LOAN AND SECURITY AGREEMENT
EXHIBIT
10.1
THIS
LOAN AND SECURITY AGREEMENT
(this
“Agreement”)
dated
as of August 4, 2006 (the "Effective
Date")
among
(i) SILICON
VALLEY BANK,
a
California corporation and with a loan production office located at One Xxxxxx
Executive Park, Suite 200, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000
(“Bank”),
and
(ii)
TECHNEST
HOLDINGS, INC.,
a
Nevada corporation, with offices at 0 XxXxxxxx Xx., Xxxxx Xxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 (“Technest”),
E-OIR
TECHNOLOGIES, INC.,
a
Virginia corporation, with offices at 00000 Xxxxxxxxxxxx Xxx., Xxxxx 000,
Xxxxxxxxxxxxxx, Xxxxxxxx 00000 (“EOIR”),
and
GENEX
TECHNOLOGIES INCORPORATED,
a
Maryland corporation, with offices at 00000 Xxxxx Xxxx Xxxxx, Xxxxx 000,
Xxxxxxxx, Xxxxxxxx 00000 (“Genex”)
(hereinafter, Technest, EOIR and Genex are jointly and severally, individually
and collectively, referred to as “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. Capitalized terms
not otherwise defined 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 meaning 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 outstanding principal
amount of all Credit Extensions and accrued and unpaid interest thereon as
and
when due in accordance with this Agreement.
2.1.1
Term
Loan.
(a) Availability.
Subject
to the terms and conditions of this Agreement, Bank agrees to lend to Borrower,
from time to time prior to the February 15, 2007, term loan advances (each
a
“Term
Advance”
and
collectively the “Term
Advances”)
in an
aggregate amount not to exceed the Term Loan Amount. The first Term Advance,
which shall be requested on the Effective Date, shall be in an amount equal
to
Three Million Dollars ($3,000,000.00) (the “Initial Term Advance”). In addition,
subject to the Bank’s receipt of the various documents required to be delivered
by Borrower to Bank on a monthly basis pursuant to Section 6.2 with respect
to
each month through and including the month ending December 31, 2006, and if
no
Event of Default has occurred or is continuing, the Borrower may request a
second Term Advance in an amount not to exceed One Million Dollars
($1,000,000.00) (the “Second Term Advance”). The aggregate principal amount of
the Initial Term Advance and the Second Term Advance shall not exceed the Term
Loan Amount. When repaid, the Term Advances may not be re-borrowed. Bank’s
obligation to lend hereunder shall terminate on the earlier of (i) the
occurrence and continuance of an Event of Default, or (ii) February 15,
2007.
(b) Repayment.
Borrower shall repay:
(i) the
Initial
Term Advance in thirty-six (36) equal installments of principal, plus monthly
payments of accrued interest, commencing on September 1, 2006, (individually,
the “Scheduled Payment”, and collectively the “Scheduled Payments”);
and
(ii) the
Second
Term Advance (as applicable) in thirty-six (36) equal installments of principal,
plus monthly payments of accrued interest, commencing on the first date of
the
month following the date of the Second Term Advance (the “Second Term Advance
Scheduled Payments”), as applicable (the Scheduled Payments and the Second Term
Advance Scheduled Payments, collectively, as applicable, the “Term
Loan Payment”).
Beginning
on the first day of the month following the month in which the Funding Date
occurs, each Term Loan Payment shall be payable on the first day of each month.
Borrower’s final Term Loan Payment, due on the Commitment Termination Date,
shall include all outstanding principal and accrued and unpaid interest under
the Term Loan.
(c) Prepayment
Fee.
Borrower
will pay to Bank a Prepayment Fee equal to: (i) three percent (3.0%) of the
amount of any Term Advance prepaid during the first year of the Term Loan and
(ii) two percent (2.0%) of the amount of any Term Advance prepaid for each
year
thereafter, prior to the Commitment Termination Date. Notwithstanding the
foregoing, Bank agrees to waive the Prepayment Fee if Bank refinances and
re-documents this Agreement under another division of Bank (in its sole and
exclusive discretion) prior to the Commitment Termination Date.
2.2
Payment
of Interest on the Credit Extensions.
(a) Interest
Rate.
Subject
to Section 2.2(b), the principal amount of Term Advances outstanding shall
initially accrue interest at a floating per annum rate equal to two and
three-quarters of one percentage points (2.75%) above the Prime Rate, which
interest shall be payable monthly. Upon the Borrower’s achieving a Fixed Charge
Coverage Ratio of at least 1.75 to 1.0 for three (3) consecutive fiscal quarters
after the Effective Date, the principal amount of Term Advances outstanding
shall accrue interest at a floating per annum rate equal to two percentage
points (2.00%) above the Prime Rate, which interest shall be payable monthly.
Upon the Borrower’s achieving a Fixed Charge Coverage Ratio of at least 2.0 to
1.0 for three (3) consecutive fiscal quarters after the Effective Date, the
principal amount of Term Advances outstanding shall accrue interest at a
floating per annum rate equal to one and one-half of one percentage points
(1.50%) above the Prime Rate, which interest shall be payable
monthly.
(b) Default
Rate.
Immediately upon the occurrence and during the continuance of an Event of
Default, Obligations shall bear interest at a rate per annum which is five
percentage points above the rate effective immediately before the Event of
Default (the “Default
Rate”).
Payment
or acceptance of the increased interest rate provided in this Section 2.2(b)
is
not a permitted alternative to timely payment and shall not constitute a waiver
of any Event of Default or otherwise prejudice or limit any rights or remedies
of Bank.
(c) Adjustment
to Interest Rate.
Changes
to the interest rate of any Credit Extension based on changes to the Prime
Rate
shall be effective on the effective date of any change to the Prime Rate and
to
the extent of any such change.
(d) 360-Day
Year.
Interest shall be computed on the basis of a 360-day year for the actual number
of days elapsed.
(e) Debit
of Accounts.
Bank
may debit any of Borrower’s deposit accounts, including the Designated Deposit
Account, for principal and interest payments or any other amounts Borrower
owes
Bank when due. These debits shall not constitute a set-off.
(f) Payments.
Unless
otherwise provided, interest is payable monthly on the first calendar day of
each month. Payments of principal and/or interest received after 12:00 noon
Eastern time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest, as
applicable, shall continue to accrue.
2.3
Fees.
Borrower shall pay to Bank:
(a) Facility
Fee.
A fully
earned, non-refundable facility fee of Twelve Thousand Five Hundred Dollars
($12,500.00), on the Effective Date;
(b) Prepayment
Fee.
The
Prepayment Fee, when due hereunder; and
(c) Bank
Expenses.
All
Bank Expenses (including reasonable attorneys’ fees and expenses, plus expenses,
for documentation and negotiation of this Agreement) incurred through and after
the Effective Date, when due.
3
CONDITIONS
OF LOANS
3.1
Conditions
Precedent to Initial Credit Extension.
