000;
March 31, 1996 $ 1,250,000;
June 30, 1996 $ 1,000,000;
September 30, 1996 $ 800,000;
December 3 1, 1996 $ 250,000;
and for the Fiscal Year 1996 ending
December 31, 1996 $2,500,000.
6.11 Minimum Cash. Borrower shall maintain, as of the last day
of each calendar month, cash, readily marketable securities and eligible
accounts, less all sums outstanding under the Obligations of not less than
One Million Dollars ($1,000,000).
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes
of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any
Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i)
Transfers of Inventory in the ordinary course of business; (ii) Transfers of
non-exclusive licenses and similar arrangements for the use of the property
of
-19-
20
Borrower or its Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment
made in the ordinary course of business; or (iv) other Transfers not to exceed
Fifty Thousand Dollars ($50,000) in the aggregate.
7.2 Change in Business. Engage in any business, or permit any
of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership, management or directors (other than changes due to
death or legal incapacity). Borrower will not, without thirty (30) days
prior written notification to Bank, relocate its chief executive office and
will promptly notify Bank if it receives notice that the lease for its
current location will not be renewed or will be terminated.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other
business organization, and Borrower will not acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, unless, (i) Borrower will be the surviving
entity, (ii) no Event of Default has occurred and is continuing, (iii) no
Material Adverse Effect will be caused by such an occurrence, and (iv)
Borrower and such other business organization deliver to Bank such
instruments, agreements and such other documents as Bank may request.
7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other
than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or
purchase of any capital stock in excess of Fifty Thousand Dollars ($50,000)
in the aggregate, provided that at such time no Event of Default has occurred
and is continuing or would exist after giving effect to such payment and no
Material Adverse Effect will be caused by such an occurrence.
7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm's length transaction
with a nonaffiliated Person.
-20-
21
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the
Subordinated Debt without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location
set forth in Section 10 hereof and such other locations of which Borrower
gives Bank prior written notice and as to which Borrower signs and files a
financing statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to
comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on
the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any
of the Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under
Sections 6.7, 6.8, 6.9, 6.10, or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can
be cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof,
provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by
-21-
22
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default (provided
that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material
impairment of the perfection or priority of Bank's security interest in the
Collateral or of the value of such Collateral which is not covered by
adequate insurance, or (ii) Bank determines, based upon information available
to it and in the exercise of its reasonable judgment, that there is a
reasonable likelihood that Borrower will fail to comply with one or more of
the affirmative covenants set forth in Section 6 during the next succeeding
financial reporting period;
8.4 Attachment. If any material portion of Borrower's assets
is attached, seized, subjected to a writ or distress warrant, or is levied
upon, or comes into the possession of any trustee, receiver or person acting
in a similar capacity and such attachment, seizure, writ or distress warrant
or levy has not been removed, discharged, bonded over or rescinded within ten
(10) days, or if Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim in excess of $50,000 in the
aggregate becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment for an amount
in excess of $50,000 is filed of record with respect to any of Borrower's
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within ten (10) days after Borrower receives
notice thereof, provided that none of the foregoing shall constitute an Event
of Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower (provided that no Advances
will be required to be made during such cure period);
8.5 Insolvency. If Borrower is no longer Solvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency
Proceeding is commenced against Borrower and is not dismissed or stayed
within thirty (30) days (provided that no Advances will be made prior to the
dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement
for borrowed money to which Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of One Hundred Thousand Dollars ($100,000) or that could have a
Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
-22-
23
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) 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);
or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or
representation set forth herein or in any certificate delivered to Bank by
any Responsible Officer pursuant to this Agreement or to induce Bank to enter
into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all
of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make such
Payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, for up to one hundred twenty (120) days
in order to exercise any of Bank's rights or remedies provided herein, at law,
in equity, or otherwise;
-23-
24
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and, in connection with Bank's exercise of its rights under
this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable (but in any event after ten
(10) days prior notice to Borrower of the date and time of any such sale);
(h) Bank may credit bid and purchase at any public sale;
and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the