Bank’s
obligation to make the initial Credit Extension is subject to the 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 (with respect to each Borrower),
including, without limitation:
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(a) Duly
executed original signatures to the Loan Documents to which it is a
party;
(b) Duly
executed original signatures to the Control Agreements;
(c) Borrower
shall have delivered its Operating Documents and a good standing certificate
of
Borrower certified by the Secretary of State of the state in which each Borrower
is organized as of a date no earlier than thirty (30) days prior to the
Effective Date;
(d) Duly
executed original signatures to the completed Borrowing Resolutions for
Borrower;
(e) Borrower
shall have delivered the duly executed Subordination Agreements, as required
by
Bank;
(f) Bank
shall have received certified copies, dated as of a recent date, of financing
statement searches, as Bank shall request, accompanied by written evidence
(including any UCC termination statements) that the Liens indicated in any
such
financing statements either constitute Permitted Liens or have been or, in
connection with the initial Credit Extension, will be terminated or
released;
(g) Intentionally
omitted;
(h) Borrower
shall have delivered a legal opinion of Borrower’s counsel dated as of the
Effective Date;
(i) Borrower
shall have delivered the duly
executed original signatures to
the
Guaranty and Stock Pledge Agreement, together with the completed Borrowing
Resolutions for Guarantor;
(j) Borrower
shall have delivered a legal opinion of Guarantor’s counsel dated as of the
Effective Date;
(k) Borrower
shall have delivered a duly executed registration rights agreement in form
and
substance reasonably acceptable to Bank;
(l) Borrower
shall have delivered the insurance policies and/or endorsements required
pursuant to Section 6.5 hereof;
(m)
Borrower
shall have paid the fees and Bank Expenses then due as specified in Section
2.3
hereof;
(n) Borrower
shall have delivered satisfactory evidence of the release of all claims held
by
and the termination of any litigation brought by Xxxxxx Xxxxxxx against each
Borrower, in form and substance satisfactory to Bank;
(o) payoff
letter from existing lienholders;
(p) the
Initial Audit; and
(q) such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.
3.2
Conditions
Precedent to all Credit Extensions.
Bank’s
obligations to make each Credit Extension, including the initial Credit
Extension, is subject to the following:
(a) except
as
otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance
Form;
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(b) the
representations and warranties in Section 5 shall be true in all material
respects on the date of the Payment/Advance Form and on the Funding Date of
each
Credit Extension; provided, however, that such materiality qualifier shall
not
be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further
that
those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such
date,
and no
Default or Event of Default shall have occurred and be continuing or result
from
the Credit Extension. Each Credit Extension is Borrower’s representation and
warranty on that date that the representations and warranties in Section 5
remain true in all material respects; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that
those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such
date;
and
(c) in
Bank’s
determination at Bank’s sole discretion, there has not been a Material Adverse
Change in the general affairs, management, results of operation, financial
condition or the prospect of repayment of the Obligations, or there has not
been
any material adverse deviation by Borrower from the most recent business plan
of
Borrower presented to and accepted by Bank.
3.3
Covenant
to Deliver.
Borrower
agrees to deliver to Bank each item required to be delivered to Bank under
this
Agreement as a condition to any Credit Extension. Borrower expressly agrees
that
the extension of a Credit Extension prior to the receipt by Bank of any such
item shall not constitute a waiver by Bank of Borrower’s obligation to deliver
such item, and any such extension in the absence of a required item shall be
at
Bank’s sole discretion.
3.4
Procedures
for Borrowing.
Subject
to the prior satisfaction of all other applicable conditions to the making
of
the Term Loan set forth in this Agreement, if any portion of the proceeds of
the
Term Loan shall be used to purchase or finance Equipment, Borrower shall deliver
to Bank by electronic mail or facsimile a copy of the invoice for the Equipment
to be purchased and the request for the Term Loan.
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, a continuing security interest in, and pledges to Bank,
the Collateral, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof. Borrower represents, warrants,
and covenants that the security interest granted herein is and shall at all
times continue to be a first priority perfected security interest in the
Collateral (subject only to Permitted Liens that may have superior priority
to
Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort
claim, Borrower shall promptly notify Bank in a writing signed by Borrower
of
the general 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 reasonably satisfactory
to Bank.
If
this
Agreement is terminated, Bank’s Lien on the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full
in
cash. Upon payment in full in cash of the Obligations and
at
such time as Bank’s obligation to make Credit Extensions shall have terminated,
Bank shall, at Borrower’s sole cost and expense, release its Liens on the
Collateral and all rights therein shall revert to Borrower.
4.2
Authorization
to File Financing Statements.
Borrower hereby authorizes Bank to file financing statements, without notice
to
Borrower, with all appropriate jurisdictions to perfect or protect Bank’s
interest or rights hereunder, including a notice that any disposition of the
Collateral, by either Borrower or any other Person, shall be deemed to violate
the rights of Bank under the Code.
5
REPRESENTATIONS
AND WARRANTIES
Borrower
represents and warrants as follows:
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5.1
Due
Organization and Authorization.
Borrower and each of its Subsidiaries are duly existing and in good standing,
as
Registered Organizations 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 business or their 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 delivered to Bank
completed certificates each signed by Borrower and Guarantor, respectively
(the
“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 Borrower’s place of business, or,
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. 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 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 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 to, 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 and the deposit accounts,
if
any, described in the Perfection Certificate delivered to Bank in connection
herewith.
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.
All
Inventory is in all material respects of good and marketable quality, free
from
material defects.
Borrower
owns or has the right to use the intellectual property used in its business,
and
except as set forth in the Disclosure Schedule attached hereto, Borrower has
not
granted any exclusive licenses to use its intellectual property. To Borrower’s
knowledge, each of its patents 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 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 Disclosure Schedule
attached hereto, Borrower is not a party to, nor is bound by, any license or
other agreement with respect to which Borrower is the 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
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 (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.
5.3
Litigation.
Except
as set forth on the Disclosure Schedule attached hereto, there are no actions
or
proceedings pending or, to the knowledge of the Responsible Officers, threatened
in writing by or against Borrower or any of its Subsidiaries involving more
than
Two Hundred and Fifty Thousand Dollars ($250,000.00).
5.4
No
Material Deviation in Financial Statements.
All
consolidated financial statements for Borrower and any of its Subsidiaries
delivered to Bank fairly present in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated results of
operations in accordance with GAAP. 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.
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5.5
Solvency.
The
fair salable value of Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; Borrower will not be left
with
unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its debts (including trade debts) as
they
mature.
5.6
Regulatory
Compliance.
Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to have a material adverse effect on its business.
None of Borrower’s or any of its Subsidiaries’ 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 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 its business as currently
conducted.
5.7
Investments.
Borrower does not own any stock, partnership interest or other equity securities
except for Permitted Investments and except for Technest’s ownership of EOIR and
Genex.
5.8
Tax
Returns and Payments; Pension Contributions.
Borrower has timely filed all required tax returns and reports, and Borrower
and
its Subsidiaries have timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer
payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly
and
diligently instituted and conducted, (b) notifies Bank in writing of the
commencement of, and any material development in, the proceedings, (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a “Permitted Lien”. Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result
in
additional taxes becoming due and payable by Borrower. Borrower has paid all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect
to,
any such 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.
5.9
Use
of Proceeds.
Borrower shall use the proceeds of the Credit Extensions solely to fund its
general business requirements and not for personal, family, household or
agricultural purposes.
5.10 Inactive
Subsidiary.
Argus
Sensors, Inc. a Delaware corporation, and a Subsidiary of Technest, does not
and
will not conduct any business or own any assets and will remain an inactive
entity.
5.11 Litigation
with Xxxxxx Xxxxxxx.
The
litigation matter with Xxxxxx Xxxxxxx described on the Disclosure Schedule
has
been settled in full (with respect to each Borrower), contingent only upon
certain payments being made as described on the Disclosure Schedule. Aside
from
the making of the payments described on the Disclosure Schedule, all other
conditions precedent to the Settlement Agreement have been satisfied in full.
5.12 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 given 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 the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are
not
viewed as facts and that actual results during the period or periods covered
by
such projections and forecasts may differ from the projected or forecasted
results).
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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
their respective jurisdictions 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, the 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 consolidated balance sheet and income
statement covering Borrower’s 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 acceptable to Bank in its reasonable discretion;
(iii) within five (5) days of delivery, copies of all statements, reports
and notices made available to Borrower’s security holders or to any holders of
Subordinated Debt; (iv) in the event that Borrower becomes subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended,
within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission or a link thereto on Borrower’s or
another website on the Internet; (v) a prompt report of any legal actions
pending or threatened against Borrower or any of its Subsidiaries that is likely
to result in damages or costs to Borrower or any of its Subsidiaries of Fifty
Thousand Dollars ($50,000.00) or more; (vi) prompt notice of an event that
materially and adversely affects the value of Borrower’s intellectual property;
and (vii) budgets, sales projections, operating plans, and other financial
information reasonably requested by Bank.
(b)
Within
thirty (30) days after the last day of each month, deliver to Bank an aged
listings of accounts receivable and accounts payable (by invoice
date).
(c)
Within
thirty (30) days after the last day of each month, deliver to Bank with the
monthly financial statements, a duly completed Compliance Certificate signed
by
a Responsible Officer setting forth calculations showing compliance with the
financial covenants set forth in this Agreement.
(d)
Allow
Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits shall be
conducted no more often than once every twelve (12) months unless a Default
or
an Event of Default has occurred and is continuing. Notwithstanding the
foregoing, no Credit Extension may be requested prior to the Initial
Audit.
(e)
Within
thirty (30) days after the last day of each month, deliver to Bank a funded
backlog schedule, in form acceptable to Bank.
(f) Within
thirty (30) days after the last day of each month, deliver to Bank a deferred
revenue report, in form acceptable to Bank.
6.3 Inventory;
Returns.
Keep
all Inventory in good and marketable condition, free from material defects.
Returns and allowances between Borrower and its Account Debtors shall follow
Borrower’s customary practices as they exist at the Effective Date. Borrower
must promptly notify Bank of all returns, recoveries, disputes and claims that
involve more than Two Hundred Fifty Thousand Dollars ($250,000.00) in the
aggregate.
6.4 Taxes.
Make,
and cause each of its Subsidiaries to make, timely payment of all foreign,
federal, state, and local taxes or assessments (other than taxes and assessments
which Borrower is contesting pursuant to the terms of Section 5.8 hereof) and
shall deliver to Bank, on demand, appropriate certificates attesting to such
payments, and pay
all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.
6.5 Insurance.
Keep
its
business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location 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 loss payable
endorsement showing Bank as an additional loss payee and waive subrogation
against Bank, and all liability policies shall show, or have endorsements
showing, Bank as an additional insured. All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer must give Bank
at least twenty (20) days notice before canceling, amending, or declining to
renew its policy. At Bank’s request, Borrower shall deliver certified copies of
policies and evidence of all premium payments. If Borrower fails to obtain
insurance as required under this Section 6.5 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 6.5, and take any action under the policies Bank deems
prudent.
-7-
6.6 Operating
Accounts.
(a) Maintain
its and its Subsidiaries’ primary operating accounts and securities accounts
with Bank and Bank’s affiliates and
a
majority of Borrower’ s and such Subsidiaries’ cash or securities in excess of
that amount used for Borrower’ s or such Subsidiaries’ current operations shall
be maintained at Bank and Bank’s affiliates.
Notwithstanding
the termination of the Receivables Loan and Security Agreement, Borrower shall
at all times maintain the Lockbox (as such term is defined therein) required
by
the Receivables Loan and Security Agreement.
(b) Provide
Bank five (5) days prior written notice before establishing any Collateral
Account at or with any bank or financial institution other than Bank or its
Affiliates. In addition, for each Collateral Account that Borrower or Guarantor
at any time maintains, Borrower shall cause the applicable bank or financial
institution (other than Bank) at or with which any Collateral Account is
maintained to execute and deliver a Control Agreement or other appropriate
instrument with respect to such Collateral Account to perfect Bank’s Lien in
such Collateral Account in accordance with 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 and identified to Bank by Borrower as
such.
6.7 Financial
Covenants.
Borrower
shall maintain at all times, to be tested as of the last day of each month,
unless otherwise noted, on a
consolidated basis:
(a) Quick
Ratio.
If for
any one or more of the monthly reporting periods set forth herein the Borrower
reports that the ratio of Quick Assets to Current Liabilities is less than:
|
Reporting
Period End Dates
|
Minimum
Quick Ratio
|
|
Effective
Date through November 30, 2006
|
0.70
to 1.0
|
|
December
31, 2006 through May 31, 2007
|
0.85
to 1.0
|
|
June
30, 2007 through August 31, 2007
|
1.0
to 1.0
|
|
September
30, 2007 and all monthly reporting periods thereafter
|
1.20
to 1.0
|
then
the
sum of (a) Borrower’s unrestricted cash at the Bank, plus
(b)
eighty percent (80.0%) of the Borrower’s Eligible Accounts, minus
(c) the
Borrower’s outstanding Obligations as defined in the Receivables Loan and
Security Agreement, must exceed $2,000,000.00.
(b) Fixed
Charge Coverage Ratio.
A
monthly Fixed Charge Coverage Ratio measured on the last day of every month,
for
the three (3) month period ending on the last day of such month, of at least
1:0
to 1:0 through periods ending November 30, 2006; at least 1.25:1.0 for periods
ending on December 31, 2006 through May 31, 2007; and at least 1.50:1.0 for
all
periods thereafter.
6.8 Protection
and Registration of Intellectual Property Rights.
Borrower shall: (a) protect, defend and maintain the validity and enforceability
of its intellectual property material to its business; (b) promptly advise
Bank
in writing of material infringements of any of its intellectual property
material to its business; and (c) not allow any intellectual property material
to Borrower’s business to be abandoned, forfeited or dedicated to the public
without Bank’s written consent. If Borrower decides to register any copyrights
or mask works in the United States Copyright Office, Borrower shall: (x) provide
Bank with at least fifteen (15) days prior written notice of its intent to
register such copyrights
or mask works together with a copy of the application it intends to file with
the United States Copyright Office (excluding exhibits thereto); (y) execute
an
intellectual property security agreement or such other documents as Bank may
reasonably request to maintain the perfection and priority of Bank’s security
interest in the copyrights or mask works intended to be registered with the
United States Copyright Office; and (z) record such intellectual property
security agreement with the United States Copyright Office contemporaneously
with filing the copyright or mask work application(s) with the United States
Copyright Office. Borrower shall promptly provide to Bank a copy of the
application(s) filed with the United States Copyright Office together with
evidence of the recording of the intellectual property security agreement
necessary for Bank to maintain the perfection and priority of its security
interest in such copyrights or mask works. Borrower shall provide written notice
to Bank of any application filed by Borrower in the United States Patent and
Trademark Office for a patent or to register a trademark or service xxxx within
30 days after any such filing.
-8-
6.9 Litigation
Cooperation.
From
the date hereof and continuing through the termination of this Agreement,
make
available to Bank, without expense to Bank, Borrower and its officers, employees
and agents and Borrower's books and records, to the extent that Bank may deem
them reasonably necessary to prosecute or defend any third-party suit or
proceeding instituted by or against Bank with respect to any Collateral or
relating to Borrower.
6.10
Landlord’s
Waivers.