Accounts; (b) endorse Borrower's name on any checks or other forms of payment
or security that may come into Bank's possession; (c) sign Borrower's name on
any invoice or xxxx of lading relating to any Account, drafts against account
debtors, schedules and assignments of Accounts, verifications of Accounts,
and notices to account debtors; (d) make, settle, and adjust all claims under
and decisions with respect to Borrower's policies of insurance; and (e)
settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; provided Bank may exercise such power of attorney to sign the
name of Borrower on any of the documents described in Section 4.2 regardless
of whether an Event of Default has occurred. The appointment of Bank as
Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. Effective only upon the occurrence and
during the continuance of an Event of Default, Bank may notify any Person owing
funds to Borrower of
-24-
25
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and immediately deliver such payments to Bank
in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement after notice from Bank, then Bank
may do any or all of the following: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Committed Revolving Line as Bank
deems necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.6
of this Agreement, and take any action with respect to such policies as Bank
deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate herein above provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by
Bank to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies
with reasonable banking practices, Bank shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one
right or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees at any time held by Bank on which Borrower may
in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in
-25-
26
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by a recognized overnight delivery service, certified mail,
postage prepaid, return receipt requested, or by telefacsimile to Borrower or to
Bank, as the case may be, at its addresses set forth below:
If to Borrower: Visual Networks, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxxx, Chief Financial Officer
FAX:(000) 000-0000
With a Copy to: Piper & Marbury, L.L.P.
0000 00xx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
If to Bank: Silicon Valley East
One Central Plaza
00000 Xxxxxxxxx Xxxx, Xxxxx000
Xxxxxxxxx, Xxxxxxxx 00000
Attn: X. Xxxxx Tower, Assistant Vice President
FAX: (000) 000-0000
With a Copy to: Silicon Valley Bank
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Loan Services
Fax: (000) 000-0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Maryland, without regard to
principles of conflicts of law. BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF MARYLAND IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND, AGAINST IT
WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT
IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF MARYLAND,
-26-
27
BORROWER ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA XXXXX COUNTY,
CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWING AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of
each of the parties; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which consent may be granted or withheld in Bank' s sole
discretion. Bank shall have the right without the consent of or notice to
Borrower to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in Bank's obligations, rights and benefits
hereunder, provided that in the case of a sale or transfer of all or a
portion of the Obligations evidenced by this Agreement and the other Loan
Documents, Bank will furnish Borrower with prior written notice of the name
and address of the intended transferee.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this
Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this
Agreement, or otherwise (including without limitation reasonable attorneys
fees and expenses), except for losses caused by Bank's gross negligence or
willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severabilitv of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot
be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and
-27-
28
negotiations between the parties hereto with respect to the subject matter of
this Agreement, if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify
Bank with respect to the expenses, damages, losses, costs and liabilities
described in Section 12.2 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against Bank
have run, provided that so long as the obligations set forth in the first
sentence of this Section 12.7 have been satisfied, and Bank has no commitment
to make any Advances or to make any other loans to Borrower, Bank shall
release all security interests granted hereunder and redeliver all Collateral
held by it in accordance with applicable law.
12.8 Confidentiality. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they
have entered into a comparable confidentiality agreement in favor of Borrower
and have delivered a copy to Borrower, (iii) as required by law, regulations,
rule or order, subpoena, judicial order or similar order and (iv) as may be
required in connection with the examination, audit or similar investigation
of Bank. Confidential information hereunder shall not include information
that either: (a) is in the public domain or in the knowledge or possession of
Bank when disclosed to Bank or becomes part of the public domain after
disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a
third party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information.
12.9 Countersignature. This Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided,
however, in on event shall this Agreement become effective until signed by
and officer of Bank in California).
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-28-
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VISUAL NETWORKS, INC.
By: /S Xxxxx X. Xxxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President/CEO
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /S X. Xxxxx Tower
----------------------------
X. Xxxxx Tower
Assistant Vice President
SILICON VALLEY BANK
By:
----------------------------
Name:
Title:
(Signed in Santa Xxxxx County, California)
-29-