Borrower shall deliver to Bank, on or before the date that is fourteen (14)
calendar days from the Effective Date, a fully-executed landlord’s waiver, in
form and substance acceptable to Bank in its reasonable discretion, with respect
to Borrower’s location at 00000 Xxxxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxxxxxx,
Xxxxxxxx 00000. Borrower shall use its best efforts to deliver to Bank, on
or
before the date that is fourteen (14) calendar days from the Effective Date,
a
fully-executed landlord’s waiver, in form and substance acceptable to Bank in
its reasonable discretion, with respect to the following locations: (a) Xxxxxxx
Square Office Park, 0000 Xxxx Xxxxx, Xxxxxxxxxxxxxx, Xxxxxxxx 00000, and (b)
Xxxxxxx Xxxxxx Xxxxxx Xxxx, 0000 Xxxx Xxxxx, Xxxxxxxxxxxxxx, Xxxxxxxx
00000.
6.11
Further
Assurances.
Borrower shall execute any further instruments and take further action as Bank
reasonably requests to perfect or continue Bank’s Lien 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, which
consent shall not be unreasonably withheld:
7.1
Dispositions.
Convey,
sell, lease, transfer or otherwise dispose of (collectively, “Transfer”),
or
permit any of its Subsidiaries to Transfer, all or any part of its business
or
property, except for Transfers (a) of Inventory in the ordinary course of
business; (b) of worn-out or obsolete Equipment; and (c) in connection with
Permitted Liens and Permitted Investments. Borrower shall not enter into an
agreement with any Person other than Bank which restricts the subsequent
granting of a security interest in the Intellectual Property.
7.2
Changes
in Business, Management, Ownership, Control, or Business
Locations.
Except
as permitted by Section 7.3 hereof, (a) engage in or permit any of its
Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower and such Subsidiary, as applicable, or reasonably related
thereto; (b) liquidate or dissolve; or (c) (i) have the departure of
any Key Person, or (ii) enter
into any transaction or series of related transactions in which the stockholders
of Borrower immediately prior to the first such transaction own less than 50%
of
the voting stock of Borrower immediately after giving effect to such transaction
or related series of such transactions
(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 transaction). Borrower shall
not,
without at least thirty (30) days prior written notice to Bank: (1) add any
new offices or business locations, including warehouses (unless such new offices
or business locations contain less than Ten Thousand Dollars ($10,000.00) in
Borrower’s assets or property), (2) change its jurisdiction of organization,
(3) change its organizational structure or type, (4) change its legal name,
or (5) 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.
-9-
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,or
enter
into any agreement, document, instrument or other arrangement (except with
or in
favor of Bank) with any Person which directly or indirectly prohibits or has
the
effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging,
pledging, granting a security interest in or upon, or encumbering any of
Borrower’s or any Subsidiary’s intellectual property, except as is otherwise
permitted in Section 7.1 hereof and the definition of “Permitted Lien”
herein.
7.6
Maintenance
of Collateral Accounts.
Maintain any Collateral Account except pursuant to the terms of Section 6.6(b)
hereof.
7.7
Distributions;
Investments.
(a)
Directly or indirectly make any Investment 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.
Borrower
may repurchase the stock of former employees or consultants pursuant to stock
repurchase agreements so long as an Event of Default does not exist at the
time
of such repurchase and would not exist after giving effect to such repurchase,
provided such repurchase does not exceed in the aggregate of $200,000 per fiscal
year.
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 non-affiliated Person. Notwithstanding the foregoing, the Borrower may not
make any direct or indirect payment, transfer or other distribution to Xxxxxxxx,
except for (a) loan payments to Xxxxxxxx made in accordance with the Disclosure
Schedule, (b) payments to Xxxxxxxx pursuant to the Stockholder Agreement in
effect on the Effective Date and as set forth on the Disclosure Schedule, and
(c) payments for services rendered by Xxxxxxxx in the ordinary course of
business, provided, that, in the case of (a) through (b) above, Borrower
provides prior written notice to Bank within thirty (30) days of any such
payment, which notice contains the amount of such payment, the purpose of such
payment, and a specific reference to this Section 7.8, and provided further,
that, in the case of (a) through (c) above, no Event of Default exists or would
result at any time after giving effect to such transaction, either immediately
or solely as a result of the passage of time.
7.9
Subordinated
Debt.
Make or
permit any payment on any Subordinated Debt, except under the terms of the
Subordinated Debt or amend any provision in any document relating to the
Subordinated Debt, without Bank’s prior written consent.
7.10
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 Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonably be expected to have a material adverse effect on Borrower’s
business, or 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:
-10-
8.1
Payment
Default.
Borrower
fails to (a) make any payment of principal or interest on any Credit
Extension on its due date, or (b) pay any other Obligations within three
(3) Business Days after such Obligations are due and payable (which three day
grace period will not apply to payments due on the Maturity Date). During the
cure period, the failure to cure the payment default is not an Event of Default
(but no Credit Extension will be made during the cure period);
8.2
Covenant
Default.
(a) Borrower
fails or neglects to perform any obligation in Sections 6.2, 6.6, 6.7 or
violates any covenant in Section 7; or
(b) Borrower
fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant or agreement contained in this Agreement, any Loan
Documents, and as to any default (other than those specified in this Section
8
below) under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely
to
be cured within a reasonable time, then Borrower shall have an additional 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 cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be
made
during such cure period). Grace periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in subsection (a) above;
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 and the attachment, seizure or levy
is
not removed in ten (10) days; (b) the service of process upon Bank (or
Bank’s Affiliate) seeking to attach, by trustee or similar process, any funds
of, or of any entity under control of Borrower (including a Subsidiary) on
deposit with the Bank; (c) Borrower is enjoined, restrained, or prevented by
court order from conducting a material part of its business; (d) a judgment
or
other claim in excess of One Hundred Thousand Dollars ($100,000.00) becomes
a
Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment
is filed against any of Borrower’s assets by any government agency and not paid
within ten (10) days after Borrower receives notice. These are not Events of
Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions shall be made during the 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 Credit Extensions 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.
There
is a default in any agreement to which Borrower or any Guarantor 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 ($100,000.00) or that could
have a material adverse effect on Borrower’s or any Guarantor’s
business;
8.7
Judgments.
A
judgment or judgments for the payment of money in an amount, individually or
in
the aggregate, of at least One Hundred Thousand Dollars ($100,000.00) (not
covered by independent third-party insurance) shall be rendered against Borrower
and shall remain unsatisfied and unstayed for a period of ten (10) days after
the entry thereof (provided that no Credit Extensions 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
any
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, intercreditor, or other similar
agreement with Bank, or any creditor that has signed such an agreement with
Bank
breaches any terms of such agreement; or
-11-
8.10
Guaranty.
(a) Any
guaranty of any Obligations terminates or ceases for any reason to be in full
force and effect except pursuant to its terms as agreed to by Bank in writing;
(b) any Guarantor does not perform any obligation or covenant under any guaranty
of the Obligations; (c) any circumstance described in Sections 8.4, 8.5, 8.7,
or
8.8. occurs with respect to any Guarantor, (d) the liquidation, winding up,
or termination of existence of any Guarantor; or (e) (i) a material
impairment in the perfection or priority of Bank’s Lien in the collateral
provided by Guarantor or in the value of such collateral or (ii) a material
adverse change in the prospect of repayment of the Obligations occurs with
respect to any Guarantor.
8.11 Receivables
Loan and Security Agreement.
An
Event of Default (as such term is defined in the Receivables
Loan and Security Agreement) occurs under the Receivables Loan and Security
Agreement.
9 BANK’S
RIGHTS AND REMEDIES
9.1
Rights
and Remedies.
While
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) demand
that Borrower (i) deposit cash with Bank in an amount equal to the aggregate
amount of any letters of credit remaining undrawn, as collateral security for
the repayment of any future drawings under such letters of credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter
of credit fees scheduled to be paid or payable over the remaining term of any
letters of credit;
(d) settle
or
adjust disputes and claims directly with Account Debtors for amounts on terms
and in any order that Bank considers advisable, notify any Person owing Borrower
money of Bank’s security interest in such funds, and verify the amount of such
account;
(e) make
any
payments and do any acts it considers necessary or reasonable to protect the
Collateral and/or 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;
(f) 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;
(g) 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;
(h) 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;
(i) demand
and receive possession of Borrower’s Books; and
(j) exercise
all rights and remedies available to Bank under the Loan Documents or at law
or
equity, including all remedies provided under the Code (including disposal
of
the Collateral pursuant to the terms thereof).
-12-
9.2
Power
of Attorney.
Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact,
exercisable upon the occurrence and during the continuance of an Event of
Default, to: (a) endorse Borrower’s name on any checks or other forms of payment
or security; (b) sign Borrower’s name on any invoice or xxxx of lading for any
Account or drafts against Account Debtors; (c) settle and adjust disputes and
claims about the Accounts directly with Account Debtors, for amounts and on
terms Bank determines reasonable; (d) make, settle, and adjust all claims under
Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
encumbrance, security interest, and adverse claim in or to the Collateral,
or
any judgment based thereon, or otherwise take any action to terminate or
discharge the same; and (f) transfer the Collateral into the name of Bank or
a
third party as the Code permits. Borrower hereby appoints Bank as its lawful
attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
or continue the perfection of Bank’s security interest in the Collateral
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney
in fact, and all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
9.3
Accounts
Verification; Collection.
Whether
or not an Event of Default has occurred and is continuing, Bank may notify
any
Person owing Borrower money of Bank’s security interest in such funds and verify
the amount of such account. After the occurrence of an Event of Default and
while it is continuing, any amounts received by Borrower shall be held in trust
by Borrower for Bank, and, if requested by Bank, Borrower shall immediately
deliver such receipts to Bank in the form received from the Account Debtor,
with
proper endorsements for deposit.
9.4
Protective
Payments.
If
Borrower fails to obtain the insurance called for by Section 6.5 or fails to
pay
any premium thereon or fails to pay any other amount which Borrower is obligated
to pay under this Agreement or 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
efforts 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.
9.5
Application
of Payments and Proceeds.
Unless
an Event of Default has occurred and is continuing, Bank shall apply any funds
in its possession, whether from Borrower account balances, payments, or proceeds
realized as the result of any collection of Accounts or other disposition of
the
Collateral, first, to Bank Expenses, including without limitation, the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Bank in the exercise of its rights under this Agreement; second,
to
the interest due upon any of the Obligations; and third, to the principal of
the
Obligations and any applicable fees and other charges, in such order as Bank
shall determine in its sole discretion. Any surplus shall be paid to Borrower
or
other Persons legally entitled thereto; Borrower shall remain liable to Bank
for
any deficiency. If an Event of Default has occurred and is continuing, Bank
may
apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or
other
disposition of the Collateral, or otherwise, to the Obligations in such order
as
Bank shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other Persons legally entitled thereto; Borrower shall remain liable
to Bank for any deficiency. If Bank, in its good faith business judgment,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.
9.6
Bank’s
Liability for Collateral.
So long
as Bank complies with reasonable banking practices regarding the safekeeping
of
the Collateral in the 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.
9.7
No
Waiver; Remedies Cumulative.
Bank’s
failure, at any time or times, to require strict performance by Borrower of
any
provision of this Agreement or any other Loan Document shall not waive, affect,
or diminish any right of Bank thereafter to demand strict performance and
compliance herewith or therewith. No waiver hereunder shall be effective unless
signed by Bank and then is only effective for the specific instance and purpose
for which it is given. Bank’s rights and remedies under this Agreement and the
other Loan Documents 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 in exercising any remedy is not a waiver, election, or
acquiescence.
-13-
9.8
Demand
Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees held by Bank on which Borrower is liable.
10
NOTICES
All
notices, consents, requests, approvals, demands, or other communication by
any
party to this Agreement or any other Loan Document must be in writing and shall
be deemed to have been validly served, given, or delivered: (a) upon the earlier
of actual receipt and three (3) Business Days after deposit in the U.S. mail,
first class, registered or certified mail return receipt requested, with proper
postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to
be
notified and sent to the address, facsimile number, or email address indicated
below. Bank or Borrower may change its address or facsimile number by giving
the
other party written notice thereof in accordance with the terms of this Section
10.
If
to
Borrower: Technest
Holdings, Inc.
0
XxXxxxxx Xxxxxx, 0xx
Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Co-General Counsel
Fax:
(000) 000-0000
Email:
xxxxxxxx@xxxxxxxxxxx.xxx
E-OIR
Technologies, Inc.
00000
Xxxxxxxxxxxx Xxx., Xxxxx 000
Xxxxxxxxxxxxxx,
Xxxxxxxx 00000
Attn:
Co-General Counsel
Fax:
(000) 000-0000
Email:
xxxxxxxx@xxxxxxxxxxx.xxx
Genex
Technologies Incorporated
00000
Xxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxxx,
Xxxxxxxx 00000
Attn:
Co-General Counsel
Fax:
(000) 000-0000
Email:
xxxxxxxx@xxxxxxxxxxx.xxx
If
to
Bank:
Silicon
Valley Bank
One
Newton Executive Park, Suite 200
0000
Xxxxxxxxxx Xxxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Xx.
Xxxxxxx Xxxxxxx
Fax:
(000) 000-0000
Email: xxxxxxxx@xxx.xxx
-14-
with
a
copy
to:
Xxxxxx
& Xxxxxxxxxx LLP
Xxxxx
Xxxxxx Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Xxxxx X. Xxxxxxx, Esquire
Fax:
(000) 000-0000
Email:
XXxxxxxx@xxxxxxxxx.xxx
-15-
CHOICE
OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL
REFERENCE
Massachusetts
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 Massachusetts; provided, however, that if for any reason
Bank
cannot avail itself of such courts in the Commonwealth of Massachusetts,
Borrower accepts jurisdiction of the courts and venue in Santa Xxxxx County,
California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING
ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF
ANY
OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE
ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS
PROPERTY.
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.
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 and the other Loan Documents.
12.2
Indemnification.
Borrower agrees to indemnify, defend and hold Bank and its directors, officers,
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 directly 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 Provisions.
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
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.
-16-
12.8
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 Credit Extensions
(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 required 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.
12.9
Borrower
Liability.
Any
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. Each Borrower waives any suretyship defenses available to it under
the
Code or any other applicable law. Each Borrower waives any right to require
Bank
to: (i) proceed against any Borrower or any other person; (ii) proceed against
or exhaust any security; or (iii) pursue any other remedy. Bank may exercise
or
not exercise any right or remedy it has against any Borrower or any security
it
holds (including the right to foreclose by judicial or non-judicial sale)
without affecting any Borrower’s liability. Notwithstanding any other provision
of this Agreement or other related document, each Borrower 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.
12.10 Right
of Set Off.
Borrower hereby grants to Bank, a lien, security interest and right of set
off
as security for all Obligations to Bank, whether now existing or hereafter
arising upon and against all deposits, credits, collateral and property, now
or
hereafter in the possession, custody, safekeeping or control of Bank or any
entity under the control of Bank (including a Bank subsidiary) or in transit
to
any of them. At any time after the occurrence and during the continuance of
an
Event of Default, without demand or notice, Bank may set off the same or any
part thereof and apply the same to any liability or obligation of Borrower
even
though unmatured and regardless of the adequacy of any other collateral securing
the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS
OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS,
PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS
OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED.
13 DEFINITIONS
13.1
Definitions.
As used
in this Agreement, the following terms have the following meanings:
“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
any
“account debtor” as defined in the Code with such additions to such term as may
hereafter be made.
“Affiliate”
of
any
Person is a Person that owns or controls directly or indirectly the Person,
any
Person that controls or is controlled by or is under common control with the
Person, and each of that Person’s senior executive officers, directors, partners
and, for any Person that is a limited liability company, that Person’s managers
and members.
“Agreement”
is
defined in the preamble hereof.
-17-
“Bank”
is
defined in the preamble hereof.
“Bank
Expenses”
are
all
audit fees and expenses, costs, and expenses (including reasonable attorneys’
fees and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred
in
connection with appeals or Insolvency Proceedings) or otherwise incurred with
respect to Borrower.
“Board”
is
Borrower’s board of directors.
“Borrower”
is
defined in the preamble hereof
“Borrower’s
Books”
are
all
Borrower’s books and records including ledgers, federal and state tax returns,
records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or storage or
any
equipment containing such information.
“Borrowing
Resolutions”
are,
with respect to any Person, those resolutions adopted by such Person’s Board and
delivered by such Person to Bank approving the Loan Documents to which such
Person is a party and the transactions contemplated thereby, together with
a
certificate executed by its secretary on behalf of such Person certifying that
(a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party,
(b) that attached as Exhibit A to such certificate is a true, correct, and
complete copy of the resolutions then in full force and effect authorizing
and
ratifying the execution, delivery, and performance by such Person of the Loan
Documents to which it is a party, (c) the name(s) of the Person(s) authorized
to
execute the Loan Documents on behalf of such Person, together with a sample
of
the true signature(s) of such Person(s), and (d) that Bank may conclusively
rely on such certificate unless and until such Person shall have delivered
to
Bank a further certificate canceling or amending such prior
certificate.
“Business
Day”
is
any
day that is not a Saturday, Sunday or a day on which Bank is
closed.
“Cash
Equivalents” means
(a) marketable
direct obligations issued or unconditionally guaranteed by the United States
or
any agency or any State thereof having maturities of not more than one (1)
year
from the date of acquisition; (b) commercial paper maturing no more than
one (1) year after its creation and having the highest rating from either
Standard & Poor’s Ratings Group or Xxxxx’x Investors Service, Inc., (c)
Bank’s certificates of deposit issued maturing no more than one (1) year after
issue; and (d) money market funds at least ninety-five percent (95%) of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(a) through (c) of this definition.
“Code”
is
the
Uniform Commercial Code, as the same may, from time to time, be enacted and
in
effect in the Commonwealth of Massachusetts; provided, that, to the extent
that
the Code is used to define any term herein or in any Loan Document and such
term
is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions
of
law, any or all of the attachment, perfection, or priority of, or remedies
with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the Commonwealth of Massachusetts,
the term “Code”
shall
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions.
“Collateral”
is
any
and all properties, rights and assets of Borrower described on Exhibit
A.
“Collateral
Account”
is
any
Deposit Account, Securities Account, or Commodity Account.
“Commitment
Termination Date”
is
for
each Term Advance, the first day of the month that is the thirty-sixth month
after the month in which such Term Advance was made.
“Commodity
Account”
is
any
“commodity account” as defined in the Code with such additions to such term as
may hereafter be made.
“Compliance
Certificate”
is
that
certain certificate in the form attached hereto as Exhibit
C.
-18-
“Contingent
Obligation”
is,
for
any Person, any direct or indirect liability, contingent or not, of that Person
for (a) 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; (b) any obligations for undrawn letters
of credit for the account of that Person; and (c) 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 any guarantee or other support
arrangement.
“Control
Agreement”
is
any
control agreement entered into among the depository institution at which
Borrower maintains a Deposit Account or the securities intermediary or commodity
intermediary at which Borrower (or Guarantor, with respect to the assets subject
to the Stock Pledge Agreement) maintains a Securities Account or a Commodity
Account, Borrower, and Bank pursuant to which Bank obtains control (within
the
meaning of the Code) over such Deposit Account, Securities Account, or Commodity
Account.
“Credit
Extension”
is
any
Term Loan, or any other extension of credit by Bank for Borrower’s
benefit.
“Current
Liabilities”
are
all
obligations and liabilities of Borrower to Bank under the Receivables Loan
and
Security Agreement, plus, without duplication, the aggregate amount of
Borrower’s Total Liabilities that mature within one (1) year (including the
current portion of the Term Loan Obligations), but excluding Subordinated Debt
for borrowed money from Affiliates.
“Default”
means
any event which with notice or passage of time or both, would constitute an
Event of Default.
“Default
Rate”
is
defined in Section 2.2(b).
“Deferred
Revenue”
is
all
amounts received or invoiced in advance of performance under contracts and
not
yet recognized as revenue.
“Deposit
Account”
is
any
“deposit account” as defined in the Code with such additions to such term as may
hereafter be made.
“Designated
Deposit Account”
is
Borrower’s deposit account, account number _____________, maintained with
Bank.
“Disclosure
Schedule”
is
that
certain schedule, in form reasonably acceptable to Bank, attached
hereto as Exhibit
D.
“Dollars,” “dollars”
and
“$”
each
mean lawful money of the United States.
“EBITDA”
shall
mean earnings before interest, taxes, depreciation and amortization.
“Effective
Date”
is
defined in the preamble of this Agreement.
“Eligible
Accounts”
are
those accounts receivable owing to the Borrower that are not more than ninety
(90) days from their respective invoice dates.
“Equipment”
is
all
“equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures,
goods, vehicles (including motor vehicles and trailers), and any interest in
any
of the foregoing.
“ERISA”
is
the
Employee Retirement Income Security Act of 1974, and its
regulations.
“Event
of Default”
is
defined in Section 8.
-19-
“Facility
Fee”
is
defined in Section 2.3(a).
“Fixed
Charge Coverage Ratio”
means
the result of dividing (i) Borrower’s EBITDA, plus non-cash stock compensation
expenses and other non-cash expenses as reasonably determined by Borrower
and allowed by Bank, by (ii) the sum of Borrower’s principal and interest
payments on all debt, cash taxes, dividends and unfunded capital expenditures
(not including amounts
paid to Xxxxxxxx pursuant to clause (c) of Section 7.8).
“Funding
Date”
is
any
date on which a Credit Extension is made to or on account of Borrower which
shall be a Business Day.
“GAAP”
is
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person
as
may be approved by a significant segment of the accounting profession, which
are
applicable to the circumstances as of the date of determination.
“General
Intangibles”
is
all
“general intangibles” as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation, all copyright
rights, copyright applications, copyright registrations and like protections
in
each work of authorship and derivative work, whether published or unpublished,
any patents, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or not, any trade
secret rights, including any rights to unpatented inventions,
payment
intangibles, royalties, contract rights, goodwill, franchise agreements,
purchase orders, customer lists, route lists, telephone numbers, domain names,
claims, income and other tax refunds, security and other deposits, options
to
purchase or sell real or personal property, rights in all litigation presently
or hereafter pending (whether in contract, tort or otherwise), insurance
policies (including without limitation key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any
kind.
“Guarantor” is
any
present or future guarantor of the Obligations, including Xxxxxxxx.
“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.
"Initial
Audit"
shall
be the receipt by Bank of the results of a complete audit of Borrower's
Accounts, with results satisfactory to Bank in its sole and absolute
discretion.
“Initial
Term Advance”
is
defined in Section 2.1.1(a).
“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.
“Inventory”
is
all
“inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products, including without limitation such
inventory as is temporarily out of Borrower’s custody or possession or in
transit and including any returned goods and any documents of title representing
any of the above.
“Investment”
is
any
beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution
to
any Person.
“IP
Agreement”
is
that
certain Intellectual Property Security Agreement executed and delivered by
Borrower to Bank dated as of the Effective Date.
“Key
Person”
shall
mean the Chief Financial Officer or the Chief Executive Officer.
“Lien”
is
a
mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
-20-
“Loan
Documents”
are,
collectively, this Agreement, the Warrant, the Perfection Certificate, the IP
Agreement, the Subordination Agreement, any note, or notes or guaranties
executed by Borrower or any Guarantor, and any other present or future agreement
between Borrower any Guarantor and/or for the benefit of Bank in connection
with
this Agreement, all as amended, restated, or otherwise modified.
“Xxxxxxxx”
is
Xxxxxxxx Technologies, Inc., a Florida corporation and the parent company of
Technest.
“Material
Adverse Change”
is (a) a
material impairment in the perfection or priority of Bank’s Lien in the
Collateral or in the value of such Collateral; (b) a material adverse change
in
the business, operations, or condition (financial or otherwise) of Borrower;
or
(c) a material impairment of the prospect of repayment of any portion of the
Obligations; or (d) Bank determines, based upon information available to it
and
in its reasonable judgment, that there is a reasonable likelihood that Borrower
shall fail to comply with one or more of the financial covenants in Section
6
during the next succeeding financial reporting period.
“Obligations”
are
Borrower’s obligation to pay when due any debts, principal, interest, Bank
Expenses and other amounts Borrower owes Bank now or later, whether under this
Agreement, the Loan Documents, or otherwise, including, without limitation,
all
obligations relating to letters of credit, cash management services, and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned
to
Bank, and the performance of Borrower’s duties under the Loan
Documents.
“Operating
Documents”
are, for
any Person, such Person’s formation documents, as certified with the Secretary
of State of such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, its bylaws in current form, each
of
the foregoing with all current amendments or modifications thereto.
“Payment/Advance
Form”
is
that
certain form attached hereto as Exhibit
B.
“Perfection
Certificate”
is
defined in Section 5.1.
“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;
(c) Subordinated
Debt;
(d) unsecured
Indebtedness to trade creditors incurred in the ordinary course of business;
(e) Indebtedness
secured by Permitted Liens; and
(f) extensions,
refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (e) 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;
and
(b) Cash
Equivalents.
“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;
-21-
(c) purchase
money Liens (i) on Equipment acquired or held by Borrower incurred for financing
the acquisition of the Equipment securing no more than One Hundred Thousand
Dollars ($100,000.00) 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;
(d) Leases
or
subleases and non-exclusive licenses or sublicenses granted in the ordinary
course of Borrower’s business, if the leases, subleases, licenses and
sublicenses permit granting Bank a first perfected security
interest;
(e) Liens
under Article 2 of the Uniform Commercial Code that are special property
interests in goods identified as goods to which a contract refers;
(f) Pledges
of or liens on manufactured products as security for any drafts or bills of
exchange drawn in connection with the importation of such manufactured products
in the ordinary course of business; and
(g) Liens
incurred in the extension, renewal or refinancing of the indebtedness secured
by
Liens described in (a) through (f), 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.
“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.
“Prepayment
Fee”
is
defined in Section 2.1.1(c).
“Prime
Rate”
is
Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Quick
Assets”
is,
on
any date, Borrower’s consolidated, unrestricted cash at the Bank, Cash
Equivalents and net billed accounts receivable determined according to
GAAP.
“Receivables
Loan and Security Agreement”
is
that
certain Loan and Security Agreement (Working Capital Line of Credit) by and
between Borrower and Bank as of even date herewith, as amended from time to
time.
“Registered
Organization”
is
any
“registered organization” as defined in the Code with such additions to such
term as may hereafter be made.
“Responsible
Officer”
is
any
of the Chief Executive Officer, President, Chief Financial Officer and
Controller of Borrower.
“Scheduled
Payments”
is
defined in Section 2.1.1(b).
“Second
Term Advance”
is
defined in Section 2.1.1(a).
“Second
Term Advance Scheduled Payments”
is
defined in Section 2.1.1(b).
“Securities
Account”
is
any
“securities account” as defined in the Code with such additions to such term as
may hereafter be made.
“Settlement
Agreement”
is
that
certain Settlement Agreement and Release between Xxxxxx X. Xxxxxxx, Xx, EOIR
and
Technest, and dated as of the Effective Date.
“Stock
Pledge Agreement”
is
that
certain Stock Pledge Agreement of even date herewith by and among Bank and
Guarantor in which Guarantor pledges to Bank certain stock of Technest with
a
market value of at least $6,000,000.00 as of the Effective Date. Such Stock
Pledge Agreement shall terminate in two (2) years from the Effective Date if
no
Event of Default has occurred and is continuing hereunder.
“Stockholder
Agreement”
is
that
certain Stockholder Agreement by and among Technest and Xxxxxxxx and dated
as of
March 13, 2006.
-22-
“Subordinated
Debt”
is
indebtedness incurred by Borrower subordinated to all of Borrower’s now or
hereafter indebtedness to Bank (pursuant to a subordination, intercreditor,
or
other similar agreement in form and substance satisfactory to Bank entered
into
between Bank and the other creditor), on terms acceptable to Bank.
“Subsidiary”
means,
with respect to any Person, any Person of which more than 50% of the voting
stock or other equity interests is owned or controlled, directly or indirectly,
by such Person or one or more Affiliates of such Person.
“Term
Loan”
is a
loan made by Bank pursuant to the terms of Section 2.1.1 hereof.
“Term
Loan Amount” is
an
aggregate amount equal to $4,000,000.00 outstanding at any time.
“Term
Loan Payment”
is
defined in Section 2.1.1(b).
“Total
Liabilities”
is
on
any day, obligations that should, under GAAP, be classified as liabilities
on
Borrower’s consolidated balance sheet, including all Indebtedness.
“Transfer”
is
defined in Section 7.1.
“Warrant”
is
that
certain Warrant to Purchase Stock dated as of the Effective Date executed by
Borrower in favor of Bank.
[Signature
page follows.]
-23-
IN
WITNESS WHEREOF,
the
parties hereto have caused this Agreement to be executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the Effective
Date.
BORROWER:
TECHNEST
HOLDINGS, INC.
By:
/s/
Xxxx
Xxxxxxx
Name:
Xxxx
Xxxxxxx
Title:
Chief
Financial
Officer
E-OIR
TECHNOLOGIES, INC.
By:
/s/
Xxxxxx X.
Xxxxxx
Name:
Xxxxxx
X.
Xxxxxx
Title:
Chief
Executive
Officer
GENEX
TECHNOLOGIES INCORPORATED
By:
/s/
Xxxxxx X.
Xxxxxx
Name:
Xxxxxx
X.
Xxxxxx
Title:
Chief
Executive
Officer
BANK:
SILICON
VALLEY BANK
By:
/s/
Xxxxxxx
Xxxxxxx
Name:
Xxxxxxx
Xxxxxxx
Title:
Senior
Vice
President
[Signature
page to Loan and Security Agreement]
EXHIBIT
A
The
Collateral consists of all of Borrower’s right, title and interest in and to the
following personal property:
All
goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles, commercial tort claims, 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), securities, and all
other investment property, supporting obligations, and financial assets, whether
now owned or hereafter acquired, wherever located; 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.
1
EXHIBIT
B
Loan
Payment/Advance Request Form
Deadline
for same day processing is Noon E.S.T.*
| Fax To: |
Date:
_____________________
|
|
LOAN
PAYMENT:
Technest
Holdings, Inc.
Genex
Technologies Incorporated
E-OIR
Technologies, Inc.
From
Account #___________________________ To
Account #________________________________
(Deposit Account #)
(Loan
Account #)
Principal
$_______________________________ and/or
Interest $______________________________
Authorized
Signature:_____________________
Phone
Number:_______________________________
Print
Name/Title:__________________________
|
|
Loan
Advance:
Complete
Outgoing
Wire Request
section below if all or a portion of the funds from this loan advance
are
for an outgoing wire.
From
Account #___________________________ To
Account #________________________________
(Deposit Account #)
(Loan
Account #) Amount
of Advance $______________________
All
Borrower’s representations and warranties in the Agreement are true,
correct and complete in all material respects on the date of the
request
for an advance; provided, however, that such materiality qualifier
shall
not be applicable to any representations and warranties that already
are
qualified or modified by materiality in the text thereof; and provided,
further that
those representations and warranties expressly referring to a specific
date shall be true, accurate and complete in all material respects
as of
such date:
Authorized
Signature:_____________________
Phone
Number:_______________________________
Print
Name/Title:__________________________
|
|
Outgoing
Wire Request:
Complete
only if all or a portion of funds from the loan advance above is
to be
wired.
Deadline
for same day processing is noon, E.S.T.
Beneficiary
Name: ___________________________ Amount
of Wire: $_____________________________
Beneficiary
Bank: ____________________________
Account
Number: _____________________________
City
and State:
Beneficiary
Bank Transit (ABA) #: _______________
Beneficiary
Bank Code (Swift, Sort, Chip, etc.): ________
(For
International Wire Only)
Intermediary
Bank: ___________________________
Transit
(ABA) #: ______________________________
For
Further Credit to:
_________________________________________________________________________________
Special
Instruction:
__________________________________________________________________________________
|
___________________________________
*
Unless
otherwise provided for an Advance bearing interest at
LIBOR.
1
|
By
signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the
terms and
conditions set forth in the agreements(s) covering funds transfer
service(s), which agreements(s) were previously received and executed
by
me (us).
Authorized
Signature: ___________________________ 2nd
Signature (if required): ___________________________________
Print
Name/Title: _______________________________ Print
Name/Title: __________________________________________
Telephone
#: __________________________________ Telephone
#:
_____________________________________________
|
2
EXHIBIT
C
COMPLIANCE
CERTIFICATE
| TO: SILICON VALLEY BANK |
Date:
____________________________
|
|
FROM:
(A)
TECHNEST HOLDINGS, INC.
(B)
E-OIR TECHNOLOGIES, INC.
(C)
GENEX TECHNOLOGIES INCORPORATED
|
The
undersigned authorized officer of Technest Holdings, Inc., E-OIR Technologies,
Inc. and Genex Technologies Incorporated (“Borrower”) certifies that under the
terms and conditions of the Agreement between Borrower and Bank (the
“Agreement”), (1) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below, (2) there
are
no Events of Default, (3) all representations and warranties in the
Agreement are true and correct in all material respects on this date except
as
noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified
or
modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such
date,
(4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower
has timely paid all foreign, federal, state and local taxes, assessments,
deposits and contributions owed by Borrower
except
as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of
its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies
that
these are prepared in accordance with generally GAAP consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The undersigned acknowledges that no borrowings may be requested
at
any time or date of determination that Borrower is not in compliance with any
of
the terms of the Agreement, and that compliance is determined not just at the
date this certificate is delivered. Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Agreement.
|
Please
indicate compliance status by circling Yes/No under “Complies”
column.
|
||
|
|
||
|
Reporting
Covenant
|
Required
|
Complies
|
|
|
|
|
|
Monthly
financial statements with
Compliance
Certificate
|
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
|
|
Deferred
Revenue Report, Funded Backlog schedules,
A/R
& A/P Agings
|
Monthly
within 30 days
|
Yes
No
|
|
|
||
|
The
following Intellectual Property was registered after the Effective
Date
(if no registrations, state “None”)
____________________________________________________________________________
|
||
|
Financial
Covenant
|
Required
|
Actual
|
Complies
|
|
Maintain
on a Monthly Basis:
|
|||
|
Minimum
Quick Ratio
|
_____:1.0
|
_____:1.0
|
Yes
No
|
|
Minimum
Fixed Charge Coverage Ratio
|
_____:1.0
|
_____:1.0
|
Yes
No
|
1
The
following financial covenant analyses and information set forth in Schedule
1
attached hereto are true and accurate as of the
date
of this Certificate.
The
following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________
|
Technest
Holdings, Inc.
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
E-OIR
Technologies, Inc.
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
Genex
Technologies Incorporated
By:
____________________________________
Name:
__________________________________
Title:
___________________________________
|
BANK
USE ONLY
Received
by: _____________________
authorized
signer
Date:
__________________________
Verified:
________________________
authorized
signer
Date:
__________________________
Compliance
Status: Yes No
|
2
Schedule
1 to Compliance Certificate
Financial
Covenants of Borrower
Dated: ____________________
In
the
event of a conflict between this Schedule and the Loan Agreement, the terms
of
the Loan Agreement shall control.
I. Quick
Ratio
(Section
6.7(a))
Required: _____:1.00
Actual:
|
A.
|
Aggregate
value of the unrestricted cash at Bank and cash equivalents of Borrower
|
$_______
|
|
B.
|
Aggregate
value of the net billed accounts receivable of Borrower
|
$_______
|
|
C.
|
Quick
Assets (the sum of lines A and B)
|
$_______
|
|
D.
|
Aggregate
value of liabilities of Borrower (including all Indebtedness) but
excluding Subordinated Debt permitted by Bank to be paid by Borrower
to
Affiliates
|
$_______
|
|
E.
|
Current
Liabilities (line D)
|
$_______
|
|
F.
|
Quick
Ratio (line C divided by line E)
|
________ |
Is
line F
equal to or greater than ___:1:00?
________
No,
not in compliance ________
Yes,
in compliance
II. Fixed
Charge Coverage Ratio (See
definitions and Section 6.7(b))
Required: _______
Actual:
|
A.
|
Borrower’s
EBITDA, plus non-cash stock compensation expenses and other non-cash
expenses as reasonably determined by Borrower and allowed by
Bank
|
$_______
|
|
B.
|
The
sum of Borrower’s
principal and interest payments on all debt, cash taxes, dividends
and
unfunded capital expenditures (not including amounts
paid to Xxxxxxxx pursuant to clause (c) of Section 7.8)
|
$_______
|
|
C.
|
Fixed
Charge Coverage Ratio (line A divided by Line B)
|
____:1.00
|
Is
line C
less than or equal to ____:1.00?
________
No,
not in compliance ________
Yes,
in compliance
3
